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An Overview This chapter approaches the issue with a broad theoretical framework, discusses the ground reality of agricultural credit flow and indebtedness, and make suggestions for moving forward to bridge the serious vacuum created in the institutional credit structure, particularly for farming households.
Theoretical and Empirical Underpinnings The financial sector was not only instrumental in promoting aggregate investment and output but also in attaining finance led industrialization. State led branch expansion into rural unbanked locations reduced poverty across Indian states. The presence of a nation-wide bank branch licensing rule between 1977 and 1990 caused banks to open relatively more branches in Indian states with lower initial financial development. Contrariwise, after the financial sector reforms began in the early part of the 1990s, every banking indicator has received a setback.
Percentage Share of Credit of Small Borrowal Accounts to Total Credit (by Scheduled Commercial Banks)
30 25 20 15 10 5 0
Jun-97
Jun-85
Jun-88
Jun-91
Jun-94
Jun-00
Dec-89
Jun-03
Mar-86
Mar-89
Mar-92
Mar-95
Mar-98
Mar-01
Mar-04
Dec-04
Dec-83
Dec-86
Dec-92
Dec-95
Dec-98
Dec-01
Sep-84
Sep-87
Sep-90
Sep-93
Sep-96
Sep-99
Sep-02
The official statistics on the distribution of bank credit among different segments of the informal sector reveal a steady deterioration since the early 1990s. However, there is need for a more detailed work on the measurement of demand for credit from these sectors and the nature of gap that may have grown over the years. There has been a structural shift in the institutional credit increasingly from cooperatives towards commercial banks. The share of agriculture in the commercial bank lending experienced an impressive increase, after bank nationalization, from ten per cent in 1975-76 to about 18 per cent at the end of the 1980s.However,beginning with the banking sector reforms since the early 1990s,it has steadily declined to reach a low of 11 per cent in the period 2004-06.
Surveys have shown a rising share of institutional sources in the indebtedness of the rural household from 1971 to 1991. There has been an increase in the share of informal sources in the indebtedness of rural as well as agricultural household.
Concerned by the glaring agrarian crisis, the Government of India, RBI and NABARD have initiated a number of measures to mitigate the situation. These committees and working groups have proposed a more intensive use of micro-finance institutions along with an innovative system of agency banking as a substitute for branch banking for rural areas. Yet another innovative idea commended by the authorities is that of financial inclusion. The recommendations of the various committees and working groups have all been accepted and appropriate measures for their implementation have been put in place in official communications. The flow of credit to agriculture suffered a setback partly also because credit flow from cooperatives has been sluggish.
New policy Regime for better Credit Delivery: Intensive Monitoring is the need of the Hour
There is a need for further spreading of branch network by scheduled commercial banks and RRBs. A cause for the decline of banks lendings to agriculture has been the banks professional reluctance towards expanding their branch network in rural areas. A serious institutional vacuum in the rural credit structure has occurred also because no attempt has been made by the authorities to substitute it by strengthening regional rural banks or to build an alternative rural institutional structure for credit delivery. It is necessary to reinforce close coordination between district planning authorities and banking institutions operating in a district. It is necessary to strengthen the refinancing capabilities of NABARD and to modify the nature of expectations of profitability of rural branches. There is also a need for systematic monitoring of the effective implementation of various guidelines, both at the level of the RBI and NABARD and also at the individual bank levels. From the early 1970s, the RBI operated a credit guarantee scheme through its subsidiary Credit Guarantee Corporation of India Limited. By the early1990s, with claims exceeding fee collections, the RBI had lost faith in the scheme and wrote to the Government to discontinue it.
Strengthening NABARDs Refinancing Capabilities As a refinancing institution, NABARDs resource capabilities deserve to be strengthened. After RBI stopped its contribution to the National Rural Credit Fund, the only contribution to the fund has been out of surpluses of NABARD itself. The problems of NABARD got further compounded in 2001-2 with the Government imposing income tax on NABARD. NABARD has been reduced to a refinancing institution, which has no recourse to cheap retail resources and has to borrow at market rates and extend refinance at sub-market interest rates.
Introduction
Indian agriculture is in a state of flux. Market-driven diversification in a global perspective has become the new paradigm driving future agricultural growth. There is a consensus that policies and instruments that have served well in the past are either overstretched or are untenable under this scenario. Therefore, the new growth strategy must be consistent with the important shifts that are taking place. The unfolding challenges of Indian agriculture can only be assessed through science and technology, and that a different research and development (R&D) paradigm a national innovation system integrating all facets of rural life and involving stakeholders participation would be necessary.
Intensity of Agricultural Research, Extension, and Education Funding by States Research and education(percent of AgGDP, 2001-02) Himachal Pradesh (1.37) Haryana (0.42), Punjab(0.31), Uttar Pradesh (0.08) Andhra Pradesh (0.24), Karnataka (0.42), Kerala (0.52), Tamil Nadu (0.51)
Region
Extension (percent of AgGDP, 2001-02) Himachal Pradesh (0.39) Haryana(0.16),Punjab(0.02), Uttar Pradesh (0.24) Andhra Pradesh(0.50), Karnataka(.04) Kerala (0.04), Tamil Nadu (0.60)
Southern Region
Eastern Region
Assam (0.39), Bihar (0.23), Orissa (0.15), West Bengal (0.12) Gujarat (0.54), Madhya Pradesh (0.21), Maharashtra (0.59), Rajasthan (0.24)
Western Region
R&D infrastructure
The public agricultural research and education system essentially comprise of ICAR and State Agricultural Universities (SAUs) which together support nearly 22,000 scientists. The number of SAUs continues to grow, but, funding levels have not kept pace with this growth. Lack of resources, multiplicity of responsibilities and bias for crop extension are some other notable weaknesses of the system. Increasing participation of the private sector, in the post-reform period, has been a significant trend in agricultural R&D. However, the private sectors exclusive preoccupation with profits restricts its area of interest in a small-farmer dominated agriculture.
Small farmers
The R&D needs of small farmers are different from that of large farmers. Increasing capitalintensity and scale bias of technologies and institutional bias in the delivery of technology and associated inputs are factors which restrict access of small farmers to new technologies.
Road map
Sometimes modern technology needs to be used in combination with indigenous knowledge and, therefore the research system will be helpful in educating the extension system and farming community in this regard. Restricted flow of information about technologies and market trends is a serious limitation.
5. FARMERS DISTRESS IN A MODERNIZING AGRICULTURE - THE TRAGEDY OF THE UPWARDLY MOBILE -AN OVERVIEW
Three-tiered Pyramid
It is useful at this point to view the farming communities in India as forming a three tiered pyramid. At the wide base are located the poverty struck farmers who hover around the poverty line and remain in distress irrespective of the state of weather and market. The middle tier is formed by upwardly mobile farmers engaged in a prolonged and, often, frustrating battle to rise above the poverty line and join the main stream. Small but politically powerful farm lobbies occupy the peak of the pyramid. It is important to note that this pyramid is an outcome of policy regimes that have prevailed so far in the Indian economy and the rural and agricultural sectors.
Looking Ahead
Relief to suicide Victims Family and Prevention of Suicides
Follow-up on the victim families to check whether the quantum of compensation offered was adequate to relieve distress and rehabilitate the family. Suicide may be triggered by underlying stress. It would be known to many in the family and in the village. An informal arrangement in which a group of elders talk to such farmers might help. The lending institution should develop a system of early warning to advise the farmer when he is still in a position to get out of the indebtedness. Activists and extension agencies should help the farmer to select a portfolio of activities suited to his situation and resource position.
The farmer should acquire capacity for collective action to undertake activities such as planning of crops, water use, management of pests, choice of varieties of seeds and use of fertilizers and manures and to get prompt and reliable services. The agriculture department of the State government should closely monitor the status of these services and their delivery mechanisms on the basis of feedback from farmers and their organizations.
Adjustment to Globalization
Developed countries with very small proportions of population and GDP in agriculture can use many devious ways to make it difficult for developing countries to increase their agricultural exports. The Government of India, the State Governments and farmers organizations will have to remain vigilant to ensure that agricultural exports and imports are on terms that are fair to the farmer and the country.
Progressive Modernization of Agriculture
The support to the upwardly mobile farmers should be part of a broader policy regime to promote modernization benefiting all sections of farmers and consumers. Landless labourers should also remain in the agenda and the need to raise them to the threshold of a productive livelihood should receive as much priority as the needs of the poor farmers and the upwardly mobile farmers.
Concluding Remarks
In the race for growth, Maharashtra with one of the highest per capita income has benefited, but such growth is concentrated in four urban districts of Greater Mumbai, Nagpur, Pune and Thane. There is hardly any impact of the growth in other regions. Returns from cultivation are on the wane and particularly hard hit have been the cotton farmers of Western Vidarbha. The liberalization of trade and reduced tariffs has particularly gone against cotton farmers. The farmer now depends on the input dealer for advice leading to supplier-induced demand and on informal sources of credit with greater interest burden. To add to this, 2004 was a rain deficient year. The farmer was exposed to yield and price shocks simultaneously. An average farmer has high outstanding debt, relatively lower ownership of assets and lower access to basic amenities, a big family size with more dependants and a low value to produce. These indicate that the idiosyncratic factors are exacerbated because of the larger socio-economic and agrarian crisis. Improving water availability will facilitate diversification of cropping pattern, but this should go hand in hand with policies that increase non-farm employment. Improving agricultural extension that addresses deskilling because of technological changes and also facilitates appropriate technical know-how for alternative forms of cultivation such as organic farming will be of help. There is a strong case for regulating private credit and input markets. Organizing farmers through a federation of self-help groups with government, banks and other stakeholders playing a pro-active role would be welcome.
Introduction
The crisis in agriculture has many manifestations, of which suicides of farmers was one which came as a rude jolt. Andhra Pradesh is the first state that drew countrywide attention through a spate of suicides by farmers. They are only symptoms of the deeper malaise of agrarian crisis, which is a result of a combination of factors that include growing marginalization process in agrarian structure, increasing fragility of land and water resources, and sustainable cropping practices, all of which were aggravated by the neglect of public support systems due to the economic reform process.
is continuing, affecting different regions & a number of high-value crops other than cotton, like chilly, sunflower, tomato, sugarcane & mulberry. Agricultural scenario in Andhra Pradesh has been battling with marginalization of holdings & resource stress, shifting to non-food crops, unsustainable trends in irrigation, deceleration in agricultural growth, rising costs & falling returns from agriculture & decline in public investment in the field.
Reforms, Agricultural Credit, and Farmers Indebtedness One of the most disturbing aspects of farmers indebtedness in A.P is the unusually high dependence on non-institutional sources. In A.P, the single largest source of debt is moneylender, accounting for 54 per cent of the total debt in 2003.
20
15
10
0 1955-6 1960-1 Other Sources 1970-1 1980-1 1990-1 Tanks 2000-1 Canals 2004-5
Concluding Remarks
This chapter is concluded by the incontrovertible evidence that agricultural growth driven by improved productivity of small-marginal farmers would result in a much more equitable distribution of income and augmentation of effective demand with its spread effects on the nonfarm sector, and would be more sustainable as well and socially secure including health, education, supplementary employment & old age support. The state has to own the responsibility for these social costs of investment in the development of land and water (including groundwater) resources, provision of adequate economic support by way of institutional credit, extension, quality input supply, and remunerative prices as well as social sector support of ensuring quality education and health facilities in the countryside. There is incontrovertible evidence that agricultural growth driven by improved productivity of small-marginal farmers would result in a much more equitable distribution of income and augmentation of effective demand with its spread effects on the nonfarm sector, and would be more sustainable as well.
Introduction:
Karnataka is one among the Indian States to have the image of the state which is aggressively reforming. Even then the Karnatakas agriculture has shown signs of retrogression. Karnatakas economy still decisively depends upon the agriculture sector. It is second to Rajasthan in its share of drought-prone areas across the states in the country, a fact that is often overlooked. Karnataka has one of the lowest shares of the land under irrigation. Consequently the irrigation and the cropping intensity in the states is one of the lowest. Expect for maize the production of the food grains is also one of the lowest.
Agriculture Growth
Agriculture and allied sectors constitute 17 % of the gross state domestic product (GSDP) and 69 % of the workforce of the state is engaged in this sector. The share of agriculture sector in GSDP fell from 33%in 1993 to 17.5% in 2003.
Private
innovation farmer expects a better return. Higher arrivals at the market depress the price in the market. As a result the net income of the farmer is reduced.
Sectorial Imbalance
The aggregate nature of regional imbalances masks the inter-sectorial divergences and disparities. In some of the regions some sectors are developing well as against the others. It is clear that policy emphasis has to be laid on these sectors in order to provide investment incentive in these regions.
holdings
e. Small farmers are fuelled by demonstration effect of other regions and that pushes them to less known technologies. If failed it would lead to crisis.
Policy Directions
Karnataka was the first state to recognize the impending crisis in the agriculture sector. There is a need to increase the investments to backward regions to create basic infra and technology needed to their needs.
New Policy
The government of Karnataka came out with the new policy intervention at 2006. Under the policy a few initiatives included the promotion of crops and varieties in the pockets of modernized agriculture that are suitable for rain-fed regions will be identified and specific research will be made. Extensive efforts are planned for identifying and rejuvenating
groundwater recharge zones. The new agriculture policy also envisages addressing the problem of marginalization of the size of holdings by organizing farmers into Farmers consortium called PRO. Each PRO will be extended 75 % subsidy for purchase of machinery and equipment.