22 AGRICULTURAL FINANCE AND

Chapter MARKETING

Agriculture is an
unorganised
profession. Its
and failure depends, to a large extent, on climatic sucess by moneylenders, relatives of farmers, cooperative societies
factors. and commercial banks. Long-term loans are required for
Further, it is not always possible to
oroductive and unproductive loans of the distinguish between effecting permanent improvements on land, digging
farmers. Because tubewells, purchase of larger agricultural implements and
of these factors, banks did not show much interest
in machinery like tractors, harvesters, etc., and repayment of
advancing loans to agriculture and allied activities for a
old debts. The period of such loans extends
long time and farmers were forced to depend on beyond 5 years.
and mahajans. In this chapter, we
moneylenders
shall discuss:
Such loans are normally taken from
Primary Cooperative
Agricultural and Rural Development Banks (PCARDBs).
. Need for agricultural finance
On the basis of purpose.
.Sources of agricultural finance and the Agricultural credit needs of
the farmers can be classified on the basis of
relative purpose into the
importance of different sources
following categories ( ) productive, (i) consumption
Cooperative credit societies needs, and (iii) unproductive. Under productive needs. we
.Commercial banks and rural credit can include all credit requirements which
directly affect
.Regional Rural Banks agricultural productivity. Farmers need loans for the purchase
of seeds, fertilisers, manures,
.National Bank for Agriculture and Rural agricultural impiements.
Development livestock, digging and repair of wells and tubewells. payment
(NABARD) of wages, effecting
permanent improvements on land.
The problem of financial inclusion marketing of agricultural produce. etc. Repayment of these
Agricultural marketing in India loans is generally not difficult because the
very process of
Cooperative marketing. production generally creates the wherewithals for repayment.
Farmers often require loans for
the moment of marketing of
consumption as well. Between
agricultural produce and
NEED FOR AGRICULTURAL FINANCE harvesting of the next crop there is a long interval of time
and most of the farmers do not have sufticient
income to
Credit needs of the farmers can be examined from two sustain them through this period. Therefore,
different angles- (i) on the basis take loans for meeting their
they have to
basis of purpose.
of time, and (ii) on the consumption needs. In the time
of droughts or floods, the
crop is considerably damaged and
On the basis of time. farmers who otherwise avoid
taking loans for
Agricultural credit needs of the
armers can be classified into three have also to incur such loans. Institutional consumption,
categories on the basis credit agencies
do not provide loans for
oftime (i) short-term, (ii) medium-term, and (ii) long- consumption purposes. Accordingly,
eTm. Short-term farmers are forced to fall back
loans are required for the purchase of upon moneylenders and
Seeds, fertilisers, pesticides, feeds and fodder of livestock, mahajans to meet such requirements. In addition to
marketing of agricultural produce, payment of wages of consumption, farmers also require loans for a multiplicity
ured labour, of other unproductive
litigation, and a variety of consumption and purposes such as litigation,
productive purposes. The period of such loans is less performance of marriages, social ceremonies on the birth or
death of a family member,
an 15 months. Main agencies for granting of short-term religious functions,
Since institutional agencies do not festivals, etc.
8ns are the moneylenders and cooperative societies. grant credit for such
um-lerm loans are generally obtained for the purchase unproductive purposes, farmers have to seek assistance from
attle, small agricultural implements, repair and moneylenders and mahajans. It is often very ditficult to
Struction of wells, etc. The period of such loans extends repay such loans because they do not contribute to
the
productivity of farmer.
months to 5 years. These loans are generally provided

279
 Indian Economy
280
Code of Civil Pro
possible,
under the ordinary Procedu
belong such
ns as:
provisions (a)
censing
was

soURCEs OF AGRICULTURAL FINANCE AND first category

To the moneylenders, fixation of maxin
(b) fix
THEIR RELATIVE IMPORTANCE rates of interest, ofand (c) maintenance of accoDunts m
and/or registration by
receipts, etc. To the
moneylenders, grant ofregular Second
Non-institutional and Institutional Sources as: (a) the empower
such provisions
Sources of agricultural finance can be divided into category belong closed transactions g behind
and
the
two categories: (1) non-institutional sources, and the court to 'reopen of certain forms ofas
the written contract,
(6) protection
(2) institutional sources. The non-institutional sources are
in execution
of decrees, and (o
from attachment of decretal
the following-(i) moneylenders, (i) relatives, (iii) traders, court to direct payment amount
(hv) commission agents, and (v) landlords. The institutional empowering of the
by instalments.
sources comprise the cooperatives, Scheduled Commercial
Banks and Regional Rural Banks (RRBs). As far as As far institutional sources are concerned, the firs
as
was the institution at
cooperatives are concerned, the Primary Agricultural Credit institution established and promoted
societies. The Cooperative movement in
Societies (PACSs) provide mainly short and medium-term cooperative credit
loans and PCARDBs long-term loans to agriculture. The this country was started as far back as 1904. However, its
commercial banks, including RRBs, provide both short and was very slow. Even 1951, cooperatives
in
development
cent total rural credit. Hence, the
medium-term loans for agriculture and allied activities. The provided only 3.1 per of
National Bank for Agriculture and Rural Development dominance of moneylenders in agricultural credit continued
(NABARD) is the apex institution at the national level for It was only with the nationalisation of 14 major banks in
agricultural credit and provides refinance assistance to 1969 (followed by nationalisation of 6 more banks in 1980)
the agencies mentioned above. The Reserve Bank of India that the grip of moneylenders on agricultural credit could be
as the central bank of the country plays a crucial role in this reduced. In 1975, the government set up the third institution
sphere by giving overall direction to rural credit and financial the institution of RRBs (Regional Rural Banks). Thus
support to NABARD for its operations. by the end of 1976, there emerged three separate institutions
At the time of Independence, the most important for providing rural credit, which is often described as the
source of agricultural eredit was the moneylenders. In multi-ageney approach. In 1982, NABARD was set up.
1951 (the year when planning was initiated in the country) India now has a wide network of rural finance institutions
moneylenders accounted for as much as 71.6 per cent of (RFIs). There are more than 30,000 commercial bank
rural credit. The predominant position of the moneylenders branches, 14,00 regional rural banks, and about 1,00,000
was due to the reason that there was no other source worth rural credit cooperatives. This translates to about 4,700
the name and the farmers were forced to borrow from them. people served by each RFI outlet.
This almost total dependence of the farmers on the As a result of the efforts undertaken by the
moneylenders enabled the latter to dictate terms and exploit to develop the institutional sources of credit, the role or
government
the former in a number of ways. For instance, moneylenders
non-institutional sources like moneylenders in agriculural
charged exorbitant rates of interest ranging from 18 per cent
credit declined
to 50 per cent or even more. They often manipulated accounts considerably. non-institutional
The share of
sources in rural credit which was as high as 92.7 per cent ln
to their advantage by not entering the money returned and
1951 fell consistently to 68.3
interest paid into the account. They also forced farmers to per cent in 1971 and further o
30.6 per cent in 1991.
sell the agricultural produce to them at low prices. Long- More significantly, the share o
term loans were often advanced against the security of land moneylenders fell from 71.6
per cent in 1951 to merely l1.
per cent in 1991. The share of
and moneylenders often manipulated things in such a way
credit rose institutional sources inrur
as to seize the land. On account of this reason, they can be correspondingly
to 31.7 per cent in
from only 7.3 per cent in
191.
termed 'anti-social' elements. The government has, therefore, 1971 and further to 66.3
The latest information per cent m
undertaken various steps to regul ate the activities of the is available for the
the 70th Round of year 2013 u
moneylenders. For this purpose, various legislations were NSSO. According to this, the
institutionalsources in share
enacted. The basic objectives of these legislations were as
in 2013 (2.1 agricultural
credit was 60 per
follows: (1) to bring about an improvement in the terms on per cent government, 14.8 rative

sOcieties and 42.9 per cent coop

which private credit was made available to the agriculturists per cent banks) while
and place legal restrictions on the unreasonable exactions
sources accounted
for 40 per cent of gricultural cred non-instituto
The main
of the moneylenders, and (2) to enable the civil courts to do non-institutional
source was the agriculture
greater justice to both the lenders and the borrowers than professional moneylenders
cent who
:

accountedfor
. 25.8 per
of agricultural credit2 This shows ssive
that despite mas
 281
Agricultural Finance and Marketing

dsion of institutional credit in recent decades, additional I per cent interest subvention to
siue to depend for more than one-fourth farmers provided an
of their those farmers who repaid their short-term crop loans as per
ewedit requirements on moneylenders. This is a cause of schedule. The Government revised this subvention for timely
serious concern.

repayment of crop loans from I per cent to 2 per cent for

Expansion of Institutional Credit to Agriculture
There has been massive xpansion of institutional
credit to agriculture over the years. This would be clear
from the fact that institutional credit to agriculture rose
from 744 crore in 19/0-71 to R 9,830 crore in 1990-91 and
62,045 crore in 2001-02 (the last year
the
of Ninth Plan).
In June 2004, the government announced a
creditpackage
for the agricultural sector, which envisaged doubling of
agricultural credit over a period of three years. This target
was achieved in a period of just two years. Target for
agricultural credit for the year 2018-19 was kept at
11,00,000 crore F 7,92,000 crore for commercial
banks, 1.65,000 crore for cooperatives and 1,43,000
crore for RRBs). As against this, achievement was T 12,54,800
crore9,49,600 crore for commercial banks, 7 1,53,900
crore for c0operatives and 1,51,300 crore for RRBs).
From kharif 2006-07 to 2008-09, farmers were
receiving crop loans upto a principal amount of 7 3 lakh at
per cent interest. In the year 2009-10, Government
7
the year 2010-11, bringing down the effective rate of
interest for such farmers to 5 per cent per annum. In the
Union Budget for the year 2011-12, the Finance Minister
further raised the subvention to farmers who repay their
rate
crop loans on time to 3 per cent. Thus, the effective
of interest for such farmers was reduced to 4 per cent per
annum. The 3 per cent subvention scheme to farmers who
repay their crop loans on time has been continued since
then and thus, the effective rate of interest is 4 per cent per
annum.
Change in Relative Shares of Institutions
After the nationalisation of 14 major commercial banks
in 1969, the commercial banks have consistently increased
their share in institutional credit to agriculture from 38.4 per
cent in 1980-81 to 75.7 per cent in 2018-19. As a result, the
relative share of cooperative societies declined from
61.6 per cent in 1980-81 to 12.3 per cent over the period.
RRBs have contributed about 8 to 13 per cent of agricultural
credit over the years (See Table 22.1).

Table 22.1
Institutional Credit to Agriculture: Relative Share of Different Institutions
(per cent
Scheduled Regional Total Credit
Commercial Rural to Agriculture
ear Cooperatives
Banks Banks (F crore)
744
1970-71 100.0
1980-81 61.6 38.4 3,292
1990-91 49.0 47.6 3.4 9,830
2000-01 39.4 52.6 8.0 52,827
2001-02 38.0 54.1 7.9 62,045
2002-03 34.1 57.2 8.7 59,560
2003-04 31.0 60.3 8.7 86,981
25.0 65.0 10.0 1,25,309
2004-05
2005-06 22.0 69.5 8..4 1,80,486
2006-07 18.5 72.6 8.9 2,29,400
18.9 71.1 10.0 2,54,658
2007-0 75.8 8.9 3,01,908
2008-09 15.3
74.3 9.2 3,84,514
2009-10 16.5
16.7 73.8 9.5 4,68,291
2010-11
17.2 72.1 10.7 5,11,029
2011-12 10.5
18.3 71.2 6,07,375
2012-13
16.9 71.5 11.6 7,11,621
2013-14 12.2 8,45,328
16.5 71.3
2014-15
70.2 13.1 9,15,500
2015-16 16.7
75.0 11.6 10,65,800
2016-17 13,4
75.0 12.1 11,68,200
2017-18 12.9
12.0
12.3 75.7 12,54,800
2018-19 Weekly, March 18, 2006, Table 1,
Sources: (1) Rakesh Mohan, "Agriculture
Credit India", beonomic and Poltical2014
in

of India, Agriculural SialIsties al a Glance (Delhi, 2015), Table 14.9, and

p.1016; (2) Government 2018-19 (Mumbai, 2019),Table 92.
IV.2,
India, Annual Report p.
(3) Reserve Bank of
282
Indian Economy

into SCARDBs at t
level and federate themselves the
CoOPERATIVE CREDIT SoCIETIES the mixed structure wherein both the unitdlate
level; (ii)
federal types operate in one form or another; and an
History of cooperative credit is very old in India. In
fact, the cooperative movement was initiated in integrated structure wherein no separate Agricultthe
ural
the establishment of
1904 through
Rural Development Banks exist and the long-ter and
cooperative credit societies. These
sOcieties were organised to relieve the business is undertaken by the long-termsectionof the
credit
indebtedness of rural concerned. The rural credit cooperative structure i Sto
people and promote thrift.
is a huge institutional structure comprising 33
Organisation of Cooperatives 363 DCCBs and 95,238 PACSs at the grass root StCBs,
level in
The rural cooperative credit institutions in
India have the short-term credit structure and 13 SCARDBs and
been organised into short-term and PCARDBs in the long-term credit structure as 601
The short-term long-term structures. end.
cooperative credit structure is based on a March 2018.
three-tier structure, except the States in the north-east
At the lowest tier are the region. Cooperatives and Rural Credit
Primary Agricultural Credit Societies Although the cooperative movement was initiatedin
(PACSs). These are organised at the village level. At the
second tier are the District Central India as far back as in 1904, the role of cooperative
Cooperative Banks Credit
(DCCBs) organised at the district level. At the third and societies in providing credit was almost negligible in the
pre-Independence period. Even after half a century of
uppermost tier are the State Cooperative Banks (StCBs)
organised at the State level. As far as the village level operations, cooperatives provided only 3.1 per cent oftotal
PACSs are concerned, they can be formed rural credit in 1951-52. However, progress after Independence
by any ten or has been quite rapid. For instance, the Cooperatives provided
more than ten
persons. These societies generally advance
loans only for productive purposes. The 15.5 per cent and 22.7 per cent of total rural credit in 1961.
repaying capacity
of the individual is taken into account while 62 and 1970-71 respectively. The amount of short-term and
loans. The DCCBs are of
advancing such medium-term credit advanced by these societies increased
two types- cooperative banking from 23 crore in 1951-52 to 203 crore in 1961-62 and
union and mixed central cooperative banks.
the former is open only to
Membership of further to 1,425 crore in 1979-80. This shows that overa
cooperative societies, while
membership of the latter is open to both, individuals and period of nineteen years (1960-61 to 1979-80) the short and
Cooperative societies. The chief task of the District Central medium term loans increased by more than seven times.
Cooperative Banks is to advance loans to the PACSs in There was an impressive expansion in rural credit provided
times of need so that they can fulfil the requirements of through cooperatives in the Sixth and Seventh Plans. By the
farmers. The StCB, in turn, advances loans to the DCCBs in time the Eighth Plan started (in 1992-93), the rural credit
order to augment their capacity to provide loans to the provided through cooperatives had touched the level of
village level PACSs. It also coordinates and regulates the 6,484 crore (which was 53.4 per cent of the total direct
working of DCCBs. It also provides the link between the institutional credit made available to agriculture). However,
Reserve Bank of India and the money market on the one thereafter, while absolute amount of rural credit provided
hand and lower levels of cooperative structure on the other. by cooperatives increased,
institutional credit
their percentage share in total
In addition to their short-term credit requirements, declined. In 2018-19, cooperatives
accounted for 12.3 per cent of institutional credit provided
farmers also require long-term credit for: () effecting
to agriculture (R1,53,900 crore out of T 12,54,800 crore),
permanent improvements in land (for example, making
wasteland fit for cultivation, digging of wells or tubewells Cooperative Credit: An Evaluation
etc.); (i) purchasing agricultural implements; and Each and every
(iii) repaying old debts. To cater to these requirements, has
Committee/Working Group whie
reported on the rural credit system in India since n
long-term credit cooperatives have been set up. These are Royal Commission on
Agriculture (1928) has reafirm
organised at two levels. These differ from State to State and that from the point of view of structural
appropriatene
may be categorised into four types as: (i) the unitary structure there is no alternative to
cooperatives at the village leve
in which State Cooperative Agricultural and Rural provision of rural credit. The Rural Credit Survey Commiu
Development Banks (SCARDBs) operate at the State level (1954) eloquently expressed this view in the oft-quo
through their branches and have direct membership of statement, "cooperation has failed, but
cooperationd
individuals; (i) the federal structure in which Primary succeed. Even the All India Rural Credit
Review Comm
Rural Development Banks
Cooperative Agricultural and (1969) which recommended the entry of banks
commercia being
(PCARDBs) operate as independent units at the primary into the rural credit
system stated clearly that this was
 Agricultural Finance and Marketing
done to 'supplement and not
'supplant' the cooperative
credit structure. In fact, there has been an
extensive expansion,
both in the coverage and operations, of cooperative credit
societies in the post-Independence period. The performance
in the issue of loans is also commendable. However, the
rural cooperative institutions are beset with manyproblems
ranging from low resource base, high dependence on
refinancing agencies, lack of diversification, huge
accumulated losses, persistent NPAs (non-performing
assets), low recovery levels and various other types of
organisational weaknesses. Many institutions have continued
to make losses over the years. The major deficiencies in the
working of the cooperative societies are as follows:
1. The essence or basic features of cooperative banking
system must be a larger reliance on resources mobilised
locally and a lesser and lesser dependence on higher credit
institutions. However, many PACSs are at present dependent
on DCCBs and have failed miserably in mobilising rural
savings. Hleavy dependence on outside funds has, on the
one hand, made the members less vigilant, not treating these
funds as their own and on the other led to greater outside
interference and control. Overall, this has made the
cooperatives a "mediocre, inefficient and static system".
2. The cooperative credit institutions are plagued by
the problenm of high level of overdues. These overdues
have clogged the process of credit recycling since they have
substantially reduced the capacity of cooperatives to grant
loans. Overdues have also impaired the eligibility of the
cooperatives for availing of refinance facilities from
NABARD. Not only this, mounting overdues result in
increasing the transaction cost for effecting recovery.
According to Agrawal, Puhazhendhi and Satyasai, the worst
implication of build-up of overdues is that a large number of
Tarmers who are still outside the purview of institutional
Credit suffer on account of non-availability of credit.
3. The rural cooperative institutions have a high
level of NPAs (non-performing assets). For instance,
end-March 2018, the aggregate NPAs of StCBs were
estimated at 62.22 billion which was 4.7 per cent of the
total outstanding loans and advances. For DCCBs, on the
Same date, gross NPAs were at 7 309 billion, which
was
loans and
cquivalent to 11.2 per cent of their outstanding
PCARDBs (as
advances. Gross NPAs of SCARDBs and
25.0 per cent and
PeTCentage of loans outstanding) were
March 31, 2018. These
.4 per cent respectively as on
gh level of NPAs have seriously and impacted the overall
institutions
of the cooperative adversely a ffected
ath
their viability.
rural cooperative
4. A large number of
As on
nstitutions have incurred substantial losses.
283
31, 2018, 1 out of 33 StCBs, 52 out of 361 DCCBs, 37,838
out of 95,238 PACSs, 4 out of 13 reporting SCARDBs and
344 out of 601 reporting PCARDBs incurred losses.
5. PACS is the most important link in the short-term
cooperative credit structure. However, most of them are too
small in size to be economical and viable. Besides, several
of them are also dormant while some are defunct.
6. PACSs extend credit only to their members.
Therefore, a useful indicator for both access to and demand
for credit from PACSs is the borower-to-member ratio.
This ratio has generally remained below 50 per cent
suggesting that less than half the PACS members access
credit from the institutions themselves.
7. Because of their strong socio-economic position
and grip over the rural economy, large landowners have
is
cornered greater benefts from coperatives. This the
opposite of what the planners intended. Farmers having
holdings less than 2 hectares in size have received about
one-third of total loans advanced by the PACSs while the
share oftenants, share-croppers and landless labourers (who
are the poorest and, therefore, the most needy) has hovered
around only 7 per cent. The restricted access of small farmers
to cooperative credit is further highlighted by the fact that
only 30 per cent of the farmers holding less than 1 hectare
are members of PACSs, whereas almost all the farmers
holding above 4 hectares are members of PACSs.
8. There are considerable regional disparities in the
distribution of credit by cooperative societies with the six
States (Gujarat, Maharashtra, Karnataka, Kerala, Haryana
and Tamil Nadu) accounting for more than 60 per cent of
the short-term loans to agriculture for a considerable period
of planning.
9. The powers which vest in the government under the
cooperative law and rules are all-pervasive. Over the years,
State has come to gain almost total financial and
administrative control over the cooperatives, in the process
as at
stifling their growth. Instead of strengthening the base, a
weak base was vastly expanded as per plan targets and an
immense governmental and semi-governmental superstructure
was created. The driving principle seemed to be: 'If people
cannot or will not do it, the State can and will do it'.° As a
result, the cooperatives have virtualy become 'government
directed, government-controlled and governmen-regulated
enterprises' giving rise to red-tapism and administrative
interference by the government in the day-to-day working
of the cooperatives. More serious consequences of this
politicisation' of cooperative societies are interference in
recovery of cooperative dues or promise to write off dues if
credit elected to power, and determination of interest rates on
March
considerations other than financial returns, i.e., with an eye
 Indian Economy
284 number oe bra
while the total
shows that nche
areas.
This times, the total
seventeen
out by ACRC
on populist appeal. As correctly pointed increased by about
about twenty eight ti
of
(Agricultural Credit Review Committee), such actions generate
rural branches
i n c r e a s e d by imes
ture have also gro
a general psychology of non-repayment, vitiating the recovery from banks to agricul
advances banks accounted fon
or
climate and jeopardising the financial interest of credit 2018-19,
leaps and
bounds. In
apr. 75.7
agencies. Besides, mass supersessions of elected bodies
resorted to on political considerations. Replacement of
are
per
cent
institutional
of
crore
credit provided to

out of t12,54,800 crore). griculture

9,49,600
democratically elected managements with government the commercial banks have ni.
After nationalisation,
officials or nominated non-officials has struck at the very rural credit. This has yed
an important
role in providing
heart of the cooperative system. Even where supersession
agricultural inputs and adont
has not taken place, the show is managed by invoking the farmers to purchase
an increasing scale, ev
long as agricultural technology on
powers of the government and deferring election as
sector areas, and also
in rural
possible. activities in the non-farm
accelerate the pace of private
agricultural investment, Th
In addition to the above problems, many cooperatives a pivotal role in ndi
suffer from poor management and lack of enthusiasm and bank expansion has played
modernisation in addition t
dedication among members resulting in a great deal of agricultural growth and
from the clutches af
inefficiency and poor service to the members. Moreover, freeing large number of ruralpeople
the moneylenders. Under the Reserve Bank's Service Area
affairs of most of the cooperative societies are managed by
the large farmers to their advantage in connivance and Approach to rural lending in operation since April 1989
individual bank branches are expected to serve the credit
collusion with government officials while the small and
marginal farmers and other poor members generally have needs of 15 to 25 villages each. After carrying out surveys
no say. This dampens the spirit of the latter and their faith and preparing village-wise economic profiles, bank branches
in 'cooperation' is badly shaken. This is a serious threat too have been preparing credit plans for the villages in their
the long-run sustainability of the service areas. Block level bankers' committees have been
cooperative
movement.
constituted for coordination among credit institutions and
developmental agencies and for monitoring the
COMMERCIAL BANKS AND
implementation of the credit plans. Each bank has also
RURAL CREDIT
been preparing Special Agricultural Credit Plan
(SACP,
For a long period of time, the share of commercial segregated into quarterly targets, which is monitored by the
banks in rural credit was meagre. For instance, it was Reserve Bank of India.
only
0.9 per cent in 1951-52 and 0.7 per cent in 1961-62. The Credit to Priority Sectors
insignificant participation of commercial banks in rural credit The commercial banks are mandated to
in India is partly explained by the subsistence nature of achieve certain
agriculture and its unorganised, individualistic functioning. targets and sub-targets under priority sector
per cent of the adjusted net bank credit
lending. Fory
Moreover, the heavy dependence of agriculture on monsoons (ANBC) is thus
makes it an uncertain and risky venture. As required to be channelled to identified
against this, the such as agriculture, priority sectos
industrial sector is relatively more
organised and less small-scale industry, small business,
dependent on natural factors. Consequently, the commercial
etc.Direct finance to
reach a level of 18 agriculture
and allied activities is to
banks tended to concentrate on the industrial sector and per cent of net bank credit. Credit
even diverted the funds mobilised from rural priority sector by public sector
to
areas to meet
foreign banks in 2018-19 banks, private banks and
the demand for credit of the industrial sector. 42.6 per cent, 42.5 per
was ce
and 43.4 per cent
It partly remedy this state of affairs that
was to
In April
respectively of ANBC.
14 major commercial banks were nationalised 2016,
(PSLCs) scheme was priority sector lending
operationalised. The PSLCcertificae
in 1969.
This was followed by the nationalisation of 6 more
banks a mechanism to incentivise scheme
in 1980. After nationalisation, the banks
opened
number of branches in rural areas and have increased large
a to different categories of thebanks having surplus in
lenus
advances
their
these areas considerably. In June 1969, out of
to
boost overall priority sector and thereoy to
priority sector lending. PSLCs allow the
mechanism to drive
the total of 8,262 branches of commercial banks in India, the priority sector lending by m
1,832 (i.e., 22.2 per cent) were in rural areas. As at end comparative strength
allows a bank to of different
banks.
leverägo
This
March 2019, the number of total branches had shot benefit Scnofits
up to target in a particular sectorby selling
1,45,555. Of this, 51,594 (i.e., 35.4 per cent) were in rural which can buy it to
meet
over-achievemennk
through PSLCs to another Dl
its target in that while
sector,
 Agricultural Finance and Marketing 285

:elling its own over-achievement of the target in another

selli 3. Opening ofa large number branches in rural
of
sector to another bank and so on. A platform to enable rise
areas which do not have adequate business potential,
trading in the certificates has been provided by the Reserve in establishment expenses, and increase in non-performing
Bank through its core banking solution (CBS) portal advances affected the profitability of the banks adversely.
(e-Kuber). While the yield on advances has been declining, the average
Financial Inclusion Plans (FIPs) cost of deposits and borrowings has increased, reducing the

Commercial banks have emerged as the main vehicles margins available to the banks.
4. The recovery position of the commercial banks is
of the efforts at financial inclusion. For this purpose,
bad. In certain years, the level of overdues has been 30 per
a phase-wise approach has been adopted for the expansion
cent or even more. This is an alarming situation and calls
of banking facilities. The first phase covered the period
for corrective action. As warned by the Seventh Plan, "If
2010-13, the second phase covered the period 2013-16 and
this trend is not reversed and banks are reduced to institutions
currently the third phase covering the period 2016-19 is in
rather than recycling scarce resources to
providing grants
operation (for details, see the section on 'Financial Inclusion'
of this chapter). Financial Inclusion Plans (FIPs) prepared get the maximum benefits for the country as a whole, the
by the domestic commercial banks provide a structured and banking system will be unable to provide more credit to
meet the growing needs of the farmers.8
planned approach to financial inclusion. The Plans capture
5. For a considerable period of planning, the
self-set targets of the banks on parameters such as the
commercial banks failed to fill the geographicalgap in the
number of outlets (branches and Business Correspondents
availability of credit not covered by the cooperatives. They
or BCs), Basic Savings Bank Deposit Accounts (BSBDAs)
also tended to serve those areas which were already well
opened by bank branches and BCs, overdraft facilities availed served by the cooperatives, e.g., Southern and Western
in those accounts, transactions in Kisan Credit Card (KCC),
regionsand the States of Punjab and Haryana. States with a
General Credit Card (GCC) accounts and transactions through
deficient rural credit system did not benefit much. Moreover,
the BC-ICT channel (progress on these parameters is
in the absence of proper geographical spread of bank
presented in the section on 'Financial Inclusion').
branches, it was found that more than one bank operated in
of Commercial Banks: A Critical Review the same area resulting in unhealthy competition between
Operations
one commercial bank and another. The real need was to
Despite the achievements of the commercial banks in
make available only one alternative source of institutional
the field of rural credit mentioned above, their performance
and have invited a lot of criticisms. The main credit, whereas in reality, the multi-agency system tended to
operations become multi-alternative credit system.
points of criticism are the following:
However, according to Reserve Bank's Report on
1. The increase in bank credit to rural areas
fast
due Trend and Progress of Banking in India 2016-17, in recent
afier nationalisation has created strains in the system
to rapid expansion and diversification. One of the problems times, gaps across various geographical regions have declined
deterioration in the on account of the efforts made towards expanding access to
of such rapid expansion has been the the formal financial system. Under-banked geographical
under the anti-
quality of scheme preparation, particularly such the North-East as well as the Eastern and
in the quality of lending regions as
poverty programmes. Deterioration Central Regions have recorded noteworthy improvement in
Is also due to heavy workload of day-to-day housekeeping,
population per bank branch.
without commensurate supporting staff.
increase in the
6. The credit-deposit ratio is an important indicator of
2. The commercial banks have found sanctioning the degree of involvement of banks in lending. The rural
and monitoring of a large number of
small advances in
and manpower credit-deposit ratio declined from 1.58 per cent in 1991 to
heir rural branches, time-consuming 0.73 per cent in 2001 which shows that deposits mobilised
cost proposition. Partly
nensive and consequently a highbeen found reluctant in from rural India were being utilised elsewhere. In other
Decause of this, the banks have words, rural India was financing the other sectors of the
other staffin rural branches.
pOsting sufficient supervisory and advances has come to be economy. According to Tenth Five Year Plan, this decline
Consequently, supervision of rural in the rural credit-deposit ratio has a direct bearing on the
branches of commercial
neglected. Also, the staff in rural work in rural areas for decline of public sector capital formation in the rural sector."
Danks lacks sufficient motivation to
as pointed out by
ACRC, 7. Loan disbursal to small and marginal farmers
various reasons. Not only this, rural branches of decelerated sharply in the 1990s. The option provided to
nere is a lack of adequate staff in
the commercial banks to meet priority sector lending targets
commercial banks.
 Indian Economy
286 ofthethe commercial
(RRBs) to
supplement
the efforts
c r e d i t to weaker
banks
Development in extending secti
far
by investing in RIDF (Rural Infrastructure the cooperatives
Fund) and placing deposits with SIDBI (Small Industries
and
ofthe rural community
small

and
and marginal

other ruralresidentsn
of s
farmers
rate of growth of
artisans
al
Development Bank of India) reduced the
labourers, banks
landless these new
was
As a result, the in having that
direct finance to small and marginal farmers.
intention
The institutional de
means.
Indian be an
context,
annual compound growth rate of direct finance (disbursement) there should,
in the
and familiarity with the
declined local feel
to fàrmers with less than 2.5 acres (marginal farmers) which combined the
possessed and the
from 18.1l per cent in 1980s to 13.0 per cent in
1990s. The
problems
which the
Cooperatives
m o d e r n i s e d outlook whin
degree
annual compound growth rate of direct finance (disbursement) organisation
and hich the
of business a view to reaching the
to small farmers between 2.5 acres to 5.0 acres)
(holdings commercial banks
had, with rural
the same The Working Group rightly. sensed
declined from 15.1 per cent to 11.0 per cent over more extensively.
poor needed w a s a
low cost, low pro.
period.10 rural poor
that what the could walk in witho
between
only into which they
8. The problem of coordination not
credit institution to be recruited from the
but also between of RRBs was
o n e commercial bank and another trepidation. The staff have a bete
commercial banks and the cooperative credit structure,
on and as such would
neighbouring area and the local peonle
the one hand, and between banks and the Government understanding of the
local problems
departments, on the other, has assumed serious dimensions. their needs and their
constraints.

Though under the Lead Bank Scheme, there is a Lead Bank recommendations of the Workin
for each district, yet in many cases the number of branches Consequent upon the
set up in 1975. Their number
to the Lead Bank is less than the number of Group, 5 RRBs were initially
belonging to 196. There are now
56 RRBs in the country
branches belonging to other commercial banks put together. later rose
and carrying
If 50 or more branches owned by 10 to 15 banks are to be with 45 sustainable RRBs, i.e., earning profits
no accumulated
losses. In 2018-19, RRBs accounted for
it
brought together to implement
a common
programme, to agriculture
can well be imagined how difficult the task of coordination 12.0per cent institutional
of creditprovided
and implementation is under such a situation. 1,51,300 crore out of 12,54,800 crore).
9. A study of the impact of banking sector reforms on Problems of RRBs
agricultural credit by Gagan Bihari Sahu and D. Rajasekhar 1. Organisational Problems. Each RRB is sponsored
reveals certain disturbing facts as far as bank operations in
by a commercial bank. The Central Government and the
the post-reformperiod
(the period since 1991) are concerned: concerned State government also contribute to its capital.
(1) Because of mounting overdues and increasing losses
to
rural bank branches, the banks were directed to close down
Thus, there is a multi-agency control of RRBs. This has
contributed to a lack of uniformity in their functioning
their loss making branches or merge them with other banks. Besides, it has resulted in lack of support from State
As a result of this policy decision, there was a marginal
governments and lack of proper monitoring by sponsor
decline in the number of rural branches during the decade of
banks. Second, inherent in the concept of RRB is the
1990s; (ii) The share of those farmers, borrowing less than
constraint of restricted area of operation and restricted
25,000 declined in both the total number of loan accounts clientele, i.e., specific target groups. Third, there has been
and total loan amount during the reform period, (ii) Banks
a lack of proper systems and procedures within the institutions
provided larger quantum of funds to activities earning higher of RRBs, which could have avoided or minimised the
interest incomes. This trend was more prominent after
for overdues right from the start. Fourth, the
scopt
the deregulation of the lending rate to ultimate borrowers;
recruitment and training of RRB staff has not receiveu
process
(iv) The better off farmers improved their access to formal
credit as compared to marginal farmers; and (v) Despite the adequate attention. The urban and pro-rich bias seems
increasing consensus to extend credit facility to agriculture
prevail in the RRB staff, and this has not evoked confide
in the rural
in general, and small and marginal farmers in particular, poor. Lastly, the organisational problems
banks were unable to lend to those activities with high compounded by the
unplanned and unwieldy grow he
these banks and branches
social return or those categories of creditworthy borrowers opened under fromuthe
State governments. This created numerouspressure
problems
who had bean traditionally marginalised in the credit market.! control and
management of these banks.
2.
Problems of Recovery. For a number of ine
REGIONAL RURAL BANKS
recovery position of RRBs was very bad and theiryears, Overy

The Working Group on Rural Banks (1975) varied between 51 reco verdues

per cent to 61 per cent.

recommended the establishment of Regional Rural Banks varied between 39 per cent Thus, i o
high
to 49 per cent.
 Agricultural Finance and Marketing 287

ience of overdues was due t0 a number of internal and sectors. Given their mandate to focus on rural areas, about
na factors. The internal factors included defective
portfolios consisted of priority
externa

90 per cent of their loan

policie weak monitoring and
loaning supervision, apathy
failure to link lending with
sector lending, with agriculture constituting 74.6 per cent of
ards recovery,
d to ensure proper end use of the loan. development
their priority sector loans as at end-March 2017.3
Among the
vternal factors mention may be made of political interference, As on March 31, 2005, 196 RRBs sponsored by
wilful default, droughts and floods, lack of legal and
27 scheduled commercial banks and one State Cooperative
Bank were operating in the country with a network of
administrative support from the State government in the
14,484 branches spread over 523 districts. In September
loan recovery, etc.12
matter of 2005, the Government of India initiated the process of
3. Mounting Losses Leading to Non-viability. In in
amalgamation of RRBs. This, it claims, would help
his 1994-95 Budget Speech the Finance Minister pointed consolidating and strengthening RRBs°'. So far, there have
Out that of the 196 RRBs,as many as 150 had shown losses been two phases amalgamation. In the first phase
in each of the previous five years. Many had completely (September 2005 - March 2010), RRBs of the same sponsor
wiped out their equity and reserves and in some the losses banks within a State were amalgamated bringing down their
were eating into their deposits. This was indeed an number to 82 from 196. In the second and ongoing phase,
unsustainable situation. A number of factors had contributed starting from October 2012, geographically contiguous RRBs
1o the problem of mounting losses. Some of these were as within a State under different sponsor banks are to
follows: First, the RRBs were so structured as to confine amalgamate so as to have just one RRB in medium-sized
their lending to weaker sections where the interest earned States and two/three RRBs in large States. In the current
on loans is the lowest in the banking system. Second, low phase, 44 RRBs have been amalgamated into 18 new RRBs
within 12 States bringing down their effective umber to 56.
margins coupled with high cost of servicing a large number
of small accounts added to the losses. Third, in the absence
of loans which could yield higher returns, RRBs did not NATIONAL BANK FOR AGRICULTURE AND
have any scope for cross-subsidisation. In the opinion of
RURAL DEVELOPMENT (NABARD)
the ACRC, it is this absence of cross-subsidisation that
introduced "built-in non-viability' in the working of the The most important development in the field of rural
RRBs. Fourth, opening of RRB branches year after year credit has been the setting up of the National Bank for
added to the overhead costs without proportionate increase Agriculture and Rural Development (NABARD) in July
in income. non-availability of competent and trained
Fifth, 1982. It took over from Reserve Bank of India all the
staff also serious problems. Lasthy, the economic
posed functions that the latter performed in the field of rural
environment of many RRB branches is not satisfactory. credit. Designed specifically as an 'organisational device
4. Management Problems. Since the RRBs are
district for providing undivided attention, forceful direction and
level small institutions, the sponsor banks have been deputing pointed focus, to the credit problems of the rural sector',
them. Such staff finds NABARD is now the apex bank for rural credit.
only middle-management staff to run decisions in a new
t difficult to take independent Functions of NABARD
board of directors
environment. In addition, meetings of the bank to
of non- NABARD was established as a development
of RRBs are not held regularly and a large number
show much interest in the working
official directors do not perform the following functions:
due 1. To serve as an apex financing agency for the
of the banks. Moreover, anumber of problems crop up
institutions providing investment and production credit for
the multi-agency control of the RRBs and the functioning
O
0T RRBs is also not uniform in all the States/districts. promoting various developmental activities in rural areas;
2. To take measures towards institution building for
To solve the of losses of RRBs and improve
problem
in recent years to improving absorptive capacity of the credit delivery system,
eir
viability, efforts have been made into including monitoring, formulation of rehabilitation schemes,
infuse fresh capital
uructure their operations and in their restructuring of credit institutions and training of personnel;
nem. RRBs have been granted greater flexibility groups, 3. To coordinate the rural financing activities of all
can lend to non-target the field
nding operations: they institutions engaged in developmental work at
etc. Interest rates
ue drafts, get into non-funds business,RRBs have been level and liaison with the Government of India,
the State
s been deregulated. Many intermittently to meet
the Governments, the Reserve Bank and other
national level
and
dpltalised by the government and
manneralso institutions concerned with policy formulation;
sustainable
m 9 per cent CRAR in a to the productive
enable them to extend more credit
 Indian Economy

288 disbursements;
(ii) the implementingnting departmenis
de.

financial not adequately

funded y the
4. To undertake monitoring and
evaluation of projects governments)
were
faced problem
ems State
of land
(of (iii) the projects
refinanced by it. governments; and
environmne nental clea
forest tataaançe
NABARD's refinance is available to
State Cooperative acquisition, and inability to corro
monitoring
and (v) lack of
tranee
Banks (SCARDBs) inadequate
Agriculture and Rural Development
State Cooperative Banks (StCBs), Regional
Rural Banks
(iv)
action by government
functionaries
officers;
ransparency
other financial institutions the key
(RRBs). commercial banks and ultimate
among Innovations. The acess to
while the Microfinance cond
approved by the Reserve Bank, banking is often
beneficiaries of investment credit can
be individuals,
3.
for the poor
from
conventional

information asymmetry
constrained
and
State-owned corporations
borrowal a h
collaterals,
companies, of
partnership concerns,
by lack associated
with small
accounts
or cooperative societies. costs
transaction
as a
viable alternative to
has emerged reach
NABARD and Rural Credit
Microfinance
unreached for their social and econ
to agriculture the hitherto social and ncial
financi intermediat
An idea about NABARD's assistance through
details:
empowerment
of thrift,
credit and other finan
financial
can be had from the following
It involves provision amounts to the
NABARD provides of very small
po
poor
1. Credit extended by NABARD. services and products therereby
levels and
short-term credit facilities to StCBs for financing Seasonal them to raise
their income
enabling terms, micro credis
Agricultural Operations (SAO); marketing of crops; standards. In operational
and marketingg improve living to 25,000, extended to the Door
pisciculture activities; production/procurement and involves small loans, up
activities of cooperative weavers' societies; purchase without any
collateral for undertaking Self-employmet
and
sale of yarn by apex/regional societies;
production loans provided through microfinance
are
financing of projects. Such
marketing activities of industrial cooperatives; institutions (MFIs).
One of the most popular models of MFI
and
individual rural artisans through PACS; purchase Bank model, developed originally in
and marketing has been the Grameen
distribution of fertilisers and allied activities; in various parts of the world
to StCBs Bangladesh and replicated
activities. Medium-term facilities are provided organisations (NGOs)
for financing Under this model, non-government
and RRBs for converting short-term loans self-help groups (SHGs)
and provide
loans and for approved form and develop
SAO to medium-term (conversion) credit to them.
loans are provided to the
agricultural purposes. Long-term Microfinance schemes in India
have emerged as major
to share capital of
State Governments for contributing the purview of the
cooperative credit institutions. avenues for bringing the poor within
In this context, NABARD has
on short-term SAO organised financial sector.
NABARD's refinance policy and promotion of
for cooperative banks played a key role in the development
(Seasonal Agricultural Operations) SHGs and other microfinance institutions
and in providing
of the ground-
and RRBs lays emphasis on augmentation
strategies refinance at special rates. SHG-bank linkage programme
level credit flow through adoption of region-specific initiatrve
and procedures. has now emerged as a major microfinance
and rationalisation of lending policies
Fund. Alongside SBLP (SHG-bank linkage programme).
2. Rural Infrastructure Development microfinance institutions (MFIs) formed by non-governmen
RIDF-I was established in
1995-96 with the major objective institutions (NGOs) and non-banking finance companic>
and State-owned ng
of providing funds to State governments (NBFCs) are also playing an important role in prOv
enable them to complete
various types of
corporations to microfinance. Joint 1liability groups (JLGs) too have eme
infrastructure RIDF has been continued on an
projects. as successful non-collateralised credit instruments o
rural
allocation of funds under the RIDF eral
annual basis. The annual financing livelihood activities for small farmers n geu
crore in 1995-96
has gradually increased from7 2,000 and tenant cultivators in particular.
in 2018-19. Aggregate allocations SHGS
(RIDF-I) to 28,000 crore
reached 3,20,500 crore.
In addition, During 2016-17,there were about 1.9 milnoThe
over the period has 38,800 crore. 1"
a separate
window was introduced in
2006-07 for funding credit linked with bank financing of
ursed

of the Bharat Nirman Programme. number of MFls in this year was 2,314 and loans
the rural roads component as JLGsare
are given for
various purposes like by them amounted to F 19,300 crore. As far as oans
Loans under RIDF d
watershed management,
construction of concerned, they number 0.7 million in 2016-17 and
irrigation projects, disbursed by them stood at 9,500 crore."
etc. The projects, however, have Credt

rural roads and bridges,

shown considerable
time overruns. According to NABARD, 4. Kisan Credit Card Scheme. The
Cards (KCCs) scheme was introduced in 1998-99 t0
Kisa faciltate

mismatch between physical

and
r e a s o n s for
this are: (i)
the
 Agricultural Finance and Marketing
d-term credit to farmers. Commercial banks,
short-t
cooperative
and RRBs are implementing this scheme. Each farmer
banksa
vided with a Kisan Credit Card and a passbook for
provi
aroviding revolving cash credit facilities. NABARD has
elerated the pace of issue of KCCs.
However, progress
the
the scheme is not uniform across States, and is dismal in
he north-east. This is atributed to low level of loans issued
to farmers availing of crop loans from banks; poor financial
pOsition of the cooperatives and RRBs in the region; lack of
infrastructure facilities which are a hurdle in the way of
augmenting credit facilities, etc.
5. Credit Monitoring Arrangement. With a view
to providing cooperative banks with more freedom and
discretion to operate in an increasingly liberalised and
competitive banking environment, NABARD, in
consultation with the Reserve Bank, decided to replace the
Credit Authorisation Scheme (CAS) with the Credit
Monitoring Arrangement (CMA) with effect from the year
2000-01. The banks will, however, have to follow prudence
and exposure norms and have to satisfy themselves about
the technical feasibility and financial viability of the
proposals, creditworthiness of borrowers, risk management,
margin, security requirements, etc.
6. Refinance under SGSY. NABARD has issued
operational instructions to RRBs and cooperative banks
with regard to implementation of Swarnajayanti Gram
Swarozgar Yojana (SGSY) on similar lines as was issued
by the Reserve Bank for commercial banks. Policy guidelines
for refinance support under SGSY were also issued to all
financing banks. Banks have been, inter alia, advised to
evolve suitable norms for grading of SGSY groups at different
Stages of
financing on the illustrative parameters indicated
by NABARD.
7. Cooperative Development Fund. NABARD set
up the Cooperative Development Fund (CDF) in 1993
with
the objective of strengthening the cooperative credit
Institutions in the of organisational structure, human
areas
resource development, resource mobilisation, recovery
S1CBs/SCARDBs/
position, etc. The assistance is provided to
CCBs/PCARDBs by way of grant a or a soft loan or both.
8. Supervision. NABARD is the supervisory authority
1or StCBs, CCBs and certain other State level cooperative
NABARD
institutions such as SCARDBs. Accordingly,
undertakes periodic on-site inspection of these organisations
and since 1998-99 this has been supplemented by a
system
of off-site surveillance.
are
The three main functions of NABARD
inspection
elinancing, institutional development and evaluation of
Cent banks. As noted by the ACRC, an of
has
ESe
Junctions shows that the refinance function
289
attention and resources over the
attracted relatively more
years. Moreover, a major chunk of the personnel of NABARD
is stationed at the head office, regional offices and sub-
offices. As pointed out by V. Krishnadevan, "it is somewhat
strange that an agency dealing with agricultural finance
and
which is supposed to be in touch with groundroot realities,
houses a significant number of its employees in cities."3 A
major problem today is the lack of healthy credit delivery
motivation at the field level for sustaining rural credit on a
continuous basis. Despite making efforts, NABARD has
not been able to strengthen cooperatives as the management
control vests in the State governments. The latter, however,
have failed to discipline the errand units.
FINANCIAL INCLUSION
Massive expansion of institutional sources of credit
has taken place after Independence. Now more than 60,000
branches of commercial banks, about 1,00,000 cooperative
credit societies, more than 10,000 branches of RRBs and
over 2,000 primary urban banks serve the people of the
country, apart from several other formal financial institutions.
However, this large infrastructure that has penetrated even
remote rural areas is still able to serve only a small part of
the potential clientele. The problem is particularly severe in
rural areas. However, the crisis is not confined to the farm
community. A very large number of unorganised non-farm
enterprises which absorb the shocks of poor employment
growth in agriculture and organised industry and which can
thrive only on the basis of external credit support, are faced
with severe financial exclusion.
The incidence of financial exclusion is clearly brought
out by the NSSO and other field surveys. As stated earlier.
even as late as 2013, moneylenders and other non-
institutional sources continued to provide 40 per cent of
all agricultural credit. Thus, a substantial number of
agricultural households are effecthvely excluded from
institutional financing.
The 70th Round of NSSO reveals
that the dependence on non-institutional sources is high
amongst low landholding classes: it is as high as 47 to 85
per cent amongst farmers owning below one hectare of
land and 35 percentfor the 1 to 2 hectares category.'o The
poor access to bank credit is also severe amongst unorganised
non-farm enterprises. A preponderant number of them are
without institutional credit support. What is more, their
ranks have been swelling with an absolute reduction in
organised sector employment and with 63 per cent of
cultivator households being marginal farmers (76 million of
operational holdings) and not being able to eke out a decent
living in farming, are possibly craving for opportunities in
allied activities and outside farming, as microenterprises.
 200
Indian Eeonomy

The to the hitherto unbanked/unde.

Challenges of Fnancial Inclusion financial services
strategy has been adopted t nke
The data presented above arcas. A multi-pronged
clearly bring out the services across all sections ofnce
fact the outreach of banking f
that the incidenee of financial
exchision is widespread
and
In order to achieve the objective of universal fina society
mindboggling. Therefore, as various comittees and working been directed to use a comhiCia
inclusion. banks have
groups appointed by the government have enphasised time include: (i) provision of basic o
and again. "financial inclusion" strategies, which
(which can be defined as introduction of the BC (Bueg
delivery of banking services at an affordable cost to the products: (i)
Correspondent)/BF (Business Facilitator) model (thies
model
vaNt sections of
disadvantaged and low-income groups) is allows banks to do
'cash in-cash out' transactions
amust. ln the case of eredit, the proper definition of the rural population, thus adda
location much closer tothe
financially exeluded would include households who are (ii) relaxation of erie
denied credit in spite of their demand. A wider definition of the problems of last mile reach);
in the form of lenient KYC (
financial inclusion would include, alongwith credit, various regulatory guidelines Know
enhanced use of technoi
other financial services such as Your Customer) norms; (iv) nology
savings, insurance, payments and (v) setting up
financial literacy and credit couns
and remittance facilities by the formal financial system to
achieve greater reach.
those who tend to be excluded.7 centres in districts to

The widespread financial exclusion of the poor from In order to provide doorstep banking facilities in all
the unbanked villages in the country, a phase-wise approack
the banking system is due to the conventional banking
has been adopted. During
Phase-I (2010-13), all unbania
mindset which pursues big volumes and large clients with 2,000 were identified
more than
villages with population
the underlying logic of too big to fail. A large part of the and allotted to various banks (public sector banks, private
population is excluded. the familiar arguments for their sector banks and regional rural banks) through State Level
cxclusion being as follows: "the excluded are unorganised, Bankers' Committees (SLBCs) for coverage through various
and hence, difficult to cover; the volume of business offered modes Branch or BC or other modes such as ATM.
by the sector is commercially insignificant; the widely mobile vans, etc. After the completion of the first phase of
dispersed nature and small individual requirements render the roadmap, the second phase (2013-16) to provide banking
services to the sector unviable; the economic value addition services in unbanked villages with population less than
by the sector is not high, and hence loans given would turn
2,000 was rolled out. Currently, the
third phase covering the
into non-performing assets (NPAs) on account ofhigh default
rates; the financial constraints faced by the sector should be period 2016-19 is in operation. Recognising the importance
of granular data for effective monitoring of the progress
alleviated through welfare handouts; not by commercial
made by banks, the third phase template has been
FIP
loans..."18
revised incorporating new parameters keeping in view the
Supply and Demand Side Issues. Supply side emerging financial inclusion landscape. In this phase,
banks
problems in financial inclusion are: (i) fall in credit-deposit have been asked to data up to the district level
provide
ratios in rural areas; (ii) disproportionate decline in agriculture across population groups of metro, urban,
semi-urban and
credit to small and marginal farmers; (ii) worsening ofregional rural segments. Work is also underway for the formulation
in credit-
inequalities in rural banking- steepest decline of a National Strategy for Financial Inclusion (NSFI)
and (v)
deposit ratio in eastern and south-eastern States; Progress under Financial Inclusion Plans (FIPs) as at
side, of the
crippling of the RRBs. On the demand some
end-March 2019 is as follows:20
constraining factors for financial
inclusion ()
are: low
of small and marginal (i) The number of banking outlets in rural locations
productivity and risk and vulnerability a5
for rural non- went up ffom 67,694 in March 2010 to 5,97,155
farmers; (i) low skill and poor market linkages
to risk for rural at end-March 2019.
farm and urban workers; (ii) vulnerability
awareness and (ii) Urban locations covered through BCs went up trou
landless and urban poor; and (iv) inadequate
447 in March 2010 to 4,47,170 as at end-Mar
low financial literacy.
2019.
Inclusion Dosit
Steps for Financial (iii) The total number of Basic Savings Bank Dep
in
Network. As stated above,
1. Expansion of Banking Accounts (BSBDAs) increased from 73 mi
have access
a sizeable proportion of
households/areas do not March 2010 to 574 million as at end-March
existence of
notwithstanding the
to basic banking facilities, (iv) The total number of KCCs issued went up
institutional framework
in the country. Accordingly, 24 million in March 2010 to 49 milion as at
end
a vast
has been a growing emphasis
by the
in recent years, there formal March 2019.
Reserve Bank on providing
Government and the
 Agricultural Finance and
aà General Credit Cards Marketing 291
1 million in March (GCCs) issued went up
2010 to 12 from undertaken and
March 2019. million as at end- now over 75
per cent of the population and
nearly 95 per cent of the adult
BC-ICT transactions recorded card. The Aadhaar population hold an Aadhaar
curing these years. From 27 a
considerable increase Other Subsidies,
(Targeted Delivery of Financial and
it increased to 2,084 million
million as transactions recorded,
Benefits and Services) Bill, 2016, was
passed by the Lok Sabha on March 11, 2016. The Bill
at aims
Pradhan Mantri Jan Dhan
2. end-March 2019. to ensure
targeted services to intended beneficiaries by
achieve the objective or tinancial Yojana (PMJDY). To assigning them unique identity numbers.
inclusion by
inancial services to the large hitherto extending
unserved population
The second step of
transferring money to the
Cthe Country and to unlock its beneficiaries is rendered easy if
growth potential, the Pradhan bank account. These account numbers beneficiary
every has a
Mantri Jan Dhan Yojana (PMJDY) was launched on can be used
by the
2s 2014. The Yojana envisages universal August government to transfer money directly in the
ilities with at least one basic banking access to banking accounts. This constraint has been beneficiaries
account for every the PMJDY. The third significantlyeased by
household, financial literacy, access to credit and insurance. of getting
step relates to the last-mile challenge
The major features of the scheme include: money into people's hands. It is here that mobile
(i) the facility to penetration comes in handy. Mobiles can be used to transfer
open a basic saving bank deposit account
in any bank branch of BC (BSBD) account money quickly and securely. They can also be used to
(Business Correspondent) outlet; improve the quality and convenience of service delivery.
ii) accidental insurance cover (R 1 lakh) and life insurance 4. Revitalisation of Rural
cover 30,000), and (ii) an overdraft (OD) Cooperative Sector. In
facility after January 2006, the Government announced a package for
satisfactory operation of the account for six months. revival of the Short-term Rural
BSBD accounts are the basic savings account Cooperative Credit Structure
product involving financial assistance of 13,596 crore. The
introduced specifically for unbanked persons. Therefore, National Bank for Agriculture and Rural Development
the growth in these accounts is a key parameter for (NABARD) has been designated the implementing agency
assessing
the growth in financialinclusion. Prior to the launch of for the purpose. States are required to sign memorandum of
PMJDY, since introduction of these accounts in 2005 till understanding (MOUs) with the Government of India and
July 2014, the number of such accounts had grown to 25.54 NABARD, committing to the implementation of the legal,
crore. After the launch of PMJDY, the number of BSBD institutional and other reforms as envisaged in the revival
accounts had risen to 51.50 crore by December 2016 of package. So far, 25 States have executed such MOUs. This
which 26.20 crore were accounts opened under PMJDY, covers 96 per cent of the PACSs and 96 per cent of the
representing more than half of the total.21 DCCBs in the country.
3. PMJDY and JAM. PMJDY is one of the three The most justifiable reason to speed up the ongoing
pillars of the ambitious direct benefit transfers (DBT) scheme revival plan of the rural cooperative sector emanates from
of the Government of India known as JAM (Jan Dhan, the potential of this sector in enlarging the formal financial
network especially in rural areas with the existing
Aadhaar, Mobile). In any well planned DBT scheme, three infrastructure, especially with the wide geographical outreach
steps are required: (i) the government must be able to identify
of PACSs. In fact, the wide penetration of PACSs across
beneficiaries; (ii) the government must be able to transfer
must be able villages as well as across small depositors/borrowers would
money to beneficiaries; and (ii) beneficiaries act like a catalyst while pursuing the objective of 100 per
access their money.22 As far as
the first step is
to easily cent financial inclusion.
databases of eligible
concerned, the government needs 5. SHG-BLP and MFIs. The most important initiatives
individuals. This is being proposed to be done through for financial inclusion are the SHG-BLP (Self-Help Group-
2015-16 states
Aadhaar. In this context, Economic Surveyfor long before Bank Linkage Programme) and MFls (microfinance
existed
nat Beneficiary databases have have been
institutions). The SHG-BLP of NABARD started as a pilot
Aadhaar, but their accuracy and legitimacy discretion project in 1992. There are now more than 70 lakh SHGs
and political
nampered by the administrative under this programnme, comprising a large number of poor
like BPL cards, driving
nvolved in granting identity proofs
and duplicate names crept
households, who are accessingcredit through commercial
Censes, and voter IDs. Ghost and cooperative banks. NABARD has recently initiated the
Aadhaar's virtue
to leakage. the SHG-BLP as SHG2. This
nto beneficiary lists, leading human discretion,
while process of repositioning
the to save.
technology replace approach is basically aimed at encouraging poorin
Cs using
in to iris
the system simple enough fingerprints and It includes SHGs introducing voluntary savings groups
Cplng With this end in view,
dnsfor citizens to understand" 23 has been
Aadhaar cards
dsSive programme of issuing
 292 Indian Economy
in the price ofaoriau h
of farmers
Arhatiyas and brollturnal
the share
banks etc. As a result,
or encouraging SHG members to open individual was
reduced substantially.
bank accounts for depositing their surpluses. This approach produce
ignorance and illiteracy ofthefa
S also aimed at preparing the low
literacy and low-income taking advantage ofthe
cheat The farmers were.
them.
îarmers,
chents to progressively move from community banking used unfair means to
equired
to pay arhat
to the arhatiyas,
tulaii for veighing
the procu
endeavours to individual banking. Following the RBI
palledari to unload
the bullock-carts and for doing other
guidelines in 2000. commercial banks including RRBs have for
been providing funds to MFls for online lending to poor miscellaneous types
of allied works, garda impuritie in
unde tined and unspeei
clients. Though initially only a handful of NGOs were into the produce, and a number of other
tinancial intermediation using a variety of delivery methods. These charges often varied
from person to
person.
charges. mandies related to the use
their numbers have increased considerably. MEls have been Another malpractice in the of
and measures.

playing an important role in substituting moneylenders and wrong weights

reducing the burden of formal financial institutions. However, In addition to the above defects in the agricultural
in 2010-1l1. this sector ran into difficulty with reports of presence ot a
large number of
marketing system in India -

unfair practices by MFIs to recover loans and a number of
farmer suicides attributed to these practices. Accordingly,
the Reserve Bank of India set
up a committee headed by
Y.H. Malegam to study and advise on the microfinance
sector. Based on the recommendations of the
Malegam
Committee Report, the Reserve Bank of India announced
the creation of a separate category of
Non-Banking Financial
Company Micro Finance Institution (NBFC-MF) in a
circular issued on December 2, 2011.
6. Financial Literacy Initiat In India, financial
literary has been regarded as a process that provides demand
side support for financial inclusion. To assess the extant
level of financial literary and inclusion, a
pan-India survey
is being conducted by the Reserve Bank.
Target-specific
content for five target groups, viz., farmers, small
entrepreneurs, self-help groups (SHGs), school students
and senior citizens is also being designed for tailored financial
literacy programmes conducted by Financial Literary Centres
(FLCs).
AGRICULTURAL MARKETING IN INDIAA
For a long period of time, Indian agriculture was
mostly in the nature of 'subsistence farming'. The farmer
sold only a small part of his produce to pay-off rents, debts
and meet his other requirements. Such sale was usually
done immediately after harvesting of crops since there were
no storing facilities. A considerable part of the total
produce
was sold by the farmers to the village traders and
moneylenders often at prices considerably lower than the
market prices. The farmers who took their produce to the
mandies (wholesale markets) also faced a number of problems
as they were confronted with powerful and organised traders.
In mandies, business was carried out by arhatiyas with the
help of brokers, who were the agents of arhatiyas. In fact,
there was a large chain of middlemen in the agricultural
marketing system like village traders, kutcha arhatiyas,
pucca arhatiyas, brokers, wholesale, retailers, moneylenders,
middlemen and widespread prevalence of malpractices in
the mandies- there were a number of other problems as
well. For instance, there was absence of proper warehousino
facilities in the villages. As a consequence, the farmer was
compelled to store his products in pits, mud-vessels, kutcha
storehouses, etc. These unscientific methods of storing led
to considerable wastage. Some part of the produce used to
get rotten and unfit for human consumption while some
part was eaten away by pests and rodents. At times, as
much as one third of farmer' s produce was lost in this way.
Neither was there any provision for grading of agricultural
produce. The practice usually prevalent was the one known
as dara sales wherein heaps of all qualities of produce
(good as well as bad) was sold in one common lot. Thus,
there was no incentive to use better seeds and produce
better varieties. Transportation facilities were also highly
inadequate and only a small number of villages were joined
by railways and pucca roads to mandies. Most of the roads
were kutcha roads not fit for motor vehicles and the
produce
was carried on slow moving transport vehicles like bullock
carts. Obviously such means of transport could not be used
to carry produce to far-flung places and the farmer had to
dump his produce in nearby market even if the price obtaining
in this market was
considerably low. Most of the farmers
had virtually no contact with the mandies and, in the
absence of marketing information had
system, they no
knowledge regarding the prices ruling in different manatco
Therefore, they had no option but to accept whatever
was offered to them. pr
Since the ordinary Indian farmer
poor and lacked staying
wa
power, he tried to sell oft tne
produce immediately after the harvesting of crops
prices at that time are generally low thoug
(as there are excessiv
supplies in the market at that time).
could have enabled Availability of cre
the farmers to postpone such
"torc
sales and wait for better prices. But, as noted in the Sec
on
Agricultural Credit', there was a total lack of institutiona
sOurces of credit and
the farmers were almost
dependent on the moneylenders whose sole objective tota
Was
 293
Agriculural Finance and Marketing

exploit the farmers. In fact, the moneylenders often forced
the farmers to sell produce to them at prices lower than the
market prices in return for the loans granted to them.
GOVERNMENT MEASURES TO
IMPROVE THE SYSTEM OF AGRICULTURAL
Manipur, Andaman and Nicobar Islands, Dadra and Nagar
Haveli, Daman and Diu and Lakshadweep do not have
APMC Act while Bihar has repealed the APMC Act with
effect from September 1, 2006. Moreover, rural periodic
markets in general and tribal markets in particular have
remained outside the developmental ambit of the APMC Act.

MARKETING Grading and Standardisation

After Independence, the Government of India
adopted
a number of measures to improve the system of agricultural
marketing, the important ones being establishment of
regulated markets, construction of warehouses, provision
for grading and standardisation of produce, standardisation
of weights and measures, daily broadcasting of market prices
of agricultural crops on All-India Radio, improvement of
transport facilities, etc.
Improvements in agricultural marketing system cannot
be expected unless specific attempts at grading and
standardisation of the agricultural produce are made. The
government recognised this quite early and the Agricultural
Produce (Grading and Marketing) Act was passed in 1937.
grading was introduced for saun, hemp and tobacco.
Initially,
The net was later enlarged. To facilitate grading, standards
for 213 agricultural commodities have so far been laid
down. The government set up a Central Quality Control

Organisation of Regulated Markets Laboratory at Nagpur and a number of regional subsidiary

quality control laboratories. Samples of important products
Regulated markets have been organised with a view to
are obtained from the market and their physical and
chemical
protect the farmers from the malpractices of sellers and properties are analysed in these laboratories. On these
bases,
brokers. The management of such markets is done by a issued
Market Committee which has nominees of the State grades are drawn up and authorised packers are
AGMARK seals (AGMARK is simply an abbreviation for
Government, local bodies, arhatiyas, brokers and farmers. Agricultural Marketing). Important commodities graded
Thus, all interests are represented on the committee. These under AGMARK for internal consumption include cotton,
committees are appointed by the government for a specified
the vegetable oils, ghee, cream, butter, eggs, rice, wheat, atta,
period of time. Important functions performed by jaggery, pulses, honey and ground spices.
committees can be summarised as follows: (i) fixation of
of Use of Standard Weights
charges for weighing, brokerage, etc.; (i) prevention
unauthorised deductions, underhand dealings and wrong One of the main defects of unregulated markets was
the use of that non-standard and arbitrary weights were used by the
practices by the arhatiyas; (iii) enforcing
date and reliable this
standardised weights; (iv) providing up to
arhatiyas and brokers to cheat the farmers. To stop
market information to the farmers; and (v) settling ofdisputes practice, the government undertook a number of steps. It
of market operations. far back as in 1939.
among the parties arising out passed the Standard Weights Act as
markets This Act passed by the Central government served as a
As would be clear from the above, regulated model for the State governments to pass their own legislations.
remove most of the defects of the unregulated marketing
are issued to the arhatiyas The Central government adopted the Metrie System of
system. In such markets, licences Measures in 1958 when an Act to this effect was passed by
In the event
and brokers for carrying on their operations. the Parliament. The metric system replaced all old systems
their licences can
of any unfair practices adopted by them,
intermediaries are not able to of weights and measures and has introduced uniformity in
be cancelled. Thus, these
wrong weights
and this respect all over the country though one does find old
indulge in malpractices like using etc. Thus, the measures still existing in some pockets of the country
unauthorised deductions,
measures, making for their produce. (especially in the village markets).
larmers are expected obtain fair prices
to
of regulated Godown and Storage Facilities
On account of the above advantages
the setting up of It is necessary to provide a network of godown
markets, the government has promoted Union Territory
States and the country so that the farmers are not
Such markets. Most of the facilities all over
Produce after the
legislations (Agriculture compelled to sell their produce immediately
governments have enacted for regulation of
to provide the bargaining power
Marketing Committee Act) 7,320 harvesting of crops. This will enhance
There a r e presently of farmers and save them from distress sales (which have
agricultural produce markets. has 22,000
country
egulated markets in the country.
The
to be resorted to when the produce gets damaged or rotten

haats, about 15 per cent of On the basis of godown receipts

rural lying in open fields).
rural periodical markets, the ambit of regulation. Kerala,
or

wch function under

294
Indian Economy

issued against the of agricultural

governments on the problems
marl.
produce stored in the godowns, the
farmers can also obtain credit from
commercial banks and Activities Directorate include: (i) promotion
ofthis of
cooperative credit societies. This increases their and standardisation of agricul
tural and allied commod
odi
power and enables them to wait till fair staying and market practice
for their produce. prices are promised (ti) statutory regulation of markets
(ii) training of personnel; (iv)
market sion; (v) mark
extension
Keeping such considerations in view, the Rural Credit research, survey, and planning,
and (vi) administrati
Survey Committee (1954) recommended a three-tier Meat Food Products Order, 1973. The Directorate also
storage
system at: () the National level, to implement the Cold Storage order, 1980,
and (i) Village and rural
(i) State and district level,
the Essential Commodities Act, 1955, which was applicahi.
under
level. In accordance with these
recommendations, Central Warehousing Corporation (CWC) to the whole of the country except the States of Bihar
was set up in 1957 and
this was followed by establishment Haryana, Punjab, Uttar Pradesh and West Bengal. It aime
of State
Warehousing Corporations (SWCs) in a number of
States. Food
at developing cold storage industry in a planned manner
Corporation of India was also set up at the ensuring hygienic and proper retrigeration conditions
n
national level. FCI has its own cold stores, rendering technical guidance for
all States to grid of covered godowns in
safely stock the Central pool foodgrains.
scientifie
preservation of foodstuffs and protecting the farmers' interest
addition, it hires capacity from CWC, SWCs as well In With a view to attracting more private investment in cold
as
private parties. The total storage
stock is 783.17 lakh tonnes.24 At capacity for central pool storage industry, this order was repealed by the government
the
centrally sponsored scheme for ruralvillage was level,
and rural on May 27, 1997.
a

in the Sixth Plan to godowns initiated The Directorate has so fur notified grade
standards
prevent distress sales by the farmers, for 212 agricultural and allied commodities. It enforces
particularly the small and marginal farmers, after harvest at
the prevailing low
price. Since March 2001, the compulsory quality control before export on many agricultural
is government
implementing a Central sector scheme for the construction commodities. It is extending financial assistance to
selected
of rural godowns. regulated markets for providing grading facilities for
important commodities like tobacco, jute, cotton, groundnut
Dissemination of Market Information and cashewnut at the
To inform the farmers about a scheme for
producer's level. It is also implementing
the prices
prevailing in providing Central assistance for the development
different markets, the of infrastructural facilities in
government has initiated a number of selected regulated markets.
steps. For example, prices in
important markets are
daily by the All-India Radio. Trends on market broadcast Government Purchases and Fixation of
prices are In
Support Prices
reviewed weekly in special addition
to the measures
mentioned above, the
programmes and talks
organised
by the A.I.R. and Doordarshan. Market government also announces minimum
are intelligence
displayed in a number of markets all over the reports procurement prices for various support prices and
These intelligence country. from time to time in a bid agricultural
commodities
reports collect vital information on stocks, to ensure fair
returns to the
market arrivals, sales, farmers. These prices are
prices, etc., and are published fixed in accordance with the
periodically. The newspapers also publish recommendations of the Commission for
either daily or weekly agricultural prices and Prices Agricultural Costs
accompanied by short review of
a (CACP). Government agencies, like the Food
trends. For speedy collection and
dissemination of price and Corporation of India, purchase
market-related information to farmers, electronic from the farmers at
these fairly agricultural commodities
is connectivity
being provided to all important agricultural markets these purchases, in remunerative prices and
in the turn, are sold off by the
country under a Central scheme, Market Research and reasonable prices government at
Information Network. Presently, wholesale prices of more Public distribution,through the public distribution system.
(i) purchasing therefore, serves two
than 300 commodities and 2,000 varieties are being
reported commodities at prices purposes
on the Agricultural Marketing reasonable profit to the which ensure a
Information Network the danger of producers, thus
(AGMARKNET) portal from more than 2,700 markets selling their output at shielding them from
commodities at lowdepressed
covering all major agricultural and horticultural (i) supplying these prices; an
produce. consumers. prices to the ultima
Directorate of Marketing and Inspection Ch. Charan
This Directorate was set by the Government Singh National Institute
India to coordinate the agricultural
up of
marketing activities of
Marketing of
Agricultural
various agencies and to advise the Central and State Ch. Charan
Singh National Institute
Marketing (NIAM) earlier known as of
Agriculrurai
the Centre
0
 295
Agriculural Finance and Marketing

and vegetables, the

Agricu Marketing (CAM) was established in 1988. asIndia, having a large variety of fruits
too small. The
The nain aims and objectives of the lnstitute are: (i)to number of regulated markets at 7,320 is
the agricultu marketing infrastructure of the required number of regulated markets is at least 45,000.
gment
eountry through programes of teaching, rescarch and Gramin Agricultural Markets
consultancy services, ( ) to design and conduct training
India are small
More than 86 per cent of farmers in
courses appropriate to the specific identificd needs of the to directly
and marginal. They are not always in position
a
nersonnel and enterprises and institutions that they serve;
in to undertake rescarch to demonstrate and replicate transact at APMCs and other
wholesale markets. To tackle
the Finance Minister
heter management tecchniques in the ficld of agricultural the problems faced by these farmers,
to develop
in his Budget Speech for 2018-19 has proposed
marketing: (iv) to provide consultancy services for rural haats into Gramin
and upgrade existing 22,000
formulating investment projects and for problem solving these GrAMs. physical
in Agricultural Markets (GrAMs). In
advice: and (v) to offer educational programmes infrastructure will be strengthened using
MGNREGA and

agricultural marketing for supplementing the existing other government schemes. These
GrAMs, electronically
of APMCs.
facilities.
linked to e-NAM and exempted from regulation
direct sale to consumers
National Agricultural Market will provide farmers facility to make
and bulk purchasers.
With the objective to create barrier free market, enhance Fund with a corpus of
and transparency in transactions, and widen An Agri-Market Infrastructure
competition upgrading
choices to the farmers for sale
of their produce, the 2,000 crore will be set up for developing and GrAMs
infrastructure in the 22,000
launched National agricultural marketing
Department of Agriculture (DAC) Prime Minister Gram
Sadak
2016. In al, 585 and 585 APMCs. Under the
Agricultural Market (e-NAM) on April 14,markets across the to connect habitations
with
mandis out of the total of 7,320 regulated Yojana Phase II|, it is proposed
under e-NAM. A basic requisite GrAMs
country have been brought
75 lakh per mandi Weaknesses in Agricultural Marketing
for getting the Central grant of over
under e-NAM R 30 lakh for setting up
the platform and the regulated markets.
management As stated earlier, there are 7,320 markets
facilities and waste
remaining for upgrading Thereis variation in the density of regulated
huge
amend three basic rules that which varies from 119
plant) is that States must first unified in different parts of the country,
trading licence valid km in Meghalaya,
guide their mandis: (i) a single km in Punjab to 11,215 square
e-auction platform for price discovery
square
across the State; (ii) byserved a regulated market
while the all-India average area
of agricultural produce; and (ii) single
point levy of market As is clear from this discussion, regulated
that is 449 square km.4°
conditions are meant to ensure
inaccessible to many farmers
with surplus produce
fee across the State. The markets are
an electronic platform to of these markets
e-NAM becomes more than just market. acrossthe country. Moreover, the functioning
a r e rigged,
trade and lays the foundations
ofa truly national spot leaves a lot to be
desired. 0ften auctions
has in the
national agriculture market shortages a r e created
and there is n o transparency
The idea of a c o m m o n of the idea There is no electronic
While supporters extract commission.
evoked a mixed response. way traders
about agricultural of communicating wholesale
'predictability' auction and no effective system
believe that it will ensure critics argue that on a daily
conducted
basis. A study by
across the country, rates to consumers

prices among farmers Institute of

(via opening IGIDR (Indira Gandhi
multinational corporations Gokul Patnaik for
tnis might help the and vegetable
undermine the
interest in 2011l on the fruit
but will Development Research)
multiple sourcing options) and Kolkata
that the cost Mumbai, Bangalore
growers. This is due
to the simple reason
supply markets in Delhi, intermediaries
OT is different in
different there are five-six
variety found that "on an average,
of production of the same
hurt the interest of and the consumer. The total
price will between the primary producer
geographies. Thus, a uniform
chain added up to
60-75 per cent. The
as pointed
by Sukhpal Singh,
out mark-up in the
1armers. Moreover, in Agriculture
in receive cent
only 20-25per the retail
of
Centre for Management primary producers auction system
Chairperson for integration of
agriculture
price. 2 This shows
that due to the opaque
a point
LV Ahmedabad, "beyond varied items is and the large number of
selling followed in the regulated markets,
across geographies his produce.
narkets spread constitufional
farmer gets a pittance for
number of legal and middlemen, the actual
posible as there are a
address." Even
if all the
as pointed out by
the Eleventh Five Year
that difficult to Moreover,
infrastructure
less than
SSes involved
are
that will be markets lack even basic
markets are integrated, markets in the
Plan, the regulated Marketing
argeted 585 7,320 regulated at many places.
When the Agriculture
Produce
total
per cent of the
vast
country as
pointed out that in a
country. It has also been
 296
Indian Economy

(Regulation) Acts were first initiated, there were significant and malpractices. Instead of marketing their
gains in market infrastructure
development. However, this separately, they will
market it together
through one roduce
infrastructure is now out of date,
especially given the needs This will increase their bargaining strength v .
of a diversified merchants and intermediaries. -vis
the
agriculture. At present, only one-fourth of
markets have common drying yards; trader modules, 2. Direct dealings with final buyers. In certain o
viz., shop. godown and platforms in front of
shop exist in the cooperatives can altogether skip the intermediariee
es
cases,
only 63 per cent of the markets. Cold storage enter into direct relations with the final buyers. This m and
needed in the markets where
units are This practic
perishable commodities are will eliminate exploiters and ensure fair prices to both
brought for sale. However, they exist only in 9 per cent of and the
the
the markets at producers consumers.
present and grading facilities exist in less
than one-third of the markets. 3. Provision of credit. The marketing
The basic facilities, viz., erative
internal roads, boundary walls, electric societies provide credit to the farmers to save them from
lights, loading and the
unloading facilities, and weighing equipment are available necessity of selling their produce immediately after
in more than 80 harvesting. This ensures better returns to the farmers
per cent of the markets. Farmers' rest
houses exist in more than half of 4. Easier and
the regulated markets. cheaper transport. Bulk transport af
Covered or open-auction agricultural produce by the societies is often easier
platforms exist in only two-thirds and
of regulatedmarkets. All this shows that
major modernisation cheaper. Sometimes the societies have their own means
of market infrastructure is
required. transport. This further reduces cost and botheration of
Eleventh Five Year Plan addressed the transporting produce to the market.
related to agricultural following issues
marketing- marketing system 5. Storage facilities. The
cooperative marketing
improvement and conducive
policy environment, societies generally have storage facilities. Thus, the
strengthening of marketing infrastructure and farmers
can wait for better
needs; improving market information
investment prices. Also, there is no danger to their
system with the use crop from rains, rodents and thefts.
of Information and
Communication Technology (ICT); 6.
human Grading and standardisation. This task can be
resource
and promoting
development for agricultural
marketing; done moreeasily for a cooperative agency than for an
exports/external trade.23 The Twelfth Plan individual farmer. For this purpose
emphasized the need to fast-track modernisation of mandi from the government or can even
they can seek assistance
infrastructure with adequate provision of evolve their own grading
and transportation, and also
communication arrangements.
empower small producers through
their organisations 7. Market
and marketing extension.29 to
intelligence. The cooperatives can arrange
obtain data on market
other related information prices, demand and supply and
from the markets on a
CoOPERATIVE MARKETING basis and can plan their regular
activities accordingly.
8.
Though the above measures have improved the system Influencing market prices. While previously the
of agricultural market prices were
marketing to some extent, a major of the determined
by the intermediaries anu
benefits has been derived by large farmers who havepart merchants and the
helpless farmers were mere
marketable surplus'. However, the small and adequate forced to accept whatever
was offered to
spectato
marginal societies have them, the cooperatne
farmers continue to sell a major
part of their produce to Wherever strong
changed the entire complexion of the
moneylenders to meet their credit needs and these
have marketing cooperatives are operativeganie
tney
moneylenders offer them very low prices.
Therefore, it is
bargained for, and have achieved,
essential to form cooperatives of the small and agricultural produce. better prices
farmers to enable them to obtain fair price for their marginal 9. Provision of
The advantages that cooperative produce.
marketing can confer on Cooperative marketing inputs and consumer
societies can
The
goods.bulk
the farmer are multifarious, some of which are listed purchase of agricultural easily arrange To1
below: inputs like seeds, manures, fertiliseib
1. Increases bargaining strength of the
farmers. pesticides, etc., and consumer
goods at relatively low
Many of the defects of the present agricultural marketing prices and can then distribute
them to the members.
10.
system arise because often one ignorant and illiterate farmer Processing
Cooperative
of
agricultural produce The
(as an individual) has to face well-organised mass of clever societies can undertake
like crushing ivities
intermediaries. If the farmers join hands and form a oilseeds, ginning and processing acuv
Cooperative, naturally they will be less prone to exploitation In
addition to all these pressing of cotto etc.

advantages, the coope

marketing system can arouse the tive

spirit of self-con ence

 Agricultural Finance and Marketing 297

golectuve action in the tarmers without which no is on account of the hold exercised by these farmers on the
rame ot
agriculural development. howsoever well rural economy. Therefore, it is imperative to make such
eived and mpiemented. holds much promise of success.
changes in the cooperative marketing structure that small
The can help in enlarging the marketable surplus of and marginal farmers are given more representation in these
Tural produce and can even influence the crop-pattern societies so that the benefits of cooperation can percolate
troug proper planning. to the sections for which they were originally intended, i.e.,
Progress of Cooperative Marketing in India small and marginal farmers.

Two ypes ot cooperative marketing structures are 2. The activities of the marketing cooperative societies

md in ndia. Under the tirst type, there is a two-tier
sustem wth primary sOcieties at the base and the Sate
i e t y at the apex. Under the second type, there is a three-
er sySemwith primary societies at the village level, Central
Tarketing SOCieties at the district level. and the State
Tarketing soCiety at the apex. The task of developing
should be further diversified. They should not only arrange
for marketing of agricultural produce but should also arrange
for adequate storage capacity, means of transport, grading
of goods, etc. For this purpose necessary financial and
technical assistance should be provided to them by the State
governments.

Ocperative marketing was initiated in the Second Five 3. The marketing societies should be linked up with
Tear Plan on the recommendations of the All-India Rural credit and other societies. In fact, the development of
Credit Survey Report and was extended further in the Third agriculture is a gigantic task encompassing activities right
from the planting of seeds to the final marketing of produce,
Plian As a result. cooperative marketing structure was built
a t various levels. At present. the cooperative marketing and much beyond. Accordingly, there is a need for
suructure comprises 2.633 general purpose primary multipurpose societies which can look upon all requirements
of the farmers in an integrated way. Particular emphasis
cDeperave marketing societies at the mandi level, covering
needs to be laid on the integration of agricultural processing,
all e mportant mandies in the country, 3,290 specialised freed
credit and marketing activities. Unless the farmer is
rmary Tarketing sOCieties for oilseeds, etc., 172 district/ from the clutches of the village moneylender by developing
Ceatral Federations and the National Agricultural the farmer
alternative sources of credit, the dependence of
Cooperative Marketing Federation of India Ltd. (NAFED) remain usual and he will be
on the moneylender will
as
a the ational level. NAFED is the apex cooperative the moneylender (often
compelled to sell off his produce to
marketing organisation dealing in procurement, distribution, at very low prices) to pay off his debts.
commodities.
eport and import of selected agricultural
NAFED is a central nodal agency of the government for
NOTESs
for non-perishable
uTdertaking price support operations
oilseeds, and for Market
commodities such as pulses. Povern (New
World Bank, India: Sustaining Reform, Reducing
iTTETvention in perishable
horticultural items like potato, .
Delhi, 2003). p. 84.
black
OL grapes.kinno. oranges, eggs, apples, chillies, Households in
NSSO, Key Indicators of Situation of Agricultural Statement 15.
24 and
pEpper. etc. India (New Delhi, December 2014). p.
handled by p.225.
The total value of agricultural produce 3. Reserve Bank of India, Annual Report
2016-17 (Mumbai, 2017).
considerably over the
rketing cooperatives has increased Table IV. 2. p. 80.
cooperative K.J.S. Satyasai, "Gearing Rural
ears However. the development of agricultural 4. K.P. Agrawal, V. Puhazhendhi and
different States. Economic and Political Weekly.
uneven among Credit for the Twenty-first Century",
arketing has been very cooperatives is October 18-24, 1997. p. 2723.
Te financial performance of marketing Trend and Progress of Banking in
them are incurring 5. Reserve Bank of lndia, Report on
and a number of Table V.12, p. 90.
iso Tar from satisfactory in India 2018-19 (Mumbai, December 2019).
of cooperatives "Development of lnstitutional
Osses. Moreover. the actual coverage 6. V.M. Dandekar and F.K. Wadia,
cultivators in primary soCieties, in lndia", Journal of Indian School of
e r s of either membership of Finance for Agriculture
in July-December l1989, p. 20
marketed agricultural produce Political Economy, Volume 1, No. 2,
taer share in the total Banking in India, 2018-19,
or except in a few 7. Report o n Trend and Progress of
ined too insignificant,
te country. has remamake the overall marketing op. cit., Table
IV.15, p. 58.
any dent in Comnission, Seventh Five
Year
Solated pockets. to in the country.
8. Government of India, Planning
Plan 1985-90, Volume 1, p. 17.
OF agicultural produce 2002-07 (Delhi, 2003),
9. Government of India, Tenth Five Year Plan
Suggestions for Improvement Volume l1,p. 521.
fields of and Finance 2001-02
thas been observed
that as
in other 10. Reserve Bank of India, Report
o n Curreney

marketing societies (Mumbai, 2003), para 3.55.

apETation the gans of cooperative farmers. This
accrued to the large
ve also, by and large.