Money is being pumped in the agriculture sector with rare, unprecedented generosity. This informs of the government's concern for the development of the sector and making it more productive.

But last year, enhanced loaning facilities for the farming sector failed to produce results commensurate with investment and despite concessions to defaulters, recoveries have not shown any significant improvement.

From that angle, loans look like an arrangement for contributing to the enhancement of financial welfare of the privileged and doubts are created about the efficacy of the credit policy, as it is being run, for making a productive impact on the sector.

The Agriculture Credit Advisory Committee (ACAC) of the State Bank of Pakistan (SBP) had set a target of 65.5 billion rupees for loans to the sector last fiscal year; disbursements at the end of the last fiscal year exceeded the target by over eight billion rupees, reaching an amount of Rs73.6 billion.

Target for the current year was raised to Rs85 billion and banks were directed to offer more loans to farmers. While public sector Zarai Tarraqiati Bank Ltd (ZTBL) took the lead, commercial banks also jumped in the loan-granting fray with a big leap.

The total amount available to the farming sector for the current year is placed at one hundred billion rupees. Response of the farming community has been quite enthusiastic according to reports and statistics.

As five major commercial banks made loans available to the sector, a growth of over 46 percent was witnessed in borrowings. Commercial banks collectively assumed the main role for loan disbursements, displacing ZTBL from that position. All in all, substantially more funds were made available to the sector and there was no shortage of takers.

This situation was and remains tremendous for a country regarded as cash strapped although allocations for public sector development projects suggest that money is flowing from the coffers of the government with greater current than waters in Pakistan's largely dry or muddy rivers. How that is happening, however, another, and quite an amazing phenomenon.

According to the State Bank of Pakistan (SBP), after a two year decline in borrowings, 'net credit to agriculture sector witnessed a rise during 2003-04'. As a result, the number of borrowers increased by 5.1 percent in that period. Judging from trends, the current year's figures are likely to mark a further rise in borrowings.

Growth in gross disbursement accelerated to a 'very robust 24.8 percent during the period under review (2003-04), compared to 12.3 percent rise in 2002-03'. From the last year's figures, SBP concluded that gains were shared by the 'farm sector and non- farm sub-sectors'. While information on the productivity of sub-sectors is scanty, SBP conceded that farming sector performed more poorly than expected during 03-04.

The target for the period was 4.2 percent but the sector produced 'deceleration in growth to 2.6 percent'. One of the reasons SBP cited for the decline was failure of major crops, specifically wheat, due to shortage of water at the time of cultivation.

This was taking the easy way out and adopting an argument acceptable by the government and a line that, at least would not be challenged by the public; most agriculturists did not refute the explanation.

Admittedly, no two crops are comparable. Certain factors are however common for every crop and water is a basic requirement in every case. Reports of the current year's cotton crop suggest a bumper harvest and that during a period when water has been scarcer than before.

This may not convincingly counter SBP's argument for last year's negative productivity in the sector but a comparison nevertheless points towards the possibility of some other and apparently more important factors causing a low wheat crop last year.

This becomes all the more important in view of the Bank's report that the 'production of rice and sugarcane were above the set target in 2003-04 while rice was the only crop that saw an increase in area (of cultivation) and production.'

Similarly, the Bank report added that 'although the area under sugarcane production declined during 2003-04 due to low price of (the crop) in the preceding year, its production increased by 2.6 per cent.

Both rice and cane are water intensive crops requiring more irrigation than wheat. Larger rice cultivation area and higher produce from cane crop implies sufficient availability of water.

One should be probing other possibilities for wheat shortfall than restricting explanations to reduced water supply. Water is undeniably the most vital input for a crop and it has also not been abundantly available but citing it as the sole condition for the growth of a crop is not convincing in the current scenario.

Not all wheat producers did badly. The overall crop was low because the yield was uneven, low with small farmers and high in the fields of major landowners. It needs to be seen if the flow of credits followed this pattern, low for small farmers and high for prosperous owners who presided overlarge tracts of land.

If the growth in credit availability and increase in the number of borrowers has not been effectively reflected in productivity, the situation needs to be investigated. That a percentage of the loans is going to the wrong hands is not be ruled out.

There is considerable, if not overwhelming evidence to support this contention though proof is mostly of a circumstantial nature. The 'elected' houses have more representation of landed aristocracy than any other economic segment of the population.

Then there are new players in the field, many of them a new corps of 'farmers' with lands gifted to them by the state for rendering such services that are mystery to the masses and known only to all powerful managers of the state who are not accountable to any authority because they are the ultimate authority in the country. These people seem to be the main beneficiaries of the state's boundless credit based generosity too.

The President, General Musharraf had announced unprecedented concessions to loan defaulters of the farming sector in his package for the sector in June this year but it seems that there weren't many takers of that offer.

This is what reports about rise in outstanding agri-credit suggest. At the end of 2002-03, this amount stood at Rs93.70 billion. The outstanding loans increased to Rs107 billion by end of 2003-04. Meanwhile, lending percentage has also been rising. What would be the bill of unpaid loans at the end of fiscal 2004-05 is anybody's guess.

A vital aspect of the credit is how much of the facility is reaching small farmers who are mostly illiterate and not conversant with requirements for benefiting from credit facilities.

Unless the banks specify a percentage of the amount for the poorer segment of the sector, credit facilities would continue looking like an arrangement for making the rich even richer and providing political support for whatever government is in command.

The credit system for the agriculture sector needs to be scrutinized and made equitable if positive results are to be obtained from extending the state's financial resources to the farming community.