CHAPTER - III FARMERS INDEBTEDNESS IN INDIA 3.1 Introduction: Agriculture plays a crucial role in the development of the Indian economy. It accounts for about 19 per cent of GDP and about two thirds of the population is dependent on the sector. The importance of farm credit as a critical input to agriculture is reinforced by the unique role of Indian agriculture in the macroeconomic framework and its role in poverty alleviation. Recognizing the importance of agriculture sector in India s development, the Government and the Reserve Bank of India (RBI) have played a vital role in creating a broad-based institutional framework for catering to the increasing credit requirements of the sector. Agricultural policies in India have been reviewed from time to time to maintain pace with the changing requirements of the agriculture sector, which forms an important segment of the priority sector lending of scheduled commercial banks (SCBs) and target of 18 per cent of net bank credit has been stipulated for the sector. The Approach Paper to the Eleventh Five Year Plan has set a target of 4 per cent for the agriculture sector within the overall GDP growth target of 9 per cent. In this context, the need for affordable, sufficient and timely supply of institutional credit to agriculture has assumed critical importance. 1 103
Indian Agriculture has made rapid strides in Agricultural Sector since Independence, with the Green Revolution of the 1960s ushering in manifold increase in farm production and productivity. The Indian Agriculture has rallied to become self-reliant in providing overall food security to its population of more than 1 billion. However, inadequacies of serious long-term concern are now affecting Indian Agriculture. The rising input costs and poor pricing mechanism, to be candid, have only increased the plight of majority of the farmers. The Green Revolution has not necessarily translated into benefits for the lower strata in the economic pyramid in terms of greater food security or economic opportunity and wellbeing. 2 Micro finance is expected to be one of the most important tools against poverty in rural areas where credit market to be less developed due to information asymmetries and the lack of enforcement. 3 Microfinance has become popular all over the world since Dr. Yunus, a Nobel Prize- winning activist and founder of Grameen Bank, lent small amounts of his private money to the rural poor in Bangladesh three decades ago. A lot of researchers have tried to identify the enabling factors for Grameen Bank; high repayment performances in poor areas; and how and to what extent the its microfinance model would be applicable to other countries. However, many developing countries are 104
still having difficulty providing the appropriate financial services at reasonable costs. 4 Policy makers in India have long recognized the need to provide short and long term institutional credit to agriculture at reasonable rates for meeting formers production needs. This recognition came primarily as the moneylenders and other non-institutional sources charged exorbitant rates of interest of farmers who often had to mortgage, and sometimes, sell their lands to clear their debts. 5 In the development strategy adopted by independent India, the primary focus was growth with equity. Given an understanding on the seasonal credit was perceived fairly early in the development process as a powerful tool for enhancing production and productivity and for poverty alleviation. The debates surrounding these issues, as also the suggested policy directions were clearly spelt out in the report of the All India Credit Survey Committee 1952. To active the objectives of production and productivity, the stance of policy towards rural credit was to ensure provision of sufficient and timely credit at reasonable rates of interest to as large a segment of the rural population as possible. The strategy devised for the purpose rested on three pillars expansion of the institutional structure, directed lending to disadvantage borrowers and sectors and lower interest rates. 6 105
3.2 Rural Cooperative Banking and Reforms in India: Rural credit cooperatives were born more than 100 years ago, and developed into two distinct streams of agricultural credit, one basically meeting the crop loan requirements of farmers, and the other supporting farmer level capital investments in agriculture. The structure which primarily meets the crop loan requirements is a three-tier structure in most of the states with primary agricultural credit cooperative societies (PACS) with farmers as their members at the base level, central cooperative banks (CCBs) as the intermediate federal structure with PACS as principal affiliated members, and the state cooperative bank (StCB) at the apex state level with CCBs and other cooperatives as its principal members. This three-tier cooperative credit structure is popularly known as the short-term cooperative credit structure (STCCS). The ST CCS functions as a three-tier structure in 16 states; while in 13smaller states & union territories, PACS are directly affiliated to the StCB and the ST CCS functions as a two tier structure. In 3 states, a mixed structure, i.e., two tier in some districts, and three-tier in the other districts operates. In principle, PACS was expected to mobilise deposits from its members, and use the same for providing crop loans to the needy members who need it. However, as deposits in PACS may not be enough to meet the loan requirements of all its farmer borrowing members, PACS 106
draw support from the federal structure, viz., the CCB/StCB. The CCB was therefore constituted as a small bank working in small towns to mobilize deposits from public and provide the same for supporting the credit needs of PACS and its members. As part of the federal structure, the CCB was expected to also provide guidance and handholding support to PACS. StCB was set up in each state not only to mobilise deposits and thereby provide the required liquidity support to CCBs and PACS, but to also provide the required technical assistance, guidance and support to CCBs and PACS in fulfilling their obligations towards their farmer members. Wherever required, the StCB was also expected to mobilise liquidity and refinance support from the higher financing institutions like NABARD for supporting the crop loan operations of CCBs and PACS affiliated to it. Over time, ST CCS has also been providing medium term loans for investments in agriculture and for the rural sector, often with refinance support of NABARD. The ST CCS was the only institutional arrangement for providing agricultural credit until 1969. However, after nationalization, commercial banks (CBs), and later, the regional rural banks (RRBs) which were established from 1975 onwards, also started catering to the needs of agriculture and rural development sectors. The banking scenario is changing constantly and significantly due to rapid and radical reforms taking place in Indian banks since 1993. 107
Application of prudential banking norms including norms for income recognition and asset classification (IRAC) and capital adequacy based on the risk (CRAR) to make them stronger and competitive was followed by capitalization of public sector commercial banks and RRBs. Although IRAC norms were gradually applied to the StCBs and CCBs, the risk based capital norms were not applied to them for a variety of reasons. In the meanwhile, the Committee on Financial Sector Assessment (CFSA), set up by GoI in September 2006 under the Chairmanship of Dr Rakesh Mohan looked into the financial health of all banks including the cooperative banks and made recommendations for improvement of financial health and systems for attaining/maintaining financial stability. 7 3.3 Structure, Need and Classification of Rural Credit for Agricultural Development: Credit, an old French proverb says, "Support the farmer as the hangman's rope supports the hanged." 8 Similarly, Darling's statements (RCS, 1991) 9, states that '' the Indian peasant is born in debt, lives in debt and dies in debt,'' still remains true for the great majority of the peasant communities in rural areas. The rural credit structure can be classified into the Institutional and Non-institutional credit lending agencies. The structure of non-institutional credit delivery system includes moneylenders, agricultural-cum-moneylenders, traders and commission agents, agro-shop dealers, friends and relatives, who charge exorbitant 108
rate of interest and tend to keep their eyes on grabbing the assets of borrowers. The demand for credit further increase due to emergence of new areas of investment in agriculture such as adoption of high yielding verities of seeds, early maturing, disease resistant verities of food as well as non-food crops, adoption of latest technology requiring improved irrigation systems and other machinery establishing commercial farms of dairy, poultry, piggy, fishery, etc., equipped with adequate linkages for processing, packaging, transport, marketing etc., tapping commercial avenues in the areas of horticultural plantations, floricultural, equipped with adequate linkages for processing, packaging, transport, marketing etc, tapping commercial avenues in the areas of horticultural plantations, floricultural, aquaculture, bee-keeping,, sericulture, mushroom cultivation, developing capital intensive, hi-tech, non-conventional, export oriented project in the field of bio-technology, tissue culture, embryo-transfer technology, plasticulture, green house plantation of aromatic and medical plants etc. 10 According to Dantawala (1966) and Dandekar (1993) credit per se (with respect to its inherent nature) does not influence agricultural development because it is merely a means to an end. But when it results in investment in real resources including human labor, it influences output growth in agriculture. The new technology led inputs like HYV, 109
fertilizers, pesticides, diesel, electricity, form implements, certain machines etc., and complement to the agricultural production. Institutional credit that would encourages investment in these new inputs and helps in utilization of capital and also output in agricultural. 11 The credit needs of modernizing India's agriculture have to be tailored to take account these systemic changes, particularly in the marketing infrastructure and generally in the output mix. It goes without saying that deregulation of marketing structures, removing the heavy hand of government and the amendment of the Essential Commodities Act is also essential to modernizing agriculture by opening out markets to farmers. 12 3.4 Strategy of Reserve Bank of India to Increase the Flow of Rural Credit: First, the coverage of rural credit is extended to include facilities such as storage as well as credit through NBFCs. Second, procedural and transactional bottlenecks are sought to be removed, including elimination Service Area Approach, reducing margins, redefining over dues to coincide with crop-cycles, new debt restructuring policies, one-time settlement and relief measures for farmers indebted to non-institutional lenders. Third, Kisan Card Scheme is being improved and widened in its coverage while some banks are popularizing General Credit Cards (GCCs) which is in the nature of clean overdraft for multipurpose use, including consumption. Fourth, public and private sector banks are being 110
encouraged to enhance credit-delivery while strengthening disincentives for shortfall in priority sector lending. Fifth, the banks are urged to price the credit to farmers based on actual assessment of individual risk rather than on a flat rate depending on category of borrower or end-use while ensuring that interest-rates charged are justifiable as well as reasonable. In brief, the thrust is on enhancing credit-delivery in a regime of reasonable credit-prices within the existing legal and institutional constraints. 13 3.5 The Role of Credit in Rural Development: The prevision of credit and generation of savings have long been recognized as an essential element in any rural development strategy. Credit plays a crucial role in the modernization of agriculture but its role in the fight against rural poverty has seldom been recognized. Financial institutions in developing countries, whether public or private, have shunned rural areas for various reasons such as opportunity costs and low financial credibility. Further, rural financial services have mostly been controlled by rich farmers, who are able to use their large endowment base and influence within the local power structure to secure loans at very advantageous terms. Credit policies are also generally concentrated on land-based agricultural production programmes, neglecting off-farm activities in which the poor are mainly engaged. 111
The rural poor-men and women, landless, artisans, agricultural laborers and small fishermen-have almost been excluded from these financial services either because they were not available (collateral and procedural requirements rendered them inaccessible) or simply because they were not considered creditworthy. The erroneous view is that the poor do not have any resources, do not save, that they cannot invest in view of immediate consumption needs, and that they are ignorant of the basic principles of sound money management. In the competition for a small quantum of financial resources, the poor naturally lost out in the institutional markets and were constrained to resort to exploitative informal sources of credit such as money-lenders and traders. The latter are able to respond quickly and with great flexibility to pressing demand, and exploit the poor and further compound their poverty. Many national rural development programmes in the form of integrated efforts or cooperatives have endeavored to increase the availability of financial services, reduce collateral or other requirements, and adapt procedures to rural clients. Credit cooperatives are widespread in South Asian countries. But because of the principle of open membership, most cooperatives have come under the control of well-todo powerful farmers and have failed to make any contribution in the 112
alleviation of poverty. The benefits of cooperative institutions have frequently been diverted to serve the interests of a select few. Government policies of many developing countries are built around the premise that by increasing the flow of agricultural credit, rural regeneration is possible. But it is wrong to equate credit flow with capital creation in rural areas. Credit cannot be created merely by increasing money supply, nor can capital be used for developmental purposes if farmers divert savings for consumption purposes. By combining additional labour with more capital, both production and productivity can be enhanced, i.e., more produce and more income. Credit for rural development depends upon two vital factors- rural savings and provision of liquidity to farmers without sufficient funds too invest in improved technological advances. There must be sufficient investible funds to exploit opportunities created due to technological breakthroughs. Credit enables extension of control as distinct from ownership resources; but, it should be extended for investment in 'clearly spelt out' opportunities or it will surely end up as additional consumption. This is not to state that new technologies necessarily need additional credit or that new rural technologies are not adopted without credit. Thus, credit is neither essential nor sufficient for initiating rural development. Rural credit agencies can, however, encourage the efficient reallocation of tangible wealth as also new investment through in remediation between savers and 113
entrepreneurial investors, and also increase the rate of accumulation of capital by providing increased incentives to save, invest and work. 14 3.6 Schemes Entrusted with NABARD to Improve Credit Flow to the Rural Economy in India: Rural Infrastructure Development Fund is one of the most important schemes entrusted with NABARD by the Government of India to increase flow of credit for the development of rural infrastructure. The fund was set up in 1995 with an initial corpus of Rs. 2,000 crore. Apart from contributions of the Government of India. RIDF also receives deposits from commercial banks to the extent of shortfall in their lending to agriculture. As at end-march 2010, out of the total funds received by RIDF since its inception both from the Government of India as well as via deposits, more than half was from contributions by the Government of India. Out of the total funds received so far, RIDF sanctioned loans worth two third of the total amount so far. However, the percentage of disbursed loans to sanctioned loans exhibited a declining trend since trance XI. The decline in the disbursal of funds from RIDF was mainly caused by procedural delays in administrative and technical approvals by State Government in land acquisitions, statutory clearances and tendering process. Efforts to rationalize these procedures have already been initiated by State Government. 114
The Government of India opened a separate window under RIDF in 2006 for the Bharat Nirman Programme with a corpus of Rs. 4,000 crore. Of the total funds received so far, these windows of RIDF sanctioned and disbursed more than half of the amount. Notably, there is no delay observed under this window in disbursing the sanctioned amount of loan. Out of total loans sanctioned so far under RIDF, the major share went towards building roads and bridges, followed by rural irrigation programmes. Notably, more than 10 percent of loans went to the development of social infrastructure such as drinking water, primary school, public health centers and aganwadi centers. Out of total loans sanctioned and disbursed under RIDF so far, northern region and southern region accounted for more than half. Northeastern region accounted for only 5.1 per cent of total sanctioned loans and 4.0 per cent of total disbursed loans. The north eastern region also reported the lowest disbursed loans to sanctioned loans ratio amongst the regions. The State-wise profile shows that Andhra Pradesh accounted for the maximum share of loans sanctioned and disbursed, followed by Gujarat and Madhya Pradesh. 15 3.7 Growth of Institutional Deleted: Agricultural Credit in India: In India nearly 72 percent of population lives in villages and is mostly dependent for their livelihood on rural areas despite such a high predominance, the share of agriculture and allied activities in India's GDP 115
are only about 25 percent. Many policy changes have taken place since I960, when the agricultural credit scenario was largely dominated by private informal sources of credit, to increase the flow of institutional credit to the agricultural sector. The cooperative credit structure was strengthened by reorganizing and merging weak credit societies with strong societies. The number of village level cooperative societies also increased. The participation of scheduled commercial banks was negligible in agricultural loans. However, after the nationalization of commercial banks in 1969, they were mandated to increase their geographical and functional presence in the rural areas. Another credit institution lending exclusively to weaker sections of rural areas, known as Regional Rural Banks, was set up in 1975. To meet the challenges of institutional agricultural credit the apex institution namely National Bank for Agriculture and Rural Development was created in July 1982. To increase the flow of agricultural credit, new approaches were also initiated like service area approach, micro finance and kisan credit card. There is now a very strong network of rural and semi-urban branches catering to the requirements of agricultural sector and rural areas. Growth of direct institutional credit for agricultural and allied activities are shown in table no. 3.1 The total direct institutional agricultural advances increased from Rs, 32,697 crore in 1998 to Rs. 1,94,953 crore in 2007-08. The short term institutional agricultural credit 116
Table 3.1 Direct Institutional Credit for Agricultural and Allied Activities in India Years Short-term Long-term Total 1998-99 20610 (63.03) 12087 (36.97) 32697 (100) 1999-00 29045 (63.79) 15968 (36.21) 45534 (100) 2000-01 32355 (67.14) 15346 (32.86) 48187 (100) 2001-02 38141 (70.38) 15612 (29.62) 54195 (100) 2002-03 45288 (69.49) 19887 (30.51) 65175 (100) 2003-04 59593 (71.43) 23834 (28.57) 83427 (100) 2004-05 71748 (68.13) 33555 (31.87) 105303 (100) 2005-06 94084 (65.33) 49938 (34.67) 144022 (100) 2006-07 123072 (64.94) 66442 (30.06) 189514 (100) 2007-08 136010 (69.76) 58943 (30.24) 194953 (100) 2008-09 178639 (72.62) 67337 (27.38) 245976 (100) 2009-10 217126 (72.90) 80705 (27.10) 297831 (100) Average 64995 (67.59) 31161 (32.41) 96156 (100) Note : Figures in the bracket are percentage to total. Source : Handbook of statistics on the Indian Economy, 2009-10, Reserve Bank of India, Mumbai. 117
was Rs. 20,610 crore in 1998-99 which increased up to Rs, 1,36,010 crore in 2007-08 and long term institutional agricultural credit increased from Rs. 12,087 crore in 1998-99 to Rs. 58,943 crore in 2007-08. On an average the institutional short term agricultural credit was 67.59 percent and long term institutional credit was 32.41 percent during 1998-99 to 2009-10. Among the total institutional agricultural credit the share of scheduled commercial banks was 71 percent it was 19 percent for cooperative banks and 10 percent for Regional Rural Banks in 2007-08. During the period from 1998-99 to 2009-10 the average total institutional credit were Rs. 96,159 crore and long term credit were Rs. 31,161 crore whereas, short term agricultural credit were Rs. 64,995 crore. It can be seen from the table no. 31 the institutional agricultural credit shows continuously increasing trends during the study period. After nationalization of commercial banks agricultural credit shows tremendous growth trends due to mandated of agricultural credit to nationalized banks. 3.8 Credit flow to Agriculture in India: Table 3.2 shows the number of loan accounts financed in India. Although cooperatives are providing only 17% of agriculture credit, the share of cooperatives in total number of agricultural accounts held by the banking system is substantial. Cooperatives provided agricultural credit to 3.09 crore farmers during 2011-12 compared to only 2.55 crore 118
farmers by commercial banks and 82 lakh by the RRBs. In fact, cooperatives financed67 lakh new farmers during 2011-12 compared to 21 lakh new farmers by commercial banks and only 9 lakh new farmers by RRBs. Table 3.2 Number of Loan Accounts Financed in India (Figures in lakh) Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Coops. 189 202 178 204 242 309 RRBs 62 62 76 73 73 82 CBs 172 175 202 205 234 255 Total 423 439 456 482 549 646 Source: Expert Committee, to examine Three Tier Short Term Cooperative Credit Structure (ST CCS), Reserve Bank of India, Central Office Mumbai, January 2013. The success of cooperatives in reaching out to new farmers or those who had gone out of the active credit fold of the banking system is the real impact of the implementation of the Vaidyanathan revival package and implementation of the agricultural debt waiver and debt relief scheme in its true spirit. Such high penetration by the cooperatives despite having a low share in the total agricultural credit flow has the immediate implication of 119
per account loan at ` 28,467 (2011-12) being provided by cooperatives as compared to ` 66,000 per account by RRBs and almost ` 1.5 lakh per account by commercial banks (as shown in table 3.3). This trend has been prevailing in the past also. Table 3.3 Agricultural Loan Disbursed per Borrowing Account in India (Amt. in Number`) Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Coops. 22476 23890 25951 31126 32281 28467 RRBs 32960 40826 35217 48242 60675 66402 CBs 96793 103479 113342 139414 147810 144525 Total 152229 168195 174510 218782 240766 239394 Source: Expert Committee, to examine Three Tier Short Term Cooperative Credit Structure (ST CCS), Reserve Bank of India, Central Office Mumbai, January 2013. Table 3.4 shows small and marginal farmer accounts for loans disbursed in India. Given the increasing trend in fragmentation of holdings and growing preponderance of small and marginal farmers who would require much smaller quantities of loans as compared to medium and large farmers, an inference could perhaps be drawn that cooperatives 120
are increasingly supporting the neglected or sidelined category of small and marginal farmers. Although this is a positive sign, the fact cannot be overlooked that almost 55% of the agricultural loan accounts of commercial banks and almost 72% of the agricultural loan accounts of RRBs also pertain to small and marginal farmers. Table 3.4 Small and Marginal Farmer Accounts for Loans Disbursed in India (No. in lakh) Agency 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Coops. 101 118 97 128 159 205 (53) (58) (55) (63) (66) (66) RRBs 40 42 43 50 52 59 (65) (67) (57) (69) (71) (72) CBs 74 97 106 107 125 141 (43) (55) (52) (52) (53) (55) Total 215 257 246 285 336 405 Note: Figures in brackets indicate percentage of small and marginal farmer accounts to total accounts. Source: Expert Committee, to examine Three Tier Short Term Cooperative Credit Structure (ST CCS), Reserve Bank of India, Central Office Mumbai, January 2013. It is therefore, not that cooperatives alone finance small and marginal farmers, while other banks finance only large farmers, as is 121
often made out. At the same time, as has been mentioned elsewhere, cooperatives are severely constrained in terms of resources for lending, due to which PACS in almost all the states have prescribed individual maximum borrowing power (IMBP) as an outer ceiling for any individual loan to their members. Although there is no documented evidence, given the fact that the proportion of small and marginal farmers financed by RRBs is much higher than by cooperatives, and the per loan account amount provided by RRBs is almost 2½ times that provided by cooperatives, the possibility of fairly large number of borrowers from cooperatives being underfinanced and not getting adequate loan to meet their requirements and some members not getting any loans at all cannot be ruled out. The resources position as well as the other than agricultural credit business of the ST CCS therefore, needs to be looked in greater detail. 3.9 Agency-wise Agricultural Credit in India: Table 3.5 indicates the agency-wise credit disbursed to the agriculture sector in India. As against the target of ` 4, 75,000 crore fixed for 2011-12, ` 5, 1,029.09 crore was disbursed to the agricultural sector, thereby exceeding the target by 8 per cent. While commercial banks and RRBs together extended credit to 99.65 lakh new farmers during 2011-12, cooperative banks extended credit to 21.52 lakh new farmers during the same period, thus taking the total number of new farmers brought 122
under the banking system to 121.17 lakh. The total number of agricultural loan accounts financed as on March 2012 was 6.47 crore. The credit flow to agriculture during 2012-13 by commercial banks, cooperative banks, and RRBs together was ` 2,39,629 crore till September 2012, accounting for 42 per cent of the annual target of ` 5,75,000 crore set for 2012-13 financial year. 3.10 Details of Cooperative Societies in Maharashtra State: Co-operative movement plays a pivotal role in safeguarding interests of the vulnerable and unorganized people engaged in various economic and social activities. Co-operative have entered into all spheres of socio-economic activities viz. production, marketing, credit & banking, processing, sales, dairying, storage, housing, farming, fishing, etc. In the post liberalization era, the co-operative sector is facing serious challenges of competition from corporate sector and multinationals in addition to resource constraints and lack of professionalism. As on 31 st March, 2009 there were 2.12 lakh co-operative societies working in the State, with about 523 lakh members. Details of these co-operative societies are summarized in Table 3.6. 3.11 Agricultural in Maharashtra: The co-operative credit structure in the State is three-tier with the State Co-operative Bank as the apex body at the State level, District Central Co-operative Banks at district level and the Primary Credit 123
Societies at village level. This credit structure plays an important role in development of agriculture and promotion of allied activities in the State. Details of these are given in Table 3.7. Year/ Table 3.5 Agency-wise Credit Disbursed to the Agriculture Sector. Coop. Share RRBs Share Comm. Share Total Agency Banks (%) (%) Banks (%) 2006-07 42480 18.52 20435 8.91 166485 72.57 229400 2007-08 48258 18.95 25312 9.94 18/1088 71.11 254658 2008-09 46192 15.30 26765 8.87 228951 75.83 301908 2009-10 63497 16.51 35218 9.16 285799 74.33 384514 2010-11 78121 16.68 44293 9.46 345877 73.86 468291 2011-12 87963 17.21 54450 10.65 368616 72.13 511029 2012-13 64664 26.99 32127 13.41 142838 59.61 239629 Source: Commercial Bank data Indian Banks Association (IBA)/RBI, Cooperative Banks and RRBs data NABARD. 124
Table 3.6 Details of Co-operative Societies in the State Particulars As on 31 st March 2008 2009* (Rs. crore) Percentage change Societies (No.) 2,05,753 2,12,344 3.2 Members (lakh) 505 523 3.6 Paid-up share capital 12,809 13,344 4.2 of which, state Govt. 1,917 2,049 6.9 Working capital 2,05,110 2,05,122 Neg. Deposits 1,40,162 1,51,528 8.1 Advances (Gross) 88,166 86,485 (-)1.9 Advances (Net) 63,604 65,203 2.5 Societies in loss (No.) 55,257 57,888 4.8 Amount of loss 6,985 7,126 2.0 Loans outstanding 1,10,046 1,11,261 1.1 * Provisional Neg. Negligible Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra. Primary Agricultural Credit Societies (PACS) play a prominent role in disbursement of short term agricultural credit mainly for Seasonal Agricultural Operations (SAO). They include Farmers Service Societies 125
Table 3.7 Important Features of Agricultural Co-Operative Credit Banks in Maharashtra (Rs. crore) Particulars As on 31 st March Percentage 2008 2009* change The Maharashtra State Co-operative Bank Ltd. Members (No.) 2,178 2,168 (-)0.5 Working capital 22,360 25,681 14.9 Deposits 16,509 20,954 26.9 Gross loans advanced 10,227 10,365 1.3 Loans outstanding 9,331 8,743 (-)6.3 Overdues 1,213 1,356 11.8 District Central Co-operative Bank (31) Members (No.) 1,36,148 1,42,18 4.4 6 Working capital 45,629 51,402 12.7 Deposits 31,949 38,062 19.1 Gross loans advanced 18,598 14,336 (-)22.9 Loans outstanding 24,446 22,683 (-)7.2 Overdues 7,752 7,328 (-)5.5 Maharashtra State Co-operative Agricultural Rural Multipurpose Development Bank Ltd. @ Members (No.) 827 827 -- Working capital 1,753 1,750 (-) 0.2 Deposits 1 0 (-) 100.0 Gross loans advanced --- -- -- Loans outstanding 1,295 1,168 (-) 9.8 Overdues 1,142 1,074 (-) 6.0 District level Co-operative Agricultural Rural Multipurpose Development Banks (29) Members (In lakh) 11.36 11.32 (-) 0.4 Working capital 1,648 1,506 (-) 8.6 Deposits 24.44 55.74 128.1 Gross loans advanced -- -- -- Loans outstanding 905 640 (-) 29.3 Overdues 576 552 (-) 4.2 * Provisional @ under liquidation, hence stopped advancing loans. Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra. 126
Table 3.8 Details about PACS in Maharashtra (Rs. crore) Particulars 2007-08 2008-09* Percentage change Societies (No.) 21,248 21,285 0.2 Members (Lakh) 147 151 2.7 Working capital 14,280 16,467 15.3 Own funds 2,684 2,724 1.5 Share capital 1,829 2,050 12.5 Of which, State Government 10 14 40.0 Loanee members (Lakh) 36.68 39.95 0.7 of which 1) Marginal farmers 10.46 10.61 1.4 (up to 1 hectares) 2) Small farmers 8.93 9.27 3.8 (1 to 2 hectares) Loans advanced 6,189 6,606 6.7 Loans outstanding 10,979 12,495 13.8 Loans recovered 5,295 5,160 (-) 2.5 Loans overdue 5,230 6,652 27.2 PACS in loss 13,560 13,665 0.8 Amount of loss 561 586 4.5 Proportion of overdues to 49.71 56.32 13.3 loans due for recovery (percentage) * Provisional Source: Office of the Commissioner for Co-operation, GoM. 127
and Adivasi Co-operative Societies. Details of PACS are presented in Table 3.8. About 64 per cent PACS were in loss during 2008-09. High overdues, inadequacy and non-availability of funds and lack of capability to mobilize resources are adversely affecting functioning of PACS. To overcome these weaknesses, the Central Government provided financial assistance to these PACS under Vidyanthan package and also the loans of farmers amounting to Rs. 11,800 crore were waived by the Central and the State Government during 2008-09. 3.12 Non-Agricultural Credit Societies in Maharashtra: Maharashtra State Co-operative Housing Finance Corporation Ltd. is the central non-agricultural credit institution functioning in the state. At the end of March, 2009 the outstanding loans of the co-operative societies have reduced by 10 per cent compared to last year, other details being given in Table 3.9. As on 31 st March, 2009 under non-agricultural credit societies, there were 574 urban co-operative banks, 16,358 urban co-operative credit societies and 7,235 salary earners' co-operative societies in the State. About one-fourth of the total non-agricultural credit societies were in loss. The details are given in Table 3.10. 128
Table 3.9 Details of Maharashtra State Co-operative Housing Finance Corporation Ltd. (Rs. crore) Particulars As on 31 st March Percentage 2008 2009* change Members (No.) 11,323 11,183 (-)1.2 Deposits 0.54 0.32 (-) 40.7 Working capital 350 339 (-) 3.1 Gross loans advanced 644 644 -- Loans outstanding 135 121 (-) 10.4 Loans overdue 37 38 2.7 Loans recovered 13 14 7.7 * Provisional Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra. 3.13 Rural Credit Scenario of Maharashtra: The rural credit scenario of Maharashtra encompassed several aspects with major foci of attention on annual credit plans prepared for various sectors by the State Level Bankers' Committee (SLBC), potential linked credit plans for various region of the state, progress of various 129
rural financial institutions overtime, distributional aspect of credit, microfinance or linkage of bank credit with various self-help group, etc. Majority of these aspects are evaluated in this section with a focus on credit cooperatives, commercial banks, regional rural banks (RRBs), land development banks (LDBs), and micro credit innovations. Table 3.10 Details of Non-agricultural Credit Societies Particulars As on 31 st March 2008 2009* (Rs. crore) Percentage change Societies (No.) 25,106 24,167 (-) 3.7 Members (lakh) 202 210 4.0 Deposits 55,545 56,294 1.4 Owned funds 13,508 13,823 2.3 Share capital 5,938 6,089 2.5 Of which, State Govt. 8 9 12.5 Working capital 97,352 88,765 (-) 8.8 Loans advanced 52,169 54,181 3.9 Loans outstanding 60,279 62,388 3.5 Loans overdue 7,847 8,269 5.4 Loans recovered 1,596 1,685 5.6 Societies in loss (No.) 6,118 6,159 0.7 Amount of loss 525 610 16.2 * Provisional Source: Office of the Commissioner for Co-operation, Govt. of Maharashtra. 130
3.14 Credit Flow through Commercial Bank in Maharashtra: Despite several targets prescribed by the RBI for Public Sector Banks (PSBs), these banks are reported to have defaulted merrily on majority of these targets (Mujumdar, 2001). This is evident from the fact that, during the period between 1992 and 1996, the net bank credit of PSBs to priority sectors at all-india level was well below 40 per cent. Not only this, at all-india level, the net bank credit of PSBs to agriculture and to weaker sections remained well below 18 per cent and 10 per cent, respectively, of their total advances all through the period between 1991 and 2000. This is a reflection of the fact that the two sub-targets of credit to agriculture and to weaker sections continue to remain unattained even in more recent times. Thus, agriculture in general and weaker sections in particular is grossly neglected by PSBs. However, in view of the recommendations of the Union Budget of 1996-97, which laid emphasis on the need to double the size of rural credit in the subsequent five years, the RBI had restored the priority sector credit of PSBs to the level of 41 per cent of their total advances in March 1997, and it remained well above 40 per cent thereafter. As for institutional finance to farming community, the commercial banks in Maharashtra have also not shown encouraging trends. The trend over the past two decades shows a slower growth in rural institutional finance through commercial banks during the decade of economic reforms as against 131
the pre-economic reform period (Table 3.11). The commercial banks in Maharashtra have not only shown slower growth in their loan advances and deposits but also decline in their credit-deposit (C-D) ratio during the period of reforms as against the pre-economic reform period. However, mention may be made here that though the rural C-D ratio of commercial banks in Maharashtra has come down from 72 per cent during TE 1982/83 to 65 per cent by the TE 1999/00, it is still well above the minimum prescribed limit of 60 per cent as stipulated by the RBI. Table 3.11 Rural Deposits and Credits of Commercial Banks in Maharashtra (Rs. Crore) Indicators Triennium Ending CGR (%) 1982/83 1992/93 1999/00 1980/90 1991/2000 1980/2000 Rural Deposits 381 1964 5145 19.05 14.40 NS 16.28 Rural 274 1457 3346 17.08 12.28 NS 14.91 Credits CD Ratio 71.91 74.18 65.03 -- -- -- (%) Source : Computations are based on figures obtained from various issue of 'Economic Survey of Maharashtra'. 132
3.15 Rural Indebtedness in India: Indebtedness has been acknowledged as one of the most infamous stumbling block in the way of rural property. It is cancerous, self perpetuations malignant and maleficent. I abate agricultural production, abashes social psyche, aggravates inequalities in the distributions of socioeconomic opportunities and benefits, arrests social progress and misdirects social efforts. Within the given institutional structure of the Indian society it is felt that a cure for indebtedness is extremely difficult, if not impossible. It is so because poverty, coupled with unequal distribution of economic resources, breeds indebtedness, which in turn, consolidates the causes of poverty and distributional injustice. This vicious circle can, of course, be broken, but it requires a strong social will and a manifestation thereof in determined efforts to eradicate the problem of rural poverty and indebtedness. There is a pressing need for identifications of weaker links of the said causal chain that makes the vicious circle. A prudent strategy to break the circle would attack these weaker links. The task of the identification of the weaker links necessitates social research to be carried out. We must note that the problem of rural indebtedness is not sociological, economic or political problem in isolation; it is a serious and crucial problem that has its roots in the social, political and economic texture of the society. 16 133
3.16 Incidence of Indebtedness of farmer household in India: Table No. 3.12 shows estimated number of rural household, farmer household, indebted farmer households and percentage of farmer households indebted in each of the states. At all India level, an estimated 60.4 percent of rural households were farmer households and of them 48.6 percent were reported to be indebted. The incidence of indebtedness was highest in Andhra Pradesh (82 percent), followed by Tamil Nadu (74.5 percent), Punjab (65.4 percent), Kerala (64.4 percent), Karnataka (61.6 percent), and Maharashtra (54.8 percent). As per NSS 59 th round Moreover, Harayana, Rajasthan, Gujarat, Madhya Pradesh and West Bangal each had about 50 to 53 percent farmer households indebted. States with very low proportion of indebted farmer households were Meghalaya, Arunchal Pradesh and Uttaranchal. In each of these states less than 10 percent farmer households were indebted. In absolute terms, out of an estimated 43.4 million indebted farmer household, 6.9 million belonged to Uttar Pradesh, 4.9 million to Andhra Pradesh, 3.6 million to Maharashtra, 3.5 million to West Bengal and 3.2 million to Madhya Pradesh. More than half of the indebted farmer households belonged to these five states. 3.17 Incidence of Indebtedness by Different Sources: During independence period the growth of institutional rural credit tremendously increased. Before independence non-institutional rural 134
Table 3.12 Estimated Number of Rural Households and Total State Indebted Farmer Households in each State Estimated number of Rural households (100) Estimated number of farmer households (100) 135 Estimated number of indebted farmer household (100) Percentage of farmer households indebted 1 2 3 4 5 Andhra Pradesh 142512 60339 49493 82.0 Arunchal Pradesh 15412 1227 72 5.9 Assam 41525 25040 4536 18.1 Bihar 116853 70804 23383 33.0 Chhattisgarh - 36316 27598 11092 40.2 Gujarat 63015 37845 19644 51.9 Haryana 31474 19445 10330 53.1 Himachal Pradesh 11928 9061 3030 33.4 Jammu & 10418 9432 3003 31.8 Kashmir Jharkhand 36930 28238 5893 20.9 Karnataka 69908 40413 24897 61.6 Kerala 49942 21946 14126 64.4 Madhya Predesh 93898 63206 32110 50.8 Maharashtra 118177 65817 36098 54.8 Manipur 2685 2146 533 24.8 Meghalaya 3401' 2543 103 4.1 Mizoram 942 780 184 23.6 Nagaland 973 805 294 36.5 Orissa 66199 42341 20250 47.8 Punjab 29847 18442 12069 65.4 Rajasthan 70172 53080 27828 52.4 Sikkim 812 531 174 38.8 Tamil Nadu 110182 38880 28954 74.5 Tripura 5977 2333 1148, 49.2 Uttar Pradesh 221499 171575 69199 40.3 Uttaranchal 11959 8962 644 7.2 West Bengal 121667 69226 34696 50.1 Group of UT's 2325 732 372 50.8 All India 1478988 893504 434242 46.6 Source: NSS Report No. 498: Indebtedness of Farmer Households, 2003.
Credits were dominant. After nationalization of commercial banks and dominant. After nationalization of commercial banks and mandated of rural credit to these banks institutional rural credit increased and noninstructional credit goes down. Total debt of farmer households was estimated at Rs. 1.12 lakh crore in 2003; of which Rs. 65000 crore was from institutional agencies and Rs. 47000 crore from non-institutional agencies. Private moneylenders accounted for Rs. 29000 crore and traders Rs. 6000 crore. About Rs. 18000 crore of debt from non-institutional sources, a major portion of which was from moneylenders, carried an interest rate grater than 30 percent. Clearly, there is an urgent need to relieve the farmers from private debt currying high interest rate by transferring it to institutional agencies. Table No. 3.13 indicates the debt of cultivator households from different sources since 1951 to 2002. The share of institutional sources in cultivator's debt improved considerably in the years following bank nationalization, from about 32 percent in 1971 to 66 percent in 1991, but in the 1990's, there was a loss of momentum and the share declined to 61 percent in 2002. In the post nationalization period, the increase in the share of commercial banks was rapid and sizeable. The cooperative sectors share increased from 22 percent in 1971 to about 30 percent by 1981 and stagnated since then. In the 1990's while cooperative sustained their, albeit low, share at 30 percent, the share of commercial banks 136
Table 3.13 Share of Debt of Cultivator Households from Different Sources: 1951-2002 (In Percentages) Sources of Credit 1951 1961 1971 1981 1991 2002 Institutional 7.3 18.7 31.7 63.2 66.3 61.1 Cooperative Societies / 3.3 2.6 22.0 29.8 30.0 30.2 Banks, etc Commercial Banks 0.9 0.6 2.4 28.8 35.2 26.3 Non-Institutional 92.7 81.3 66.3 36.8 30.6 38.9 Moneylenders 69.7 49.2 36.1 16.1 17.5 26.8 Unspecified - - - - 3.1 - Total 100.0 100.0 100.0 100.0 100.0 100.0 Source : Report of the Expert Group on Agricultural Indebtedness Ministry of Finance, Government of India, July 2007. slipped from 35 percent in 1991 to 26 percent in 2002. The decline in the share of institutional agencies in the 1990's could be attributed to the decline in the share of commercial banks. 3.18 Incidence of Indebtedness by Land Holding in India: Table No. 3.14 shows the incidence, amount and sources of indebtedness by size class of land holding. The incidence of indebtedness and the share of institutional finance in outstanding debt for all-india increased with the size of land holding. The incidence of indebtedness 137
increased from 46 percent for marginal and small farmer household to 66 percent for large farmers and the share of institutional agencies in the debt increased from 51 to 68 percent. The average size of loan per farmer also increased with the landholding size. Small and marginal farmer households, which accounted for 80 percent of indebted fanner households, absorbed 51 percent of the total outstanding credit from institutional agencies. The dependency of marginal and small farmers was more on non-institutional agencies then of large farmers. As against large farmers, one-third of whose debt was from non-institutional sources, onehalf of the debt of small and marginal farmers was from non-institutional sources. The marginal farmers received a relatively smaller share even from cooperatives and had to depend more on private moneylenders. 3.19 Incidence of Indebtedness by Purpose: Table No. 3.15 shows a substantial proportion of cultivator households debt was for productive purposes at the all-india level However, debt for productive purposes as a percentage of total debt declined from 71.6 percent in 1981 to 62.9 percent in 2002. Similarly the share of debt incurred for farm business declined from 63.8 percent in 1981 to 52.5 percent in 2002. Within farm business expenditure, the share of capital expenditure declined from 45.3 percent to 34.3 percent. The increase in capital expenditure for non-farm business could not fully compensate the fall in farm business expenditure, which resulted in 138
a fall in the share of overall productive expenditure between 1981 and 2002. Table 3.14 Incidence, Amount and Source of Indebtedness by Size Class of Holding: 2003 Size class Total Total Incidence Amount Loans from of land Household Indebted of Outstanding Institutional Possessed (%) Household Indebtedness per Farmer Agencies (%) (Hectares) (%) (%) Household Non Institutional < 0.01 1.4 1.3 45.3 6121 22.6 77.4 0.01-0.40 32.8 30.0 44.4 6545 43.3 56.7 0.41-1.00 31.7 29.8 45.6 8623 52.8 47.2 1.01-2.00 18.0 18.9 51.0 13762 57.6 42.3 Up to 2.00 83.9 79.9 46.3 8870 51.3 49.7 2.01-4.00 10.5 12.5 58.2 23456 65.1 35.0 4.01-10.00 4.8 6.4 65.1 42532 68.8 31.1 10.00+ 0.9 1.2 66.4 76232 67.6 32.4 All Sizes 100.0 100.0 48.6 12595 57.7 42.4 Source : NSSO, Situation Assessment Survey of Farmers, 2003. 3.20 Causes of Rural Indebtedness: Broadly, there are several factors responsible on account of which an Indian agriculturist incurs debts remains indebted for ever. It is the very socio-economic structure of the rural area which compels him borrow more and more. There is nothing wrong to borrow. He needs money to cope up his needs but his earnings from the farm is very low. He has to face many problems in his day to day work. Borrowing is very common phenomenon in the world but the fact is that Indian farmers are 139
totally unable to return the amount of debt out of his meager income. Thus, indebtedness goes on multiplying year after year. Let us make a detailed investigation about the various causes of rural indebtedness (Lekhi and Singh, 2008) 17. Table 3.15 Distribution of Debt by Purpose among Rural Cultivator Households: 1961-2002 (In Percentage) Purpose 1961 1971 1981 2002 Productive 40.1 54.0 71.6 62.9 Farm-Business 36.6 49.7 63.8 52.5 Capital Expenditure 26.8 34.7 45.3 34.3 Current Expenditure 9.8 15.0 18.5 18.2 Non-Farm Business 3.5 4.3 7.8 9.4 Capital Expenditure 1.4 3.2 6.3 7.4 Current Expenditure 2.1 1.1 1.5 2.0 Non-Farm Business 60.0 46.0 28.4 38.1 Household Expenditure 49.2 37.8 20.0 27.7 Other Purposes 10.8 7.2 8.4 10.4 Repayment of Debt. 5.0 1.5 0.1 1.5 Expenditure on Litigation 1.8 0.7 0.8 0.3 Financial Investment 0.2 0.2 1.0 0.6 All Purposes 100.0 100.0 100.0 100.0 Sources : Reports of Expert Group on Agricultural Indebtedness, July 2007. 140
3.20.1 Chronic Poverty of Farmers: A cultivator is forced to borrow for purposes of production or consumption because he is too poor- It is true that he is poor because he is indebted. The vicious circle of poverty saps the very vitality of the rural follc. A United Nation's publication has remarked: "They lie... in the chronic insufficiency "of farmers' income and the consequent tendency of consumption to outrun production," Poverty, misery and decay have not yet been removed from the rural areas of the country; and the middle and small peasants' condition is still grave that they can hardly live without extra earnings from wage labour. "The vicious circle resulting in poverty, debt and high interest rates holds the small cultivators in a tight grip. Poverty is the mainre as other them is unable to save anything out of his present earning.he is compelled to borrow due to adverse circumstances in the family, failure of monsoon or floods or other calamity. It is argued that the constant rise in the prices of agricultural goods in recent years has resulted in a shift in the distribution of national income, from urban to rural areas, through agricultural prosperity; and that it has benefited the cultivating masses considerably. It has been concluded that debt problem does not exist today. But this myth of me agricultural prosperity is the result of the unawareness of the socio- economic structure of the rural areas of the country. Still according to an estimate about 46 percent of people is living in rural areas live below poverty line. 141