National Seminar on Agricultural Credit Executive Summary and Action Points National Bank for Agriculture and Rural

Development organized a National Seminar on Agricultural Credit on the occasion of its Silver Jubilee Celebrations on 3 and 4 July 2007 at Center for Social Economic Studies, Ameerpet, Hyderabad. The National Seminar was inaugurated by Dr. Y S Rajasekhara Reddy, Honble Chief Minister of Andhra Pradesh on 3 July 2007. The plenary sessions held on 3 and 4 July 2007 focussed on (1) Indian Agriculture Production, Productivity and Technology related issues (2) Marketing and Extension related issues (3) Risk Management and (4) Rural Livelihoods and Employment Generation - Micro Finance and Non Farm Sector. The plenary sessions were chaired by eminent personalities such as Prof. C H Hanumantha Rao, Chairman, CESS, Shri Abhijit Sen, Member, Planning Commission, Prof. S Mahendra Dev, Director, CESS and Ms. Shashi Rekha Rajgopalan, member, Board of Directors of RBI and NABARD. In the back drop of the massive credit requirements projected for development of agriculture sector in the Eleventh Five Year Plan by Government of India, the seminar also focused on the challenges facing NABARD in meeting the national goals. The themes planned under this area were - (1) Foundations and Resources of NABARD (2) NABARD in next 25 years and (3)NABARD - Future Challenges and Road Map. The plenary sessions were chaired by

Shri M. Ramakrishnayya, founder Chairman of NABARD, Shri P Kotaiah and Shri Y C Nanda former Chairmen of NABARD. Dr. Y S P Thorat, Chairman, NABARD and Dr. K G Karmakar, Managing Director guided the deliberations of the seminar. Some of the major observations made during the seminar by the eminent panelists are given below: Core foundations of NABARD NABARD was intended to function on business principles and not commercial principles. Profit Maximization' is not the goal of NABARD but it has to function on business principles making reasonable profit for making the institution stable and continuing. NABARD should be a Development Facilitating and Financing Institution (D F f I) in Rural Sector Resources of NABARD There is a national need to create a National Rural Credit (Short Term Operations) fund with Rs.15000 crore corpus to bring down the cost of credit to the farmers. Secondly, the share capital of NABARD needs to be increased to Rs.10,000 crore to make interventions meaningful. NABARD may be taken as a partner in all the rural

development projects by the Central Government. NABARD may be placed on the board of commercial banks to add value to both banks and NABARD. NABARD is the only institution which is mobilizing urban surpluses and investing in rural areas. As such, the resource mobilization efforts of NABARD should be

supported with fiscal concessions. Role of NABARD General aspects NABARD should be a managing agency of Government of India for public investments in rural India. It should be the chief overseer, grand planner for public investment and ensure that each rupee spent in rural India generates a net positive return for rural India. NABARD should not resort to passive funding. NABARD has to make things happen by organizing people and providing knowledge. The strength of NABARD is its good networking capabilities. It can act as a coordinating agency for all the developmental works taking place at the grass roots level. The greatest comparative advantage of NABARD is its ability to decontaminate the effects of subsidy and making public spending more efficient. It is a folly for NABARD to become a Commercial Bank. It is the only institution which can handle public finance better than the government. Future role of NABARD NABARD may document its achievements, failures, aspirations, what contributed to failure and success in the past 25 years. With these ideas on table, five or six ideas may be identified and a clear path may be chalked out and a blue print for the next 25 years may be drawn. Credit planning NABARD should actively engage in developing a long term credit policy for rural finance clearly laying role of various agencies in our multi agency approach to bring a role clarity for all the agencies. With the stress on decentralised planning at PRI level, there is a need to strengthen the institution of DDMs and PLP instrument by NABARD. Credit functions

Refinance has lost its teeth and moreover no organization can borrow at higher rates and lend at lower rates. NABARD should become an important player in retail markets. Support to agriculture technology NABARD has to provide more grant-in-aid for research projects in agriculture technology. NABARD has to cover the last mile by funding the gaps where private sector is not coming forward. Producer companies NABARD can promote the producer companies. Educating of farmers It has to educate farmers on economic climate. NABARD may conduct short duration training programmes for farmers on the basic skills and application of new technology. New business opportunities NABARD should take up management role in Regional Rural Banks by taking 50% share holding to reach village people effectively. It can enhance the value of RRBs by bringing in transparency, supply chain credit and insurance. DRI interest rates for agriculture Honble Chief Minister of Andhra Pradesh urged that Differential Rate of interest may be extended to the entire rural credit and priority sector lending. In case RBI, NABARD and banks have difficulty in reducing the interest rates to 4%, GoI should come forward to give support to this move. Formation of subsidiaries NABARD may create more organizations to fill the critical gaps by forming subsidiaries and see to it that they are supported and nurtured in a manner that they become effective. A subsidiary for funding rural infrastructure may be formed as it has developed expertise in funding of private and public sector infrastructure development. The subsidiary should be given the responsibility of mobilizing funds, if required, from overseas. Human resources NABARD should have a strong technical wing with competent people in various disciplines such as commercial agriculture, agro processing, marketing, risk

mitigation. The Technical officers should be exposed to the field for constant upgradation of their technical skills. This team may act as brain trust for the nation for deciding what is to be done and what is not to be done. NABARD should be a learning organization. It has strong human resources. Its junior officers should develop 'specialization' and seniors strong perspective'. SHG-Bank Linkage programme NABARD needs to focus on the quality of Self Help Groups behind the large numbers. NABARD should evolve a national strategy for sustainable SHG movement in India through a consultative process. Unless NABARD engages actively in creation of larger structures such as

federations, a great opportunity will be missed. NABARD should Commission a country-wide study on SHG Federations to understand their present role and future potentials. NABARD should facilitate common standards, book keeping system and self regulatory mechanism for the SHG members. Non Farm sector The non grain crop sector and animal husbandry are clocking faster growth pointing towards the diversification that is taking place in agriculture sector. Eleventh plan preliminary numbers indicate that 2.8% of 4% agriculture growth is going to come from diversification. It is a big business for NABARD and NABARD should see that happen. To build robust NFS so that benefits flow to a large number of rural population, we need to build new institutions such as Producer Organizations or to begin with Farmer Organizations in agro processing sector. NABARD must take up a study of couple of villages where regular credit flow has taken place in the past five years to a large number of families and document the effect of the credit on the non farm sector. Coping mechanism for Indian farmers Dr. K G Karmakar, Managing Director suggested the panel on Risk management (Shri Mahendra Dev, Chairman and Shri Vijay Mahajan, Shri M Prashad, MD, AICI and Shri Ravi Kumar, MD, NCDEX, Mumbai as members) that they may collectively bring out a Paper on "Coping Mechanism for Indian Farmers". NABARD would extend necessary help in this regard.

Image of NABARD NABARD should work in improving its visibility and image in rural areas. NABARD can consider sponsoring programmes such as weather bulletin, farmer education programmes on Television and All India Radio to publicize the name of NABARD in remote rural areas.

Inaugural session Welcoming the guests Sri S.R.Aluru, CGM, Andhra Pradesh Regional Office welcomed Dr.Y.S.Rajasekhara Reddy, the Honble Chief Minister of Andhra Pradesh to the Seminar. He indicated that the CM is known for his positive attitude towards agriculture and its productivity. The Chief Minister has taken the mission to provide irrigation facilities to the farmers in A.P. After the floral welcome to the Chief Minister by Chairman, NABARD , the programme was

inaugurated with the lightening of lamp by Chief Minister, Chairman and Managing Director.

Welcome speech by Dr. K G Karmakar Dr. K.G. Karmakar, Managing Director, in his welcome address highlighted the issues facing agriculture and the role of NABARD. He indicated that NABARD has changed significantly in the last twenty five years and he hoped that the seminar will provide guiding light to NABARD for the next 25 years. Detailing the agriculture scenario, he observed that agriculture is under stress. People say that agriculture is passing through technology fatigue, credit fatigue and policy fatigue. The Public sector expenditure on agriculture has come down over last 15 years affecting productivity in agriculture. There is low investment in rural infrastructure which is being addressed through RIDF by the Government. Land available for agriculture has been low at 120 million hectares which is also coming down. The average size land holding has decreased from 2.63 hectares in 1960-61 to 1.06 hectares in 2002-2003 and is falling further. The pertinent question today is - Do we have the technology to make the farming viable for the small and marginal farmers in this scenario. There is over dependence on farm sector for employment at the village level. Contract farming or corporate farming is long way off. We need to hasten the process of commercialization of agriculture. If we see the Union budget, only 2% of union budget is spent on farmers. Investment in irrigation is only 0.35%. Significant boost in investment must be made to bring water to the farmers. Long term loans to farmers are coming down affecting creation of assets for agriculture. With the rehabilitation of short term cooperative structure and the consolidation of RRBs and with the support of commercial banks the credit scenario looks good. NABARD is the only institution taking funds from urban India and plouging it back to rural India. We would like to know what more NABARD can do. Agriculture distress causes problems ; it causes distress to the entire economy. Inaugural speech by Dr. Y S P Thorat, Chairman, NABARD In his inaugural speech, Dr.Y.S.P.Thorat, Chairman reflected on the performance of NABARD in the past twenty five years, the extent to which the organization has fulfilled the

expectations of its creators, stake holders and the unfinished tasks and road map for reaching its mandated destination. NABARD was created in response to the aspirations of the people and Government of India to create a strong public policy institution in rural credit for building a strong rural India. The creation of NABARD was an exercise of decentralization of the central banking functions to provide undivided attention and pointed focus for bringing about rural prosperity. Over the years, the expectations from NABARD have been largely fulfilled. NABARD has

transformed itself beyond an organization disbursing refinance to an institution pursuing a vision for the future of rural India. NABARD has played a catalyzing role in flow of production and investment credit enabling the farmers to sustain the package of farm inputs, technology and significantly contributed to private capital formation. NABARD has ensured quality lending to rural sector with emphasis on orderly exploitation of resources and inbuilt concern for environment. The Cofinancing of investment finance along with banks by sharing the risk is picking up gradually. Recognizing that 40% of the rural households are non-cultivator households, NABARD has supported the non farm sector with promotional and development

support. The initiatives such as District Rural Industries Programme, cluster development, entrepreneurship development programmes have addressed the issue of promoting rural employment. NABARDs major contribution can be seen in its ability to experiment, innovate and mainstream development banking models such as participatory watershed development and integrated development models like wadi which have been acclaimed by Government as also international partners. These models have addressed the critical issues relating to rainfed farming and tribal economies. The piloting and mainstreaming of micro finance taken up by NABARD has evolved as the largest micro finance in the world giving access to financial services to 29.23 lakh groups and 4.1 crore poor families empowerment. contributing significantly to women

NABARD has also decided to take up a new pilot venture of

establishing NABARD Financial Services (NABFINS) with an authorized capital of Rs.100 crore and an issued capital of Rs.20 crore. Banks have desired to team up with NABARD in this venture. Through the Rural Infrastructure Fund, NABARD has made a commitment of over Rs.61000 crore to State Governments for creation of physical and social infrastructure. The institutional development initiatives have helped in turning around of Regional Rural Banks. With the implementation of the recommendations of Prof.

Vaidyanathan Committee , the cooperative credit structure will be empowered to play a more responsive role in the rural credit scenario. The District Development Managers of NABARD and the Potential Linked Credit Plans have now established themselves as effective tools in development through credit at the grassroots level. NABARD has been a major contributor to policy formulation in areas relating to agriculture and rural development. It has also helped NABARD in channeling

several subsidy linked credit programmes efficiently. Despite the creditable performance of NABARD, the destination is still far away. Persisting poverty, unemployment, rural distress and regional disparities are some of the challenges faced by rural India in general and NABARD in particular. We are operating in a booming economy with an ailing agriculture. Slower growth in agriculture is at the root of distress among farmers. Agriculture is no longer sufficiently profitable. There are concerns regarding the food security, technology fatigue, yield gaps, degradation of resources, increasing budgetary subsidies and its adverse impact on public investment, unfavorable terms of trade and farm price volatility. In the recently concluded NDC meeting, there was virtual consensus that the way forward comprises four major areas (a) Get technology moving and ensure access of farmers (b) Increase investment, efficiency and system support, rationalize subsidies (c) Diversification is crucial for income growth without compromising on food security and (d)Better access of land, credit and skills to the poor. In the above broad matrix, NABARD has to continue to play the role of a thought leader in rural sector through innovation and mainstreaming in translating rural credit growth into real sector impact. NABARD has to be development oriented in heart and market oriented in mind. NABARD has to play a proactive role in ensuring 4% agricultural growth by ensuring that credit growth translates into real sector impact. Firstly, NABARD has to deploy both credit and credit plus approaches in contributing to improved productivity in terms of trade and risk management at the farm-hold level. Secondly, NABARD has to facilitate sustainable and equitable growth of agriculture both across regions and social groups. There is a need for robust policy for sustainable natural resource management based on livelihood enhancement policy. NABARD has already developed a NRM policy and guiding principles for its assistance to NRM projects and has designed a package for distress districts covering appropriate farming systems. Thirdly, NABARD has to play a leadership role ensuring a vibrant and responsive rural financial system which supports financial inclusion through a mode of relationship banking. NABARD has to build not only capacity among rural banks but also pioneer other initiatives such as business facilitator/correspondent banking models and adoption of information technology such as biometrics cards in rural banking.

NABARD has to reposition itself in terms of networking resources, building of capabilities and partnering institutions in public, private and voluntary sectors which will empower the institution to deliver development across rural India effectively. While concluding his speech, he reminded the words of Mahatma Gandhi that the second independence of India is yet to be got - the freedom from poverty for millions of Indians. All the NABARDians will march towards realizing the vision of second independence of India in their silver jubilee year. Inaugural address by Honble Chief Minister of Andhra Pradesh Shri Y.S. Rajashekara Reddy, Honble Chief Minister of Andhra Pradesh in his inaugural address congratulated NABARD for its service towards the Nation and particularly farmers during the last 25 years of its existence. Highlighting the plight of farmers, he mentioned that 63% of the farming population is contributing to 20% of GDP coupled with 2% growth rate. This situation is driving farmers to distress and suicides. He stated if we had taken note of the signals of the agriculture distress ten years back, the damage could have been reduced. Though the measures taken by GoI such as doubling of agriculture credit, reduction of interest rate to 7% and waiver of interest are commendable but not enough. Unless irrigation is provided to large chunks of land, production and productivity will not improve. Government of Andhra Pradesh has taken up a massive irrigation programme in the State, Jalayagnam, to cover 1 crore acres of new ayacut under irrigation with investment of Rs. 1 lakh crore. In the past three years, the Government has spent around Rs.45,000 crore on irrigation and spending the balance in the next 3 years is not a problem. The Special Package announced by Prime Minister for 31 distress districts in the country will also help in easing the distress situation substantially. Commending the role played by NABARD in implementation of SHG-Bank linkage programme, he mentioned that credit flow to SHGs has increased tremendously due to the support extended by the banks in the state. The Government has tried to inculcate repayment ethics among SHGs and has also reduced the interest rates for SHGs to 3%. Substantial part of SHG loans is going towards agriculture. Honble Chief Minister urged that Differential Rate of interest may be extended to the entire rural credit and priority sector lending. In case RBI, NABARD and banks have difficulty in reducing the interest rates to 4%, GoI should come forward to give support to this move. In Andhra Pradesh, banks have come forward to adopt two villages for bringing in total financial inclusion which will bring down the interest rates to the farmers to 3% as against 36% charged by the money lender. He also stressed that subsidies on agriculture should go up phenomenally. The developed countries such as Europe, US, Japan, plough back 30% to 40% of GDP coming from agriculture to the agriculture sector itself. In India, it is only a fraction of this figure. He urged the NABARD and banks to work in tandem with the State Government to bring a bright future to the farmers.

Vote of thanks Sri Mahender Dev, Director, CESS while proposing vote of thanks congratulated NABARD for completing 25 years. He expressed thanks to the Honble Chief Minister of Andhra Pradesh for inaugurating the programme. On behalf of NABARD he thanked all the dignitaries, government officials, bank officials and print media for attending the programme. In his closing remarks he indicated that for achieving high growth in agriculture sector, credit is important. For achieving inclusive growth, credit plus measures such as investments in agriculture, improvements in technology, marketing, fertilizers, etc. are required to be taken. The credit mechanism should take risk element in agriculture as there is more focus on dry land agriculture as compared to the green revolution.

I. Foundations and Resources of NABARD

Chairman Prof. C H Hanumantha Rao, Chairman, Center for Economic and Social Studies Panel Members (a) Shri M Ramakrishnayya, Founder Chairman of NABARD (b) Shri P V A Rama Rao, Former Managing Director, NABARD (c) Dr. R Balakrishnan, Executive Director, NABARD

Starting the session, Prof. C.H. Hanumantha Rao requested Shri Ramakrishnayya, first Chairman of NABRD and Dy. Governor of RBI, to express his views on this occasion. Shri M Ramkrishnayya Shri Ramakrishnayya recounted the historical facts that laid the foundation of NABARD based on his association firstly as a member of the Committee to Review Institutional Credit Arrangements for Rural Development (CRAFICARD), the High Level Committee that recommended it, secondly as Dy. Governor in-charge of Agricultural Credit in the Reserve Bank of India and lastly as its first Chairman. CRAFICARD had recommended establishment of NABARD as an exercise in decentralization of the functions of Central Bank and as a logical step in the organizational evolution of the RBI itself. RBI was assigned the role of spawning, fostering and nurturing the new bank He indicated that CRAFICARD has

proposed establishment of NABARD on nine foundations: 1. RBI and GoI will be share holders & will hold 50% each of the share capital of NABARD. 2. A Dy. Governor of RBI should head NABARD as Chairman, ex-officio. This linkage has also been snapped. 3. The Board of NABARD should, in addition to others, consist another Dy. Governor, RBI and some Directors of the RBI Board. 4. RBI should continue to contribute sums annually out of its surplus to the National Rural Long Term Operations Fund and National Rural Stabilization Fund, maintained by NABARD. It is unfortunate that no contributions are being made. Only Rs.1 crore token contribution is being maintained by RBI. 5. The RBI should extend a General Line of Credit to NABARD for meeting the demands of short-term credit for seasonal agricultural operations. This is entirely in accordance with the statutory duty laid down in the RBI Act and in fulfillment of the

refinancing functions of the Central Bank of an agriculturally oriented country. This particular aspect has undergone a change. 6. NABARD will be authorized by the RBI to oversee and carry out periodical inspections of the Cooperative Credit Structure on its behalf and keep the RBI

informed from time to time so as to ensure compliance with the disciplines of monetory policy. 7. The RBI and ARDC shall transfer with adequate safeguards all of their staff and physical assets deployed hitherto in the business of agricultural credit. 8. Everything should be done to present the NABARD as an integral part of the RBI so that the undoubted prestige and authority of the countrys Central Bank could be rubbed off on the operations of the NABARD. 9. The ninth foundation was the concept of Vikas Volunteer Vahini to spread awareness among rural folk about the five principles of Development Through Credit and in particular, the repayment ethic. Though this was not envisaged by the CRAFICARD but was initiated by him as the first Chairman in 1982. The volunteers were expected to run clubs of farmers in their villages with financial assistance from NABARD, with a view to propagate the message of Development Through Credit by example, discussion and exhortation. . He mentioned that six out of nine foundations have been eroded. Government of India has recently decided to buy the shares of RBI to avoid conflict of interest of regulator being a part owner. It is ironic that RBI which had opposed formation of an apex bank for agriculture outside RBI in the eighties, has decided to sell its stake to GoI. The most serious erosion that has taken place is stoppage of General Line of Credit to NABARD for meeting the production credit needs of the farmers with effect from February 2007. He said that the rationale behind the stoppage of GLC is not understood. A facility in vogue since 1942 has suddenly become inappropriate from the standpoint of prudent monetory policy. One wonders why the stoppage has happened just when the cooperatives duly rehabilitated in accordance with the Vaidyanathan Committee, are likely to hike demand for the production credit refinance. The Eleventh Plan has estimated refinance of Rs.32000 crore for crop production loan purposes. He expressed anxiety as to how NABARD would be able to mobilize such huge resources. It is impossible to raise funds of such magnitude from the Corporate Bond Market. The cost of funds to NABARD would reach an unsustainable level, even after assuming the continuance of the current interest subvention of 2% by the Central Government. It is to be noted that from 2005-06, NABARD has been denied access to low cost resources like Tax free Bonds, Capital Gains Bonds and Priority Sector Bonds. Whether central government is going to provide funds out of budgetary resources to NABARD for this purpose ?

The annual contribution by the RBI out of its profits has become a trickle, in the manner of tokenism since 1992-93. The contribution of NABARD to the NRC funds on its own has proved detrimental to larger interests by giving the impression that it was running on commercial lines and thus it did not deserve any longer exemption from income tax. NABARD was brought under income tax by the Finance Minister in his 2001-02 budget as NABARD was working on commercial lines like National Housing Bank and Small Industries Development Bank. The perception that NABARD is like any other bank should go. He questioned as to when the agricultural refinancing has become commercial, free from the vagaries of weather. He emphasized that NABARD was intended to function on business principles and not commercial principles. Profit Maximization' is not the goal of NABARD but it has to function on business principles making reasonable profit for making the institution stable and continuing. As regards the VVV programme, he expressed happiness that the programme is being given focus by the banks. It appears that all the stakeholders have since found them useful, as field studies have shown an increase in deposits and loan operations as well as repayments wherever the Farmers Clubs were active. Concluding his presentation, Shri Ramakrishnayya indicated that the recent policy changes have had the cumulative effect of weakening the foundations of NABARD and curtailing the capacity of NABARD. A public debate is, therefore, necessary as part of the Silver Jubilee Celebration and the preparations for the 11th Plan. The question is whether NABARD as an apex institution for Agriculture and Rural Development can meet the challenges thrown up by the ongoing agrarian crisis and the downturn of the rural economy. He indicated that the discussions in the seminar will produce some kind of conclusions which can be considered by the higher authorities for reconsideration of the decision already taken by Reserve Bank by India and Government of India. We have to think how to find more resources and direct these resources. Shri P. V. A. Rama Rao Sri P.V.A. Rama Rao expressed happiness about the performance of NABARD during the past 25 years in meeting the expectations and various segments of society. NABARD is not just a bank, it is an institution primarily intended to develop agriculture. He indicated that NABARD may renew its focus on the following areas: Farmers Club programme with its emphasis on credit discipline has to be continued with much more vigor by NABARD. A strong movement of Farmers Club would promote credit ethics obviating the need for relief packages on the lines of Vaidyanathan Committee for meeting the losses of credit institutions.

Indiscriminate lending is dangerous and planning is a must for defining the contours of development. NABARD, with its own ingenuity, can devise a mechanism to see that no indiscriminate lending takes place. All lending take place within the contours of development and as per the demands of the areas. The role of DDMs as knowledge centres has been commended and the resource document prepared by them for the district has been accepted in the planning process. With the stress on decentralised planning at PRI level, there is a need to strengthen the institution of DDMs and PLP instrument by NABARD. Institutional development is of much greater relevance today. If proper focus is not given to this area it will cause non retrievable damage to the rural credit institutions. Even before the financial sector reforms had started, NABARD had developed the concept of institution specific Development Action Plans and

entered into MoUs with State Governments, Cooperative Banks for ensuring proper financial management, credit discipline and organizational efficiency which had brought wonderful results. This instrument may be brought back in the interest of public policy to bring back financial grace to the rural credit institutions. It is the responsibility of RBI and NABARD that credit flow is disciplined. NABARD should build a strong and vibrant technical and economic teams to gauge the environment in rural economy to provide policy inputs. This team may act as brain trust for the nation for deciding what is to be done and what is not to be done. NABARD may take up massive training programmes to provide perspective training to build an efficient human resource for rural development in every district and every state of the country. Dr.R. Balakrishnan Dr. R. Balakrishnan, ED, NABARD, opined that the two core foundations of NABARD is that it should represent the farmers and weaker sections of the rural population and achieve integrated rural development. He presented his vision of NABARD with the following observations : Though NABARD was founded on certain historical foundations as indicated by Shri Ramkrishnayya, the fact is that we can not argue with the environment, markets and reform process. NABARD has to think differently and develop new business models to serve its real clients - farmers, poor and women. Development is business of NABARD and it should always strive for growth and stand high at all times.

Potential is in the mind of people and is not always a function of trees, water and physical resources. NABARD should ignite fire in the minds of people and strive for urban rural continuum. It should create choices and opportunities for rural people by adopting Super Market approach model of development. NABARD should not resort to passive funding. NABARD has to make things happen by organizing people and providing knowledge. Refinance has lost its teeth and moreover no organization can borrow at higher rates and lend at lower rates. NABARD should become an important player in retail markets. NABARD should take up management role in Regional Rural Banks by taking 50% share holding to reach village people effectively. It can enhance the value of RRBs by bringing in transparency, supply chain credit and insurance. NABARD should be allowed to raise resources from anywhere in the world and such global resources could be deployed in rural credit. He also cited the example of Sahara, which is mobilizing resources at lower rates by providing door delivery services. NABARD should be a learning organization. It has a strong human resources. Its junior officers should develop 'specialization' and seniors strong perspective'. Policy makers should realize that NABARD can not subsidize credit. Any subsidy which is entitlement of the rural people should be given directly. It should not touch the balance sheet of any organization. He concluded by saying that NABARD should make a world class rural banking a possibility in this country.

II. NABARD in next 25 years Chairman Dr. P Kotaiah, Former Chairman, NABARD Panel Members (a) Shri M V S Chalapathi Rao, Former Managing Director, NABARD (b) Shri S K Mitra, Executive Director, NABARD

Dr. P.Kotaiah, Former Chairman, NABARD in his opening remarks indicated that agriculture is under stress, NABARD is under stress due to resource problems, ground level credit institutions are also under stress. Though there has been no serious criticism of NABARD in the past twenty five years, its achievements have never been praised. Challenges remain as critical as they were 25 years ago inspite of substantial growth and innovations in the past.

Shri M V S Chalapathi Rao Sri M V S Chalapathi Rao in his address detailed his views on what NABARD should do in the next 25 years : NABARD should take up co-finance or direct finance on a large scale. There are certain sectors and regions which suffer for want of funds because the banks are not interested in those areas. In the next 25 years NABARD should take up these activities in an aggressive way. Rural infrastructure is very important for development of rural areas. NABARD has developed expertise in funding rural infrastructure. It should use this expertise and float a separate subsidiary for taking up funding of private and public sector infrastructure development. The subsidiary should be given the responsibility of mobilizing funds, if required, from overseas. NABCONS should prepare on its own area development or individual projects and market them to individuals or the corporates. NABACONS should not only involve itself in formulation and appraisal of projects but also should arrange funding support, help in implementation and monitoring of the projects. NABARD should work in improving its visibility and image in rural areas. For this purpose it can use the existing network of RRBs. RRBs should be seen as an extended arm of NABARD. NABARD can consider sponsoring programmes such as weather bulletin, farmer education programmes on Television and All India Radio to publicize the name of NABARD in remote rural areas.

Dr. Kotaiah observed that direct financing is talked in NABARD during the last 10 to 20 years. Role of NABARD in RRBs has also been in float since the financial sector reforms started in the country. There was internal opposition as well as from cooperatives to this idea. S K Mitra, Executive Director Sri S.K.Mitra, Executive Director indicated that NABARD is an unique Development Finance organization with emphasis on Development. It has managed conflicting roles such as supervisory role and lending role cast upon itself. It has taken up the responsibility of capacity building of its client organizations. It has a broad mandate which is of critical relevance to the Indian context. The concept of Corporate Social Responsibility is embedded into its constitution. It is a Development prioritized institution and not a Finance prioritized institution. Citing achievements of NABARD, the business had increased from Rs.1,000 crores in 1982 to Rs.80,000 crores in 2006-07. During 12 years from 1995-96, the RIDF sanctions was Rs.61,000 crores to different states. It has facilitated employment, livelihood and environment related issues through Non Farm Sector, Natural Resource Management initiatives. NABARD has useful presence in 392 out of 600 districts through DDM offices. He observed that NABARD was consistently profit making organization with zero level NPA. It is one of the founder promoters of SFAC, NCDEX, MCX, AICI etc.,. It has established its credibility in working with Government departments, State Governments, NGOs, foreign funding agencies such as Kfw, Gtz, SDC etc., besides the banks. He indicated that NABARD is the appropriate agency to anchor a National Calamity Fund for farmers. GoI may create a Venture Capital Fund of sufficient magnitude for incentivising the farmers to opt for various diversified sectors and this may be housed with NABARD in view of its experience in managing similar funds effectively. He indicated that in the next 25 years, NABARD priorities before it: Work with more and diverse partners such as Farmers Organizations, Village Development Boards, KVKs, AUs, Corporates, etc. Tilt its thrust from production finance to post harvest finance Tilt from investment credit refinance to co-finance/critical direct finance Give greater emphasis on dry land areas Involve voluntary sector and PRIs more aggressively Take up Financial Inclusion in a more broad based manner Float NABARD Bank for doing banking with special emphasis on critical areas/ critical segment financing Mobilize innovatively rural deposits and firm up institutional arrangements for its resources may place the following

Facilitate merchant banking/funds management needs of listed RRBs ! and consolidated cooperative banks ! Facilitate holistic rural infrastructure development to improve Human Development Index of states Strengthen rural credit delivery system and increase its outreach and depth through business correspondents, business facilitators and spread of IT Become a leader in NRM interventions through participatory approach Promote NABFINS, micro-insurance subsidiary, NRM foundation/ Trust, etc. Progressively deploy profits for development interventions/ incentivising

development efforts Undergo change in ownership from RBI and GoI to entirely owned by GoI to a listed entity owned by people Reach out to villages of India through Village Adoption Programme, Rural Business Hubs, Clusters Development, etc. with presence in every district Move from a Development Finance Institution (D f I) to become a Development Facilitating and Financing Institution (D F f I) in Rural Sector Concluding observations of Dr.P Kotaiah In his concluding observations, Dr. Kotaiah told that the legal framework of NABARD had been strong and provided tremendous flexibility and opportunity to NABARD for new products, services, adaptations in different circumstances. Bottom line is, there should be sufficient flow of credit for capital formation. There has been a huge jump in refinance over the years and yet agriculture growth is declining. We have not been able to shift people to non farm sector. Can NABARD take up all these challenges or only few that are relevant to its chapter. NABARD should be clear on what they can do and what they can not. NABARD can not do everything to increase agricultural productivity and make agriculture profitable. Within this frame work, NABARD has to find its role. NABARD is a development finance institution of a different kind. NABARD has to move away from refinance as its ability to influence capital formation has been passive. NABARD has to promote new institutions to fill the critical gaps by forming subsidiaries. Dr. Kotaiah suggested that the NABARD

management may document its achievements, failures, aspirations, what contributed to the failure and success in the past 25 years. With these ideas on table, five or six ideas may be identified, a clear path may be chalked out and a blue print for the next 25 years may be drawn.

III. NABARD - Future Challenges and Road Map Chairman Shri Y C Nanda, Former Chairman, NABARD Panel Members (a) Dr. K.G. Karmakar, Managing Director, NABARD Shri Y C Nanda in his opening observations indicated that there were expectations from NABARD due to the mandate given to it and its past achievements. There are expectations from the agriculture sector and from its founders, i.e. Government of India and RBI. Though the achievements of NABARD in the past 25 years has been remarkable it faces various challenges and needs to draw a road map to face these challenges.

Dr. K G Karmakar Dr.K.G.Karmakar, MD, NABARD, indicated that during the past 15 years, the staff strength has remained constant inspite of additional tasks that have been taken up by NABARD. NABARD faces the challenge of positioning the human resources to face the future challenges by improving the quality of its staff through training and enhancing their ability to respond swiftly to various challenges. He indicated that the following farmer centric steps are required: There is a need to train the farmers through short duration training programmes. NABARD has been assisting in training of farmers by supporting the Farmer Training Centres set up by Punjab National Bank and UCO Bank. NABARD is willing to associate with farmers training by supporting the initiatives of other banks. More emphasis on bio-technology is necessary for improving productivity and production. NABARD is partnering with Department of Biotechnology for improving the yield of Jatropha. We need to improve the levels of productivity and margin of the farmers. Various policy issues are involved in this area. Emphasis on agro Processing is one way out. Access to credit is very important to farmers. Though agricultural credit has increased, the number of accounts has come down over the last few years giving rise to fear that small farmers are being left out of the banking system. Only big farmers are getting loans from the banks. Achieving financial inclusion of farmers is a great challenge before NABARD. There is need for a much more number of Farmers Clubs on the ground for technological upgradation. Banks would be involved in the Farmers Club programme.

Farmers Associations are extremely important as they can take up trading positions in the commodity exchanges on behalf of the farmers. There is no safety net for the farmers. Micro insurance needs to be marketed. 1Dr. Karmakar detailed the various initiatives that NABARD would like to take up with various institutions and the support that NABARD expects from them. NABARD would like to develop more institutional linkage with Panchayat Raj Institutions. Presently NABARD has only one linkage with Panchayats in financing of rural haats. There is a need for more rural malls, rural shandies in rural areas. NABARD would like to involve Panchayats in Rural Infrastructure development in bigger way. Networking with ICAR, Agriculture Universities is needed for research and development in bio technology areas. The capacity of NGOs needs to be built up to increase their outreach in tribal areas, remote areas. A few Resource NGOs may be created for training smaller NGOs and building their capabilities. There is a need for perspective development plans over next five years . There is a national need to create a National Rural Credit (Short Term Operations) fund with Rs.15000 crore corpus to bring down the cost to the farmers. Secondly, the share capital of NABARD needs to be increased to Rs.10,000 crore to make

interventions meaningful. NABARD may be taken as a partner in all the rural development projects by the Central Government. NABARD may be placed on the board of commercial banks to add value to both banks and NABARD. NABARD would take up more projects under coofinancing in sunrise sectors where banks are not comfortable to finance on their own. NABARD would take up moving of SHGs into micro enterprises for poverty

alleviation with hand holding for quality improvement, marketing, production. Dr. Karmakar gave a road map that NABARD would like to do in the near future : Mobilising of low cost resources More innovative Projects Achieving 100% financial inclusion Bringing more computerised processes in NABARD to release the staff for developmental works. Strengthening of DDM net work Creation of a National Rural Disaster Mitigation Fund for addressing the distress of farmers due to natural calamities.

Concluding his presentation, he welcomed ideas from everybody for taking NABARD forward. Shri Amaresh Kumar Shri Amaresh Kumar, ED, NABARD, in his presentation indicated that NABARD as a business organisation has to take note of the external environment in which it is operating and the perception of its owners. He quoted from the Vision 2020 document of the Planning Commission to give the perception of GoI on the future that by 2020 second productivity revolution will take place in agriculture sector coupled with diversification to commercial crops, processing industry, agro industry, agro exports, afforestation, waste land development will be generating abundant farm and non farm employment to rural workforce Though India will be integrated with global economy by the year 2020 the regional disparities will continue to remain. He also indicated that Honble Prime Minister of India has identified four deficits in agriculture sector, i.e., Deficit in public investment and credit, infrastructure deficit, market and knowledge deficit. Under this scenario, where is NABARD and where it would like to go has to be examined. Another factor that is going to influence NABARD is the ownership pattern. Ownership is shifting to GoI by the middle of next year. In coming days, Central Government may restrict its ownership to 51% in NABARD as in the case of commercial banks and allow 49% to the public at large. He indicated that to meet the expectations of our share holders NABARD has to take the following steps : NABARD has to be organisationally strong. In this direction, it has to examine whether the present organisational structure is going to serve the goals placed before it. It needs to examine whether it should have a agro climatic based organisational structure from the present three tier structure. NABARD has to be financially viable to serve the people. Whenever challenge has come, NABARD has found a credit product or a promotional product which has given it business. He expressed the hope that Government is going to help NABARD in view of withdrawal of support from RBI. NABARD has to increase its operational efficiency. Internally, it has to look at its processes, procedures, policies, etc. to see whether they are serving the country. Future depends on its core competency and comparative advantages. It has to set its own bench mark. He ended his presentation quoting from the Planning Commission document - Our future depends not on what will happen to us but on what we decide to become and on the will to create. He also quoted the words of Sadhu Waswani ; If you want to achieve success you must fix a goal every day and draw at least one step closer to it. every day

Closing remarks of the Chairman of the session Shri Y C Nanda, Chairman of the plenary session in his closing remarks gave his view on what NABARD should do in the coming years : (a) NABARD should actively engage, with the help of RBI and Government, in developing a long term credit policy for rural finance clearly laying role of various agencies in our multi agency approach to bring a role clarity for all the agencies. (b) NABARD should have a strong technical wing with competent people in various disciplines such as commercial agriculture, agro processing, marketing, risk mitigation. The Technical officers should be exposed to the field for constant upgradation of their technical skills. (c) NABARD should become a learning organisation in the real sense. We have to build a system through which information about the grass root level developments reach the top management. (d) NABARD needs to focus on the quality of Self Help Groups behind the large numbers. It needs to be asked as to whether the programme is going in right

direction. Is it enhancing livelihoods effectively, be able to make best use of the large scale mobilisation. Unless NABARD engages actively in creation of larger structures such as federations, we will miss a great opportunity. (e) NABARD needs to ask as to whether its image is correct. Are we able to respond to the challenges of future ? It is felt that NABARD is like a huge ship which is useful but it can not change its direction very quickly. We have to take steps to become a different organisation. (f) We need to create more organisations in the form of subsidiaries and see to it that they are supported and nurtured in a manner that they become effective. (g) There is a need to create a specialisation not only at junior level but also at senior level. (h) Risk mitigation measures such as insurance is very important especially when the farmers are shifting to commercial agriculture from the traditional and subsistence level agriculture. Without proper insurance, we are moving farmers to a situation of distress due to the higher risk in commercial agriculture. We need to promote more number of new insurance products such as weather based insurance products for each group of villages. Unless credit and insurance are integrate, farmers are exposed to very serious problems. (i) We have to focus on qualitative improvement and effectiveness while looking at financial inclusion through products such as Kisan Credit Card, micro finance. One of the participants Sri Sreenivas Reddy pointed the problems of sugar industry such as high rates of interest, policy of the government in banning sugar exports, fluctuating sugar

prices. He wanted to know whether it is possible to provide credit directly to the sugar factories and addressing their problems. Dr. Karmakar responding to the question indicated that sugar is a dicey area and a committee is looking into the problems of sugar industries. He hoped that sugar factories would be able get benefit from recommendations of this committee. Sri K M Rao, GM Krishna DCCB suggested that NABARD should keep its focus on cooperatives through a deliberate policy on the co-operatives as they still meet one third of the rural credit. Shri P.V.A. Rama rao suggested that credit should reach right people at

right time. How much credit is needed ? Whether 3 to 4 doses of crop credit should help a farmer to attain financial sustainability to meet the subsequent cost. A rationalist policy for Rate of interest should be evolved through discussions in public domain. He also suggested that proactive extension and not reactive extension is the need of the hour.

IV. Indian Agriculture - Production, Productivity and Technology Related issues Chairman Prof. Abhijeet Sen, Member, Planning Commission Panel Members (a) Prof. Y.K. Alagh, IRMA, Anand (b) Prof. S Mahendra Dev, Director, Center for Economic and Social Studies (c) Dr. Nachiket Mor, Deputy Managing Director, ICICI Bank Ltd.

Prof. Y.K. Alagh Prof. Y.K.Alagh recounted his long standing association with NABARD and expressed his solidarity with the organisation on the eve of its Silver Jubilee Celebrations. Speaking on the topic of the plenary session, he placed the following concerns regarding agriculture sector during the last decade. The agricultural profitability has fallen by 14.2 per cent through the decade of economic reforms. Decline in profitability, together with higher costs of new

technologies and a degree of uncertainty around them meant that the farmer had to bear tremendous risks in agriculture. Without a dynamic agriculture, inclusive growth becomes a mirage. Earlier fixed capital formation in agriculture in the private sector was rising, although it had collapsed in the public sector. But in the last few years, private sector

investment in agriculture had collapsed, although there is some revival in public investment. Indias net sown area under crops has fallen, drastically for the first time. Area under canal irrigation has fallen again for the first time in history. The net sown area has fallen from 141 hectares in 1991-92 to 132.86 hectares in 2002-2003. The current estimates say that the position has improved but we have to wait for the final estimates. Prof. Alag, sounding an optimistic note, added that the worst seems to be over. He indicated that it is important to recognize all these pointers and take business like steps to get the sector to meet fast demand of growth, rather than immersing it in the quicksand of crisis. He mentioned the following pointers of the coming changes : In the last five years the growth rate of the agriculture sector is anywhere between 2.8% to 3% annual, way above the 1.8% rate for the nineties and closer to the 3.4% peak rates earlier.

Private investment in agriculture is going up. Public investment is also going up in a dramatic manner. Fertilizer demand has picked up from the 16 million tonnes to 21 million tonnes. The non grain crop sector and animal husbandry are clocking faster growth pointing towards the diversification that is taking place in agriculture sector. Eleventh plan preliminary numbers indicate that 2.8% of 4% agriculture growth is going to come from diversification. That is going to be a big source of income. It is a big business for NABARD and NABARD should see that happen. Talking on the action that needs to be taken for addressing the problems of agriculture sector, he indicated the following aspects are required to be focussed : The growth in agriculture sector has to emerge from technology, non land inputs and diversification and has to be operationalized at the level of Indias agro-climatic resource regions. Net sown area can not rise. India is urbanising very fast and pressure on land is going to remain. A lot has to be done for canal and surface irrigation. We have to effectively use the canal system. We have to reverse the bad land use and water use as our future depends upon it. Farmer must be given right to land so that he can strategise and leverage his assets for entering encouraged. Biotechnology revolution has side-stepped India and needs major focus. into contracts. Farmer groups, producer companies need to be

Infrastructure should be there to cover the last mile of the supply chain. We have to encourage public - private partnership in technology and new way of doing things. We have to build up your own capabilities in the seed sector. We have to have creative destruction. If something is not working kill it. Modern technology, otherwise, does not spread. Networking is very important. ICAR wants a separate genome institute. It does not want to collaborate with Genome institute in which Department of Science and Technology has put in Rs.20 crore. NABARD has got good networking capabilities and NABARD should use it. The problems are complex. You need specified groups at the level of talukas, districts, states with clear responsibilities. NABARD can not do this. We need

identified agencies, agencification of the system. For developing and implementing new technology and diversification strategies the Agencification approach is recommended. Separate agencies could be set up for various development programmes. NABARD is good in net working and this could be used in the system.

NABARD has to provide more grant-in-aid for research projects in agriculture technology. NABARD has to cover the last mile by funding the gaps where private sector is not coming forward. NABARD can promote the producer companies. It has to educate our farmers on economic climate. He concluded his presentation emphasising that agriculture planning has to be with new mindset. Prof. S Mahendra Dev Prof. Mahendra Dev in his address focussed on the policy issues of the agriculture sector, the problems and the solutions. The major observations made him are : The growth rate in agriculture sector is less that than 2 per cent in the last decade. There are some signs of increase in the last three years. Non viability of agriculture, decline in surface irrigation, land degradation, soil erosion, water logging, decline in ground water have been the major areas of concern. Disparities in productivity across the regions and crops persisted. Planning Commission data has indicated that the decline has occurred in the dry land areas The major challenges faced by agriculture are - (i) Infrastructure (2) Land and water management (3) Research and Extension (4) Credit (5) Marketing and diversification and (6) Land issues. Commenting on the debate on subsidies, he indicated that economists feel that increase in subsidy brings down the investments in agriculture. Subsidies also have an impact on the natural resources. The subsidies are also not reaching the small and marginal farmers. Technology and research are important. A Good water management system is required for the benefit of farmers. Distributive aspects of credit are important. Whether small and marginal farmers are getting the credit ? Though reforms have been suggested by the Vaidyanathan Committee in cooperative credit structure, the major issue is whether autonomy will be given to the cooperatives by the politicians. We have to see how far it is possible to provide fertiliser subsidy directly to the farmers. The imbalance in NPK proportion has to be corrected as it has impact on soil fertility.

Viability of small farmers is an important issue. Whether it is possible to have Cooperative farming ? The farmers can come together for purchasing inputs in bulk and marketing of their produce. In his concluding observations, Prof. Mahendra Dev indicated that we can ignore agriculture at our own peril . The development of agriculture sector is important for bringing in inclusive growth and removal of poverty.

Dr. Nachiket Mor Dr. Nachiket Mor in his address spoke about the approach of ICICI for lending to agriculture. The salient points made by him in his address are : ICICI Bank has built a business of Rs.20,000 crore in agriculture in the last four years. Initially the bank started crop finance to the farmers with corporate partnership in the belief that the enlightened corporates would help in yield enhancement with their support services. The actual experience was disastrous. Large group of farmers

complained about bad advice. It is only in the sugar cane sector that the corporate partnership proved to be a wini-win model. It was decided that ICICI is not The

competent to address basic issues of agriculture such as yield enhancement.

bank has since withdrawn itself from the partnership led yield enhancement crop lending business. ICICI has been assuming a role in building a sustainable viable infrastructure around which the overall farming business can grow. For example whole area of warehousing logistic and supply chain has been a big focus. We have financed 3000 warehouses and would like to reach a target of 10000 warehouses this year. We want to build a strong partnership with good people who can build these warehouses and provide high quality of storage and retrieval and credit facilities on demand. Infrastructure that the supply chain needs can be built in a very high quality manner. As a country we want to move towards warehouse receipt trading. However, a lot of basic things are required to make a warehouse receipt tradable. Understanding of storage, quality control issues on which fair amount of work is needed to be done. We see a woeful inadequacy of financial infrastructure all around. There are no currency chests. How can we bring access of finance to the pockets deep inside rural India. The concept of business correspondents, the work that NABARD is doing with co-operatives may improve the situation. Risk management products to farmers is an important area we are investing a fair amount of money and where we see value for ourselves and the farmers.

We do not have credit infrastructure in our country. Pakistan has issued 190 million biometrics identity cards and Nigeria has issued 60 million cards. However, in India we have not even agreed on a common numbering system. We are concentrating on lending for second hand tractors and leasing of tractors. You can make a small farmer work with the same technological capability like a big farmer except some indivisibles like tractor, threshers. Many of the inputs are actually divisible and that is what we have to facilitate. ICICI is setting up at Hyderabad ICICI centre for the advancement of agricultural practices. It is not a research centre but a research assembly centre. It will compile all the research that is going around and digest it and go to the farmer with a clear idea with a risk sharing partnership. Core approach of the bank will remain partnership - partnership with NGOs, NBFCs, Corporates, Banking correspondents. We would like to partner with cooperative banks but most of the state cooperative laws do not allow such partnerships. There are over 1 lakh PACS in the country, many of which are of high quality. There are a good number of DCCBs in the country which are working well. ICICI would like to partner with them. We should stop distorting price signals at the farmer level. If you suppress price signals for 15 years and suddenly let it go, it will find a natural level far too quickly for the economy to adjust. It happened in cotton. After years of price control, suddenly the social security cover was taken out. Continuous distortion of price signals is leading to lack of diversification. Closing remarks of the Chairman of the plenary session Prof. Abhijit Sen in his closing remarks made the following observations : There are huge problems on the demand side and supply side. We can not look at agriculture as having a single solution as in the green revolution time. We need a great deal of decentralised planning. We have seen tremendous growth in commodity markets. They have grown disproportionately as compared to spot markets. Future trades are creating a great deal of concern. None of the commodity trading exchanges do not have the domain knowledge of the commodities they are trading in. We need an agency at the district and below district level to ensure natural resource planning. PRI institutions are the most suited for this purpose but they lack knowledge and capacity. There are many agencies in the field at loggerheads. NABARD can bring order. There is a need to create some agency which takes existing

expertise and offers it to the institutions which are not aware of the need of knowledge. NABARD as primary rural lender has to be worried about subsidies. Grants from govt. are the biggest threat for NABARD. Any one who is in the loan business, grants which masquerade for what could have been loans, are the biggest threat, more so if the grants to that organisation are going to come down. We are at a point where we could go towards full competition. We dont know who will survive. Take the case of NDDB which has decided to consolidate in only 300 districts and allow others to develop the remaining districts. Ending his remarks, he indicated that we need plans and knowledge in plans and all the institutions, including credit institution, have to keep this agenda in mind.

4 JULY 2007 V. Indian Agriculture : Marketing and Extension Related Issues Chairman Dr. K.G. Karmakar, Managing Director, NABARD Panel Members (a) Shri Arindom Datta, Director, RABO India Finance Ltd. (b) Ms. Sashi Rekha Rajagopalan, Director, Reserve Bank of India and NABARD (c) Shri S.S. Acharya, Executive Director Dr.K.G. Karmakar, introduced the subject of marketing and extension by highlighting its importance and made the following remarks: Agriculture growth rate in 1986 was 3.2% which increased to 4.8% in 1992 but came down to 1.8% in 2006. Though there are indications that it may go up, the concern remains. Food grain production though increased initially has stagnated and strategies are required to be put in place to overcome plateau effect Imports have been constantly increasing as India is not self sufficient in production of edible oil and pulses resulting in increased imports over the years. Major export products were rice, cotton and the recent entrant was sugar. Its time to review our strategy and decide whether to concentrate more on production of core strengths like rice, cotton and cut down production of wheat, pulses etc. where we do not have core strength. Extension is another area which needs to regain its lost glory gained during first green revolution. It needs to be revived if another green revolution is to take place. Practices in vogue in 1960s cannot be sustained in the changed circumstances like changing climate, market etc. Changes are required in the production practices which are possible only with quality extension services made available to farmers. Here biotechnology could play an important role by helping provide quality seeds. NABARD is promoting Farmers Clubs which would definitely help in bringing best practices to the land and with the support of banks more number of such clubs could be promoted. Government initiative in setting up cold storage, 15 state of art agriculture markets like Safal set up by NDDB at Bangalore with Rs. 120 crore investment, initiatives by NHB, Fisheries Development Board in the direction of agro processing are really welcome but a lot still needs to be done. He invited the speakers to present their views.

Shri Arindom Datta Shri Arindam Datta, informed the forum that RABO India Finance Pvt. Ltd. is a cooperative bank with International presence and with food and agriculture sector as the core sectors. Based on their studied research he deliberated on Indian Agriculture, Marketing and Extension related issues and submitted the following views to the forum: Importance of agriculture in India could be judged by Prime Ministers reiteration that lot needs to be done for the sector and the thrust laid by him was on four count i.e. agriculture productivity, agri-infrastructure, marketing and extension. While, at present, agricultural production and marketing are state subjects, role of State Government in agricultural production is limited, but in agriculture marketing it is absolute. Not much initiative is taken by state governments for value addition to agriculture goods. Many departments /corporation are into food and agriculture processing and due to lack of concentrated efforts, its in a disarray. The key legislations are also not catering to the changed needs of environment. The amended APMC Act is still restrictive while Essential Commodities Act has even got the farmers arrested for trying to sell their own produce in other states. A study shows that the value chain of processed food consists of a large number of intermediaries leading to wastages, cost escalation, limited value addition and low value realisations for the farmer, the major player. The value realization at the farmers end is on an average just 27%, ranging between 8-30% as compared to 6065% in developed countries. Out of the amount paid by the consumer around 22% is being attributed to wastage and 20% cornered by retailers. An effective system would require disintermediation and increased focus on post harvest management infrastructure including pack houses, refrigerated vans and cold storage units, etc., with a big role for the farm produce aggregator at the village level. Retail of food items is a great business and many large industrial houses are making a foray into the same. Ministry of agriculture is floating the idea of terminal markets for perishable goods based on European model and two such centres are coming up, one at Kolkotta and one at Chandigarh. It would provide transparent systems and would enable price discovery for the farmers leading to better price realization. This would be extended to other states.

Ministry of Food Processing is supporting concept of Mega Parks and we already have 60-70 Mega Parks which were not doing well but now policies are being changed and more investments to the tune of Rs. 400-500 crore per park is planned for development of this infrastructure. Terminal markets would be attractive to the farmer and producer as the centralized system would reduce the role of intermediaries, standardize product quality, packaging, lead to transparency in price discovery, and demand and supply matching. Infrastructure would ensure minimized losses of goods during its transmission from one place to other. Reverse auction model is planned to be implemented in the terminal markets which would mean that the auction would start from highest level and then it keeps going down to ensure higher realization for the farmer. As per Rabo Bank estimates, the terminal markets are expected to increase price realization for the farmer from 27% to 50% while price for consumers would come down by 15-20% and wastage in the value chain would come down from 22% to 5%. Rural Hub/ agri business centres are providing very key production services and are beneficial for the farmer, vendors and state government but the results on profitability and sustainability is mixed. Already big companies like ITC, Tatas, and Mahindras are into this business as it is an attractive business opportunity. Direct selling by farmers in Tamil Nadu and Andhra Pradesh through Uzhavar Sandhai (Farmer market) has resulted in increased profit for the farmer by almost 100% and the consumer price has decreased by 15% as compared to the conventional marketing. However, this is not very successful in commodities where mandis come into play with their inefficient systems. Contract farming another form of direct selling in seed production, poultry, Gherkin, Tomato etc have been successful but would need better dispute settlement mechanism. Further, farmer should be organized through cooperative, NGO etc., for being equal players and the system should also have embedded services like credit availability. It cannot also be practiced in all crops as crop characteristics is a critical factor in contract farming. Extension Services are extremely important and is at present being provided by KVKs, Universities and State Governments. However the extension services provided are in isolation and not market related. The suggested way forward is to encourage private extension as they understand the market needs very well as far as the quality, consistency and safety issues are concerned. Good agriculture practices adopted in field level needs to be in line with market demand. The extension services

also need to be integrated with other services like off take of procurement and input supplies. A Case Study on Golden Kiwi fruit was presented where a conscious strategy to market it in international markets helped the farmers to realise 14 times of what they were getting earlier. The strategy included research on product development and variety, development of the same in the field through the farmers and market launch of the produce. Market launch was the key to the success of the project. Shri Datta concluded that to improve the overall performance of agriculture sector greater investments in infrastructure would be required which would reduce the huge wastages and provide direct access to markets by the framers at the same time fasten the pace of legal reforms. This needs to be followed by a liquid market which would provide transparent price discovery, a true price for the produce and price risk management. Risk management is being covered by the commodity exchanges like NCDX and MCX who are also setting up spot markets. The spot market set up by MCX in collaboration with NDDB at Bangalore is a good beginning. Thus intermediation has to happen with strong market intelligence among specific product and region along with good extension services to facilitate increased production and productivity of good quality produce. Shri S.S. Acharya Shri S.S. Acharya, ED, NABARD, said that he would be focusing his discussion on the extension services in agriculture and put forth the following view: Extension is key to most of the problems faced by farmers. Poor extension services could be attributed as one of the reasons for the spate of suicides by farmers in the recent past. Extension machinery is presently financed by State Government but is not very effective. Farmers need advice on what to grow, where to grow, how to grow as also the market where they can sell the produce and at present such information is not available. The present system of financing production credit is dependent on scale of finance fixed by the District Level Technical Committee where bankers and State Government machinery are members along with farmers. However, not many farmers participate in such forums. Commercial Bankers are not keen to finance more credit to agriculture and as a result financing to agriculture sector is less than the stipulated 18%. Cooperatives do not have sufficient funds to disburse the same. As a result, the scale of finance fixed is kept to the minimum.

Banks are willing to fund Industrial loans, even the preliminary expenses, but farmers consumption expenditure and family labour are not included which is important for his sustenance. There is distrust among bankers as recovery is not forthcoming in agriculture sector due to frequent natural calamities which limits the farmers capacity to pay. When calamities occur the entire area gets affected and all the loans go bad. NABARD has taken initiative to encourage setting up of Agri Clinics & Agri Business Centres (ACABC) and these centres could be utilized as extension machinery. A suggestion was put forth that the farmers could approach these centres for a fee and bankers could provide finance for production based on the advice of the ACABC. There is a need for some compulsion on the farmer to avail of the extension services from ACABC and a scheme where finance would be available only on the basis of advice provided by ACABC would be a good business model with win-win situation for all the three players, i.e., farmers with good extension services, i.e., knowledge on what to grow, how to grow and where to sell with accountability, Agri Business centers with good business base and bankers financing with more technical inputs. The cost of the services could be factored into scale of finance. This would also help them to prevent occurrence of and taking timely action to reduce the impact of various calamities. Diversification of crops could also be achieved if advice is available on the alternate crops that could be grown by them. For this, the Agri Clinics & Agri Business Centres need to have the full data of the local area, what crop is suitable for the area, local market conditions, good realisable price, etc., before advising the farmer. Extension services need to be given with accountability and farmers need to be compensated if the crops fail despite following the advice. However, accountability on ACABC would be possible only when charges are levied for the service rendered by them as legal recourse is not available if service is free. Although GoI has decided to provide subsidy, the ACABC progress is very slow as these Centres are not sure of their capacity to earn profit and be sustainable. Government could encourage ACABC by providing concessions for purchase of Motorcycles, computers, etc., to the ACABCs.

Ms. Shashirekha Rajagopalan, Ms. Shashirekha Rajagopalan mentioned that she wanted to discuss a topic which might not get covered at all during the two day seminar and therefore would not be speaking on extension or on markets which the earlier two speakers have already covered. She would be

concentrating on issues which she believed have not been addressed so far in the country in relation to farmers and market. This is about the impact that a good cooperative law can have on farmers and markets. Some of the major issues highlighted by her were: Businesses collapse when the fruits of the risks taken, investments made and the effort put in do not flow to the owner of the business. In case of farmers, while nature does contribute to losses, there are other reasons too for its failure. Farmers will produce more if quality inputs including credit were available at reasonable rates and on time, if the produce could get a reasonable return in the market and thus the fruits of production went to them. We need not sell technology and other services if there is good return as then they themselves would seek technology and other services. General perception is that the poor needs to be helped to access the market but the small producers are already in the market place. However, they bring in small quantities of produce, and the market transfers the high cost of small transactions to the farmer as it cannot deal with so many small producers. The challenge is to help the small producer make the market respond to them and that is possible only if large numbers of small producers pool their produce and enter the market jointly with sizeable quantities of produce. Long term businesses require a body corporate status, made of several persons and have the right to enter into contracts, to sue and be sued, to hold properties, for perpetual succession. This could be in the form of a society, trade union, a company or a cooperative. Society or trade union does not envisage profit for the owner/member. Company expects the sharing of profit to be on the basis of investment not on produce brought in. While cooperative form of business works for member profit on the basis of produce sold through the cooperative. However, cooperatives may not be suitable to every situation, for every service. It offers no advantage to producers when they are near markets with large numbers of consumers, the producers are in small numbers; or, scattered or, when each producer has a large quantity of produce to sell. Forming Cooperatives is advantageous when producers are in large numbers, and/or are spread over large, distant, yet contiguous tracts, and/or have small quantities of produce for sale every day, and/or cannot individually store the produce. This is because the cost of handling large numbers of repeated transaction with producers is very expensive for a third party. The success of SHGs is also because of the real cost of servicing individual borrowers have been picked up locally. External agencies cannot afford the cost of collection, quality checks, and

record maintenance for payments and would find it easier to buy in bulk from nearest points of sale. Producer owned organizations begin by paying wages and other costs at local rates at rates current in a subdued, suppressed or battered economy but they graduate to paying fairly good wages, as business increases. The challenge is not to help small producers access markets but to help them influence and lead markets. Thats what good commodity, and savings and credit cooperatives have done. Market share of cooperatives need to have presence in the market by being single largest player but they do not need to be the only or the major player. In a liberal economy cooperative laws continue to be illiberal except in 9 states where it is liberal. The argument is that law may not contribute much to good business. However, in states like Gujarat where best cooperative laws were enacted cooperatives thrived. However, the same has since been reviewed and regressive provisions have been incorporated. Andhra Pradesh has a 12 year history of a good cooperative law and on comparison between the two laws it is observed that the performance of cooperatives under MACS Act was way ahead of the cooperatives registered under law enacted in 1964. The procurement of milk by the old cooperatives was very poor. Price to farmers from the independent unions was around Rs 14 per litre while the federation and other societies paid Rs 12 per litre. Further, six of eight independent unions have steadily increased business. Concluding the presentation, she suggested that our aim should be to ensure that the small producer is not prevented from entering the market jointly, from influencing it, from leading it. When the fruits of production go to the farmer, they will want to invest more in agriculture and increase production. For that a good cooperative law would be required which would respect the autonomy of cooperative business and the right of the farmer to get on with their business, along with peers. Concluding remarks of the Chairman of the session Dr. K.G. Karmakar concluded by saying that Ms. Shashirekha Rajagopalan concentrated on the access to market and the need for good coop law to enable the small farmers to contribute to the market. Coupled with this proper extension services and infrastructure for processing and marketing would ensure better price realization for the farmer. There is a need for building brand image of Indian agriculture produces and increase the market intelligence. Shri Y K Alagh emphasized that one model may not work for India and that even rainfed regions bifocal approach has been suggested to the Planning commission where in areas

needing more attention watershed method has been suggested but in other areas with high productivity potential various alternative models need to be tried including that of cooperatives and their tie up with corporate. More hand holding may be required in backward regions. He opined that relationship of Rainfed Development agency, recently formed, with PRI, producing agency and marketing agency and cooperatives would be different for different products No one group can facilitate better coordination among all these agencies. He felt that NABARD with its vast experience could do it and facilitate the lead committees to decide on what can be done and what should be done. Ms Shashirekha agreed that many models should be encouraged but felt that we need to facilitate the farmers to come together and face the market as market is hard to small individual players due to increased transaction cost If they come together they would be able transact better. Thus their right to enter the market needs to be upheld and facilitate them to aggregate their produce Dr. Karmakar mentioned that National Development Council has endorsed what Prof.Alagh had mentioned. He informed the forum that NABARD has been preparing District level credit plan in which a new a chapter on extension services has already been included from this year. He said that NABARD in the next two three years would include specific agriculture plan in the document which would be part of its planning process.

VI. Risk Management in Agriculture Chairman Prof. S Mahendra Dev, Director, Center for Economic and Social Studies, Hyderabad Panel Members (a) Shri Vijay Mahajan, CEO, BASIX, Hyderabad (b) Shri M Prashad, MD, AICI (c) Shri Ravi Kumar, MD, NCDEX, Mumbai

Shri Vijay Mahajan Shri Vijay Mahajan, CEO , BASIX, Hyderabad congratulating NABARD on its silver jubilee indicated NABARD is the only institution remaining in the present scenario which understands the issues at the district, the state and the country level. NABARD has to be more conscious of its role and re-engineer itself to meet the challenges. Speaking on the subject of management of risk in Indian agriculture, he made the following points. Before we move to handling risk either through insurance or price risk mechanisms, we need to first substantially derisk Indian Agriculture. Yield risk is too high for the Indian agriculture to be truly insurable. However, it continues to be insured with major national subsidies. The NAIS still covers less than 20% of the farmers, it does not cover all the crops, it does not cover all the agro climatic zones. It does it with a substantial cost to the exchequer, roughly Rs.1000 crore every year. So the question to be asked is whether insurance is the right answer considering the intrinsic risk in Indian agriculture? It was supposed that in five years time, NAIS will move to actuarial premiums. That has not happened. A recent World bank technical study shows that if actuarial premiums were to be charged the average premium in Indian agriculture would be 12%. Thus the intrinsic variability is too high. We heed to derisk agriculture by physical means by increasing investments in soil and water conservation in rainfed regions, watershed development, irrigation management through participatory management. There is need advice on varietal selection, use of drought resistant seeds, better agronomic practices, region specific advice, economic advice based meteorological data. We have to derisk Indian agriculture and bring down its

variability to a point where the actuarial premium is not more than 7 or 8 per cent. Then only we can consider a national insurance scheme. We are using a using a wrong instrument for solving the problem. NAIS has not been satisfactory to farmers as the crop cutting experiments take 12 to 16 months. There is a need to use weather index, rain fall index to have a quick

payout. However, there have been problems in rainfall data as well as certified rain gauge. Data from IMD stations is not available on a regular basis. NCDEX has established a few private weather stations but it is capital intensive and takes several years to amortise the cost. We should have a two track strategy - (1) Delay in NAIS needs to be reduced with automation of crop cutting experiments by using satellite imagery or backward analysis of data for 20 to 30 years. (2) NAIS has to move to weather based insurance. An interim solution would be a hybrid product with two payouts - first trigger based on rain fall index to be paid by the middle of August and second trigger could be based on the traditional crop cutting experiments. This will give some respite to the farmers in case there is sowing season/monsoon failure. We have to move NAIS towards weather based index. We should use the funds allocated by Finance Minister for this purpose otherwise funds may not come in the next budget. There is a disconnect between what is happening in future markets and spot markets. Plain speculators without knowledge of the commodities are involved in this markets. There is lot of unhappiness among the farmers about these markets. The production of guar gum is Rs.1200 crore a year whereas the volume of trading of this commodity in the future markets is much more than this figure. We need to put some curbs on the trading volumes and find some technical ways so that these exchanges help the farmers in real price discovery. These exchanges do nothing to the Indian farmers today. Whereas the average size of the production of farmers is half a ton, the average deal size in the exchanges is 20 tons. What is missing is an aggregating mechanism. What we need is a producers organisation which aggregate the production and bring benefit of the futures market to the farmers. The other alternative, we do not have the energy to build hundreds of co-operatives, warehouses can become the effective aggregators. It is the aggregators who trade in US markets and not the farmers. Concluding his presentation, he again stressed that the intrinsic risk is too high to be handled through financial means in Indian agriculture and the only solution is long term investment in agriculture. Shri M Prashad Shri M. Prashad, MD, AICI congratulated NABARD and indicated that today we can not think of agriculture minus NABARD. He made the following observations on role of crop insurance in managing risk in Indian agriculture :

Insurance is not the solution to all the problems in agriculture sector. Insurance is a financial instrument and it has to work with its own limitations and it cannot solve all the problems. Agriculture has to be first derisked. Proper extension services is more important. However, the importance of insurance can not be undermined in the present circumstances. Agriculture risk management products assume critical importance in view of the fact that large farm holdings are owned by small and marginal farmers with less than two hectares and significant number of them are living below poverty line. Most of the farms in the country are rainfed. Yield insurance has been practised in the last 30 years and weather insurance is a new concept in our country. Providing the main features of National Agriculture Insurance Scheme (NAIS) he indicated that it adopts area yield approach and covers all the major food crops. It has provided crop insurance to 170 lakh farmers covering an amount of Rs.20,200 crore with a premium of Rs.590 crore. It is compulsory for the loanee farmers and optional for non-loanee farmers and the rates vary for different crops. The scheme has been managed within administrative cost of 2%. AICI is suffering losses due to the caps placed on the insurance premia and they are borne by the Central Government and State Governments. Still there is a long way to cover all the farmers under insurance as even now 85% of the farmers remain to be covered. Market based approach relying on sound actuarial regime may help the Government to reduce its fiscal exposure and develop more cost effective agriculture subsidy programmes by targeting it to catastrophic areas. It would also make the insurance company more accountable and help in expanding outreach among farmers. It would also help the farmer to make timely payments. With the scheme as it exists now it is difficult to get reinsurance in the international markets. Some of the modifications that have been suggested in the crop insurance scheme are - altering the yield estimates to a longer time series, reducing the insurance unit to village panchayat for major crops, instilling actuarial principles into premium rate methodologies, covering sowing and planting failures and prepayment on weather index based system. Weather Insurance is more objective, cost effective and transparent way of insurance. However it requires a network of secure weather stations. The weather insurance is highly technical and more research is required to be done. It is still on a pilot stage in countries like Mexico, Africa and Central & South America and India. AICI has made a humble beginning in 2004 by launching Varsha Bima and at present covers 125 locations across 10 States and is available for all major crops. It has not been

extended to the entire country as the premium rates are too high under weather insurance and it has been difficult to convince the farmers. Shri Ravi Kumar Shri Ravi Kumar, CEO, NCDEX informed that NABARD has been a key promoter of the various institutions that spawn agriculture sector. His observations are summarised below : Agricultural commodities are no longer commodities but assets. Using NCDEX, farmers can sell their produce to the entire country and not to a single entity. Why should not farmer get the best price by holding on to the produce till favourable market conditions ? Now an intermediary is holding the produce and makes money. Against the value of Rs.8 lakh crore of agricultural commodities excluding agro services, lending by the banks against commodities is Rs.1.50 lakh crore. Intermediaries in the agriculture market can not be substituted unless somebody else does the same functions with the same efficiency. A farmer can go to the unorganised sector and get loan across the table. Can a farmer get bank loan for consumption, hospitalisation and social expenditure ? The banks should provide loans to the farmers holistically covering his consumption, production, investment and insurance needs. He has to get a bundled product. Post production farmer has to be given choice to sell spot or sell future. In case a farmer is able to get proper advice on the future price at the time of sowing, he can decide his cropping pattern depending on the future intended price realisation. Unlike commodity exchanges world over, NCDEX has gone into building infrastructure such as warehousing and setting up of weather stations and

procurement of farmers produce. It has introduced exchange traded weather indices for spreading the risk. Options should be allowed in the exchanges. Options give the farmers a choice of protecting himself against lower price and retaining the benefit of higher price. Commenting on the disconnect issue raised by Shri Vijay Mahajan, he indicated that NCDEX rigorously monitors the volume of business and ensures that the balance is a fraction of physical availability of the commodity. Actual user participation as a share of open interest was 40% in wheat and 20% for sugar. Further, physical delivery of 40,000 to 50000 tons takes place every month. Minimum tradable lot is fixed based on the volume of a truck load which is 9 tons at present. Commodities traded is one truck load which is 9 tons. Minimum tradable lot

can be brought down, provided lower capacity trucks are produced in the country. The other solution is encouraging aggregators such as co-operatives, associations, etc. While ending his presentation, he indicated that most people do not know what is meant by agri business. If agriculture really becomes business, then people would end up paying more price for food than are paying today. Closing remarks of the Chairman of the session In his concluding observations, Prof. Mahendra Dev indicated that Risk prevention is important in agriculture. Investment in watershed management, technology and district planning, etc. are important for derisking agriculture. He congratulated NABARD on the occasion of its silver jubilee. He hoped that in the next 25 years, NABARD will get more appreciation for its role. Dr. K.G. Karmakar, Managing Director suggested that the members of the panel may collectively bring out a Paper on "Coping Mechanism for Indian Farmers" for which NABARD would be willing to extend necessary assistance.

VII. Rural Livelihoods and Employment Generation - Micro Finance and Non Farm Sector Chairman Ms. Shashi Rekha Rajgopalan, Member of the Board of Directors of RBI and NABARD Panel Members (a) Shri Vijaya Kumar, IAS, CEO, Society for Elimination of Rural Poverty, GoAP (b) Shri C S Reddy, CEO, Andhra Pradesh Mahila Abhivrudhi Samiti, Hyderabad (c) Shri K Narasimha Murthy, Member, Board of Supervision, NABARD (d) Shri Vijay Mahajan, CEO, BASIX

Shri Vijaya Kumar Shri Vijay Kumar, IAS, CEO, Society for Elimination of Rural Poverty (SERP), Govt. of Andhra Pradesh at the outset congratulated NABARD for the SHG Bank Linkage

Programme which was a success in AP. He made a presentation on the salient features of the poverty alleviation programme being implemented in Andhra Pradesh with the help of SHG concept. His presentation made the following points : Society for Elimination of Rural Poverty, a society founded by Government of Andhra Pradesh, is implementing the Indira Kranti Patham Project for alleviation of rural poverty by raising the income of the rural poor and improving their quality of life. The project has a funding of Rs.2100 crore from World Bank. He indicated that the core philosophy of Andhra Pradesh model is the belief that social mobilization process is the best way of unleashing the hidden potential of the poor. The poor can come out of poverty only through their own institutions. Each poor individual has strong desire to come out of poverty and the latent capability to come out of poverty There exist among the poor, individuals who inspite of their poverty have a strong voluntary spirit of helping others. 90% of the rural poor in AP have been organized into group mode with 6.88 lakh covering about 86.5 lakh households. The corpus of SHGs in the state is Rs 2990 crore of which the savings constituted Rs.1340 crore. The banks in Andhra Pradesh are coming forward to meet all the needs of the SHG members - consumption as well as investment needs. The Micro Credit Plan is an important tool in Andhra Pradesh which has broken the ratio of loan to savings by the banks. Debt swapping has been important development in Andhra Pradesh. In 8000 villages banks are adopting SHGs for meeting their needs comprehensively. The federation model in A.P consists of SHG s at the base level federated as Village Organizations (VO) at the village level. These VOs are federated at mandal level as Mandal Samakhyas, which in turn are federated at district level as Zilla Samakhyas.

There are 31500 VOs, 946 MSs and 21 ZSs in the state. The Executive Committee of VOs have two representatives from each SHG and have five office bearers supported by 3-5 activists. The VOs help in strengthening of SHGs, accessing credit, social action, marketing and food security and village development. The Mandal Samakhyas represented by VOs, support VOs, provide linkage with Government institutions, auditing services and also take up micro finance function for routing Community Investment Fund. Mentioning about livelihood strategies pursued by the government, he mentioned that 3-4 livelihoods are being encouraged to insulate from the risks involved. Focus initially is on stabilization and later on deepening of the same. The Indira Kranti Patham (IKP) plays a role in identification of livelihoods, both in agriculture and live stock, value chain analysis, knowledge, finance and networking of services. Livelihood strategy of IKP consists of community managed food security, collective procurement and marketing of agriculture produce such as maize, red gram, soyabean, neem, ground nut, etc. It has helped the small and marginal farmers in getting better realization for their produce. In the livelihood area two strategies have been adopted one for people of 30 years and above and other for young people. Rural people of 30 years and above are not going to change their livelihood whatever the economists may say. Stabilizing their existing livelihoods has been the priority of IKP. The Micro Credit Plan route has enabled them to plan for their livelihoods. For the younger generation, emphasis has been laid on skill upgradation and finding them jobs in the urban and manufacturing sector. Without taking of risk management we can not talk of livelihood planning. Risks are covered by death and disability insurance, health insurance, asset risk and enterprise risk. Shri C S Reddy, CEO, APMAS Shri C S Reddy, CEO APMAS, Hyderabad started his presentation by giving the major milestones in development of SHG movement in the country such as promotion of SHGs by NGOs for overall development of the community, piloting of SHG-Bank linkage movement by NABARD, proactive role of state governments, evolution of SHG Federations for

sustaining the SHG movement. He made the following major observations during the course of his presentation: Mentioning the findings of the study conducted by APMAS, he indicated that the amount of bank loan has increased from Rs.26000 in the first linkage to Rs 112000/ in the firth linkage. Repayment of loans to banks were taken seriously by the SHGs as against loans taken from their own savings. More number of SHGs with weaker

sections like SC/ST are getting loans. More than 80% of the SHGs in the state are accessing repeat loans. In order to ensure sustainability of the programme, the following issues are required to be focussed : Building capacity of SHG members through training and creation of mentors / animators for SHGs Much greater focus on Book keeping at SHG level to ensure transparency SHG level repayments of internal loans (from their savings) needed attention SHG Federations to take responsibility for SHG quality and to provide value add services SHGs & SHG federations to pay attention to social issues, particularly gender related He suggested that NABARD may consider taking the following initiatives: NABARD should evolve a national strategy for sustainable SHG movement in India through a consultative process. NABARD should facilitate to replicate the AP success story on SHG Bank Linkage in other States. It should Commission a country-wide study on SHG Federations to understand their present role and future potentials. Fund National and State Level Capacity building agencies to build capacities of SHPIs. Facilitate common standards, book keeping system and self regulatory mechanism for the SHG members. Shri K Narasimha Murthy Shri K Narasimha Murthy, Member, Board of Supervision called for promoting livelihoods in a big way. He discussed the issue of livelihoods from the point of need, potential and issues connected with development of the sector and made the following observations : Mentioning about the need for promoting livelihoods, he stated that employment generation is necessary for orderly growth of society and to prevent migration to urban areas. The potential exists for promoting non-farm sector in a big way as it has huge potential to generate employment. He also suggested for productfication of loan products of NFS on the lines of housing loans where every aspect of loan is specified. Dwelling on issues connected to livelihoods he suggested that basic commercial knowledge is necessary for proper conduct of business. He also stressed on infrastructure support and facilities for training. He opined that federations would be in a position to take up the same.

He also suggested that Financial Inclusion Fund could be used for providing infrastructure support and capital support to MFIs. He also felt that detailed financial appraisal for livelihoods is not called for. Instead the analysis can be done based on cash flow approach. He also called for some form of cap on interest rates charged to poor and felt that good social conduct by SHGs could be of great help in eradicating social evils and to raise standard of living. MFIs should have a self regulatory model. Shri Vijay Mahajan, BASIX Shri Vijay Mahajan recounted his association with NABARD fifteen years ago when NABARD had sponsored a study on Rural Non Farm Sector of which he was the national coordinator which resulted in a book A forgotten sector. Dwelling on the Rural Non Farm Sector and Livelihood issues he made the following points : The traditional Rural Non Farm sector consisting of agro processing, rural manufacturing, services, handloom, etc. has almost vanished. Its share in rural employment has become minuscule. This is primarily due to the reason that economies of scale have stepped into all these products and substitutes are available at a cheaper rate which can not be manufactured in rural areas. Shift from handloom to Powerloom is an example how technology has shifted production from rural areas to urban areas. It is not possible to run powerlooms in rural areas due to power problems and infrastructure inadequacy. Thus, due to shift in consumer demand to the products which are made by modern industry in urban sector and due to economies of scale and infrastructure disabilities in rural areas, manufacturing part of Rural Non Farm Sector has almost vanished. Agro processing is becoming larger and larger. The old style cotton ginning mills are replaced by modern mills. In virtually every commodity, we do not have possibility of old style village industry. It will be romantic to say that we should promote rural industry. We should see writing on the wall and give up this once for all. India needs a dynamic agro processing sector but at aggregation points. The soyabean grown in 2 million hectares of the eastern Rajasthan is processed in an around 20 kms from Kota. Processing can not be done in the 2000 villages of Rajasthan where it is grown as they do not have the basic infrastructure such as electricity, solvent extraction plants, next door railway tankers. But in the mean time RNFS, in terms of employment and income share is increasing. From where it is increasing ? Primarily, the services sector. 2/3 of rural income came from services sector even earlier. Transport, repairs and trade related services are generating large RNFS employment.

Instead of fighting this trend, how should it be capitalised. There are large part of the country where it is not possible to promote robust non farm sector in small towns Hinter land does not produce enough of surplus for it to be processed locally. He therefore suggested that focus should be on agriculture before focus is bestowed on NFS. Promotion of farm sector in backward areas, improving yield, irrigation, marketing, enhancing productivity, etc. is to be ensured before non farm sector. It is the surplus in agriculture that will lead to robust non farm sector. This investment can not be done by the magic bullet called micro finance. Micro Finance is a trivial solution for the kind of transformation needed in rural india. Long term public investment are needed in land, water, degraded land, water bodies, common properties in public investments. The studies by NABARD indicate that the IRR in watershed projects is 24% plus over a time span of seven to nine years. However, the benefits do not flow to a right entity, called enterprise. Benefits have externalities. You invest in the ridge the benefit goes to valley. You invest in a village upstream the benefit goes to three villages downstream. This kind of social and worthy investment belongs to Public finance. The greatest comparative advantage of NABARD is decontamination of the effect of subsidy by making public spending more efficient. RIDF is a very good example wherein Rs.60,000 crore has been spent with the same irrigation department and PWD but in a more cost effective manner with better efficiency. What NABARD has done in RIDF, needs to be done in a very very big way in natural resource regeneration which may require investments over Rs.1 lakh crore. But this money should not be spent through the government channels. They need to be spent through specialized tightly focussed institutions such as SERP which can decontaminate subsidies by involving Mandal Samakhyas. While subsidies are needed for rural India, it also need public investments for rural India. However, institutional framework needs to decontaminate the effect of subsidies. Demographic divide of young human capital will become a demographic curse unless we make investments in them. Over 200 million young people are joining the employment market but today are unemployable. By spending as little as Rs.5000 per head, they can be made useful members in modern sector. For this purpose new generation institutions are required. To build robust NFS so that benefits flow to a large number of rural population, new institutions such as Producer Organizations or to begin with Farmer Organizations in agro processing sector are required. These organizations can capture the surplus that is generated in the rest of value chain than sell the produce at the first point.

Potatoes grown by Jharkhand farmers is sold at Rs.7 a kg to the Pepsi which sells them at Rs.300 per kg in the form of Fritto chips. Why should it not be captured by Jharkhand Potato Growers Association. It is not going to happen automatically. Investment in social capital is required, dedicated organizations are required. That is an investment in Social capital Summarizing his thoughts on the subject, he indicated that good Non Farm Sector will develop if financial capital, natural capital in terms regeneration, physical capital in terms of localized infrastructure, human capital in terms of vocational skills and employability and social capital in terms of producer organizations are generated. If it is done, it would be possible to move around 100 million people out of agriculture to rural non farm sector. Questions The Chairman of the session allowed three questions (i) What role is played by the SHG federations for girl children (ii) Whether SHG Federations will go the same way as Cooperatives (iii) What special role can be discovered for NABARD. Responding to the questions, Shri Vijay Kumar and Shri C S Reddy indicated that SHGs and SHG federations being the organizations of women are taking special interest in health and education of their children. Under IKP project, nutrition centres are being run for rural women. SHGs may not go the way cooperatives due to the certain ingrained systems such as regular meeting, democratic nature, transparency in accounts, small size of the group and capacity building by the SHPIs. Shri Mahajan expressed that NABARD should move out of agriculture credit and start Rural Livelihood Finance. NABARD should be a managing agency of Government of India for public investments in rural India. It should be the chief overseer, grand planner for public investment and ensure that each rupee spent in rural India generates a net positive return for rural India. It is a folly for NABARD to become a Commercial Bank. It is the only institution which can handle public finance better than the government. Concluding observations of Chairman of the plenary session Summing up, Ms. Shashi Rajgopalan indicated that she is impressed by the level of credit that has reached SHGs in Andhra Pradesh. She made the following observations in her concluding remarks : NABARD must take up a study of couple of villages where regular credit flow has taken place in the past five years to a large number of families and document the effect of the credit on the non farm sector.

NABARD should stop reporting cumulative figures. It should only report the outstanding loans during the previous year, loan issued during the year and the loan outstanding at the end of the year. NABARD should also start collecting the data on the amount of savings of the SHGs in the banks. Whether the savings collected by the SHG women is only being used for re-lending to them by the banks ? This will help in taking policy decisions. SHG women are withdrawing 40% of their savings as no interest is paid by the SHGs on the individual savings. It should start the practice of adding interest to the saving of SHGs. SHGs will be in the danger of going PACS route if treated like PACS. SHGs should not be expected to be the solution for every problem.

She ended her remarks by appreciating the role played by NABARD, SERP and APMAS in the SHG movement in the state and the country.

VIII. Reminiscences and Expectations from NABARD (a) Shri M Ramakrishnayya, Founder Chairman of NABARD (b) Dr. P Kotaiah, Former Chairman, NABARD (c) Shri Y C Nanda, Former Chairman, NABARD (d) Dr. Y S P Thorat, Chairman, NABARD Shri M Ramakrishnayya Shri M Ramakrishnayya, Former Chairman, NABARD delved into the history of NABARD by sharing some of his experiences as the first Chairman of NABARD. NABARD of today is an entirely different entity than that was envisaged. NABARD alone can not do the entire development work in agriculture but NABARD has to coordinate with other agencies to bring about rural development. NABARD should not exaggerate its role. NABARD should play a catalyst role in developmental arena and focus on the principles of development through credit. approach. It should strengthen its technical expertise and be professional in its

He suggested that a study has to be taken up by NABARD for derisking

agriculture and for this a holistic view has to be taken. Shri Y C Nanda Shri Y C Nanda expressed that NABARD officers should be the best informed officers in the matters of agriculture and rural development. NABARD will be respected only if they are fully informed about the developments taking place in rural India. He mentioned that no other Institution has such great technical expertise as NABARD has and they should try to be a learning Institution and update their skills as per the changing scenario. Lastly, he

mentioned that All the efforts of NABARD should lead to increase in income of rural people. It is essential that vigorous efforts are required in livelihood area. Shri P Kotaiah Shri P Kotaiah recounted his experiences in NABARD. He indicated that the NABARD Act has the flexibility which allows it to venture into diverse areas. He gave the background regarding the introduction of RIDF, formation of ADFCs. NABARD should promote rural infrastructure for development of agriculture. NABARD should explore the feasibility of opening more subsidiaries within the core frame work of rural economy.

Dr. Y S P Thorat Dr. Y S P Thorat, Chairman, NABARD in his address spoke on the challenges before NABARD and made the following major observations : The performance of NABARD will be judged based on the integrity with which NABARD moves forward the cooperative reforms. This requires vision, leadership, guts and commitment. The cooperative credit institutions are impaired through bad governance financial impairment, politicization and bureaucratization & regulatory

impasse. NABARD has to ensure that capitalization takes place only after adequate safeguards of governance, legal framework, managerial reforms are on ground. Refinance will continue as one of the important tasks of NABARD. However, we must move away from refinance as a liquidity support mechanism. We should not finance a structure but an institution. NABARD should finance cooperative institutions on an institution-to-institution basis taking the interest rates as a mechanism for discipline. NABARD is a lender. NABARD must bring a lenders discipline among the institutions that it lends. NABARD has to build resources as the subvention may not last long. What is the best way to build resources has to be debated. We have to take a serious assessment of our long term asset portfolio. Prime Minister has mentioned that NABARD is a public good institution and a national institution. All the actions of the bank will be judged on the touchstone of how good, how much national interest. NABARD has to tender independent impartial advice for which Government will respect it. NABARD is requesting State Governments to allow NABARD to lend to cooperative institutions directly. However, no State Government has responded. Co-finance will be taken on a large scale. We have to internalize the ability to take risk. NABARD has a great human potential with technical and managerial skill and domain skill. So long NABARD moves with one common objective, NABARD will serve its destiny.

Vote of thanks The meeting ended with vote of thanks by Shri S R Aluru.

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