Agricultural sector

Manish Goel
Retail Boom: Emergence of Collaborative models with

2008

This is the report of the Final year project for the course of Post
graduate Program in Business Design

Submitted by:-
Manish Goel
Roll No – 13

Welingkar Institute of Management Development and Research,

L Napoo Road, Matunga, Mumbai - 400030
“Retail Boom: Emergence of Collaborative models with Agricultural sector”

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR POST GRADUATE PROGRAM IN

BUSINESS DESIGN (VERTICAL- Finance)

(2006-08)

COURSE: PGPBD

ROLL NO: 13

Welingkar Institute of Management Development & Research

1
 CERTIFICATE FROM GUIDE (Internal)

This is to certify that project entitled " Retail Boom: Emergence of Collaborative models with
Agricultural sector” is successfully done by Mr. Manish Goel during the VI Trimester of his course
PGPBD-Finance in partial fulfillment of the Post Graduate Program in Business Design as per the
requirements of rules by AICTE (PGPBD) through the Prin.L.N.Welingkar Institute of Management
Development & Research, Matunga, Mumbai. He has applied to Bank of India for approval of the project
and the allotment of a mentor. He was allowed to do project under my guidance. Attached is the
photocopy of the approval letter.
This project represents the work done by Mr. Manish Goel.

This project in general is done under my supervision.

Date: _____________ Name of Guide: Prof.

Address of Guide: ___________________________________

____________________________________

____________________________________

Tel.No: ____________________________________

2
 CERTIFICATE FROM GUIDE (External)

This is to certify that project entitled " Retail Boom: Emergence of Collaborative models with
Agricultural sector” is successfully done by Mr. Manish Goel during the VI Trimester of his course
PGPBD-Finance in partial fulfillment of the Post Graduate Program in Business Design as per the
requirements of rules by AICTE (PGPBD) through the Prin.L.N.Welingkar Institute of Management
Development & Research, Matunga, Mumbai.
This project represents the work done by Mr. Manish Goel.

This project in general is done under my guidance.

Date: _____________ Name of Guide: Prof.

Address of Guide: ___________________________________

____________________________________

____________________________________

Tel.No: ____________________________________

3
 Acknowledgement

This project is a great learning experience for me and I believe it will make a difference to my perspective for
business and to my career as well. The project would not have been successfully complete without some people who
have contributed immensely towards it.

To start with I would like to thank My Guide from Bank of India Mr. Sudhakar Atre who approved to be my guide
for the project and to do research under him, HR Manger – Bank of India Ms. Aparna Shukla who was very
cooperative and approved my application for the project. Very special thanks to Prof. Bijoy Bhattacharya who
constantly contacted Bank of India for approving my project.

I am obliged to Mr. Uday Newalkar, Lead District Manager, Bank of India, Alibagh, and Mr. Lakshman
Jundhane, Field Executive, Bank of India, Alibagh for extending their support during my rural visit to Alibagh.

The different perspective that I have come out in the report would not have been possible without inputs from Mr.
Jayaraman, GM, DEAR, NABARD and Mr. Anand Kashid, AGM, (DD) and thus I am thankful to them. I am
thankful to Mr. Avinash Joshi, and Mr. Subham Ray from Food Bazaar, Future Group, for their valuable and
practical inputs. The project would not have been possible without the field visits in Pune and the valuable inputs of
Mr. Rashmi Abroal, Rashmi Grrenland Agri Tourist Centre who spend his valuable time with me and made my
visit a success.

I am thankful to Prof. Anil Naik (Dean- WRC), Prof. Sudhakar Nadkarni (Dean – Business Design), Prof.
Ketana Mehta (Asst. Dean –WRC), Prof. Pradeep Pendse (Dean – IT), Prof. Kaustubh Dhargalkar and Prof.
Anuja Agarwal for their support for the project.

I would like to acknowledge support from Ms. Aisha Panjwani (Coordiantor – Business Design) and Ms. Kalpana
Hunduja (Associate –WRC) for their motivation and support.

Above all I am thankful to my parents, my brothers and my friends who have been a great support the project and
always motivated me to do good work.

Without his support and guidance it would have been difficult for me to complete the project and derive so much of
learning out of it.

Manish goel

Welingkar Institute of Management Development & Research

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 Table of Contents
1. 0 INTRODUCTION................................................................................................................................ 6
1.0.1 Synopsis of the problem....................................................................................................................... 6
1.0.2 Research Objective .............................................................................................................................. 6
2.0 LITERATURE REVIEW .................................................................................................................... 7
2.0.1 Purpose................................................................................................................................................. 7
2.0.2 Keywords ............................................................................................................................................. 7
2.0.3.1 Source 1: Retail Industry to Boom in next 5 years (Source: CRISIL) .............................................. 8
2.0.3.2. Source 2: Global Retail Development Index Report 2007 (Source: www.atkearney.com) ............. 8
2.0.3.3 Source 3: Retail Boom: New Opportunities in Agriculture finance, an article by Mr. Sudhakar V.
Atre, Sr. Manager & Faculty Member, Bank of India. .......................................................................... 10
2.0.3.4. Source 4: The Hindu Survey of Indian Agriculture 2007, Annual Survey on Agriculture by the
Newspaper Hindu.................................................................................................................................... 10
2.0.3.5. Rural Finance for Small farmers -An integrated approach by Hans Dellien and Elizabeth Lynch.
(Source: ‘The Indian Banker’ magazine) ................................................................................................ 11
2.0.4. Conclusion ........................................................................................................................................ 12
2.0.5 Directions for Future Research .......................................................................................................... 12
3.0 Finalization of Hypothesis & Crystallization of Research Problem ............................................... 13
3.0.1 Hypothesis.......................................................................................................................................... 13
3.0.2 Crystallization of the problem............................................................................................................ 13
4.0 PLAN OF RESEARCH ...................................................................................................................... 14
5.0 PRESENTATION OF DATA AND DATA ANALYSIS ................................................................. 15
5.0.1. Hypothesis......................................................................................................................................... 15
5.0.2. Data required on the basis of identified problems ............................................................................ 15
5.0.3 Budget 2008: Agriculture loan waiver ............................................................................................... 15
5.0.3.1 ......................................................................................................................................................... 16
5.0.4 Economic Survey 2006-2007 ............................................................................................................. 17
5.0.4.1 Agricultural Insurance..................................................................................................................... 19
5.0.5 Initiatives by other banks and financial institutions ........................................................................... 20
5.0.6 Data from Primary research ............................................................................................................... 22
5.0.6.1 Field Visit: Raigad District (Maharashtra State) / Service area: Alibagh ....................................... 22
5.0.6.2 Response from farmers through NABARD office .......................................................................... 22
5.0.6.3 Information from a retail company ................................................................................................. 23
5.0.6.4 Intercepts with farmers around Pune .............................................................................................. 23
5.0.7 Directions for further research ........................................................................................................... 26
5.0.8 Interpretation ...................................................................................................................................... 26
6.0 CONCLUSION & CONCEPT CREATION .................................................................................... 28
6.0.1 Kisantrepreneur: Beginning of a collaboration .................................................................................. 28
6.0.2 Three C’s Approach: A step towards agriculture sector .................................................................... 29
6.0.3 Rural Credit: A multidimensional Entity ........................................................................................... 29
6.0.4 Three-pronged approach for Government.......................................................................................... 31
7.0 Limitations of the study ....................................................................................................................... 31
8.0 Bibliography ........................................................................................................................................ 32
Budget 2008: Agriculture loan waiver ........................................................................................................ 15
Keywords ...................................................................................................................................................... 7
Purpose.......................................................................................................................................................... 7
The summary of actual content ..................................................................................................................... 8

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1. 0 INTRODUCTION
1.0.1 Synopsis of the problem
The growth of the Retail sector in India is spectacular during past few years. The major corporate houses
in India (e.g. Tata, Birla, reliance, Bharti etc.) and the world's Giant retailers (e.g. Wal-Mart, Tesco,
Carrefour etc.) are doing their best to have the head start in the field and reap the benefits. Indian retail
industry expects to investment of over $ 30 billion over the next 5 years. The size of Retail market in
India is estimated between $320-350 billion which is growing at 30-35% per annum. Organised retail,
predominantly urban phenomenon constitutes about 4% of the total retail trade in India. India has about
30 Million retail outlets providing direct and indirect employment to nearly 18 million people. The
opportunity for the retail industry truly looks unprecedented.

The impact of corporate investment into retail is likely to be multi-faceted. The first and foremost is on
the supply chain-starting from the farmers to the consumers. There are many intermediaries in the supply
chain of farms produce which increases cost of agricultural produce which needs to be optimized.

Secondly, there are cases of suicide where it was observed that on an average an Indian farmer committed
suicide every 32 minutes between 1997 and 2005. Since 2002, that has become one suicide every 30
minutes. The reason is that they are unable to repay debts as they are unable to sell their farm produce.

Also despite being among the world's largest producers of food grains, fruits and vegetables, we are most
inefficient. An estimated 25-40 per cent of farm produce worth $12 billion (Rs. 50,400 crores) rots every
year even before it reaches consumers.

These issues pose a challenge whether our retail industry will be able to cope up the demand that Retail
boom will bring in recent years. If Retail industry has to cope up with this challenge, then they need come
up with some innovative collaborative models that will help them to leverage on the vast production of
Indian fields and to perform profitably in an Industry which operates on lesser margins.

1.0.2 Research Objective

Objective of the study is to explore different models where organisations have already entered into
collaborative model with Agricultural sector and to identify what are the attributes of the environment and
the entities involved for such collaboration. Also to identify possibilities which can lead to a developing
more such models to benefit from this approaching RETAIL BOOM.
2.0 LITERATURE REVIEW

2.0.1 Purpose
To clearly define the relationship between agricultural credit and Retail boom with the support of already
published research papers, articles and surveys. Thus, to identify what is the focus of further research and
what are the lines of enquiry.

2.0.2 Keywords
Retail Boom: India's retail estimated at size of $679 billion in 2006-07, which will swell to more than
$2366 billion by 2012 growing at 28% per annum.

Retailing: Retailing is the interface between the producer and the individual consumer buying for
personal consumption. This excludes direct interface between the manufacturer and institutional buyers
such as the government and other bulk customers. A retailer is one who stocks the producer’s goods and
is involved in the act of selling it to the individual consumer, at a margin of profit. As such, retailing is
the last link that connects the individual consumer with the manufacturing/production and distribution
chain.

Organised Retail: A form of retailing where by consumers can buy goods in a similar purchase
environment across more than one physical location.

Supply Chain: Supply chain management (SCM) is the oversight of materials, information, and finances
as they move in a process from producer/supplier to manufacturer to wholesaler to retailer to consumer.
Supply chain management involves coordinating and integrating these flows both within and among
companies. (Source: www.searchCIO.com)

Intermediation: Act of participation by different bodies or individuals in the supply chain of goods from
the producer to the supplier with the purpose of business and profit making. It may or may not add value
but increases the cost of goods with every increase in an intermediary in the chain.

Agriculture credit: Credit lending by different financial institutions to farmers or entities involved in
agriculture or related activities. These institutions include commercial banks, regional rural banks
(RRBs), cooperatives [comprising urban cooperative banks (UCBs), State co-operative banks (STCBs),
district central co-operative banks (DCCBs), primary agricultural credit societies (PACS), state co-
operative and agricultural rural development banks (SCARDBs) and primary co-operative and
agricultural rural development banks (PCARDBs)], financial institutions (FI) (term-lending institutions,

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both at the Centre and State level, and refinance institutions) and non-banking financial companies
(NBFCs)

2.0.3 Summary of actual content

2.0.3.1 Source 1: Retail Industry to Boom in next 5 years (Source: CRISIL)

Summary:

Organised retail to treble in 5 years

As per the CRISL report for the year 2007-2008 the organised market is poised to grow at nearly 28 %
from an estimated Rs. 679 billion in 2006-07 to around Rs 2, 366 billion by 2010. Main factors
contributing to this robust growth will be the rising disposable income, demographic changes, growing
consumerism, and growth of retail malls etc. contributed mainly by 33 cities.

Food and grocery is the largest of all verticals of a retail company accounting for close to 67 per cent.
However, it has lowest penetration in organised retail, at around 1.3 per cent. Other sectors of footwear,
clothing and home décor etc are growing fast.

The report evaluates profitability of 3 verticals- apparels, household appliance and food & grocery which
together constitute 75% of the sore area in a typical hypermarket depending upon player to player.

Amongst these 3 vertical, apparels has the maximum scope for increasing share of private labels, there by
earning highest private margins. Brand and technology being the highest differentiator for household
appliances, it is difficult to sell private labels. Similarly there is no scope for increasing private labels in
food & grocery.

2.0.3.2. Source 2: Global Retail Development Index Report 2007 (Source: www.atkearney.com)

Summary: GRDI identifies window of opportunity to help retailers make strategic investments in
exciting new market. It ranks 30 top destinations and given below are the top ten where India emerged as

8
the top destination.

Figure 1: Ranks of countries in global retail destination list

The reason is that in the window of opportunity India appears in the zone where the retailing is peaking.
See the diagram below:-

Figure 2: Different phases of a retail boom

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2.0.3.3 Source 3: Retail Boom: New Opportunities in Agriculture finance, an article by Mr.
Sudhakar V. Atre, Sr. Manager & Faculty Member, Bank of India.
Summary: The articles lead to the genesis of this research topic. It talks about the approaching Retail
boom in India and the challenges it will bring along like supply chain which is very essential. Because of
the lack of an effective supply chain there is wastage of 25-40% of agricultural produce waste in India
and nearly 1 trillion rupees can be saved as estimated by CRISIL. Also there are certain challenges for the
banks as well. First, it will result in greater investment in farm technology which will generate a huge
demand for Bank credit. Secondly, which perhaps is more important, it will aggregate demand, thereby
allowing direct sourcing from farmers. This will help greatly help bankers for credit expansion and credit
monitoring. But the big question is, are Banks ready for this challenge?

Thus the article stresses at innovative products in this field. PSB’s with their vast network can definitely
make a difference.

2.0.3.4. Source 4: The Hindu Survey of Indian Agriculture 2007, Annual Survey on Agriculture by
the Newspaper Hindu.
Summary: Survey has several articles on current state of agriculture. But the articles, ‘Profound changes
in Retail area’ and ‘Birth of a third green revolution’ establish connect with the challenges of the
approaching Retail boom.

‘Profound changes in Retail area’ highlight the challenges arising out of fragmented landholding, limited
credit flows and uncertain market conditions. It says that retailers will have to move towards ‘Quality
based pricing’. Also, development of food retail will inevitably result in establishment of backward
linkages with agriculture and food processing. According to the author it may be unreasonable to expect
food retail to address all the entrenched problems of Indian Agriculture and produce marketing thus
Government and PSB’s need to play a crucial role. Following factors will arise as major concerns:
Storage, temperature control, inventory management and transportation. It highlights on factor as a major
driver of growth of food retail, “Food accounts for about 50% of a family’s monthly budget (about 42%
in urban and 54% in rural), food and grocery business is unlikely to face any recession any time.”

‘Birth of a third green revolution’ discusses new marketing channels like direct buying from farmers.
Currently corporates are making a beeline to the farmer’s doorstep for buying their produce. According t
several experts corporate farming, could be the answer to the present agricultural crisis the country is

10
presently facing where companies buy the produce on contract basis from farmers, guarantying to pay the
prevailing market prices. Cooperative movement must support the retail boom.

2.0.3.5. Rural Finance for Small farmers -An integrated approach by Hans Dellien and Elizabeth
Lynch. (Source: ‘The Indian Banker’ magazine)
Seventy-five percent of the world’s 1.2 billion1 poor people live in rural areas. There is lacking access to
institutional sources of finance, most rural poor and low-income households. Microfinance providers can
fill an important financing gap by expanding operations into rural areas.
The paper provides an introduction to the key elements of success in the expansion of micro-lending to
rural areas.
The first section identifies the common risks in agricultural production that may impact clients’
repayment capacity.
The next section outlines the steps an institution must take to expand responsively and sustainably into
rural markets. The steps include determining optimal branch locations, understanding the new clientele
and how men and women’s economic activities in these markets differ, designing responsive financial
products, identifying ideal loan officers, and finally employing a rigorous lending methodology suited to
rural households and market dynamics.
The last section summarizes what an institution must commit to in order to ensure successful rural
expansion.
As per the article Microfinance providers targeting small farmers face a variety of challenges, such as
understanding the cash flows of rural households and the business cycles of small farms, and estimating
the repayment capacity of small farmers (who in many cases lack proper records).
The article defines clearly the risks involved in farming which need to be taken care of. These are:-
• Climate risks – Fluctuations in climate and levels of rainfall
• Productions risks
• Price and market risk due to excess supply and other factors
The article suggests that to expand into rural markets, financial institutions need to be reducing high
operational costs and deploy a comprehensive and integrated strategy which includes design of effective
risk assessment.

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2.0.4. Conclusion
Following articles establish that there is a big retail boom approaching in India and there are many
challenges that need to be addressed. To address these challenges capital is major need and thus
agricultural credit is very crucial to support Indian Farmers.

2.0.5 Directions for Future Research

1. Can retail companies go beyond convention to support Indian farmers?

2. Is their a possibility of forming models which involve famers, retail companies and government as
well?

3. Are their any existing cases where a retail company has provided credit to support farming activities?

4. How models like ITC e-choupal can be created for the benefit of Agriculture industry?

To understand following issues I seek guidance from Mr. Sudhake Atre, Mr. Jayarman from NABARD
and Pantaloon Retail India Limited

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3.0 Finalization of Hypothesis & Crystallization of Research Problem

3.0.1 Hypothesis
Fact 1: Indian Retailing Industry will grow at 28% in next 5 years and it will be of a size Rs. 2366 billion
(Source: CRISIL Research Retailing Annual Review).

Fact 2: If we look at Indian retail sector, food and grocery form 67% in the Indian Retail sector and 17%
in the organized retail sector. (Source: CRISIL Research Retailing Annual Review).

Fact 3: But every year an estimated 30% of fresh produce is wasted due to unavailability of post-harvest
facilities, while 10% of grains is said to be lost on farms. (Source: Article-“Profound change in Retail
Area” The Hindu Survey of Agriculture 2007).

Fact 4: Green Revolution has forced several farmers into deep debts. Also the increase in application of
chemical fertilizers in turn led to increase in the debts and with the soil reaching saturation, the yields
became poor with a result the poor farmer found himself entangled in debts unable to repay. (Source:
Article-“Reducing Input Costs” The Hindu Survey of Agriculture 2007).

Fact 5: The second report indicates that though credit to the agricultural sector has grown in the last three
years, the number of farmers who availed of credit has declined. There is also evidence that the small and
marginal farmers have not had access to credit, and that lending by cooperative societies has decreased.
(Source: Article-“Two Problems of Poverty” on NREGS 2007 report in newspaper MINT)

Considering all the facts, the hypothesis here is that to tap the approaching Retail Boom in India,
Indian retail industry needs to enter into collaboration with Agriculture Industry which has lack of
credit availability. Thus Agricultural credit is a crucial driver for future of Agriculture and Retail
Industry.

3.0.2 Crystallization of the problem

Indian government is not paying attention: Share of Agricultural sector to the GDP of the nation has
declined and that of services sector has increased to 55% in 2006-07.The food retailers constitute 1/3rd of
the total retailers. The proliferation of the unorganized retail units is due to low entry and exit barriers,
low capital and overheads requirements and it is easy a relatively self employment option (Thus credit
availability for a scale required to match the needs of big Retailers can be observed here). Unlike in

13
other Asian countries, the organized retail sector in India forms only 2% of the total trade but it is
growing at 24-25% so again the credit requirement is indispensable.

Moreover, small (22 million) and marginal farmers (71 million) account for 81 per cent of the farmers of
the farm holdings in the country but they operate respectively.

Absence of models where Retail companies made credit available to the farmers: Opening of the Retail
sector to FDI in India has given a further boost to its retail sector thus turning the country into a giant
retail market. Some studies indicate that organised retail brings in more efficiency through greater
investments in infrastructure, cold chains, packaging and transport which reduces the wastage and lowers
the transaction cost but this is helpful for farmers who have the capability to produce and capital if scale
up in production is required. Small producers and those with lack of credit are likely to loose in view of
the small volumes produced by them in widely dispersed locations and their low bargaining power.

Innovative Models like ITC e-chaupal are not reproduced: There is dismal need of innovative models
like ITC e-chaupal which revolutionise the industry fast and thus benefit optimally from the Retail Boom
leading to far reaching economic gains which don’t fade away when the Retail boom transcend from peak
to the Decline stage.

(Source: The Hindu Survey of Agriculture 2007).

4.0 PLAN OF RESEARCH

The research includes both secondary and primary data collection through several resources. Primary
research includes field visits, intercepts with farmers and experts in the area

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5.0 PRESENTATION OF DATA AND DATA ANALYSIS

5.0.1. Hypothesis
To tap the approaching Retail Boom in India, Indian retail industry needs to enter into
collaboration with Agriculture Industry which has lack of credit availability. Thus Agricultural
credit is a crucial driver for future of Agriculture and Retail Industry.

5.0.2 Data required on the basis of identified problems

1. Indian government is not paying attention
2. Absence of models where Retail companies made credit available to the farmers
3. Innovative Models like ITC e-chaupal are not reproduced

In the purview of hypothesis defined above and problems identified above following data is
required:

1. Budget data which gives information about the government policies and initiatives
for agricultural sector.
2. Information from reports on research already done in this area.
3. Existing initiatives big and small by other banks and financial institutions.
4. Primary research and data related to topic.

5.0.3. Budget 2008: Agriculture loan waiver

With the full effects of the economic reforms of the 1990s working through the system, the
Indian economy has moved to a higher growth path and one of the facts that establishes it is that
agricultural credit poised to reach Rs. 2,40,000 crores by March, 2008 among others like 11.4
crore children covered under Mid Day Meal Scheme which is the largest school lunch
programme in the world, under National Rural Health Mission 8,756 primary health centres have
been made 24x7 and 1,82,000 girls enrolled in residential schools under Kasturba Gandhi Balika
Vidyalaya Scheme.

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Figure 3: Focus of Budget 2008

5.0.3.1 Scheme of Debt Waiver and Debt Relief for farmers:

Scheme to cover all loans disbursed by scheduled commercial banks, regional, rural
banks and cooperative credit institutions up to March 31, 2007 and overdue as on
December 31, 2007 are covered under the scheme;

Complete waiver of all loans that were overdue on December 31, 2007 and which
remained unpaid until February 29, 2008 for marginal farmers and small farmers;

One Time Settlement (OTS) scheme in respect of other farmers for all loans that were
overdue on December 31, 2007 and which remained unpaid until February 29, 2008;

Rebate of 25 per cent against payment of the balance of 75 per cent under OTS;

Agricultural loans restructured and rescheduled by banks in 2004 and 2006 through
special packages also eligible, either for a waiver or an OTS on the same pattern;

Implementation of the debt waiver and debt relief scheme to be completed by June 30,
2008;

Farmers availing the relief would be entitled to fresh agricultural loans from banks in
accordance with normal rules.

About 3 crore small and marginal farmers and about one crore other farmers to
benefit from the scheme; Total value of overdue loans being waived estimated at Rs.50,
000 crore and the OTS relief estimated at Rs.10, 000 crore.

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Focus on agriculture is in order to propel India to a new growth orbit of +10%; for
this, agriculture growth must increase from an average of 2.5% to 4%.

To support this following initiatives have been taken:

1) Launch of schemes under National Policy for Farmers in 11th Plan

a) Rs 250bn Rashtriya Krishi Vikas Yojana
b) Rs 49bn National Food Security Mission
2) Agricultural credit growth set to exceed targe
target for 2007‐08. For 2008‐09,
09, target set at Rs 2.8
trillion.

5.0.4 Economic Survey 2006--2007

The rate of growth of food grains production, however, decelerated to 1.2 per cent during 1990-2007,
1990
lower than annual rate of growth of population, averaging 1.9 per cent. The overall production of food
grains was estimated at 217.3 million tonnes in 2006
2006-07, an increase of 4.2 per cent over 2005-06.
2005
Compared to the target set for 2006--07, it was; however, lower by 2.7 million
n tonnes (1.2 per cent).

There has been a considerable decline in the rate of growth of area, production, productivity and area
irrigated for the major crops.

17
 -

+
-

Figure 4: Rate of growth of area, production, yield and area under irrigation for major crops

+ -

Figure 5: Actual production relative to targets (per cent)

The above given chart of actual relation relative to targets shows that for the last year we have not been
able to achieve 100%. Thus if there is boom in demand we need to take preventive steps from now
onwards to cope up with that.

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Figure 6: Trend growth rate in area, input use, credit and capital stock in agriculture during 1980-81 to 2003-04 (per
cent/year)

The “Farm Credit Package” announced in June 2004 stipulated, among other things, doubling the flow of
institutional credit for agriculture in the ensuing three years. The credit flow to the farm sector got
doubled during two years as against the stipulated time period of three years. The details regarding the
progress of agency-wise credit flow to agriculture and allied sectors is given in the table below. This
signals that credit availability is probably not less and there are unidentified factors that may be a reason
for bad performance in agricultural sector.

Figure 7: Institutional credit flow to agriculture sector (Rs. crore)

5.0.4.1 Agricultural Insurance

Climatic variability caused by erratic rainfall pattern, and increases in the severity of droughts floods and
cyclones and rising temperatures, have been the causes of uncertainty and risk resulting in huge losses in
agricultural production and the livestock population in India. The National Agricultural Insurance Scheme
(NAIS) for crops has been implemented from Rabi 1999-2000 seasons with the objective of providing
insurance coverage in the event of failure of any of the notified crops as a result of natural calamities,

19
pests and diseases. The scheme is available to all the farmers (both loanee and non-loanee) irrespective of
their size of holding and operates on the basis of “Area Approach’” It envisages coverage of all the food
crops (cereals, millets and pulses), oilseeds and other commercial/horticultural crops in respect of which
past yield data are available for adequate number of years. At present, 10 per cent subsidy in premium is
available to small and marginal farmers, which is to be shared equally by the Centre and State
Governments. The scheme is implemented by 23 States and 2 Union Territories. Since the inception of
the scheme and until Rabi 2006-07, about 971 lakh farmers have been covered. The coverage area is 156
million ha and the sum insured is Rs. 92,618 crore. Claims to the tune of about Rs. 9,855 crore have
become payable against the premium income of about Rs. 2,943 crore benefiting nearly 270 lakh farmers.

Figure 8: Season-wise details of coverage under the scheme of NAIS

5.0.5 Initiatives by other banks and financial institutions

1. Union Bank of India: Union Green Card (Kisan Credit Card) to meet the credit needs of the
farmer for crop cultivation, investment as well as consumption needs.
2. NABARD subsidy for Kerala: Rs 5.26 crore as subsidy to Kerala under the Centre’s Capital
Investment Subsidy Scheme and another Rs. 15.24 lakh under the National Project on organic
Farming.
3. Agri zones on the lines of SEZs mooted: At the meetings of the finance ministry, chaired by the
revenue secretary, P.V. Bhide, the trade body ASSOCHAM said that the government will have to
ensure adequate investments in Agri zones apart from GST (goods and services tax) to make
agricultural growth of 4% a reality and to achieve economic growth of 11%.
4. Bank of Baroda rural initiatives:

20
 a. 170 Gram Vikas Kendras (GVKs): for providing integrated financial and non financial
services for promotion of farm and non-farm sectors in rural areas.
b. Baroda Kisan Credit Cards: More than 6 lakh have been issued.
c. Dungarpur Project: Adopted the most backward district of Rajasthan for integrated rural
development and 100% financial inclusion.
d. Baroda Grameen Paramarsh Kendras: 21 centres for knowledge sharing, problem
solving and credit counseling for rural community have already been set up and 30 more
in pipeline.
5. NBHC contributing to agricultural supply chain efficiency: National Bulk Handling
Corporation is reaching out to more and more farmers with its value added services such as
scientific storage, commodity protection and quality certification at competitive rates. It also
assists farmers and other commodity supply chain participants in securing loans against their
produce when it is stored in NBHC or Non - NBHC warehouses. They are constantly moving
towards synergetic formation of “Commodity Ecosystem”.
6. Agri insurance’s Success Story: Agricultural Insurance Co. of India Ltd. has taken over the
implementation of National Agricultural Insurance Scheme (NAIS) which until 2003 was
implemented by General Insurance Corporation of India. Some of the new project launched so far
are:
i. Rainfall Insurance
ii. Rabi weather Insurance for Field Crops
iii. Bio-fuel Tree / plant Insurance
iv. Potato Crop Insurance
v. Weather based crop insurance scheme (WBCIS)
7. E-choupal – at a glance: Commencement of Initiative: 2000
i. States Covered: 9
ii. Villages Covered: 38, 500
iii. E-choupal installations: 6500
iv. Empowered Farmers: 3.5 million
8. Corporate groups running the food retail sector: West Bengal’s finance minister, Asim
Dasgupta, presented the state’s budget for the next year a few days ago. A surprise packet was the
allocation of a sum of Rs 100 crore, to be supplemented with by an additional Rs 300 crore from
the market, to partially fund the operations of a new corporation that will enter the food retail
industry. This corporation will procure farm produce directly from farmers and sell them through
retail outlets throughout the state. (Source: The Times of India, Mumbai, 26 March’08)

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5.0.6 Data from Primary research
The need of primary research is to find out how the system works in reality and what are the challenges
faced by people who are consistently efficient working of this system of credit and resource distribution.
Also, to hear directly from the stakeholders associated with the system gives a correct and clear insight
into the functioning of system and helps identifying the grey areas.

5.0.6.1 Field Visit: Raigad District (Maharashtra State) / Service area: Alibagh
Inputs from the conversation with:

Mr. Uday Newalkar, Lead District Manager, Bank of India

Mr. Lakshman Jundhane, Field Officer, Bank of India

Mr. Anand Kashid, AGM, NABARD

 Though the district has not witnessed something as hard hitting like farmer’s suicide but it had its
own share of calamities which are more natural like flooding due to excess rainfall.
 Bank of India provides credit counseling to farmers but still incidences of excessive production of
single crop happened and for that we need to delve into the understanding of a farmer psyche to
understand why even after having burnt their fingers the act is repeated by them.
 A developmental program of creating a SEZ by government is seen as a by threat local farmers
which will also reduce the cultivable land in that area.
 Primary Agriculture Society (PAC) is very active organization working closely with farmers. If
these societies become completely non political in their working can work as one most effective
centre for credit distribution among other important tasks for farmers.
 Banks don’t give farmers loan for personal consumption though the agricultural loan provided
has a 10% extra amount provided for the same. This is one of the reasons why agricultural loans
are diverted to use for other purposes.
 There seems to be a vicious cycle that exists which completes one circle every 5-6 years with a
mishap.
 Apart from financial and environmental factors there are lots of psychological, social factors that
affect farmers.

5.0.6.2 Response from farmers through NABARD office

 Infrastructure supporting agricultural storage is missing and loan against the stored products are
not yet widely available.
 Marketing of agricultural produce is not effective and is almost non-existent in case of farmers.

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  Insurance products are still available which will be a beginning of a process of risk bearing.
 Trader’s intervention should be controlled to help farmers get proper returns or their produce.
 All the farmers indicated that the excess rainfall in Kharif season, non availability of assured
irrigation in the entire district for summer season, polluted rivers, effects of polluting industries,
the conversation of large productive land into Khar land in coastal area, lack of mechanisation
and low use of inputs etc. are some of the constraints in increasing the productivity.

5.0.6.3 Information from a retail company

Due to confidentiality reasons the name of the company cannot be disclosed. My questions to the
company were mainly around following three questions:-

 What are the challenges they face in sourcing produce directly from farmers?
 Are their any agricultural ties ups or collaborations they have formed to support their food
business?
 What does the company think about credit-availability linkage to agricultural sector?

Following is the excerpt of answers received from them:-

 Company prefers to keep an aggregator as a mediator while sourcing from farmers. This is a
similar practice they use across organisation for this segment.
 Company is not at all willing to open many interfaces while dealing with farmers as it reduces the
operational efficiency of the organisation.
 Inclusive business approach is what the company practices and not an extreme altruistic or an
exploitative approach.
 Being a retailer they look primarily towards improving the front end efficiencies and conveying
the consumers’ feedback (Consuming Community) to the producer (Growing community) which
will help the producer in a better way about improving his style of producing.
 Agricultural extension is what they are looking at but it is not a priority.

5.0.6.4 Intercepts with farmers around Pune

Intercepts held were with the cooperation of a vendor for the food division of a Retail giant. This retailer
sources agricultural produce using four different models for fresh food and vegetables:-

 SIS – Shop in shop

 License market /range, margin, quality/prices/Back end &front end
 Consolidator
 License/Consolidator – price/range/quality etc. from Market / PRIL

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 Direct Procurement
 License – own back end front end by PRIL
 Institutional Tie up
 Back end and front end by other institutions and SIS by company

This vendor (let’s call him Big V) supplies organic vegetables to the retail company under SIS model
where he can himself sell the vegetables at the food counter. Big V not only himself grows these exotic
vegetables but helps other farmers as well to grow these vegetables. He has a network of more than 70
farmers who produce exotic vegetables to supply him and sell independently in the market. The way this
farmer has created business model around agriculture is presented in the case study attached.

Following are the excerpts from Insight Dialogues with few farmers:-

6.0.4.1. Mr. Tushar Ranjanikar

From his experience he brought to notice lot of important points. Firstly he said even though there is
inflation but over the years the volume is growing and price is declining. Though money circulation has
become smooth because of presence of big retailers but due to absence of fixed policies there is still an
uncertainty for payments of produce. There are companies which inform a day before about order
cancellation which should not be there in agricultural produce which takes months to grow and are highly
perishable.

Secondly, the thinking of CEO is not percolating down which they get to hear from media. Their
experience with the operational staff is not good. They feel the operational staff doesn’t deal properly as
things work on personal level and the lack of understanding in these the staff about agriculture leads to
conflicts. The Purchase managers acts pricey and works on their own conditions. The farmer said, “I am
an engineer, an educated and well informed farmer about my area than anyone else but the treatment I
receive makes me say: “maoM huM tao ek sabjaI vaalaa hI” (After all I am a vegetable vendor to them). He believes
that corporate bureaucracy is on peak. He referred as third class bureaucrats to employees who were
unsuccessful businessmen or unsuccessful employees somewhere else and now employed by these
companies.

Company managers are omitting older/experienced people as vendors who have say in the working of
managers by the virtue of their experience.

Experience of farmers with MNC’s had been good whenever they were involved in exports but it is not
the same with Indian companies as they have no clarity in their work style.

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Thirdly, there is Absence of meetings between the farmers marketing representatives like Big V and VM
(Visual merchandising) staff of the company so they can understand how to present and preserve these
vegetables and how to educate the consumer.

Fourthly, there is absence of feedback to the farmers about sales of their produce and true sales figure of
the produce. If this practice is inculcated will be very beneficial both for the farmers and retailers as the
feedback will help farmers know where they are wrong and thus consumers will receive an improved
quality.

Finally, Indian companies need to develop Indian practices which are suitable for local needs and avoid
foreign practices should be implemented here which are in a different direction to an Indian mindset. E.g.
He gave an example where one of the managers rejected his lot of medium sized capsicums which are
preferred by Indian middle class families as compared to big sized capsicums which are suggested under
foreign practices and preferred by hotels in India and not common public.

Amongst other suggestion the farmer suggested that the companies need to study the local mandi (local
market) style of working as the companies need a very strong grower base is required. He said we need a
platform a like stock exchange where they can ask for what they deserve for their produce which is like a
mandi. “Both the company and farmers need to come together and collaborate as their relationship needs
to be like a happy marriage”, says Ranjanikar.

6.0.4.2. Balu Bajirao Waghdhare

This farmer used to grow potato, onion etc. and family was in great problems because these vegetables
never fetch good and most importantly constant prices from market. “Local PSU Bank treats them like
stray dogs”- farmer says furiously.

Around a year ago he contacted Big V and started growing exotic vegetables. Now, he supplies to Big V
as well as other local vendors and restaurants.

6.0.4.3 Gyaneshwar Bodke

Gyaneshwar was into traditional farming of rice, wheat with the whole family but still the produce
couldn’t fetch enough money for the whole family to survive. He tried getting a poultry loan in 1993
which was under processing till 1995 when the Bank which is a PSU realized that they don’t give loan for
poultry, says the famer sarcastically.

His family quit the farming and started a job until he met Rashmi Abroal and started growing carnation
after doing a short term course at HTC (Horticulture Training Institute), Talegaon in year 2000. Same

25
year he a group named “Anubhav” with 17 farmers which constitutes 105 farmers now and started
growing exotic vegetables as well.

The group got a finance of Rs 7.5 crore from CANARA Bank which the group successfully repaid to the
Bank. The group received a National award under NABARD’s Farmer Club program at the National
award function from Finance Minister Dr. P. Chidambaram in Feb’08.

Gyaneshwar himself has become a consultant of exotic vegetables and floriculture and provides
consultancy across Maharashtra.

Farmer says, “We realized that marketing is very important now days but we can do one thing either to
produce or to market. So they need to partner with someone who can look after the marketing.”

5.0.7 Directions for further research

Suggestions from Mr. Jayaraman, GM, NABARD

Considering the wide scope of research he suggested that focus should be initially kept on develop a
generic business model for forming collaboration between retail companies and the farmers after
assessing the needs of both the stakeholders. So I will be assessing the following:-

How such collaboration operates?

What are the different conditions required for their proper operation?

Which are the different sources of credits for the farmers?

How can the famers operating an environment categorized to address their needs?

Can a mechanism be developed to tap their experience?

5.0.8 Interpretation
 Debt waiver to farmers will increase cash flow for rural sector which can negative
as well as it will encourage the benefitted farmers to repeat the act and non-defaulters to
commit a default.
 There are several more initiatives which can be found in the national economic survey which
suggests that there is no dearth of initiatives from the government. So, now the more challenging
task is to found out the reasons that are still hindering with the growth of this sector because still
production is going down, farmers are committing suicide and still 25-40% of agricultural
produce goes waste every year.

26
 Apart from above mentioned initiatives there are several initiatives taken by several institutions
and individuals for the benefit of people employed in agricultural sector. But the need of time is
to form an integrated approach that can implemented pan India and thus can catalyse the process
of holistic economic development.
 The key insight here is that one of the major entity in a business model for this collaboration is an
Aggregator who should ideally reduces the operational work for both the producer and the
retailer. At the same time it reduces risk for the retailer which they want to minimize in this low
margin industry.

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6.0 CONCLUSION & CONCEPT CREATION

6.0.1 Kisantrepreneur: Beginning of a collaboration

On the basis of research done so far with support of reading based secondary research and primary
research done there are few attributes that appear to be a must for a “KISAN” (farmer). These can be
described as a full form of word KISAN - Knowledge, Interest, and Skill set for Agriculture and
Nature.

But today when there is so much competition a farmer should have risk taking capabilities to succeed and
market its produce. Farmer of today also needs to be an entrepreneur.

It is practically impossible for a retail company to deal with million of famers. So they need not only a
KISAN or an Entrepreneur but a Kisantrepreneur (KISAN-trepreneur) who has Knowledge, Interest and
Skill set for Agriculture and Nature along with the risk taking capability to be a business man, one who
can deal and negotiate with retail companies and also be an aggregator for small famers. This person
needs to have a knack of marketing, ability to deal patiently with farmers. If he knows farming and
practices it, will be a bonus for the retailers.

The skill set is clearly defined for a Kisantrepreneur below:-

•Trends in Agriculture &

farming
•Basics of Agriculture
Knowledge
•Availibility of Different
reources like education,
credit and channels of sale.

•Nature
Interest •Agriculture
•Business

• Trustworthy
For Retailer • Believes in Integrity
• Patience to deal with farmers
• Farming skills are bonus
Skill Set • Open to feedback and adaptable

• Risk Taking
For the farmers • Negotiation skills
Figure 9: Skill set of a Kisantrepreneur • Marketing skills
• Creative

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6.0.2 Three C’s Approach: A step towards agriculture sector
Retail companies need to be receptive to this sector if they want to tap on this retail boom. During
research few factors came to critical to their relationship with this sector. 3 C’s of a retail framework for
agricultural sector:-

1. Communication: They need to be interactively involved with the famers by identifying people who
can lend them knowledge which can be used for the better functioning of food segment in their
companies. The company should regularly send people who are in leadership positions to interact with
these people and her them personally as well as communicate their vision to them.

2. Clarity in Policy in framework: Many farmers have experienced immense clarity in dealing with
MNC’s but there is cultural practices conflict. Others have experience that there are no rules to deal with
the farmers regarding contracts or payment issues. This needs to be transparent and clearly defined.

3. Conjoint Relationship: The companies need to work with them like a partner. SIS (Shop in Shop)
model by future group is an appreciated concept by farmers but needs more involvement of the company
staff. Companies can use the experience of farmers to train their staff which the farmers are ready to
provide. The process should involve some incentive both for farmers as well as the staff. It has been
observed that the food division doesn’t perform well if the staff is not aware and educated about the
products sold.

6.0.3 Rural Credit: A multidimensional Entity

Credit availability is very crucial to the development of this sector. In data collection section there is a
mention about the fiscal credit availability in sector for farmers but still there is disconnect which is the
distribution of fiscal credit. In interviews with farmers it has come across that PSU banks don’t deal
properly with the farmers. A farmer is not ready to take loan at the cost of self esteem which is depicted
by a statement from one of them, “vaao tao eosao pOsaa doto hOM jaOsao ku<ao kao raoTI…”.

Moreover, the with research it comes across that Credit has a multidimensional meaning for the
agricultural sector. The important factor here is that the amount of the credit can be micro or macro, the
source can be different but it should be available as per the requirement and the need. It doesn’t need to
high or less, micro or macro, cash or seed, it should be Necessary Finance.

Credit for this sector needs to qualify by 5 C’s which are:-

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 Capital

Confidence Cognitive
Credit for
Agricultural
Sector

Creation/
Convenience
Capability

Figure 4:: Dimensions of Agricultural Cred

Credit

1. Capital Credit: This refers

efers to fiscal credit availability by several channels like public banks, private
banks and other Institutions like PAC
PACs (Primary Agricultural Society) and MFIs (Micro Finance
Institutions).

2. Cognitive Credit: This refers to the knowledge lending to farmers abou

aboutt trends and best practices in
farming.. The farmer can repay it by giving consultan
consultancy
cy to other famers thus creating a chain transfer of
knowledge.

3. Creation or Capability credit:: One of the most important aspects now for this sector is marketing.
Most of the farmers said since they can concentrate on production they want a partner in marketing. They
are ready to repay this by allowing the marketing person giv
giving a commission or share in sales.

4. Credit of Convenience: This

his refers to providing opportunities to the farmers and not keeping
keepi them
away and let them burn in the vicious circle of poverty. Many farmers that I interviewed are now
producing
oducing traditional crops as wel
well as new exotic crops. The repay in this case by farmer is proper
utilization of the opportunity.

30
5. Credit of Confidence: This is the most important credit. Every farmer needs our and systems support
in their activities. Even though they don
don’t get it they have been lending it to us in the form of every bite of
food we get to eat which is produced by them.

6.0.4 Three-pronged
pronged approach for Government
There are 3 main areas
as that appeared very crucial ffor extending government support, vis-à-vis
vis
Distribution, Integration and Education.

Distribution Integration Education

1. Distribution of resources:: A proper framework of distribution of credit is required which

ensures proper distribution of highly available credit.. Banks should have a compulsory behavioral
behaviora
training to deal with farmers as it comes out as one of the main reasons for them not approaching
the banks.
2. Integration of existing interface
interfaces and channels: There are many Agriculture educational
e
institutions, credit institutions, and Agri-insurance companies etc. which work in isolation. Even
E
farmers around
und the periphery of cities not aware of them. So they should be integrated into an
interface that provides information about all aspects involved in modern agricultural practices.
3. Education and awareness:: Farmers are ignorant of so many channels of support. There should
be counselors who should visit rural areas and educate people about these channels.

7.0 Limitations of the study

1) The views expressed are mine aand thus readers may agree or disagree with the conteent.
2) The research is done over a 3 m
month period and thus has lot of scope for further reseearch.
3) The primary research is done inn few areas located within Maharashtra so the output of concepts given
might not be able to applicable to whole Maharashtra.
4) The scope of microfinance institutions and reasons for farmer suicide has not been explored.
Considering the shorter duratioon of project the scope is narrowed down to busineess perspective for
Retail Companies and Agricultuural sector.

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8.0 Bibliography
1. RBI website: www.rbi.org.in
2. CRISIL website
3. The Hindu survey of Indian Agriculture
4. AT Kearney
5. www.livemint.com
6. www.swwb.org//RuralFinance / The Indian Banker
7. National Budget 2008 (http://indiabudget.nic.in)
8. 2008 Budget Simplified: A report by Religare research
9. Economic survey 2006-07 (www.finmin.nic.in)
10. Times of India
11. Magazines:
a. CAB Calling
b. Agriculture Today
c. Financing agriculture

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