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Farm credit, income support, insurance and land reforms

Agriculture and food security · Part 3 / 3 · Fact-checked on 26 October 2026 · how we check

Written with AI from the sources listed at the bottom of this page, then fact-checked by a separate AI.

Rural credit institutions and NABARD, the Kisan Credit Card, priority sector targets and interest subvention, PM-KISAN, crop insurance under PMFBY, land reforms after independence (zamindari abolition, the First Amendment, tenancy reform, ceilings, consolidation, Bhoodan), and today's work on land records and leasing.

Parts 1 and 2 dealt with the price a farmer gets and the grain that reaches the ration shop. This last part looks at four other things a farm household needs to survive a bad year and invest in a good one: credit at a fair rate, a little assured income, insurance against crop loss, and secure rights over the land it tills. Each has its own institutions and schemes, from NABARD and the Kisan Credit Card to PM-KISAN and crop insurance under PMFBY. Behind them all lies the older story of land reforms, which tried after 1947 to give land to those who actually cultivate it. Most Indian farms are small, so credit, insurance and land titles often decide whether a farmer can stay in farming at all.

For centuries the village moneylender was the farmer's main lender, often at very high interest and with the crop or land as security. Public policy has tried to replace him with institutions in layers. Cooperative credit came first: a three-tier short-term structure of primary agricultural credit societies in villages, district central cooperative banks and a state cooperative bank at the top. After the nationalisation of 14 large banks in 1969, commercial banks were pushed to open rural branches. In 1975 regional rural banks were set up, under the Regional Rural Banks Act, 1976, to combine a local feel with commercial banking, and they are jointly owned by the Centre, the state and a sponsor bank. This mix of cooperatives, commercial banks and RRBs is called the multi-agency approach. It widened access, but small and tenant farmers without clear land titles still often fall back on informal lenders.

At the top of this structure stands the National Bank for Agriculture and Rural Development (NABARD), set up on 12 July 1982 under the NABARD Act, 1981. It was recommended by the Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD), chaired by B. Sivaraman, and it took over the agricultural credit work that the RBI had done until then. NABARD is a development bank, not a bank for farmers to walk into. It refinances the loans that cooperative banks, RRBs and commercial banks give to farmers; it manages the Rural Infrastructure Development Fund, which lends to states for irrigation, rural roads and similar works; it inspects state and district cooperative banks and RRBs; and it pioneered the self-help group bank linkage programme of 1992. A common trap: NABARD does not regulate commercial banks, which remain under the RBI.

A farmer needs money at sowing time, not after weeks of paperwork for each loan. The Kisan Credit Card, introduced in August 1998 and designed by NABARD, solved this by giving the farmer a revolving credit limit, fixed once on the basis of the land, the crops grown and their scale of finance, from which he can draw and repay as needed. It covers short-term crop loans, post-harvest expenses and working capital for the farm, and a small part can go to household consumption. In 2018-19 the card was extended to farmers in animal husbandry and fisheries, so a dairy farmer or a fish farmer can now use it for working capital. Under RBI rules, banks may not demand collateral for agricultural loans up to a limit, raised to Rs 2 lakh per borrower from January 2025. The card is issued by commercial banks, RRBs, small finance banks and cooperatives.

Two policies push cheap credit towards farmers. The first is priority sector lending: the RBI requires domestic commercial banks to lend 18 per cent of their adjusted net bank credit to agriculture, with a sub-target of 10 per cent for small and marginal farmers (the wider rules are in the Money and banking chapter). The second is interest subvention on short-term crop loans. Under the Modified Interest Subvention Scheme, banks lend up to Rs 3 lakh at 7 per cent a year, and the Centre pays them 1.5 per cent to cover the cost. A farmer who repays on time also gets a prompt repayment incentive of 3 per cent, so his effective rate falls to 4 per cent. The Union Budget 2025-26 announced that the loan limit under this scheme for loans taken through the Kisan Credit Card would rise from Rs 3 lakh to Rs 5 lakh. Note the design: the subsidy rewards repayment, so it does not encourage default.

Credit must be repaid; income support need not. PM-KISAN, launched in February 2019 with effect from December 2018, pays Rs 6,000 a year to every landholding farmer family in three equal instalments of Rs 2,000, by direct benefit transfer into the family's bank account. A family here means husband, wife and minor children. At first it was meant only for small and marginal farmers with up to 2 hectares, but from June 2019 it was opened to all landholding families. It is a Central Sector scheme, fully funded by the Centre. Certain groups are left out even if they own land: institutional landholders, holders of constitutional posts, serving and retired officers of government (except the lowest staff grades), income tax payers, professionals such as doctors, engineers and lawyers, and pensioners drawing Rs 10,000 or more a month. Because the scheme is tied to owned land, tenant farmers and landless labourers get nothing from it, a criticism made from the start.

crop insurance protects the farmer against the first risk named in Part 1, the weather. The Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016, replaced the older national schemes with a low, uniform premium for the farmer: 2 per cent of the sum insured for kharif crops, 1.5 per cent for rabi crops and 5 per cent for annual commercial and horticultural crops. The rest of the premium is shared by the Centre and the states, equally in most states and 90:10 in the north-eastern states. Losses from widespread calamities such as drought or flood are assessed on an area basis, using crop-cutting experiments in a notified area; localised damage such as hailstorm, landslide or inundation, and post-harvest losses of a crop left to dry in the field, are assessed farm by farm. Since kharif 2020 enrolment has been voluntary for all farmers. Its twin, the Restructured Weather Based Crop Insurance Scheme, pays on weather readings such as rainfall and temperature instead of measured yield.

Land reforms after independence began by removing the layer between the state and the cultivator. Under British rule, zamindars and other intermediaries collected rent from tillers and paid revenue to the government. In the early 1950s every state passed laws for the abolition of zamindari, bringing tillers into direct contact with the state. These laws were challenged in court under the right to property; the Patna High Court struck down the Bihar Land Reforms Act, 1950 in Kameshwar Singh v. State of Bihar (1951). Parliament responded with the First Amendment, 1951, which added Article 31A to protect laws acquiring estates, and Article 31B with the Ninth Schedule, so that the Acts listed in it could not be struck down for violating Fundamental Rights. Of all the land measures, getting rid of the middlemen went furthest, yet many former zamindars held on to big tracts by declaring them land under their own 'personal cultivation'. Land is a State List subject, so each state wrote its own laws.

The next three measures went deeper and achieved less. tenancy reform aimed to give tenants security of tenure, a fair rent and finally ownership of the land they tilled; the Plans suggested that rent should not exceed one-fourth to one-fifth of the produce. Kerala and West Bengal went furthest: Kerala conferred ownership on tenants after its 1969 amendment, and West Bengal's Operation Barga (1978) recorded the names of sharecroppers so they could not be evicted. Elsewhere, tenancy was often driven underground into oral leases. The land ceiling laws fixed the maximum land a family could hold and gave the surplus to the landless; national guidelines of 1972 set a ceiling of 10 to 18 acres for the best irrigated land, but benami transfers and long court cases kept the surplus small. consolidation of holdings merged scattered plots into compact ones and worked best in Punjab, Haryana and western Uttar Pradesh. Alongside the law, Vinoba Bhave's Bhoodan movement, begun on 18 April 1951 at Pochampally in Telangana, asked landowners to donate land voluntarily.

Today the land question is less about redistribution and more about clear records and small farms. The Agriculture Census 2015-16 put the average operational holding at 1.08 hectares, and holdings below 2 hectares at about 86 per cent of all holdings. On such farms, a disputed or outdated record can block a bank loan, an insurance claim or a PM-KISAN payment. The Digital India Land Records Modernisation Programme, a Central Sector scheme since 2016, is digitising records of rights and cadastral maps and giving each plot a Unique Land Parcel Identification Number. SVAMITVA, launched on 24 April 2020, National Panchayati Raj Day, uses drones to map inhabited village land and give owners property cards they can borrow against. Finally, NITI Aayog's Model Agricultural Land Leasing Act, 2016 urged states to make leasing legal and recorded: the owner keeps the land, and the tenant gets recognition, which lets him obtain credit and insurance.

The pieces of this part fit together around one fact: most Indian farmers are small, and many do not hold clear title to the land they cultivate. Credit through cooperatives, RRBs, commercial banks and NABARD, made cheaper by priority sector targets and interest subvention, reaches farmers who can show land records. PM-KISAN pays only landholding families, and crop insurance pays most easily where records are clean. That is why the unfinished business of land reforms, especially recorded tenancy and digitised records, still shapes how far every other scheme reaches. Seen across the whole chapter, the state supports the farmer at every step: a floor price and procurement at harvest (Part 1), a market for his grain in the public distribution system (Part 2), and credit, income support and insurance before and after the season (Part 3). The open debates, on a legal MSP, on cash or grain, and on covering tenants, all come back to who is counted as a farmer.

Exam traps

• NABARD (12 July 1982, NABARD Act, 1981, on the CRAFICARD recommendation) is a development and refinance bank; it supervises cooperative banks and RRBs but does not regulate commercial banks, which stay under the RBI.
• Regional rural banks were set up in 1975 and are governed by the Regional Rural Banks Act, 1976; they are owned jointly by the Centre, the state and a sponsor bank.
• Under interest subvention the farmer borrows at 7 per cent; only prompt repayment brings the effective rate down to 4 per cent.
• PM-KISAN pays Rs 6,000 a year to landholding farmer families, fully funded by the Centre; tenant farmers and landless labourers are not covered.
• PMFBY premiums for the farmer are 2 per cent (kharif), 1.5 per cent (rabi) and 5 per cent (annual commercial and horticultural crops); enrolment has been voluntary for all farmers since kharif 2020.
• The First Amendment (1951) added Articles 31A and 31B and the Ninth Schedule to protect land reform laws; it followed the Patna High Court's ruling against the Bihar Land Reforms Act, 1950.
• Abolition of intermediaries was the most successful land reform; tenancy reform and ceilings achieved much less, except in states such as Kerala and West Bengal.
• The Bhoodan movement was begun by Vinoba Bhave on 18 April 1951 at Pochampally (Telangana); it relied on voluntary gifts of land, not on law.

Recap

• Rural credit: cooperatives (three tiers), commercial banks (after 1969 nationalisation) and RRBs (1975; RRB Act, 1976): the multi-agency approach.
• NABARD: 12 July 1982 under the NABARD Act, 1981 (CRAFICARD, B. Sivaraman); refinance, RIDF, supervision of cooperative banks and RRBs, SHG-bank linkage (1992).
• Kisan Credit Card (August 1998): revolving credit limit; extended to animal husbandry and fisheries in 2018-19; collateral-free farm loans up to Rs 2 lakh from January 2025.
• Priority sector: 18% of adjusted net bank credit to agriculture, 10% to small and marginal farmers.
• Interest subvention: crop loans up to Rs 3 lakh at 7%; 3% prompt repayment incentive gives 4%; Budget 2025-26 announced a Rs 5 lakh limit for KCC loans.
• PM-KISAN (February 2019): Rs 6,000 a year in three instalments by DBT to landholding families; Central Sector scheme; exclusions for taxpayers, professionals, officials and others.
• PMFBY (2016): farmer premium 2% kharif, 1.5% rabi, 5% commercial and horticultural; area approach for widespread loss, individual assessment for localised and post-harvest loss; voluntary since kharif 2020.
• Land reforms: zamindari abolition (most successful); First Amendment 1951 (Articles 31A, 31B, Ninth Schedule); tenancy reform (Kerala, Operation Barga 1978); ceilings (1972 guidelines); consolidation (Punjab, Haryana, western UP); Bhoodan (18 April 1951).
• Land records: Agriculture Census 2015-16 average holding 1.08 ha, 86% below 2 ha; DILRMP and ULPIN; SVAMITVA (24 April 2020); Model Agricultural Land Leasing Act, 2016.

Practice questions

Sources

• Economic Survey, Government of India: chapters on agriculture, rural credit and land — https://www.indiabudget.gov.in/economicsurvey/
• The National Bank for Agriculture and Rural Development Act, 1981; the Regional Rural Banks Act, 1976 — https://www.indiacode.nic.in
• Reserve Bank of India: Master Direction on the Kisan Credit Card Scheme; circular raising the collateral-free limit for agricultural loans to Rs 2 lakh (December 2024) — https://www.rbi.org.in
• Reserve Bank of India: Master Directions on Priority Sector Lending; Modified Interest Subvention Scheme for short-term loans for agriculture; Union Budget 2025-26, Budget Speech (KCC loan limit) — https://www.rbi.org.in
• Ministry of Agriculture and Farmers Welfare: PM-KISAN operational guidelines and exclusion criteria (PIB releases, 2019) — https://pmkisan.gov.in
• Ministry of Agriculture and Farmers Welfare: Pradhan Mantri Fasal Bima Yojana and Restructured Weather Based Crop Insurance Scheme, operational guidelines (2016, revised 2020) — https://pmfby.gov.in
• Reserve Bank of India: Report on Trend and Progress of Banking in India (rural and cooperative credit) — https://www.rbi.org.in
• Constitution of India, Articles 31A and 31B and the Ninth Schedule; the Constitution (First Amendment) Act, 1951; Seventh Schedule, List II, entry 18 (land) — https://legislative.gov.in/constitution-of-india/
• Patna High Court: Kameshwar Singh v. State of Bihar (1951), on the Bihar Land Reforms Act, 1950 — https://digiscr.sci.gov.in
• Planning Commission, Five Year Plan documents (land reform policy, 1972 national guidelines on ceilings); Ministry of Rural Development, Department of Land Resources reports on land reforms, Operation Barga and the Bhoodan movement — https://www.niti.gov.in
• NITI Aayog: Model Agricultural Land Leasing Act, 2016 (Expert Committee on Land Leasing) — https://www.niti.gov.in
• Department of Land Resources: Digital India Land Records Modernisation Programme and ULPIN; Ministry of Panchayati Raj: SVAMITVA scheme (24 April 2020) (PIB releases) — https://dolr.gov.in
• Ministry of Agriculture and Farmers Welfare: Agriculture Census 2015-16, All India Report on Number and Area of Operational Holdings — https://agcensus.da.gov.in