chapter - iii farmers indebtedness in...
TRANSCRIPT
103
CHAPTER - III
FARMERS INDEBTEDNESS IN INDIA
3.1 Introduction:
Agriculture plays a crucial role in the development of the Indian
economy. It accounts for about 19 per cent of GDP and about two thirds
of the population is dependent on the sector. The importance of farm
credit as a critical input to agriculture is reinforced by the unique role of
Indian agriculture in the macroeconomic framework and its role in
poverty alleviation. Recognizing the importance of agriculture sector in
India’s development, the Government and the Reserve Bank of India
(RBI) have played a vital role in creating a broad-based institutional
framework for catering to the increasing credit requirements of the sector.
Agricultural policies in India have been reviewed from time to time to
maintain pace with the changing requirements of the agriculture sector,
which forms an important segment of the priority sector lending of
scheduled commercial banks (SCBs) and target of 18 per cent of net bank
credit has been stipulated for the sector. The Approach Paper to the
Eleventh Five Year Plan has set a target of 4 per cent for the agriculture
sector within the overall GDP growth target of 9 per cent. In this context,
the need for affordable, sufficient and timely supply of institutional credit
to agriculture has assumed critical importance.1
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Indian Agriculture has made rapid strides in Agricultural Sector
since Independence, with the Green Revolution of the 1960s ushering in
manifold increase in farm production and productivity. The Indian
Agriculture has rallied to become self-reliant in providing overall food
security to its population of more than 1 billion. However, inadequacies
of serious long-term concern are now affecting Indian Agriculture. The
rising input costs and poor pricing mechanism, to be candid, have only
increased the plight of majority of the farmers. The Green Revolution has
not necessarily translated into benefits for the lower strata in the
economic pyramid in terms of greater food security or economic
opportunity and wellbeing.2
Micro finance is expected to be one of the most important tools
against poverty in rural areas where credit market to be less developed
due to information asymmetries and the lack of enforcement.3
Microfinance has become popular all over the world since Dr. Yunus, a
Nobel Prize- winning activist and founder of Grameen Bank, lent small
amounts of his private money to the rural poor in Bangladesh three
decades ago. A lot of researchers have tried to identify the enabling
factors for Grameen Bank; high repayment performances in poor areas;
and how and to what extent the its microfinance model would be
applicable to other countries. However, many developing countries are
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still having difficulty providing the appropriate financial services at
reasonable costs.4
Policy makers in India have long recognized the need to provide
short and long term institutional credit to agriculture at reasonable rates
for meeting formers production needs. This recognition came primarily as
the moneylenders and other non-institutional sources charged exorbitant
rates of interest of farmers who often had to mortgage, and sometimes,
sell their lands to clear their debts.5
In the development strategy adopted by independent India, the
primary focus was growth with equity. Given an understanding on the
seasonal credit was perceived fairly early in the development process as a
powerful tool for enhancing production and productivity and for poverty
alleviation. The debates surrounding these issues, as also the suggested
policy directions were clearly spelt out in the report of the All India
Credit Survey Committee 1952. To active the objectives of production
and productivity, the stance of policy towards rural credit was to ensure
provision of sufficient and timely credit at reasonable rates of interest to
as large a segment of the rural population as possible. The strategy
devised for the purpose rested on three pillars expansion of the
institutional structure, directed lending to disadvantage borrowers and
sectors and lower interest rates.6
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3.2 Rural Cooperative Banking and Reforms in India:
Rural credit cooperatives were born more than 100 years ago, and
developed into two distinct streams of agricultural credit, one basically
meeting the crop loan requirements of farmers, and the other supporting
farmer level capital investments in agriculture. The structure which
primarily meets the crop loan requirements is a three-tier structure in
most of the states with primary agricultural credit cooperative societies
(PACS) with farmers as their members at the base level, central
cooperative banks (CCBs) as the intermediate federal structure with
PACS as principal affiliated members, and the state cooperative bank
(StCB) at the apex state level with CCBs and other cooperatives as its
principal members. This three-tier cooperative credit structure is
popularly known as the short-term cooperative credit structure (STCCS).
The ST CCS functions as a three-tier structure in 16 states; while
in 13smaller states & union territories, PACS are directly affiliated to the
StCB and the ST CCS functions as a two tier structure. In 3 states, a
mixed structure, i.e., two tier in some districts, and three-tier in the other
districts operates.
In principle, PACS was expected to mobilise deposits from its
members, and use the same for providing crop loans to the needy
members who need it. However, as deposits in PACS may not be enough
to meet the loan requirements of all its farmer borrowing members, PACS
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draw support from the federal structure, viz., the CCB/StCB. The CCB
was therefore constituted as a small bank working in small towns to
mobilize deposits from public and provide the same for supporting the
credit needs of PACS and its members. As part of the federal structure,
the CCB was expected to also provide guidance and handholding support
to PACS. StCB was set up in each state not only to mobilise deposits and
thereby provide the required liquidity support to CCBs and PACS, but to
also provide the required technical assistance, guidance and support to
CCBs and PACS in fulfilling their obligations towards their farmer
members. Wherever required, the StCB was also expected to mobilise
liquidity and refinance support from the higher financing institutions like
NABARD for supporting the crop loan operations of CCBs and PACS
affiliated to it. Over time, ST CCS has also been providing medium term
loans for investments in agriculture and for the rural sector, often with
refinance support of NABARD.
The ST CCS was the only institutional arrangement for providing
agricultural credit until 1969. However, after nationalization, commercial
banks (CBs), and later, the regional rural banks (RRBs) which were
established from 1975 onwards, also started catering to the needs of
agriculture and rural development sectors.
The banking scenario is changing constantly and significantly due
to rapid and radical reforms taking place in Indian banks since 1993.
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Application of prudential banking norms including norms for income
recognition and asset classification (IRAC) and capital adequacy based
on the risk (CRAR) to make them stronger and competitive was followed
by capitalization of public sector commercial banks and RRBs. Although
IRAC norms were gradually applied to the StCBs and CCBs, the risk
based capital norms were not applied to them for a variety of reasons.
In the meanwhile, the Committee on Financial Sector Assessment
(CFSA), set up by GoI in September 2006 under the Chairmanship of Dr
Rakesh Mohan looked into the financial health of all banks including the
cooperative banks and made recommendations for improvement of
financial health and systems for attaining/maintaining financial stability.7
3.3 Structure, Need and Classification of Rural Credit for
Agricultural Development:
Credit, an old French proverb says, "Support the farmer as the
hangman's rope supports the hanged."8 Similarly, Darling's statements
(RCS, 1991) 9, states that '' the Indian peasant is born in debt, lives in debt
and dies in debt,'' still remains true for the great majority of the peasant
communities in rural areas. The rural credit structure can be classified
into the Institutional and Non-institutional credit lending agencies. The
structure of non-institutional credit delivery system includes
moneylenders, agricultural-cum-moneylenders, traders and commission
agents, agro-shop dealers, friends and relatives, who charge exorbitant
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rate of interest and tend to keep their eyes on grabbing the assets of
borrowers.
The demand for credit further increase due to emergence of new
areas of investment in agriculture such as adoption of high yielding
verities of seeds, early maturing, disease resistant verities of food as well
as non-food crops, adoption of latest technology requiring improved
irrigation systems and other machinery establishing commercial farms of
dairy, poultry, piggy, fishery, etc., equipped with adequate linkages for
processing, packaging, transport, marketing etc., tapping commercial
avenues in the areas of horticultural plantations, floricultural, equipped
with adequate linkages for processing, packaging, transport, marketing
etc, tapping commercial avenues in the areas of horticultural plantations,
floricultural, aquaculture, bee-keeping,, sericulture, mushroom
cultivation, developing capital intensive, hi-tech, non-conventional,
export oriented project in the field of bio-technology, tissue culture,
embryo-transfer technology, plasticulture, green house plantation of
aromatic and medical plants etc.10
According to Dantawala (1966) and Dandekar (1993) credit per se
(with respect to its inherent nature) does not influence agricultural
development because it is merely a means to an end. But when it results
in investment in real resources including human labor, it influences
output growth in agriculture. The new technology led inputs like HYV,
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fertilizers, pesticides, diesel, electricity, form implements, certain
machines etc., and complement to the agricultural production.
Institutional credit that would encourages investment in these new inputs
and helps in utilization of capital and also output in agricultural.11 The
credit needs of modernizing India's agriculture have to be tailored to take
account these systemic changes, particularly in the marketing
infrastructure and generally in the output mix. It goes without saying that
deregulation of marketing structures, removing the heavy hand of
government and the amendment of the Essential Commodities Act is also
essential to modernizing agriculture by opening out markets to farmers.12
3.4 Strategy of Reserve Bank of India to Increase the Flow of
Rural Credit:
First, the coverage of rural credit is extended to include facilities
such as storage as well as credit through NBFCs. Second, procedural and
transactional bottlenecks are sought to be removed, including elimination
Service Area Approach, reducing margins, redefining over dues to
coincide with crop-cycles, new debt restructuring policies, one-time
settlement and relief measures for farmers indebted to non-institutional
lenders. Third, Kisan Card Scheme is being improved and widened in its
coverage while some banks are popularizing General Credit Cards
(GCCs) which is in the nature of clean overdraft for multipurpose use,
including consumption. Fourth, public and private sector banks are being
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encouraged to enhance credit-delivery while strengthening disincentives
for shortfall in priority sector lending. Fifth, the banks are urged to price
the credit to farmers based on actual assessment of individual risk rather
than on a flat rate depending on category of borrower or end-use while
ensuring that interest-rates charged are justifiable as well as reasonable.
In brief, the thrust is on enhancing credit-delivery in a regime of
reasonable credit-prices within the existing legal and institutional
constraints.13
3.5 The Role of Credit in Rural Development:
The prevision of credit and generation of savings have long been
recognized as an essential element in any rural development strategy.
Credit plays a crucial role in the modernization of agriculture but its role
in the fight against rural poverty has seldom been recognized. Financial
institutions in developing countries, whether public or private, have
shunned rural areas for various reasons such as opportunity costs and low
financial credibility. Further, rural financial services have mostly been
controlled by rich farmers, who are able to use their large endowment
base and influence within the local power structure to secure loans at very
advantageous terms. Credit policies are also generally concentrated on
land-based agricultural production programmes, neglecting off-farm
activities in which the poor are mainly engaged.
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The rural poor-men and women, landless, artisans, agricultural
laborers and small fishermen-have almost been excluded from these
financial services either because they were not available (collateral and
procedural requirements rendered them inaccessible) or simply because
they were not considered creditworthy. The erroneous view is that the
poor do not have any resources, do not save, that they cannot invest in
view of immediate consumption needs, and that they are ignorant of the
basic principles of sound money management.
In the competition for a small quantum of financial resources, the
poor naturally lost out in the institutional markets and were constrained to
resort to exploitative informal sources of credit such as money-lenders
and traders. The latter are able to respond quickly and with great
flexibility to pressing demand, and exploit the poor and further compound
their poverty.
Many national rural development programmes in the form of
integrated efforts or cooperatives have endeavored to increase the
availability of financial services, reduce collateral or other requirements,
and adapt procedures to rural clients. Credit cooperatives are widespread
in South Asian countries. But because of the principle of open
membership, most cooperatives have come under the control of well-to-
do powerful farmers and have failed to make any contribution in the
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alleviation of poverty. The benefits of cooperative institutions have
frequently been diverted to serve the interests of a select few.
Government policies of many developing countries are built around
the premise that by increasing the flow of agricultural credit, rural
regeneration is possible. But it is wrong to equate credit flow with capital
creation in rural areas. Credit cannot be created merely by increasing
money supply, nor can capital be used for developmental purposes if
farmers divert savings for consumption purposes. By combining
additional labour with more capital, both production and productivity can
be enhanced, i.e., more produce and more income. Credit for rural
development depends upon two vital factors- rural savings and provision
of liquidity to farmers without sufficient funds too invest in improved
technological advances. There must be sufficient investible funds to
exploit opportunities created due to technological breakthroughs. Credit
enables extension of control as distinct from ownership resources; but, it
should be extended for investment in 'clearly spelt out' opportunities or it
will surely end up as additional consumption. This is not to state that new
technologies necessarily need additional credit or that new rural
technologies are not adopted without credit. Thus, credit is neither
essential nor sufficient for initiating rural development. Rural credit
agencies can, however, encourage the efficient reallocation of tangible
wealth as also new investment through in remediation between savers and
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entrepreneurial investors, and also increase the rate of accumulation of
capital by providing increased incentives to save, invest and work.14
3.6 Schemes Entrusted with NABARD to Improve Credit Flow to
the Rural Economy in India:
Rural Infrastructure Development Fund is one of the most
important schemes entrusted with NABARD by the Government of India
to increase flow of credit for the development of rural infrastructure. The
fund was set up in 1995 with an initial corpus of Rs. 2,000 crore. Apart
from contributions of the Government of India. RIDF also receives
deposits from commercial banks to the extent of shortfall in their lending
to agriculture. As at end-March 2010, out of the total funds received by
RIDF since its inception both from the Government of India as well as
via deposits, more than half was from contributions by the Government of
India. Out of the total funds received so far, RIDF sanctioned loans worth
two third of the total amount so far. However, the percentage of disbursed
loans to sanctioned loans exhibited a declining trend since trance XI. The
decline in the disbursal of funds from RIDF was mainly caused by
procedural delays in administrative and technical approvals by State
Government in land acquisitions, statutory clearances and tendering
process. Efforts to rationalize these procedures have already been
initiated by State Government.
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The Government of India opened a separate window under RIDF in
2006 for the Bharat Nirman Programme with a corpus of Rs. 4,000 crore.
Of the total funds received so far, these windows of RIDF sanctioned and
disbursed more than half of the amount. Notably, there is no delay
observed under this window in disbursing the sanctioned amount of loan.
Out of total loans sanctioned so far under RIDF, the major share
went towards building roads and bridges, followed by rural irrigation
programmes. Notably, more than 10 percent of loans went to the
development of social infrastructure such as drinking water, primary
school, public health centers and aganwadi centers.
Out of total loans sanctioned and disbursed under RIDF so far,
northern region and southern region accounted for more than half. North-
eastern region accounted for only 5.1 per cent of total sanctioned loans
and 4.0 per cent of total disbursed loans. The north – eastern region also
reported the lowest disbursed loans to sanctioned loans ratio amongst the
regions. The State-wise profile shows that Andhra Pradesh accounted for
the maximum share of loans sanctioned and disbursed, followed by
Gujarat and Madhya Pradesh.15 3.7 Growth of Institutional
Agricultural Credit in India:
In India nearly 72 percent of population lives in villages and is
mostly dependent for their livelihood on rural areas despite such a high
predominance, the share of agriculture and allied activities in India's GDP
Deleted: ¶
116
are only about 25 percent. Many policy changes have taken place since
I960, when the agricultural credit scenario was largely dominated by
private informal sources of credit, to increase the flow of institutional
credit to the agricultural sector. The cooperative credit structure was
strengthened by reorganizing and merging weak credit societies with
strong societies. The number of village level cooperative societies also
increased. The participation of scheduled commercial banks was
negligible in agricultural loans. However, after the nationalization of
commercial banks in 1969, they were mandated to increase their
geographical and functional presence in the rural areas. Another credit
institution lending exclusively to weaker sections of rural areas, known as
Regional Rural Banks, was set up in 1975. To meet the challenges of
institutional agricultural credit the apex institution namely National Bank
for Agriculture and Rural Development was created in July 1982. To
increase the flow of agricultural credit, new approaches were also
initiated like service area approach, micro finance and kisan credit card.
There is now a very strong network of rural and semi-urban branches
catering to the requirements of agricultural sector and rural areas.
Growth of direct institutional credit for agricultural and allied
activities are shown in table no. 3.1 The total direct institutional
agricultural advances increased from Rs, 32,697 crore in 1998 to Rs.
1,94,953 crore in 2007-08. The short term institutional agricultural credit
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Table 3.1
Direct Institutional Credit for Agricultural and Allied Activities in
India
Years Short-term Long-term Total 1998-99
20610
(63.03)
12087
(36.97)
32697
(100) 1999-00
29045
(63.79)
15968
(36.21)
45534
(100) 2000-01
32355
(67.14)
15346
(32.86)
48187
(100) 2001-02
38141
(70.38)
15612
(29.62)
54195
(100) 2002-03
45288
(69.49)
19887
(30.51)
65175
(100) 2003-04
59593
(71.43)
23834
(28.57)
83427
(100) 2004-05
71748
(68.13)
33555
(31.87)
105303
(100) 2005-06
94084
(65.33)
49938
(34.67)
144022
(100) 2006-07
123072
(64.94)
66442
(30.06)
189514
(100) 2007-08
136010
(69.76)
58943
(30.24)
194953
(100) 2008-09 178639
(72.62)
67337
(27.38)
245976
(100) 2009-10 217126
(72.90)
80705
(27.10)
297831
(100) Average
64995
(67.59)
31161
(32.41)
96156
(100)
Note : Figures in the bracket are percentage to total.
Source : Handbook of statistics on the Indian Economy, 2009-10,
Reserve Bank of India, Mumbai.
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was Rs. 20,610 crore in 1998-99 which increased up to Rs, 1,36,010 crore
in 2007-08 and long term institutional agricultural credit increased from
Rs. 12,087 crore in 1998-99 to Rs. 58,943 crore in 2007-08. On an
average the institutional short term agricultural credit was 67.59 percent
and long term institutional credit was 32.41 percent during 1998-99 to
2009-10. Among the total institutional agricultural credit the share of
scheduled commercial banks was 71 percent it was 19 percent for
cooperative banks and 10 percent for Regional Rural Banks in 2007-08.
During the period from 1998-99 to 2009-10 the average total institutional
credit were Rs. 96,159 crore and long term credit were Rs. 31,161 crore
whereas, short term agricultural credit were Rs. 64,995 crore. It can be
seen from the table no. 31 the institutional agricultural credit shows
continuously increasing trends during the study period. After
nationalization of commercial banks agricultural credit shows tremendous
growth trends due to mandated of agricultural credit to nationalized
banks.
3.8 Credit flow to Agriculture in India:
Table 3.2 shows the number of loan accounts financed in India.
Although cooperatives are providing only 17% of agriculture credit, the
share of cooperatives in total number of agricultural accounts held by the
banking system is substantial. Cooperatives provided agricultural credit
to 3.09 crore farmers during 2011-12 compared to only 2.55 crore
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farmers by commercial banks and 82 lakh by the RRBs. In fact,
cooperatives financed67 lakh new farmers during 2011-12 compared to
21 lakh new farmers by commercial banks and only 9 lakh new farmers
by RRBs.
Table 3.2
Number of Loan Accounts Financed in India
(Figures in lakh)
Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Coops. 189 202 178 204 242 309
RRBs 62 62 76 73 73 82
CBs 172 175 202 205 234 255
Total 423 439 456 482 549 646
Source: Expert Committee, to examine Three Tier Short Term
Cooperative Credit Structure (ST CCS), Reserve Bank of India,
Central Office Mumbai, January 2013.
The success of cooperatives in reaching out to new farmers or
those who had gone out of the active credit fold of the banking system is
the real impact of the implementation of the Vaidyanathan revival
package and implementation of the agricultural debt waiver and debt
relief scheme in its true spirit.
Such high penetration by the cooperatives despite having a low
share in the total agricultural credit flow has the immediate implication of
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per account loan at ` 28,467 (2011-12) being provided by cooperatives as
compared to ` 66,000 per account by RRBs and almost ` 1.5 lakh per
account by commercial banks (as shown in table 3.3). This trend has been
prevailing in the past also.
Table 3.3
Agricultural Loan Disbursed per Borrowing Account in India
(Amt. in Number`)
Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Coops. 22476 23890 25951 31126 32281 28467
RRBs 32960 40826 35217 48242 60675 66402
CBs 96793 103479 113342 139414 147810 144525
Total 152229 168195 174510 218782 240766 239394
Source: Expert Committee, to examine Three Tier Short Term
Cooperative Credit Structure (ST CCS), Reserve Bank of
India, Central Office Mumbai, January 2013.
Table 3.4 shows small and marginal farmer accounts for loans
disbursed in India. Given the increasing trend in fragmentation of
holdings and growing preponderance of small and marginal farmers who
would require much smaller quantities of loans as compared to medium
and large farmers, an inference could perhaps be drawn that cooperatives
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are increasingly supporting the neglected or sidelined category of small
and marginal farmers. Although this is a positive sign, the fact cannot be
overlooked that almost 55% of the agricultural loan accounts of
commercial banks and almost 72% of the agricultural loan accounts of
RRBs also pertain to small and marginal farmers.
Table 3.4
Small and Marginal Farmer Accounts for Loans Disbursed in India
(No. in lakh)
Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Coops.
101
(53)
118
(58)
97
(55)
128
(63)
159
(66)
205
(66)
RRBs
40
(65)
42
(67)
43
(57)
50
(69)
52
(71)
59
(72)
CBs 74
(43)
97
(55)
106
(52)
107
(52)
125
(53)
141
(55)
Total 215 257 246 285 336 405
Note: Figures in brackets indicate percentage of small and marginal
farmer accounts to total accounts.
Source: Expert Committee, to examine Three Tier Short Term
Cooperative Credit Structure (ST CCS), Reserve Bank of
India, Central Office Mumbai, January 2013.
It is therefore, not that cooperatives alone finance small and
marginal farmers, while other banks finance only large farmers, as is
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often made out. At the same time, as has been mentioned elsewhere,
cooperatives are severely constrained in terms of resources for lending,
due to which PACS in almost all the states have prescribed individual
maximum borrowing power (IMBP) as an outer ceiling for any individual
loan to their members. Although there is no documented evidence, given
the fact that the proportion of small and marginal farmers financed by
RRBs is much higher than by cooperatives, and the per loan account
amount provided by RRBs is almost 2½ times that provided by
cooperatives, the possibility of fairly large number of borrowers from
cooperatives being underfinanced and not getting adequate loan to meet
their requirements and some members not getting any loans at all cannot
be ruled out. The resources position as well as the other than agricultural
credit business of the ST CCS therefore, needs to be looked in greater
detail.
3.9 Agency-wise Agricultural Credit in India:
Table 3.5 indicates the agency-wise credit disbursed to the
agriculture sector in India. As against the target of ` 4, 75,000 crore fixed
for 2011-12, ` 5, 1,029.09 crore was disbursed to the agricultural sector,
thereby exceeding the target by 8 per cent. While commercial banks and
RRBs together extended credit to 99.65 lakh new farmers during 2011-
12, cooperative banks extended credit to 21.52 lakh new farmers during
the same period, thus taking the total number of new farmers brought
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under the banking system to 121.17 lakh. The total number of agricultural
loan accounts financed as on March 2012 was 6.47 crore. The credit flow
to agriculture during 2012-13 by commercial banks, cooperative banks,
and RRBs together was ` 2,39,629 crore till September 2012, accounting
for 42 per cent of the annual target of ` 5,75,000 crore set for 2012-13
financial year.
3.10 Details of Cooperative Societies in Maharashtra State:
Co-operative movement plays a pivotal role in safeguarding
interests of the vulnerable and unorganized people engaged in various
economic and social activities. Co-operative have entered into all spheres
of socio-economic activities viz. production, marketing, credit & banking,
processing, sales, dairying, storage, housing, farming, fishing, etc. In the
post liberalization era, the co-operative sector is facing serious challenges
of competition from corporate sector and multinationals in addition to
resource constraints and lack of professionalism. As on 31st March, 2009
there were 2.12 lakh co-operative societies working in the State, with about
523 lakh members. Details of these co-operative societies are summarized
in Table 3.6.
3.11 Agricultural in Maharashtra:
The co-operative credit structure in the State is three-tier with the
State Co-operative Bank as the apex body at the State level, District
Central Co-operative Banks at district level and the Primary Credit
124
Societies at village level. This credit structure plays an important role in
development of agriculture and promotion of allied activities in the State.
Details of these are given in Table 3.7.
Table 3.5
Agency-wise Credit Disbursed to the Agriculture Sector.
Year/
Agency
Coop.
Banks
Share
(%)
RRBs Share
(%)
Comm.
Banks
Share
(%)
Total
2006-07 42480 18.52 20435 8.91 166485 72.57 229400
2007-08 48258 18.95 25312 9.94 18/1088 71.11 254658
2008-09 46192 15.30 26765 8.87 228951 75.83 301908
2009-10 63497 16.51 35218 9.16 285799 74.33 384514
2010-11 78121 16.68 44293 9.46 345877 73.86 468291
2011-12 87963 17.21 54450 10.65 368616 72.13 511029
2012-13 64664 26.99 32127 13.41 142838 59.61 239629
Source: Commercial Bank data – Indian Banks Association
(IBA)/RBI, Cooperative Banks and RRBs data –NABARD.
125
Table 3.6
Details of Co-operative Societies in the State
(Rs. crore)
As on 31st March Particulars
2008 2009*
Percentage
change
Societies (No.) 2,05,753 2,12,344 3.2
Members (lakh) 505 523 3.6
Paid-up share capital 12,809 13,344 4.2
of which, state Govt. 1,917 2,049 6.9
Working capital 2,05,110 2,05,122 Neg.
Deposits 1,40,162 1,51,528 8.1
Advances (Gross) 88,166 86,485 (-)1.9
Advances (Net) 63,604 65,203 2.5
Societies in loss (No.) 55,257 57,888 4.8
Amount of loss 6,985 7,126 2.0
Loans outstanding 1,10,046 1,11,261 1.1
* Provisional Neg. Negligible
Source: Office of the Commissioner for Co-operation, Govt. of
Maharashtra.
Primary Agricultural Credit Societies (PACS) play a prominent
role in disbursement of short term agricultural credit mainly for Seasonal
Agricultural Operations (SAO). They include Farmers Service Societies
126
Table 3.7 Important Features of Agricultural Co-Operative Credit Banks in
Maharashtra (Rs. crore)
As on 31st March Particulars 2008 2009*
Percentage change
The Maharashtra State Co-operative Bank Ltd.
Members (No.) 2,178 2,168 (-)0.5 Working capital 22,360 25,681 14.9 Deposits 16,509 20,954 26.9 Gross loans advanced 10,227 10,365 1.3 Loans outstanding 9,331 8,743 (-)6.3 Overdues 1,213 1,356 11.8
District Central Co-operative Bank (31) Members (No.) 1,36,148 1,42,18
6 4.4
Working capital 45,629 51,402 12.7 Deposits 31,949 38,062 19.1 Gross loans advanced 18,598 14,336 (-)22.9 Loans outstanding 24,446 22,683 (-)7.2 Overdues 7,752 7,328 (-)5.5
Maharashtra State Co-operative Agricultural Rural Multipurpose Development Bank Ltd. @
Members (No.) 827 827 -- Working capital 1,753 1,750 (-) 0.2 Deposits 1 0 (-) 100.0 Gross loans advanced --- -- -- Loans outstanding 1,295 1,168 (-) 9.8 Overdues 1,142 1,074 (-) 6.0
District level Co-operative Agricultural Rural Multipurpose Development Banks (29)
Members (In lakh) 11.36 11.32 (-) 0.4 Working capital 1,648 1,506 (-) 8.6 Deposits 24.44 55.74 128.1 Gross loans advanced -- -- -- Loans outstanding 905 640 (-) 29.3 Overdues 576 552 (-) 4.2
* Provisional @ under liquidation, hence stopped advancing loans. Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra.
127
Table 3.8 Details about PACS in Maharashtra
(Rs. crore)
Particulars 2007-08 2008-09* Percentage
change
Societies (No.) 21,248 21,285 0.2
Members (Lakh) 147 151 2.7
Working capital 14,280 16,467 15.3
Own funds 2,684 2,724 1.5
Share capital 1,829 2,050 12.5
Of which, State Government 10 14 40.0
Loanee members (Lakh) 36.68 39.95 0.7
of which 1) Marginal farmers
(up to 1 hectares)
10.46 10.61 1.4
2) Small farmers
(1 to 2 hectares)
8.93 9.27 3.8
Loans advanced 6,189 6,606 6.7
Loans outstanding 10,979 12,495 13.8
Loans recovered 5,295 5,160 (-) 2.5
Loans overdue 5,230 6,652 27.2
PACS in loss 13,560 13,665 0.8
Amount of loss 561 586 4.5
Proportion of overdues to
loans due for recovery
(percentage)
49.71 56.32 13.3
* Provisional
Source: Office of the Commissioner for Co-operation, GoM.
128
and Adivasi Co-operative Societies. Details of PACS are presented in
Table 3.8. About 64 per cent PACS were in loss during 2008-09. High
overdues, inadequacy and non-availability of funds and lack of capability
to mobilize resources are adversely affecting functioning of PACS. To
overcome these weaknesses, the Central Government provided financial
assistance to these PACS under Vidyanthan package and also the loans of
farmers amounting to Rs. 11,800 crore were waived by the Central and
the State Government during 2008-09.
3.12 Non-Agricultural Credit Societies in Maharashtra:
Maharashtra State Co-operative Housing Finance Corporation Ltd.
is the central non-agricultural credit institution functioning in the state. At
the end of March, 2009 the outstanding loans of the co-operative societies
have reduced by 10 per cent compared to last year, other details being
given in Table 3.9.
As on 31st March, 2009 under non-agricultural credit societies,
there were 574 urban co-operative banks, 16,358 urban co-operative
credit societies and 7,235 salary earners' co-operative societies in the
State. About one-fourth of the total non-agricultural credit societies were
in loss. The details are given in Table 3.10.
129
Table 3.9 Details of Maharashtra State Co-operative Housing
Finance Corporation Ltd.
(Rs. crore)
As on 31st March Particulars
2008 2009*
Percentage
change
Members (No.) 11,323 11,183 (-)1.2
Deposits 0.54 0.32 (-) 40.7
Working capital 350 339 (-) 3.1
Gross loans advanced 644 644 --
Loans outstanding 135 121 (-) 10.4
Loans overdue 37 38 2.7
Loans recovered 13 14 7.7
* Provisional
Source: Office of the Commissioner for Co-operation, Govt. of
Maharashtra.
3.13 Rural Credit Scenario of Maharashtra:
The rural credit scenario of Maharashtra encompassed several
aspects with major foci of attention on annual credit plans prepared for
various sectors by the State Level Bankers' Committee (SLBC), potential
linked credit plans for various region of the state, progress of various
130
rural financial institutions overtime, distributional aspect of credit, micro-
finance or linkage of bank credit with various self-help group, etc.
Majority of these aspects are evaluated in this section with a focus on
credit cooperatives, commercial banks, regional rural banks (RRBs), land
development banks (LDBs), and micro credit innovations.
Table 3.10 Details of Non-agricultural Credit Societies
(Rs. crore)
As on 31st March Particulars
2008 2009*
Percentage
change
Societies (No.) 25,106 24,167 (-) 3.7
Members (lakh) 202 210 4.0
Deposits 55,545 56,294 1.4
Owned funds 13,508 13,823 2.3
Share capital 5,938 6,089 2.5
Of which, State Govt. 8 9 12.5
Working capital 97,352 88,765 (-) 8.8
Loans advanced 52,169 54,181 3.9
Loans outstanding 60,279 62,388 3.5
Loans overdue 7,847 8,269 5.4
Loans recovered 1,596 1,685 5.6
Societies in loss (No.) 6,118 6,159 0.7
Amount of loss 525 610 16.2
* Provisional Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra.
131
3.14 Credit Flow through Commercial Bank in Maharashtra:
Despite several targets prescribed by the RBI for Public Sector
Banks (PSBs), these banks are reported to have defaulted merrily on
majority of these targets (Mujumdar, 2001). This is evident from the fact
that, during the period between 1992 and 1996, the net bank credit of
PSBs to priority sectors at all-India level was well below 40 per cent. Not
only this, at all-India level, the net bank credit of PSBs to agriculture and
to weaker sections remained well below 18 per cent and 10 per cent,
respectively, of their total advances all through the period between 1991
and 2000. This is a reflection of the fact that the two sub-targets of credit
to agriculture and to weaker sections continue to remain unattained even
in more recent times. Thus, agriculture in general and weaker sections in
particular is grossly neglected by PSBs. However, in view of the
recommendations of the Union Budget of 1996-97, which laid emphasis
on the need to double the size of rural credit in the subsequent five years,
the RBI had restored the priority sector credit of PSBs to the level of 41
per cent of their total advances in March 1997, and it remained well
above 40 per cent thereafter.
As for institutional finance to farming community, the commercial
banks in Maharashtra have also not shown encouraging trends. The trend over
the past two decades shows a slower growth in rural institutional finance
through commercial banks during the decade of economic reforms as against
132
the pre-economic reform period (Table 3.11). The commercial banks in
Maharashtra have not only shown slower growth in their loan advances and
deposits but also decline in their credit-deposit (C-D) ratio during the period
of reforms as against the pre-economic reform period. However, mention
may be made here that though the rural C-D ratio of commercial banks in
Maharashtra has come down from 72 per cent during TE 1982/83 to 65 per
cent by the TE 1999/00, it is still well above the minimum prescribed limit of
60 per cent as stipulated by the RBI.
Table 3.11 Rural Deposits and Credits of Commercial Banks in
Maharashtra
(Rs. Crore)
Triennium Ending CGR (%) Indicators
1982/83 1992/93 1999/00 1980/90 1991/2000 1980/2000
Rural
Deposits 381 1964 5145 19.05 14.40NS 16.28
Rural
Credits
274 1457 3346 17.08 12.28NS 14.91
CD Ratio
(%)
71.91 74.18 65.03 -- -- --
Source : Computations are based on figures obtained from
various issue of 'Economic Survey of Maharashtra'.
133
3.15 Rural Indebtedness in India:
Indebtedness has been acknowledged as one of the most infamous
stumbling block in the way of rural property. It is cancerous, self
perpetuations malignant and maleficent. I abate agricultural production,
abashes social psyche, aggravates inequalities in the distributions of
socioeconomic opportunities and benefits, arrests social progress and
misdirects social efforts. Within the given institutional structure of the
Indian society it is felt that a cure for indebtedness is extremely difficult,
if not impossible. It is so because poverty, coupled with unequal
distribution of economic resources, breeds indebtedness, which in turn,
consolidates the causes of poverty and distributional injustice. This
vicious circle can, of course, be broken, but it requires a strong social will
and a manifestation thereof in determined efforts to eradicate the problem
of rural poverty and indebtedness. There is a pressing need for
identifications of weaker links of the said causal chain that makes the
vicious circle. A prudent strategy to break the circle would attack these
weaker links. The task of the identification of the weaker links
necessitates social research to be carried out. We must note that the
problem of rural indebtedness is not sociological, economic or political
problem in isolation; it is a serious and crucial problem that has its roots
in the social, political and economic texture of the society.16
134
3.16 Incidence of Indebtedness of farmer household in India:
Table No. 3.12 shows estimated number of rural household, farmer
household, indebted farmer households and percentage of farmer
households indebted in each of the states. At all India level, an estimated
60.4 percent of rural households were farmer households and of them
48.6 percent were reported to be indebted. The incidence of indebtedness
was highest in Andhra Pradesh (82 percent), followed by Tamil Nadu
(74.5 percent), Punjab (65.4 percent), Kerala (64.4 percent), Karnataka
(61.6 percent), and Maharashtra (54.8 percent). As per NSS 59th round
Moreover, Harayana, Rajasthan, Gujarat, Madhya Pradesh and West
Bangal each had about 50 to 53 percent farmer households indebted.
States with very low proportion of indebted farmer households were
Meghalaya, Arunchal Pradesh and Uttaranchal. In each of these states
less than 10 percent farmer households were indebted. In absolute terms,
out of an estimated 43.4 million indebted farmer household, 6.9 million
belonged to Uttar Pradesh, 4.9 million to Andhra Pradesh, 3.6 million to
Maharashtra, 3.5 million to West Bengal and 3.2 million to Madhya
Pradesh. More than half of the indebted farmer households belonged to
these five states.
3.17 Incidence of Indebtedness by Different Sources:
During independence period the growth of institutional rural credit
tremendously increased. Before independence non-institutional rural
135
Table 3 .12 Estimated Number of Rural Households and Total
Indebted Farmer Households in each State
State
Estimated number of
Rural households
(100)
Estimated number of
farmer households
(100)
Estimated number of indebted farmer
household (100)
Percentage of farmer
households indebted
1 2 3 4 5 Andhra Pradesh
142512
60339
49493
82.0 Arunchal Pradesh 15412 1227 72 5.9
Assam 41525 25040 4536 18.1 Bihar 116853 70804 23383 33.0 Chhattisgarh - 36316 27598 11092 40.2 Gujarat 63015 37845 19644 51.9 Haryana 31474 19445 10330 53.1 Himachal Pradesh 11928 9061 3030 33.4 Jammu & Kashmir
10418
9432
3003
31.8
Jharkhand 36930 28238 5893 20.9 Karnataka 69908 40413 24897 61.6 Kerala 49942 21946 14126 64.4 Madhya Predesh 93898 63206 32110 50.8 Maharashtra 118177 65817 36098 54.8 Manipur 2685 2146 533 24.8 Meghalaya 3401' 2543 103 4.1 Mizoram 942 780 184 23.6 Nagaland 973 805 294 36.5 Orissa 66199 42341 20250 47.8 Punjab 29847 18442 12069 65.4 Rajasthan 70172 53080 27828 52.4 Sikkim 812 531 174 38.8 Tamil Nadu 110182 38880 28954 74.5 Tripura 5977 2333 1148, 49.2 Uttar Pradesh 221499 171575 69199 40.3 Uttaranchal 11959 8962 644 7.2 West Bengal 121667 69226 34696 50.1 Group of UT's 2325 732 372 50.8 All India 1478988 893504 434242 46.6
Source: NSS Report No. 498: Indebtedness of Farmer
Households, 2003.
136
Credits were dominant. After nationalization of commercial banks and
dominant. After nationalization of commercial banks and mandated of
rural credit to these banks institutional rural credit increased and non-
instructional credit goes down. Total debt of farmer households was
estimated at Rs. 1.12 lakh crore in 2003; of which Rs. 65000 crore was
from institutional agencies and Rs. 47000 crore from non-institutional
agencies. Private moneylenders accounted for Rs. 29000 crore and traders
Rs. 6000 crore. About Rs. 18000 crore of debt from non-institutional
sources, a major portion of which was from moneylenders, carried an
interest rate grater than 30 percent. Clearly, there is an urgent need to
relieve the farmers from private debt currying high interest rate by
transferring it to institutional agencies.
Table No. 3.13 indicates the debt of cultivator households from
different sources since 1951 to 2002. The share of institutional sources in
cultivator's debt improved considerably in the years following bank
nationalization, from about 32 percent in 1971 to 66 percent in 1991, but
in the 1990's, there was a loss of momentum and the share declined to 61
percent in 2002. In the post nationalization period, the increase in the
share of commercial banks was rapid and sizeable. The cooperative
sectors share increased from 22 percent in 1971 to about 30 percent by
1981 and stagnated since then. In the 1990's while cooperative sustained
their, albeit low, share at 30 percent, the share of commercial banks
137
Table 3.13 Share of Debt of Cultivator Households from
Different Sources: 1951-2002
(In Percentages)
Sources of Credit 1951 1961 1971 1981 1991 2002
Institutional 7.3 18.7 31.7 63.2 66.3 61.1
Cooperative Societies /
Banks, etc
3.3
2.6
22.0
29.8
30.0
30.2
Commercial Banks 0.9 0.6 2.4 28.8 35.2 26.3
Non-Institutional 92.7 81.3 66.3 36.8 30.6 38.9
Moneylenders 69.7 49.2 36.1 16.1 17.5 26.8
Unspecified - - - - 3.1 -
Total 100.0 100.0 100.0 100.0 100.0 100.0
Source : Report of the Expert Group on Agricultural
Indebtedness Ministry of Finance, Government of India,
July 2007.
slipped from 35 percent in 1991 to 26 percent in 2002. The decline in the
share of institutional agencies in the 1990's could be attributed to the
decline in the share of commercial banks.
3.18 Incidence of Indebtedness by Land Holding in India:
Table No. 3.14 shows the incidence, amount and sources of
indebtedness by size class of land holding. The incidence of indebtedness
and the share of institutional finance in outstanding debt for all-India
increased with the size of land holding. The incidence of indebtedness
138
increased from 46 percent for marginal and small farmer household to 66
percent for large farmers and the share of institutional agencies in the
debt increased from 51 to 68 percent. The average size of loan per farmer
also increased with the landholding size. Small and marginal farmer
households, which accounted for 80 percent of indebted fanner
households, absorbed 51 percent of the total outstanding credit from
institutional agencies. The dependency of marginal and small farmers was
more on non-institutional agencies then of large farmers. As against large
farmers, one-third of whose debt was from non-institutional sources, one-
half of the debt of small and marginal farmers was from non-institutional
sources. The marginal farmers received a relatively smaller share even
from cooperatives and had to depend more on private moneylenders.
3.19 Incidence of Indebtedness by Purpose:
Table No. 3.15 shows a substantial proportion of cultivator
households debt was for productive purposes at the all-India level
However, debt for productive purposes as a percentage of total debt
declined from 71.6 percent in 1981 to 62.9 percent in 2002. Similarly the
share of debt incurred for farm business declined from 63.8 percent in
1981 to 52.5 percent in 2002. Within farm business expenditure, the share
of capital expenditure declined from 45.3 percent to 34.3 percent.
The increase in capital expenditure for non-farm business could not
fully compensate the fall in farm business expenditure, which resulted in
139
a fall in the share of overall productive expenditure between 1981 and
2002.
Table 3.14 Incidence, Amount and Source of Indebtedness by
Size Class of Holding: 2003 Loans from
Size class
of land
Possessed
(Hectares)
Total
Household
(%)
Total
Indebted
Household
(%)
Incidence
of
Indebtedness
(%)
Amount
Outstanding
per Farmer
Household
Institutional
Agencies (%)
Non
Institutional
< 0.01 1.4 1.3 45.3 6121 22.6 77.4
0.01-0.40 32.8 30.0 44.4 6545 43.3 56.7
0.41-1.00 31.7 29.8 45.6 8623 52.8 47.2
1.01-2.00 18.0 18.9 51.0 13762 57.6 42.3
Up to 2.00 83.9 79.9 46.3 8870 51.3 49.7
2.01-4.00 10.5 12.5 58.2 23456 65.1 35.0
4.01-10.00 4.8 6.4 65.1 42532 68.8 31.1
10.00+ 0.9 1.2 66.4 76232 67.6 32.4
All Sizes 100.0 100.0 48.6 12595 57.7 42.4
Source : NSSO, Situation Assessment Survey of Farmers, 2003.
3.20 Causes of Rural Indebtedness:
Broadly, there are several factors responsible on account of which
an Indian agriculturist incurs debts remains indebted for ever. It is the
very socio-economic structure of the rural area which compels him
borrow more and more. There is nothing wrong to borrow. He needs
money to cope up his needs but his earnings from the farm is very low.
He has to face many problems in his day to day work. Borrowing is very
common phenomenon in the world but the fact is that Indian farmers are
140
totally unable to return the amount of debt out of his meager income.
Thus, indebtedness goes on multiplying year after year. Let us make a
detailed investigation about the various causes of rural indebtedness
(Lekhi and Singh, 2008)17.
Table 3.15 Distribution of Debt by Purpose among Rural Cultivator
Households: 1961-2002
(In Percentage)
Purpose 1961 1971 1981 2002 Productive 40.1 54.0 71.6 62.9
Farm-Business 36.6 49.7 63.8 52.5
Capital Expenditure 26.8 34.7 45.3 34.3
Current Expenditure 9.8 15.0 18.5 18.2
Non-Farm Business 3.5 4.3 7.8 9.4
Capital Expenditure 1.4 3.2 6.3 7.4
Current Expenditure 2.1 1.1 1.5 2.0
Non-Farm Business 60.0 46.0 28.4 38.1
Household Expenditure 49.2 37.8 20.0 27.7
Other Purposes 10.8 7.2 8.4 10.4
Repayment of Debt. 5.0 1.5 0.1 1.5
Expenditure on Litigation 1.8 0.7 0.8 0.3
Financial Investment 0.2 0.2 1.0 0.6
All Purposes 100.0 100.0 100.0 100.0
Sources : Reports of Expert Group on Agricultural Indebtedness,
July 2007.
141
3.20.1 Chronic Poverty of Farmers:
A cultivator is forced to borrow for purposes of production or
consumption because he is too poor- It is true that he is poor because he
is indebted. The vicious circle of poverty saps the very vitality of the rural
follc. A United Nation's publication has remarked: "They lie...... in the
chronic insufficiency "of farmers' income and the consequent tendency of
consumption to outrun production," Poverty, misery and decay have not
yet been removed from the rural areas of the country; and the middle and
small peasants' condition is still grave that they can hardly live without
extra earnings from wage labour. "The vicious circle resulting in poverty,
debt and high interest rates holds the small cultivators in a tight grip.
Poverty is the mainre as other them is unable to save anything out of his
present earning .He is compelled to borrow due to adverse circumstances
in the family, failure of monsoon or floods or other calamity. It is argued
that the constant rise in the prices of agricultural goods in recent years has
resulted in a shift in the distribution of national income, from urban to
rural areas, through agricultural prosperity; and that it has benefited the
cultivating masses considerably. It has been concluded that debt problem
does not exist today. But this myth of me agricultural prosperity is the
result of the unawareness of the socio- economic structure of the rural
areas of the country. Still according to an estimate about 46 percent of
people is living in rural areas live below poverty line.
142
3.20.2 Ancestral Debts:
This is another important cause of rural indebtedness in the
country. The Decan Riot Commission had expressed the view that the
main cause of the existing indebtedness was ancestral debt. debt being
passed on from father to son, generation after generation without any
equitable the restriction. Royal Commission on Agriculture remarked.
"The Indian peasant is born in debt, lives in debt, dies in debt and
bequeaths debt." lie inherits debt from his forefathers and since poverty
makes him unable to pay, he takes loans from a moneylender to repay me
same. Thus, the burden of loans taken for this purpose and for fulfilling
his needs goes on increasing. It must he remembered here that the heirs
have got no legal obligation to repay the debts taken by their forefathers
or ancestors. The debts of the deceased person only pass on to his heirs
when they succeed to the deceased debtor's property and only to the
extent of such property. Therefore, it is ignorance of law that compels
peasants to repay the debts of their ancestors. Generally, peasants take it
their pious duty or religious obligation to take the ancestral debt as debt
of honor and consider important duty to discharge such debts.
3.20.3 Excessive Pressure of Population on Land:
With the rapid rise in population especially in the rural areas the
pressure of population on land is increasing day by day. This has
resulted in, the reduction of per capita income. Their meager income is
143
not being enough for meeting the family needs. Thus, farmers are
forced to borrow.
3.20.4 Sub-division and Fragmentation of Holdings:
The average holding of cultivators in India is too low. It is further
sub-divided and fragmented, making it more and more uneconomical.
The tendency for the sub-division of land holdings, facilitated mainly by
the Laws of Inheritance and Succession, is prevalent in all the states of
the country. It has resulted in the existence of numerous tiny land-farms
scattered at different places reducing agricultural productivity and per
capita production. Sir, M. I. Darling has rightly pointed out: "The
smallness of the average holding and its almost incredible fragmentation
together- constitute one of the basic causes of debt and so important are
they that we shall have to refer to them again and again." In other words,
it forces the poor cultivators to contract debts which once contracted
become a burden for him for the entire life time.
3.20.5 Unfavorable Climatic Conditions:
Another cause of rural indebtedness is that Indian agriculture is still
a gamble of rains. Frequent failures of monsoons results in droughts
which badly affect crops. On the other hand, excessive rains cause havoc
in the form of floods which damage crops. The failure of crops, whether
partial or complete, is a curse on the lot of farmers braking their bones
completely. Similarly other factors such as the raids of locusts,
144
hailstorms, fire also effect the damage on crops. This means misery to
farmers.
3.20.6 Heavy Cattle Mortality:
Farmers are helpless in maintaining their only material capital in
the form of cattle. They lose their cattle off and on either due to floods
which take a heavy toll of human and cattle lives or to drought which
makes them helpless to feed their cattle or to an epidemic which wipes
away most of the cattle. The loss of cattle compels cultivators to borrow
money for the purchase of cattle without which they cannot cultivate
land. This factor is greatly responsible for increasing indebtedness of the
cultivators.
3.20.7 Illiteracy of Farmers:
The illiteracy and ignorance of farmers are very big obstacles in the
overall improvement of the cultivators. They do not pay heed to bring
about permanent improvements on their land to increase production. They
do not bother to check up the various factors which compel them to
borrow. They are ignorant of the laws of the land. They are easily cheated
and duped by moneylenders and other private agencies which provide
credit. The documents are forged by the moneylenders as farmers are
illiterate. Interest goes on accumulating because they do not understand
the consequences of compound interest. The amount of interest
accumulates to such an extent that it even exceeds the principal amount.
145
Thus, their illiteracy comes in the way to progress. They fall in the
clutches of the victimizing moneylenders who want to extract as much
money as possible from them.
3.20.8 Extravagance of the Farmers:
Poor peasants generally lead a miserable and abstentious life, hut
on occasions; they become extravagant which goes to aggravate
indebtedness. It has been recorded that (they spend more than they can
afford on social and religious ceremonies, such as marriage, festivals,
ornament.' funerals, sradh and kalhas, seasonal feasts; caste dinners, etc.
They do not foresee and account for the future. They do not bother about
the lean years when they are having good times. To put in the words of
Sir M.L. Darling, that social ceremonial, marriage and expenditure on
jewellery were important causes of indebtedness. In recent years the
extravagance of farmers of social ceremonies, etc.. is on the increase; and
they are still not careful about the future especially when they reap good
harvests.
3.20.9 Litigation:
The "passionate love of litigation' on the part of the farmers of the
country is another potent cause of financial embarrassment and
consequent indebtedness. The cost which uneducated farmers incur on
litigation is very high. Owing lo their ignorance everybody in the Court
146
tries to fleece them. Moreover, long duration of law battle involve, time
energy and money. This also leads to the increase of debt for nothing.
3.20.10 Poor and Ill Health of the Farmers:
The poor and ill-health of farmers makes their lives miserable.
Adequate medical facilities are not available to them. They do not care
for their physical buildup. Under-nutrition is a general complaint. This
physical deficiency due to malnutrition makes them vulnerable to the
attacks of epidemics and diseases, when they are ill, they do not possess
enough savings for their treatment. Hence they are compelled to borrow
at a very high rate. Again, physical deficiencies badly affect their
efficiency and productiveness ultimately affecting their incomes.
3.20.11 High Interest Rate:
Another important point of rural indebtedness is the high rates of
interest which are charged by moneylenders in the villages. The high
rates of interest lend to perpetuate the indebtedness. The method of
charging compound interest is burdensome and increases the debt burden
considerably. According to an expert opinion, "Compound interest is
almost certainly an important factor in the rapid growth of debt; and
unless it is eliminated, no attempt to stop this growth is likely to succeed.
3.20.12 Moneylender only Source of Borrowing:
Moneylenders are the only source for the provision of credit
facilities to cultivators in the rural areas. In the absence of other agencies
147
of the former enjoys an almost monopolistic position and try to keep
cultivators into their clutches. It has correctly been observed by Wolff
"The country is in the grip of the Mahajan." These moneylenders adopt
some highly objectionable factices to dupe the needy and illiterate
cultivators. They make several unwanted deductions before actually
giving money to cultivators. They often write more in their account books
man that they would lend to them. They attract the latter with all facilities
and flexibilities in providing loans to them. After they have borrowed,
they are put to all sorts of harassments. Thus, the way in which
moneylenders deal with farmers also aggravates the problem.
3.20.13 Burden of Land Revenue and other Taxes:
Heavy land assessment, irrigation and other taxes, rigid procedure
for the collection of revenue and taxes, and the burden of growing
indirect taxes are also responsible for rural indebtedness. This becomes a
burden especially in the event of the failure. Besides, it is quite
burdensome for the poor peasants of the country especially when they
have to pay it in the form of cash. It becomes a cause of debt when they
are not able to produce enough to fulfill their own requirements; and are
further called upon to pay the revenue.
3.20.14 Low Hoarding Capacity of Farmers:
Farmers are compelled to dishoard their produce at the time of
harvesting because they can't wait for long. Thus they are compelled to
148
sell their produce and they do not get reasonable prices on account of
market glut. Lack of storage facilities, absence of adequate marketing
arrangements, pressure of payment of interest, etc., form moneylenders,
land revenue demands and other needs compel them to sell their produce
in the village itself at cheap rates. When they need money, they are
compelled to borrow at a high rate of interest. This results in heavy
burden on them.
3.21 Effects of Indebtedness:
Indebtedness has far–reaching economic, social as well as political
effects on the lives of farmers in India. It has lowered down their morale
and made them fatalists, marring their productive efficiency and dragging
them into the vicious circle of poverty. A cultivator is tied with such
bondages that he finds it difficult to escape. There is no incentive for his
lord work because his entire production will be taken by the moneylender
at fairly low prices against agreement of borrowings/ loans. The
atmosphere at village becomes tense which leads to further violence,
mutual jealousy and class struggle. The result is inefficiency in
agriculture sector. He is, thus, compelled to go on living at a subsistence
level feeling that he is sowing so that others may reap, and he toils so that
his creditor may gain. He knows that he will be "easily shorn of his gains
as a sheep of its fleece." It mars the overall progress of the rural areas of
the country. The cultivators become landless labour while money lender
149
turn into absentee landlords. There is no doubt that economic freedom is
a condition precedent to progress.
Some of the effects of rural indebtedness may be mentioned, in
brief, as follows:
3.21.1 Economic Effects:
1. The cultivators lose their productive efficiency as they do not take
much interest in permanent improvements on land. They feel that
any effort in this direction will bring no benefit to them, and the
fruits of their hard labour will go into the hands of their creditors.
The encouragement for more production is lost which further
means low productivity.
2. It results in the transfer of land from cultivators to non-cultivators
(Absentee landlordism). This again curtails production since non-
agriculturists cannot put the required amount of labour in farming.
3. Farmers are called upon by their creditors to sell their produce
through them alone. The latter offer low prices. Since farmers are
indebted, they are compelled to do so. They are also compelled to
purchase grains for seed and other requirements at higher prices
from their creditors. To quote All India Rural Credit Survey
Committee who reported that "in a significant number of districts
in which village sales were a marked feature, the cultivators
reported themselves indebted to the traders in respect of a large
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proportion of the sale transaction they had entered into with the
latter."
4. The terms of trade moves against the farmers.
5. The farmers lose his property for which he has deep love and
affection.
3.21.2 Social and Moral Effects:
1. The landless farmers are called to do free serve (beggar) to their
creditors especially when the loan has been taken from landlords
etc. This slavery and economic dependence of small peasants who
form the majority of the population of the country, is not at all
healthy for the progress of the country.
2. The indebtedness gives birth to a new class of landless proletariat
(serfs) in the country. These landless workers have to depend upon
other for their living. They are a burden to the State also. Most of
the farmers who are in possession of small holdings their holdings
become still smaller, lowering down their incomes and standard of
living.
3. It causes frustration in the minds of cultivators since it develops
into a life long worry from which, they know, they will not be able
to relieve themselves. Mental frustrating results in their moral
degradation. As a result, they become fatalists.
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4. The incentive to work hard, to take risks, to make permanent
improvements and to increase their incomes is marred and the
whole outlook is so changed as it goes to extinguish the spark of
life. It proves a great impediment to the growth of rural area.
3.21.3 Political Effects:
1. The indebtedness has greatly influenced the political status of the
small and marginal cultivators. Big landlords use them as tools and
consider votes of the laborers in their pockets. They do much
hoarse trading. In a sense, they lose their political freedom to cast
votes against their wishes.
2. Big landlords / moneylender indulge in mean and dirty practices in
order to attempt to squeeze the debtors. This poisons the political
atmosphere of the rural areas which in turn is a social tension.
Conclusion:
There are several concerns in relation to rural credit which are
generally expressed in terms of inadequacy, constraints on timely
availability, high cost, neglect of small and marginal farmers, low credit
deposit ratios in several states and continued presence of informal markets.
It is held that while the commercial banks are more focused in improving
efficiency and profitability, they have tended to give comparatively less
priority to rural credit. Regional Rural banks and cooperative appear to
face serious problems of governance as well as operational efficiency.
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Both institutional and non-institutional channels exist for supply of credit
in both rural and urban areas. While banks, microfinance institutions and
credit cooperative societies comprise the institutional channels, landlords,
local shopkeepers, traders and professional money lenders constitute the
non-institutional channels. The share of informal loans in rural credit went
down from 91 percent in 1951 to 45 percent in 1991. Most of the benefits
of this development have gone to the relatively better of people. Around 66
percent of large farmers are reported to have a deposit account and 44
percent have access to credit.
In India nearly 72 percent of population lives in villages and is
mostly dependent for their livelihood on rural areas despite such a high
predominance, the share of agriculture and allied activities in India’s
GDP are only about 25 percent. Many policy changes have taken place
since I960, when the agricultural credit scenario was largely dominated
by private informal sources of credit, to increase the flow of institutional
credit to the agricultural sector. On an average the institutional short term
agricultural credit was 67.59 percent and long term institutional credit
was 32.41 percent during 1998-99 to 2009-10. Among the total
institutional agricultural credit the share of scheduled commercial banks
was 71 percent it was 19 percent for cooperative banks and 10 percent for
Regional Rural Banks in 2007-08. At all India level, an estimated 60.4
percent of rural households were farmer households and of them 48.6
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percent were reported to be indebted. The incidence of indebtedness was
highest in Andhra Pradesh (82 percent), followed by Tamil Nadu (74.5
percent), Punjab (65.4 percent), Kerala (64.4 percent), Karnataka (61.6
percent), and Maharashtra (54.8 percent). As per NSS 59th round
Moreover, Harayana, Rajasthan, Gujarat, Madhya Pradesh and West
Benal each had about 50 to 53 percent farmer households indebted.
The share of institutional sources in cultivator’s debt improved
considerably in the years following bank nationalization, from about 32
percent in 1971 to 66 percent in 1991, but in the 1990's, there was a loss
of momentum and the share declined to 61 percent in 2002. In the post
nationalization period, the increase in the share of commercial banks was
rapid and sizeable. The decline in the share of institutional agencies in the
1990's could be attributed to the decline in the share of commercial
banks. The average size of loan per farmer also increased with the
landholding size. Small and marginal farmer households, which
accounted for 80 percent of indebted fanner households, absorbed 51
percent of the total outstanding credit from institutional agencies.
However, debt for productive purposes as a percentage of total debt
declined from 71.6 percent in 1981 to 2.9 percent in 2002. Similarly the
share of debt incurred for farm business declined from 64 percent in 1981
to 53 percent in 2002.
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