A STUDY OF 'INSTITUTIONAL CREDIT TO SMALL BORROWERS IN SELECTED RURAL AREAS OF TAMIL NADU

V.MOHANASUNDARAM

INSTITUTE FOR SOCIAL AND ECONOMIC CHANGE BANGALORE

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THESIS SUBMITTED TO BANGALORE UNIVERSITY FOR THE DEGREE OF

DOCTOR OF PHlLOSOPHY IN ECONOMlCS THROUGH 1 HE DEPARTMENT OF ECONOMICS, BANGALORE UNIVERSITY

BANGALORE

1993

CERTIFICATE

I certify that I have guided the preparation

and writing of the present thesis entitled "A Study of

Institutional Credit to Small Borro~arS in Splp~tpd

Rural Areas of Tamil Nadu" by Mr V Mohanasundaram who

worked on the subject at the Institute for Social and

Economic Change, 8angalore.

,r;;~\v",~",\ (M PRAHLADACHARl

Professor and Head Rural Economics Unit

Institute for Social and Economic Change 8ANGALORE

DECLARATION

I declare that the thesis entitled "A Study of

Institutional Credit to Small Borrowers in Selected

Rural Areas of Tamil Nadu" is a result of my own work

carried out at the Institute for Social and Economic

change, Bangalore and that it has not, either wholly or

in part, been submitted for any other Degree or Diploma.

Due acknowledgements have been made wherever anything

has been borrowed from other sources.

(V MOHANASUNDARAMl

ACKNOWLEDGEMENTS

I deem it my duty to acknowledge the help I

have received from many people during the course of my

research work.

At the outset, I gratefully acknowledge the

constant encouragement, able guidance,

comments, adept and meticulous corrections and

incisive

academic

acumen of my research guide Dr M PRAHLADACHAR, Professor

and Head, Rural Economics Unit, Institute for Social and

Economic Change (ISEC), Bangalore, WhiCh helped me to

carry out the research work successfully. His goodwill,

bounteous wishes and cordial relationship towards me are

highly instrumental in the accomplishment of the thesis.

I sincerely and wholeheartedly thank him for all the

help and cooperation that I have received from him

during the course of my study.

I thank Dr V M Rao, presently Member,

Commission for Agricultural Costs and Prices, New Delhi,

who initially helped me to select the research topic and

also to complete the pre-Ph D Course.

I remember with gratitude the inspiration I

got from the encouraging words of late Prof. V K R V Rao,

the Founder Director and Chairman of 1 SEC, and

late Dr L S Venkataramanan, former Director, ISEC. I

pay my tributes to them.

1 thank the lSEC authorities for providing me

the fellowship and other facilities to pursue my

Doctoral research.

1 sincerely acknowledge the help,

encouragement and comments 1 received from Dr Abdul

Aziz, Professor and Head, Economics Unit, ISEC.

I am highly indebted to Dr P Hanumantha

Rayappa, Dr M V Nadkarni, Dr A S Seetharamu, Dr Amal

Ray, Dr B S Bhargava, Dr H G Hanumappa, Dr C S Nagaraju,

Dr M Venkata Reddy, Dr S N Sangita, Dr (Mrs) Hemlata Rao

and all other faculty members, Research Analysts and

Technical Staff of ISEC for their sugggestions, help and

encouragement.

I am highly grateful to the Library staff,

Administrative staff, Estate Office and Mess staff of

ISEC for their kind and affectionate help and support

extended towards me for no return. But for their co-

operation and support my research work and stay at

would not have been a pleasant one.

ISEC

I thank Prof S N Nanje Gowda, Dr 0 T NanjR

Gowda, Dr R G Desai and other Faculty Members,

Department of Economics, Bangalore University for all

the help and cooperation in getting me registration and

extending help towards the submission of my thesis.

The incessant encouragement I have received

from my well-wishers Dr C Ramasamy, Dr L P Swaminathan,

and Dr K Palanisamy of Tami 1 Nadu Agricultural

University, COimbatore; Dr K Ramamoorthy, Scientist,

Central Cotton Research Institute, Coimbatore; Rev. Fr.

Sebastian, Founder President, Association of Economists,

Tami 1 Nadu; Dr C Thangamuthu, Professor and Head,

Department of Economics, Bharathidasan Univer6ity,

Trichy; Dr P Arumugam, Department of Economics,

Bharathiar University, Coimbatore; Dr R S Deshpande,

Gokhale Institute of Politics and Economics, Pune;

Dr (Mrs) L Jayalakshmi, Principal, G V G College,

Udumalpet and Smt. Susheela Subramanya, Editor, Southern

Economist, Bangalore, has helped me in many ways to ,

improve the thesis work. I am thankful to all of them.

lowe a great deal to Dr W Earnest William,

Professor and Head, Prof K Durairaj and other colleagues

at my Department of Economics, PSG College of Arts

and Science, Coimbatore for their concern and constant

encouragement •

•

I take this opportunity to thank

Dr Chidambaram, former Director, Mr Mohanarangan and

other staff members of Department of Evaluation and

Applied Research, Madras, for making available not only

the necessary data but also their suggestions to improve

the present work. My thanks are also due to Department

of Institutional Finance, Madras; Lead Bank Department,

Indian Overseas Bank, Madras; DRDA Office, Coimbatore;

Lead Bank Office, Canara Bank, COimbatore; the selected

Block Offices, Bank Branches, MPCSs, ASCSs, VLWs, VEWs,

selected beneficiary and non-beneficiary respondents and

all others for their cooperation while collecting the

necessary data for the present study.

I rec all with gratitude the hospitality I

received from my friend Manoharan, Mr Ratnam,

Mrs Shanthamani Ratnam, and Ms Rajalakshmi when I was in

Bangalore and Mr Balasubramanian, Mr Palanisamy Gounder

and Mrs Meenakshi Ammal during the time of field work.

I sincerely believe that it is my interaction

and association with my friends Jose, Ravichandran,

Iyyampillai, Selvaraju, Shylendra, Rajendran, Deshpande,

Thangaraj, Sekhar, Govindaru, Rajasekaran, Joseph,

Itagi, Muthurayappa, Thippaiah, Veerasekharappa,

Paramashivamurthy and others, both during my stay at

ISEC and thereafter, that have helped me to put up with

the pains and pleasures of the thesis work. I value

their friendship and hold them all in great esteem. I

cherish gratefully the succour extended towards me by my

junior, Viswanath at ISEC during the final stage of my

work.

1 thank Mr Narayana, Mr Shankar and Mr Boopathy

for their typing work. But for the strenuous and

untiring efforts of Mr Narayana in word-processing, the

work would not have been completed on time.

thank him.

1 specially

All words will fail to adequately express my

gratitude and

grand-mother

encouragement.

indebtedness to my beloved parents and

for their love, affection and

The sacrifice made at the homestead by

my brothers Sivanandam and Sachidanandam and gister

Vasantha Kokilam helped me in devoting myself to the

work. My wife's keen interest in my studies and my

charming daughter are the source of lnspiration to me

during the crucial stage of submission of the Thesis.

Lastly, 1 am extremely grateful to my grand-

father, late Sri S Velappa Gounder, an innovativ~ farmer

in a remote village, who has encouraged and financed my

higher studies, but not fortunate enough to see the

fruition. 1 DEDICATE this work as an honour to his

memory.

(V MOHANASUNDARAM)

CONTENTS

ACI<NOWLEDGEMENTS

LIST OF TABLES

LIST OF FIGURES

Chapter

I

II

III

IV

V

VI

VII

INTRODUCTION

REVIEW OF LITERATURE

THE STRUCTURE AND GROWTH OF RURAL INSTITUTIONAL CREDIT IN INDIA

METHODOLOGY

RETURNS TO INVESTMENT IN DAIRY SCHEME

RETURNS TO INVESTMENT IN MINOR IRRIGATION SCHEMES

FINANCIAL VIABILITY ANALYSIS

Page

1

18

82

130

163

218

267

VIII SUMMARY OF FINDINGS AND CONCLUSIONS 296

APPENDICES 337

B IBL IDGRAPHV 352

Table

3.1

3.2

3.3

3.4

3.5

3.6

3.7

3.8

3.9

3.10

LI8T OF TABLES

Sources of Rural Credit

The Performance of PACS in India

Distribution of Loans and Advances Issued by PACS According to Category of Borrowers - All India and Tamil Nadu

Advances by Primary Land Mortgage/Deve­lopment Banks in India

Classification of Loans Issued by PLDBs According to Size of Ownership Holdings - All India and Tamil Nadu

Number, membership, paid-up loans advanced, outstanding and of Co-operative Banks/Societies Nadu - 1989-90

capital, overdue

in Tamil

Performance of IRDP in the Sixth and Seventh Five Year Plans and in 1990-91

Scheduled Commercial Banks' Direct Finance Percentage distribution of short and long-term loans according to size of land holding - All India and Tamil Nadu

Disbursement of Refinance for Various Purposes by NABARD (1982-83 to 1991-92)

The Share of Debt of Held by Different Official Evidence

Rural Households Creditors The

4.1 Ranking of the Five Taluks of Coimbatore District on the Basis of Selected Indi­cators

4.2 Ranking of the Blocks on the Basis of Selected Indicators

Page

B9

101

103

105

106

107

110

112

115

117

136

140

4.3

4.4

4.5

4.6

IRDP Performance in the Selected Blocks (1982-83)

Financing Small Borrowers Under IRDP by Various Bank Branches in Madathukulam Block During 1980-83

Financing Small Borrowers Under IRDP by Various Bank Branches in Pongalur Block During 1980-83

Number of Beneficiaries Financed Under Minor Irrigation Schemes in the Selected Blocks During 1978-82

4.7 Number of Beneficiaries Selected Under Minor Irrigation Schemes

4.8 Bank Branchwise Number of Under Dairy Scheme in Selected Blocks

Beneficiaries 1982 in the

4.9 Number of Beneficiaries Selected From Dairy Scheme - Categorywise and Block­wise

4.10

5.1

5.2

5.3

5.4

5.5

5.6

5.7

Functionaries Consulted During the Field Survey

Literacy Level of the Selected Beneficiaries

Membership and Daily Milk Procurement in the Selected MPCSs

Number of Beneficiaries applied for and Sanctioned of Second Loan

The Awareness of Selected Beneficiaries About Cattle Insurance Scheme

Possession of Cattle-sheds Selected Beneficiaries

by the

Utilisation of Dairy Loans by the Selec­ted Beneficiaries

Investment Made in Dairy Scheme by the Selected Beneficiaries

141

143

144

146

147

148

149

150

165

168

171

174

176

178

181

5.8

5.9

5.10

5. 11

5.12

5.13

5.14

5.15

5.16

5.17

5.18

5.19

5.20

5.21

Change in Income Levels Small and Marginal Farmers; Mean Difference Between Pre Loan Periods

of Selected Testing of

and Post-

Incremental Income-Investment Ratio per Unit of Dairy Enterprise

Change in the Employment Levels of Selected Small and Marginal Farmers Testing of Mean Difference Between Pre and Post-Loan Periods

Value of Assets Before and After the Loan Period of the Selected Farmers

Change ciary holds

in Total Income of Per Small and Marginal Farmer

in Selected Blocks

Benefi­House-

Total Income per Beneficiary and Non­Beneficiary Small and Marginal Farmer Households in Selected Blocks

Milk Production Functions for Small and Marginal Farmers of the Selected Blocks

Loan Repayment Performance of Selected Small and Marginal Farmers

Changes in Income Levels of Agricultural Labourers in Selected Blocks Testing of the Difference Between the Means

Incremental Income-Investment Ratio per Unit of Dairy Enterprise of Selected Agricultural Labourers

Change in Employment Levels Agricultural Labourers Difference Between Means

of Selected Testing of

Value of Assets Before and After the Loan Period of the Selected Agricultural Labourers

Changes in the Income of per Beneficiary Household - Agricultural Labourers

Comparison of Total Income of Benefici­ary and Non-Beneficiary Agricultural Labour Households

183

186

188

190

191

193

194

197

202

204

205

206

208

210

5.22

5.23

6.1

6.2

6.3

6.4

Milk Production Function Analysis Agricultural Labourers

Loan Repayment Performance of Selected Agricultural Labourers

the

Classification of the Selected Farmers by Size of Land Holding and Purpose of Loans

Membership of Selected Farmers to ASCS

Knowledge and Benefits Received under T & V Programme by the Selected Farmers

Opinions of the Selected Small Marginal Farmers on T & V System

and

6.5 Sources of Information to the Selected Farmers

6.6

6.7

6.8

6.9

6.10

6.11

6.12

6.13

6.14

Amount of Loan and SubSidy Received by the Selected Farmers in Block-I

Amount of Loan and Subsidy Received by the Selected Farmers in Block-II

Land Utilisation by the Selected Farmers - Before and After the Loan

Changes in the Extent of Irrigated Land by Beneficiaries According to Nature of Assistance Received

Changes in the Cropping Pattern of the Selected Farmers

Cropping Farmers

Changes in Selected Assistance

Intensities of the Selected

the Cropping Intensity of Farmers According to Received

the the

Adoption of New Agricultural Practices by the Selected Farmers

Gross Value of Agricultural Output (GVAO) at Realised Prices as Per-cent over GVAO Block Average Price

212

214

220

223

224

226

227

236

237

241

243

246

248

249

250

257

6.15

6.16

6.17

6.18

7.1

7.2

Block Price Levels Relative to District Average for Farm Produce (Ratios in Per­Cent)

Output, Cost and Estimated per Acre Net Crop Income of Sample Farmers in Block-I

Output, Cost and Estimated Crop Income of Sample Block-II

per Acre Farmers

Net in

Loan Repayment Performance of the Selected Farmers - Blockwise, Schemewise and Categorywise

Measures of Investment Worth per Baffaloe in the Selected Blocks

Average Value of Milk Supplied, Loan Repayment and Net Additions to Income of the Selected Dairy Loan Beneficiaries

7.3 Financial Viability Analysis - New Well Scheme

7.4

7.5

Financial Viability Analysis - Deepening of Well Scheme

Financial Viability Analysis Engine Scheme

Oil

258

260

262

264

278

286

290

292

293

Figure

1

2

3

LIST OF FIGURES

The Share of Debt of Rural Households Held by Different Creditors

Changes in Income of Beneficiaries

Changes in Income of Beneficiaries­Agricultural Labourers

Page

118

192

209

CHAPTER I

INTRODUCTION

In order to ensure an overall development of

all the segments of rural society, many developing

countries are increasingly focusing attention on

assistance to the small and marginal farmers,

agricultural labourers and other rural poor especially

in the recent years. In this process, these countries

are expecting credit institutions to playa major role

in implementing the rural development programmes

including those meant for the rural poor. This

realization came after the bitter experiences and

failures in implementing many rural development

programmes which were based on 'trickle 1

down' theory,

which in turn relied primarily on a higher rate of

growth in Gross National Product (GNP) of a country.

This theory has been discarded by many empirical

t . 2 s udles and there is a growing emphasis on devising

integrated programmes (covering all the sectors and

sections of the people) for the harmonious development

of rural areas. Most of the developing countries,

including India, are now implementing such various rural

development programmes. One important component of

these programmes is credit, i.e., provision of loans and

subsidies through institutional credit agencies like

banks and cooperative societies to enable the rural poor

to undertake various productive schemes.

The envisaging of credit (investment)-oriented

programmes in developing countries is based on the

prevailing conditions in the rural areas of such

countries on the one hand and the assumptions3

underlying the rural development theories on the other.

Some of the important assumptions are:

i) Lack of capital for investment is one of the most

i i )

ii i )

4 important reasons for poverty in rural areasl

the small farmers are efficient but poor so they

d l · t 5 nee externa aSS1S ance;

the adoption of improved technology ln

agriculture, irrigation, land development and

dairying, requires massive investment on the part

of the farmers, but since their savings are low

they are to be assisted wi th external

institutional finance;6

2

iv) the diversification of rural economy is often

v)

vi)

vii)

suggested as one of the means for rapid economic

development (in India) which, requires deployment

of more capital (both directly and indirectly) in

7 rural areas;

the rural poor are taking loans fr~m non-

institutional sources (say private money-lenders)

which are costlier due to their higher interest

rates. Hence, the rural poor are to be provided

institutional credit (say commercial banks)

8 with concessional interest rates;

to reduce the dominance of rich in credit

cooperatives in the villages there is a need for

t l ' 't t' 9 governmen po lCY In erven lon;

the growing inequalities between urban and rural

areas in the developing countries have been

attributed to a large extent to the unequal

distribution of capital inve"stment between these

two areas. Thus, a shift in government policies

including credit policies from urban orientation

to rural orientation is warranted to cement the

10 gap; and

viii) to reduce the inequalities of wealth and income

distribution 1 1 among the rural households on the

3

one hand and to improve the financial position of

rural weaker section an the ather, there is a need

for positive disc rimina t ian in the rural

development policies including credit policies

(say subsidy oriented programmes) in

12 poor.

favour of

The Food and Agricultural Organization's (FAD)

13 Report noted that, "this situation (food and economic

crisis) has been exacerbated by the fact that, while

several of these countries have recorded notable

achievements in agricultural production, such economic

progress as they have made has largely by-passed the

vast numbers of impoverished small farmers and landless

agricultural labourers. The gap between urban-rural

incomes - and, even more, the gap between rich and poor

in rural areas - has not narrowed, but 1n many countr1es

actually widened". In this context it recommended an

integrated rural development programme and further

suggested that the credit programmes should be

formulated as an integral part of development programmes

in different areas. They should be conceived as part of

the development of specific SUbstantive sectors such as

food crops or animal husbandry or agro-industries. And

should be part of programmes aimed at developing

nat ional and local institutions which are capable of

4

serving small farmers (even in the remotest part of the

country) in a number of important and related matters

such as the supply of inputs, marketing, the

stabilization of food prices, and so forth.

While reviewing the process of provision of

agricultural credit in developing countries during the

thirty year period ending 1975 the above cited report

distinguished three stages as follows:-

First came the hopeful era of the fifties and

early sixties with large amounts of funds involved. But

little was known of the problems of servicing small

farmers with credit and the programme ended, broadly, in

failure.

Second, there was the IIcareful banking"

period, with the shift in bank portfolios to large

commercial enterprises and a consequent reinforcement of

dualism in many developing economies.

The third phase was characterized by a

willingness on the part of many governments to implement

the policiesl and by the efforts of the credit

institutions to simplify the hitherto cumbersome

procedures, which were identified as necessary to bring

credit successfully to the small farm sector.

5

The decade after 1975 may be termed as the

fourth stage, eKtending it on the lines of FAD report.

This stage is characterized by an integrated approach

towards rural development. 14 More significantly the

credit institutions are eKpected to cover all the rural

poor (i.e. even below the small farmers like marginal

farmers, agricultural labourers and rural artisans) and

extend financial help to them under various development

programmes. This marked a distinct shift in the

attitude of the credit institutions; shift from the

'asset based' lending policies to the 'need based'

I d ' 1" 15 en lng po lCles

Changes in the thinklng and policy orientatlon

which was observed in India during the above mentioned

fourth stage received an effective support at the Annual

Conference of the Indian Society of Agricultural

Economics held in 1981 when it noted that special

schemes designed for rural poor should not be relief­

oriented but development-oriented. 16

Statement of the Problem

During the early years of institutionalisation

of credit in India, the institutional credit for

agriculture was viewed from the angle of protectlng

farmers from the grip of money-lenders. It was hardly

6

considered as an instrument of production enhancement.

When there was an expansion of credit to the rural areas

during the late sixties and early seventies, the role of

giving a push to the developmental process through

credit was getting increasingly realised. The credit

institutions were directed to provide credit to the

farmers to adopt the new strategy in agriculture.

A considerable progress has been made in the

field of expansion of institutional credit in rural

areas. However, the evaluation committees and

commissions appointed by the Indian government and

Reserve Bank of India (RBI) and also many research

studies found that the institutional credit was

distributed inequitably among the farmers. That is, the

credit had not reached the small and marginal farmers

adequately though they cultivated nearly 75 per cent of

the total operational holdings. Due to this, the policy

makers stressed the need for giving preference to small

and marginal farmers and agricultural labourers in

providing institutional credit. Thus, mere expansion of

institutional credit was found to be inadequate and

direct policy interventions by the government in the

field of institutional credit was envisaged. This made

the central government to issue special directives to

give priority to small and marginal farmers both In

credit disbursement and credit linked subsidies. These

7

policy interventions such as, Small Farmers Development

Agency (SFDAl, Marginal Farmers and Agricultural

Labourers Development Programme

Rate of Interest Scheme (DRIl,

(MFALl, Differential

and Integrated Rural

Development Programme (IRDPl had an impact in increasing

the share of institutional credit to the small and

marginal farmers and agricultural labourers.

The characteristics of the special programmes

and schemes framed for the benefit of weaker sections

made the schemes thereunder different from the normal

bankable schemes in regard to viability and other

principles of lending like technical feasibility, and

commercial viability. These were further, prominently

t~rget-oriented, a characteristic which outweighed other

considerations. Bankers often found it difficult to

adjust themselves to the needs of these programmes;

instead in their anxiety to minimise the probability of

default, they found it much safer to lend to a small

number of big borrowers than to a large number of small

borrowers.

The issues that have cropped up in the recent

years in the area of rural credit may be regarded as

second generation problems - problems that have arisen

in the wake of significant headway that institutional

credit to the rural sector has already made. Important

8

issues are: the identification of the special features

of the credit and subsidy oriented programmes,

examination of the problem spots in every phase of the

disposal of the credit and its utilisation; a proper

evaluation of the impact the credit has made on the

economic condition of small borrowers. Above all, an

investment will be considered financially viable and

remunerative by a small borrower if it leaves him a

surplus after meeting the debt service charges. These

are the issues which are to be probed further in detail,

to bring about the necessary changes in attitudes and

practices of rural credit institutIons. Hence, the

present study.

Objectives

The study has set before Itself the following

objectives:

1 ) To study the procedures of beneficIary

Identification and project formulatIon by the

banks.

ii) To examine the accessIbility of the selected smaii

borrowers* to the bank credIt, infrastructure

facilities and services.

* Those small and marginal farmers and agricultural labourers who have received loans for productive purposes from the organized financial institutions.

9

iii ) To investigate into the utilisation pattern of the

loans borrowed by the selected small borrowers.

iv) To assess the changes in the economic condition of

the selected borrowers between the pre-and post­

loan periods,

v)

vi)

To find out the rate of return on the investments

made by

viability

the small borrowers and the financial

of the loans sanctioned to

borrowers; and

To examine the loan repayment performance of

selected borrowers.

such

the

The Significance and Scope of the Study

Credit alone has little or no impact on the

development of agriculture or on the living conditions

of rural population, although conditions might be worse

without it. The aim should be to convert the static

credit into dynamic credit, which means that at the end

of the period the borrower has increased his assets,

productive power and income. This is real development

credit leading to a gradual change in the 1 nterna 1

economic structure of the borrower household. To this

effect there is a need for lndepth empirical studies to

provide

marginal

answers to the question of how the small and

farmers and the agricultural labourers can be

10

made viable units with the help of institutional credit.

As on to-day the expansion of banking to the rural areas

may be said to have been achieved, in quantitative

terms, but the real challenge is to bring about a

success in qualitative terms. By focussing the

attention on such relevant issues as accessibility of

rural poor to the institutional creditl the utilisation

of credit; and the impact of credit on the economic

condition of the small borrowers, the present study may

contribute some relevant ideas to the eKisting

literature. Moreover, it is hoped that the testing of

financial viability of the schemes undertaken by the

small and marginal farmers and agricultural labourers

with the help of bank loans and the results would have a

wider application.

The paramount need at the present juncture is

to ensure higher productivity of institutional credit

and better recycling of funds. The analysis of the

empirical data in this study may provide some insights

into this particular aspect.

As noted by the RBI in one of its 17

reports ,

the strength and weakness of the credit delivery system

in the rural sector need to be reassessed. The present

work, in a modest way, would suggest some POliCY

measures to improve the rural credit delivery system.

1 1

Limitations of the Study

The following are the important limitations of

the study:

The primary data for the study has been

collected exclusively by personal canvassing of

interview schedules. The data so collected are subject

to what may be called the 'error of response' in some

degree or other. Such errors of response are largely

due to the illiteracy of most of the respondents.

Data on the cost of cultivation, maintenance

expenses of milch animals, income from different crops,

income from dairying, employment in dairy enterprise,

etc. for different years may not be precise/accurate,

specially if they are to be furnished for the past years

in view of the fact that majority of the selected small

and marginal farmers and almost all the

It

agricultural

labourers do not maintain accounts. is for this

reason a pilot survey was conducted and on the basis of

that the structured interview schedule was finalised.

Wherever possible the data collected (price of animals,

cost of inputs, milk yield, quantity and value of

agricul tural output and wages) have been cross-checked

for their accuracy.

12

The Chapter Outline

The contents of this thesis have

presented in eight chapters. Following

been

this

introductory chapter (Chapter Il which has dealt with

the the research theme, researchable issues, objectives,

significance, and scope of the study, in the second

chapter a review of theoretical issues and empirical

studies pertaining to the present exercise has been

carried out. The structure and growth of institutional

credit

have

in India and to a limited extent in Tamil

been briefly analysed in the third chapter.

Nadu

The

fourth chapter is devoted to explain the methodological

framework of the study, that is, about the selection of

study area and sample, methods of data collection,

concepts used and methods of data analysis. The returns

to investment in dairy scheme are analysed in the fifth

chapter.

in minor

financial

In the sixth chapter the returns to investment

irrigation schemes are dealt with.

viability analysis of both dairy scheme

The

and

minor irrigation schemes is taken up in the seventh

chapter. And in last chapter a summary of findings and

conclusions are presented.

13

Notes and References

1. One of the development strateQies advocated to develop the poor countries was massive capital investment in core sectors of the economy, instead of investing meagre amounts in all the sectors. This was expected to increase the growth rates of not only those sectors which received huge capital investment but also of other sectors, due to the working of spread effects in the economy. This theoretical line of thinking placed emphasis primarily on increasing the production (GNP) rather than on equitable distribution.

2 For details, among others.

a) Belshaw Horace, Agricultural Credit in Economically Undeveloped Countries, FAD, Agricultural Studies, No. 46, Rome, FAD. 1959.

b) Padmanabhan K P, Rural Credit: Lessons for Rural Bankers and Policy Makers, London, Intermediate Technology Publications, 1988.

c) A report by ILO summarises this point, and states, "a series of development studies since the early seventies has concluded that aggregate growth by itself has not led to redistribution of assets or incomes, and the condition of the poor has remained much the same since the era of developmental effort started. Growth and social change must, therefore, go together and direct attention should be given to the removal of poverty. It was only in the late seventies that in many countries special programmes for poverty alleviation such as cash doles, special schem.s for employment promotion, or other target--group oriented programmes were launched." International Labour Organisatlon, Fightlng Poverty: Asia's Major Challenge, New Delhi, Asian Employment Programme (ARTEP), 1986, p.7.

3. More elaborate and critical treatment of this kind of assumptions about rural credit can be seen

(a) Von Pischke J D, Dale W Adams, and Gordon Donald (Eds), Rural Financial Markets Dl Developing Countries- Their Use and Abuse, Johns Hopkins, Baltimore, 1983 and

14

(b) Adams 0 W, Douglas H Graham, and Von Pischke J 0, Undermining Rural Development with Cheap Credit, Boulder, Colorado, Westview Press, 1984.

4(a)

(b)

5 ( a )

(b)

Nurkse, Ragnar, Problems of Capital Formation ~ Underdeveloped Countries, Oxford, Basil Blackwell, 1953, and

Robert D Stevans (Ed), Tradition and Dynamism in Small-Farm Agriculture ~ Economic Studies Dl Asia, Africa ~ Latin America, The IOWA state University Press, 1977.

Schultz, T W Transforming Tradltional Agriculture, Yale, 1961.

____ , Economic Growth York, McGraw Hill Book Co.,

and Agriculture, 1968.

New

(c) Hayami Yand Ruttan V, Agricultural Development: An International Perspective, Johns Hopkins, 1971.

6 (a) Belshaw H, QR. Cit. and

(b) Adhvaryu J H, "Financial Intermediation and Development", The Indian Economic Journal, Jan-March 1979, pp 63-88.

Rural 26 (3) ,

7 Since the late sixties (under special

8 (a)

developmental programmes), various state governments have spent large sums of money on animal husbandry, poultry, forestry, and logging and fishing, particularly with a view to improving the economic condition of the relatively weaker section of the rural population.

Lipton, Michel, "Agricultural Finance and Credit in Poor Countries", World Development 1976, pp 543-53, and

Rural 4 (7) ,

(b) Griffin, Keith, The Political Economv of Agrarian Change, New Delhi, Macmillan, Second Edition, 1979 p 26.

9 For more details, among others,

a) Rao, C H H "Farm Size and Credit Policy", M R and Sharma D P (Eds) Rural Bankinq ~ New Delhi, Oxford, 1975(b), and,

15

in Tokhi India,

b) Hans-Dietei Roth, "Money lenders' Mana!;lement of Loan Al;lreements: Report on a Case Study in Dhanbad," Economic and Political Weekly, 14(28), July 14, 1979, pp 1166-70.

10 This type of others, by:

arl;lument was put forward, amon!;l

a) Lipton, Michel, "Stratel;ly for Agriculture: Urban Bias and Rural Planninl;l", in Streeton, Paul and Lipton, Michel (ed). The Crisis of Indian Planning, Oxford University Press, 1968, ELBS Edition, 1972, pp 83-147.

b) , \ib.:t. Poor People Stay Poor =- Urban Bias in. World Development, Temple Smith, 1977.

c) Nanjundappa D M. "Rural Bias for Development" in Brahmananda, P R, Narayan B K, and Kalappa (Eds), Dimensions of Rural Development in. India, Bombay, Himalaya, 1987, pp 100-121.

11. Many field investigations have revealed that the so called 'Green Revolution' in India has resulted in widening the !;lap in the distribution of income and wealth between the bil;l and small farmers in rural India. Notable amon!;l them are

a) Bardhan, P Distribution: Economic and 877-82.

K and Srinivasan, T N, Patterns, Trends and

Political Weekly, 6(17),

II Income Policies", 1971, pp.

b) Sing, Katar "The Impact of New Agricultural Technolol;ly on Farm Income Distribution in Aligarh District of U.P." Indian Journal of Agricultural Economics, 28(2) April-June 1973, pp 1-11.

c) Johl 5 5, "Gains of the Green Revolutionl How they have been shared in Punjab", Journal Q.f. Development Studies, 11(3), April 1975, pp 178-89.

d) Raju V T, "Impact of New Al;lricultural Technology on Farm Income Distribution in West Godavarl District, India", American Journal of Agricultural Economics, 58(2), May 1976, pp 346-50.

16

12 Among others refer:

a) Donald C Taylor, 'Farm Manaoement: Its Role ~ Alleviating Institutional Constraints Facing Asian Small Farms', The Agricultural Development Council Inc., No.25, September 1980.

b)

c)

13

Prasad, Kamta, Financial Intermediaries and Development (Rapporteur's Report), The Economics Journal, 26(2), Oct-Dec 1978, pp 304.

Rural Indian

287-

Ratnam N Institutions 32(1) Annual

V "Restructuring Panchayat Raj is the only Remedy", Kurukshetra,

Number, October 1983, pp. 8-12.

Food and Agricultural Organization, Agriculture ~ the Third World, Rome,

Credit 1975.

14 For EKample, Integrated Rural Development Programme (IRDP) was introduced in 1978 in India.

15

a)

Detailed analysis can be seen in

Tendulkar, Suresh D, Rural Institutional and Rural Development: A Review Article, Economic Review. 18(1), Jan-June 1983, pp. and,

Credit Indian

101-37,

b) Hooda I S, 'Changing Thoughts and Programmes of Rural Development in India", The Asian Economic Review, 34(2), August 1992 pp 418-35.

16 Shah, S M Rapporteur's Report on "Special Programmes for weaker Sections as a Strategy for Improving Income Distribution", Indian Journal of Agricultural Economics, 36(1) Jan-March 1981, pp 31-34.

17 A Review of the Agricultural Credit System in India, Report of Agricultural Credit Review Committee, Bombay, RBI, 1989.

17

CHAPTER II

REVIEW OF LITERATURE

In this chapter a review of the

literature, both theoretical and empirical,

availabl.

has been

done for gaining a perspective on the problems and

issues related to the present study. The review is

presented in two sections.

The first section reviews the theoret ical

propositions formulated by various economists from time

to time relating to the role of credit/capltal and

credit institutions in the process of development of

both developed and developing countries. It a Iso

presents

expressed

a brief summary of various view points

about some of the credit linked development

programmes which were formulated and implemented with

respect

groups.

to specific regions and/or specific target

This section thus serves a useful purpose of

providing a theoretical framework for the present study.

In the second section, a review of empirical

stUdies conducted by (i) the government organizations

18

like Programme Evaluation Organization (PEO) of Planning

Commission, Reserve Bank of India (RBI) and National

Bank

( i i )

for Agriculture and Rural Development (NABARD) ;

research institutions, and (iii)

researchers on the role and impact

institutions and their credit schemes on

conditions of rural poor, is presented.

of

the

individual

bank inc;)

economic:

Since the

present study has taken up the question of institutional

finance to small borrowers relating to two specific

schemes - Dairying and Minor Irrigation - the review of

literature centres around studies relating to these two

schemes.

SECTION I

REVIEW OF THEORETICAL ISSUES

The role of financial institutions in the

economic growth of the developing economies has come

under scrutiny by economic planners and other policy

makers in these countries. 1 Mobilisation of domestic

financial resources, either to supplant or to supplement

external financial assistance where it is available, has

assumed a central role in development programming.

Financial institutions are also being increasingly

19

utilised to channel such resources to economic sectors

considered essential for growth and social equity. The

attention focused on the financial intermediaries has

induced the governments of a wide range of developing

countries to assume direct control of financial

institutions. In India, the nationalization of 14 major

commercial banks in 1969 was considered as the best

example to this phenomenon. And the consequent

developments in handling the banking sector by the

Indian government were an indication that financial

intermediation was recognised as an important source in

the search for ways to improve the growth prospects.

Financial System and Economic Development

One of the most important problems in the

field of finance, is to understand the effect of the

financial

2 growth.

system and its development on

The question of whether financial

and development

sectors of the

have any

economy,

impact on

and if so,

the

how

economic

structure

productive

much, has

elicited a wide range of answers frOM economists. A

major point of the resulting controversy is whether the

development of financial institutions matters at all for

economic growth. The diversity of opinions varies from

considering the development of financial institutions

20

(banks in particular and occasionally including non-

monetary financial institutions) as a necessary factor

for the economic growth of developing economies, to

holding that it is neither necessary nor sufficient for

growth.

The more positive view on the rol e of

financial institutions in economic development is held

by a SUbstantial proportion of the students of financial

development. They all attribute a positive role to

financial institutions in the development process. Th is

view is traditionally associated with Schumpeter's

analysis of the theory of economic development, more

aptly termed the theory of capitalist

3 development. According to Goldsmith, both

theory and economic history assure that the

and development of a superstructure of

economic

economic

existence

financial

instruments and financial institutions is a necessary,

though not

4 development.

sufficient, condition of economic

Other proponents of the positive view of the

rol e of financial

M . 5

arrlS , Came ron

institutions include Adelman and

et. 6 a l. ,

7 Gerschenkron , MckinnnnB ,

Goldsmith9

, patrick10

, and Shaw 11 to name a few. The

relative magnitudes of the impact attributed to banks

and other financial institutions in developing economies

21

differ among these authors. In the following

paragraphs, the earliest and some of the more recent

positive views are presented.

Schumpeter spoke of credit as a phenomenon of

development and regarded the banking system, along with

entrepreneurship, as being the key agent in the process

12 of development. Gerschenkron's seminal work has shown

the important role banking system played in European

economic 13 development. According to Cameron, the

positive contribution of financial institutions, in

igniting the process of growth of a country depends upon

how banking policies are pursued and on the pattern of

evolution 14

of the banking structure. Gurley and Shaw

made an elaboration of the financial intermediation and

widened the spectrum of financial assets available to

the 15 community in the process of development. Cameron

thus concludes that both theoretical reasoning and the

the historical evidence suggest that the banking system

plays a positive, "growth-inducing" role as well as

responding passively to the demand for financial

. 16 serVices.

Capital Formation and Growth

A meaningful role of banks in the savings-

investment process of developing economies is often

22

emphasised by the modern economists. This approach is

based on the generally accepted assumption tha t a

continuous/permanent increase in physical cap ita 1

formation is essential for the growth of an economy.

That physical cap i tal formation exerts a

strategic influence on the path and pace of economic

expansion is well founded in economic thought. The

vital role of physical capital accumulation in growing

economies has indeed been a point of agreement of all

major schools of economic thought. This emphasis on

capital formation is found in claSSical, Marxist, neo-

classical and Keynesian analysis of the growth process.

The current literature concerned with the economic

development problems of developing countries also

stresses, in varying degrees, the role of capital

formation.

In classical doctrine, the growth of economy

was thought to be determined by the availability of the

f t f t " 1 17 ac ors 0 produc lon a one. As the supply side of

the economy was dominant, the more abundant were these

factors of production, the fewer were the limitations on

the capacity to grow. Moreover, since land was assumed

to be fixed, and labour was considered a surplus input,

capital accumulation was allotted centre stage.

23

According to Marx, by means of the banking

system the distribution of capital as a special

business, a social function, is taken out of the hands

of the private capitalists and usurers. But at the same

time, banking and credit thus become the most potent

means of driving capitalist production beyond its own

limits, and one of the most effective vehicles of crises

and swindle. 18

The Neo-classical doctrine is based on a truly

perfect capi tal market. It advocated that the

intervention in any form in its functioning like low

deposit rates and the low ceiling on loan rates restrict

financial development and subsequently re a I

19 development.

20 Keynes, in his General Theory of Employment

Interest and Money, offers capital investments as an

explanatory variable of economic expansion, decline and

stagnation. In Keynesian analysis of the path of

economic growth, the rate of investment is a definite

indicator of the turning points, be they booms or

crises. In Keynesian theory, not only did capltal

investment play a central role in the capacity of

production expansion and labour productivity, but was

also found to be the most volatile component of

aggregate effective demand of the economy.

24

Post-Keynesian capitalist growth theory for

the matured economy generally has insisted on placing

capital accumulation at centre stage and focusing on the

resultant secular increases in labour productivity.

The emphasis on capital formation in

contemporary growth models is based on the fact

the

that

investment increases income as well as productive

capacity. The literature pertaining to the economic

problems of developing countries has also stressed the

shortage of savings and low levels of investments. In

its most popular presentations, the emphasis on the

savings/investment process in the limited growth of

developing countries is indicated by the vicious circle

of poverty 21 arguments. Both Lewis and

emphasised this view point and stated that the

Rosto",

increase

of capital investment from 5 to 10 percent or more of

net national product is a necessary requirement for the

22 take-off of any economy.

dominant

however,

The emphasis on capital formation has been

among modern development economists

at the same time, reservations are held

and

about

the strategic role assigned to capital formation to the

neglect of all factors.

25

Alternative Hypotheses with Respect to the Role of Banks

in Economic Development

The literature on the role of commercial banks

in the savings-investment process, and in particular

comprehensive stodies on the contribution of the banks

to capital formation, may be classified under two

distinct hypotheses: the financial repression hypothesis

and the structuralist hypothesis.

Financial Repression Hypothesis

The f inanc i al repression hypothesis

associated with the works of Cameron, Mckinnon

is

and

23 Shaw. All the three authors are strong advocates of

the efficacy of financial development

significantly to the real growth

in contributlng

of developing

economies.

(financial

They contend that the banking system

institutions system in the case of Mckinnan

and Shawl is invariably growth-inducing and that only

when it is repressed, which in their view is often the

case, would it fail to make a positive contribution and

would act as an obstacle to real growth.

The fin anc i a 1 repression hypothes1s

essentially preaches the virtues of reliance on market

forces. According to the authors of this propos1tion,

the financial system-primarily the banking system 1n

26

these economies is most conducive to economic growth

once it is allowed to operate under free-market

direction. In summary, this hyplothesis explains the

most, if not all, the factors contributing to the "poor"

performance of the lagging economies in terms of

internal policy-induced distortions. <The regulated

interest rates and other forms of intervention in bank

lending policies are said to be the reasons leading to

financial repression). The low ratios of bank deposits

to total domestic savings is traced to the low ceilings

on deposit rates. The record of organised bank loan

issues being biased against small industrial and

agricul tural producers is explained as a d i rec t

manifestation of the low ceilings on loan rates.

Therefore, the more pervasive the government's

intervention in terms of deposit and loan r-ates, in

direct portfolio control, and so on, the less responsive

will the banking system be to economic development.

Another school of thought is also against the

government intervention in the credit market and opposes

the prOVision of cheap credit through the formal credit

institutions to the small borrowers but for other

reasons. Particularly Adams, Donald Graham, and Von

P · k 24 lsch e in their writings emphasise this aspect for

the following reasons. Firstly, viability of financial

27

institutions serving small farmers could be eroded by

low interest rates, high administrative costs assoclated

wi th administering small loans, and cumbersome banking

practices that are inappropriate to the needs of the

small farmers. Secondly, the village moneylenders will

continue to dominate the rural credit scene becau~e of

their easy approach ability, informality and

flexibility. So, the private moneylenders can be

utilised as agencies by the formal lenders, to reach

large number of clients with minimum cost. Thirdly, the

product prices, crop yields, and the costs of production

are much more powerful determinants of farmers'

decisions than are credit availability or interest

rates. And, finally, interest rates are critical ln

th~ performance of financial markets, and

cheap-credit policies are a major reason for the poor

performance of rural financial markets in

countries. They destroy the incentives

low

for

income

rura I

'households to save in financial form and seriously

distort the way the lenders allocate loans.

The Structuralist Hypothesis

The structuralist hypothesis, better known as

the Gerschenkron hypothesis,25 is derived from

hlstorical interpretations of the role of banks in the

28

cap ita 1 formation processes of early European

industrial industrialisation. In general ising from the

cap ita 1 needs and financial sources of early European

industrialisations, and in particular the English,

German and Russian experiences, Gerschenkron concludes

that the role of banking in industrial capital formation

is determined by the relatiye backwardness of an economy

and its structural peculiarities.

The relationships he found, following the

chronological order of European industrialisation, are:

( i )

i i )

The more advanced economy requires only minimum

cap ita 1 inyestmentsj that is, for adyanced

(developed) economies, the cap ita 1 needs of

industrialisation are met outside the banking

system -household earnings and internal business

or agricultural savings were sufficient to finance

the small plants necessary for manufacturing.

In contrast, the relatiyely backward

(moderately backward) does require some

economy

special

institutions to supply long-term funds for

industrial capital.

<i i i) Finally, in the case of extremely backward

economies (deyeloping countries) the structure 15

such that not eyen the banks could supply t ~ .• e

29

necessary cap i ta 1 and entrepreneurship fol'

industrialisation. This has been due

drastic shortage of private savings and

lack of enterprise, in these economies.

to the

eKtr-eme

Implicit in the above characterisation is the

notion that banks are either unnecessary or ineffectual

in the eKtreme stages of development and could be

utilised as a source of capital only in the intermediate

stages.

In short, according to financial repression

hypothesis,

intervention

it is the eKtent and nature of government

in the working of financial institutions

that determlnes their (banks) contribution to economlC

growth, wh i 1 e the other hypothesis holds that the

structure of the economy and its level of development

decides the nature of financial institutions and thelr

involvement in capital formation and real growth.

However, when it comes to the applicability of the above

mentioned two alternative hypotheses with respect to the

role of banks in economic development of the developing

countries like India, both have serious 1 1mi tat ions.

The assumptions underlying the financial f"epr-ession

theory li ke minimum state intervention in the

functioning of banks and the free play of market forces

(liberalisation) as a pre-condition for economIc

30

development

developing

are not suitable in e~plaining the case of

countries. The reasons are many and

important among them are:

(i) Dominance of agriculture (which is carried out

mostly for subsistence) with highly

asset structure (mostly land).

inequitable

( i i ) Dualism in the capital/credit market, and

(iii) Low-monetisation in the economy.

As far as the second hypothesis is concerned,

it may be questioned in terms of its general

applicability, since it is based on the historical

analysis of the e~periences of the industrialised

countries. However, the importance of capital formation

and the role of banks in the economic development of the

developing countries have hardly been emphasised here.

Taking clue from the theories and e~planations

In the earlier paragraphs an effort has been

analyse the theoretical ramifications of the

banks in capital formation in India with

analysed,

made to

role of

a special

reference to agricultural and rural development.

31

Theoretical Issues with Special Reference to Developing

Countries like India

The vast majority of developing countr1es are

agrarian in economic, social and cultural outlook.

Agriculture, both subsistence and commercial, forms the

principal economic activity in terms of the occupational

distribution of the labour force, if not in terms of

proportionate contributions to the gross nat iona 1

product. Inspite of many common problems these nations

face (low levels of living, low levels 01 productiVity,

high rates of population growth, high and rising level!l

of unemployment and under-employment, significant

dependence on agricultural production and primary sector

exports, and dominance, dependence and vulnerability in

international relations),26 the development strategies

vary from one country to the other depending on the

nature, structure, and degree of interdependence among

its primary, secondary and tertiary sectors.

However, one point which is common among them

is the real isation that a sound strategy has to be

developed to mobilise capital resources to 1nvest 1n

their developmental activities. And to this effect they

have been gearing up their banking structure - central

banks, development banks, commercial banks, cooperative

banks and formulating policies and programmes from

time to time.

32

In what follows, by leaving aside an in-depth

analysis into the issues relating to central banking

(like Reserve Bank of India) and development banking

(like Industrial Development Bank of India) since they

are not directly relevant in the present context, the

issues raised with respect to the role of commercial

banks and cooperative banks in agricultural and rural

development are discussed in brief.

In developing countries like India, as most of

the farmers don't have their own resources to finance

the process of modernisation, they rely heavily on

borrowings. In other words, farm credit plays the roll!

of an 'accelerator' of agricultural development.

However, for this, credit should be adequate in

quantity, cheap and development oriented as suggested by

scholars 1 ike 27 Belshaw, Baun,

30 31 Gurley and Shaw, and Schultz.

28 et. al. ,

29 I"1urray,

Schultz contends that the farmers who practice

the traditional farmlng are 'efflcient but poor'. To

turn the farmers towards the modern methods of

cultivatlon and to increase the agricultural

productivity he suggests two things: technological

change and institutional innovations. Implied in this

theory is that the modification of financial

institutions is of crucial significance, as farmers

33

particularly the poor farmers require external financial

assistance to adopt the new technology in agricultL\re

since it is capital intensive.

Hayami and Ruttan's 32 "induced Development

Model" built on the Schultz theory develops an

"explanation of the mechanism by which a society chooses

an optimum path of technological change in agriculture".

This theory advances four interrelated mechanisms as

critical elements of agricultural development:-

( i )

( i i )

( iii )

( i v )

Induced innovation in the private sector;

Induced innovation in the public sector;

Induced institutional change, and

Dynamic sequences in the development process.

And this model proposes that lnstitutional

change is induced by individuals perceiving new economic

opportunities that could be secured by

modifications.

33 Stevens further hypothesises

institutional

that the

institutions that govern the use of technology or the

mode of production can also be induced to change in

order to enable both individuals and society to take

fu 11 e r advantage of new technological opportunities

under favorable market conditions. According to him,

labor is abundant but land is a constraint in the

34

r1 ''-

~. "C,-, 035 1.","-

\, --', \,)-' \) .~ I,

developing economies and under these resource

constraints small farmer development requires increased

producti.vity pel" unit of land. However, as the

agricultural transformation accelerates, capital

resources and credit are emerging as limiting factors.

Workable procedures, for the delivery and repayment of

credit in small farm areas, therefore, become essential

to rapid growth.

After reviewing some of the literature on

credit and agricultural development, Bathrick34 refutes

the traditional-simplistic-view that the provision of

low interest credit alone is the key to the economic

development of the small farm sector. Ursula K Hicks35

also points out that in respect of credit for the little

man there is considerable danger that a government may

entangle itself in bad debts and open-ended subsidies

which contribute little to development. So the

administration of credit can usefully be combined with

other agricultural services and advisory organisation.

f t d ' 36 t 37 A host 0 s u les, repor s

Bank of India and other organizations) and

(by Reserve

38 documents

prepared by international organisations llke Food and

Agricultural Organ isat ion (FAD) and World Bank,

consider c red i t as an essential instrument for

agricultural and rural development and point out that

35

the technology should be modernized and the small

farmers should be given a special treatment. HDwever'" a

glaring omission of this type of 'generalistic

approach/theory' is the inadequacy of attention to the

interrelationship between agrarian structure, on the one

hand, and inadequacy of credit to the small farmers and

the preferred model of the institutional system

credit on the other.

Urban-bias Theory

39 Myrd a I, L ' t 40 lp on,

41 Streeton,

of

Raj

K 'h 42 d N 'd 43 d h f th rls na, ,an anJun appa an a ost 0 a ers hold

tha t there is an urban-bias in rural banklng and

planning. Myrdal remarks that "studies in many

countries have shown how the banking system if not

regulated to act differently tends to become an

, instrument for siphoning off the savings from the poorer

regions to the richer and more progresslve ones where

returns on cap ita I are high and 44

secure". His

principle of circular and cumulative causation explains

the flow of rural savings into the urban economy through

the banking mechanism in a market economy.

Big-farmer Bias Theory

Griffin,45 L ' t 46 47 1 P on, Rao,

48 Parthasarathy,

and a large number of Indian Economists hold the Vlew

36

that there is a big-farmer bias in rural banking. For

example, Griffin provides an interesting explanation for

non-innovation by small farmers in terms of ( i )

Inequalities in land ownership and ( ii ) , Landlord-

biased' technical progress. According to him the most

important reason for the bias of the '~reen revolution'

(in favour of the big farmers) is the bias of government

policy.

For Lipton, the relation between blg-farmer-

money lenders and small-farmer-borrowers can frustrate

investment by both the groups.

According to Rao, a major criticism of

ab Ie institutional finanCing is that large farmers are

to secure a large finance from institutions, some of

which might have been diverted for unauthorised purposes

or money lending to small farmers, with a view to

securing economic and social hegemony.

This set of theories argues that though the

new agricultural technology is scale-neutral, the access

to the capital and other input markets is r,ot scale

neutral. That is, the access to the instltutional

credit market becomes proportional to the size of the

owned assets. According to Tendulkar49

the access to

relatively low interest bearing institutIonal loans is

37

extremely I imi ted for the vIrtually assetless soc 1 a 1

classes such as the agricultural labour and the artlsan

households and those cultivator households ( In

particular, the marginal and the small farmers) who are

at the lower end of the asset scale.

In terms of numbers, the small farmers

dominate the rural scenario in all the under developed

countries. However, they are usually outsIde, or at

best only marginally involved in the commercIal sector

and have little capital to invest in output increasing

t · . t· 50 ac IVl les.

Self-Liquidation Theory

This theory has been advocated by the bankers

who strongly believe that once the necessary amount IS

sanctioned to a project it automatically becomes VIable

and the loan amount is repaid in the process. A report

prepared for the Reserve Bank of 51 IndIa says th at th e

c r it e r i on of feasibility ensures that the lnvestment

proposed to be financed is justifIed on economic

considerations and at the same time prOVIdes a bUllt-ln-

cover for the loan by demonstratIng that It IS 5elf-

liquidating.

3B

The Growth with Equity Theory

Even as the socialistic ideals of reduction of

inequality and a more eVen distribution of economic

power were reiterated during the fifties and early

sixties,

validity

theory,

the emphasis on "growth first" gained greater

wi th the writings of Rostow52

on the stages

Simon Kuznet's53 on the legitimacy of widening

gaps in the initial stages of development, and Lewis's54

on economic growth and use of surplus labour from

agriculture. However, the hopes built on 'Trickle down

effect theory' have been belied during the fifties and

sixties when the world found the lack of trickle-down

effects of growth, the increasing inequalities, and the

impoverishment of the bottom 40 percent of the

underdeveloped world.

Since the late sixties and the early seventies

there has been an attempt to translate development in

humane terms with an emphasis on providing baSiC

standards for the poorest sections. There has been a

marked shi ft from the dominant "growth-first-

redistribute-later" approach to strategies promoting

growth with equity and redirecting resourc~s with a

favourable bias towards the poor 'target groups',55

39

In the writings of eminent Indian

especially by agricultural economists,

I!~onomiste;,

like 56

Rao ,

D .57 B 11 58 59 60 eSal ha a, Bhalla and Chadha and Dantwala the

concept of equity has been given a predominant place.

The offi~ial realisation of this phenomenon came when

the All India Rural Credit Review Committe~ Report was

submitted in 1969,61 which revealed the inequitable

distribution of credit by the cooperative societies.

And to arrest the situation of increasing inequalities,

the 'target group approach' seems to be a popular well-

organised top-down method favoured by among others, the

World Bank and the Indian Government. This may be

called a 'technical-managerial approach. The usual

method is to set up institutions and redirect resources

towards these "target groupsll._

In the past, inequality has been defended by

some economists on the ground that it is a source of

cap ita 1 accumulation and economic growth. They have

argued that to try for equitable distribution before

completing the task of capital accumulation is to work

for redistribution of poverty only. As put forward by

Joshi 62 here. lies an intellectual challenge of creating

a theory which can harmonise the task of capital

accumulation with that of poverty eradication, ie what

is termed as "Development with Social Justlce".63

40

The Structuralistic Theory/Approach

Considered from objective stand point, neither

the classical capitalist nor the classical socialist

pattern should serve as the ideals to be followed by the

Third 64 World Countries like India today. The problem

(of Indian economy) lies in the fact that the planners

have accepted the legitimacy of a model of development

which facilitates growth but accentuates inequality.

And the logic of the argument is that if the present

distribution of assets left in tact and the modern

technology is brought into this structure, it will, as

Mahatma Gandhi said, bring 'Mass Production' but destroy

'Production by the Masses'.

Those who advocate a structural change as a

pre-condition for economic growth with equity include

th 8 dh 65 R 66 K . 6 7 J h .68 among 0 ers, ar an, , udra, url en, OIS 1 and

Bhaduri. 69

The structuralists are the opponents of the

target group approach. They view that this kind of

redirection of resources invariably finds its way

towards more influential sections of the community.

According to them agricultural credit should be viewed

not in isolation but in relation to supporting services

and the needs of i'mproved technology. The u.s.

41

agricultural credit models based on individualised

supervision approach cannot be replicated in developing

cDuntries. And adequate attention should be paid to the

inter-relationship between agrarian structure, on the

one hand, and institutional credit system and the state

policies towards the input and output markets, on the

other.

Various theories/view points discussed

hitherto (relating to the role of agricultural credit in

the Third World Countries) may be summarised under

alternative perspectives as follows:

Agricultural Credit Markets Different Perspectiv@s

The development of agricultural credit markets

and the provision of agricultural credit have been major

programme activities in agricultural development by the

u

and

S Agency for International Development, World

70 the several Regional Development Banks.

emphasis on credit is based on five perspectives.

First is the Schumpeterian view,

identifies innovation as the critical element

Bank,

This

which

in

economic development and credit as th e prlncipal

instrument that allows the innovator to bid resources

away from other activities.

42

A second perspective is based on a view

similar to that of market reform: The farmer obta.ins

credit, sells his output, and often gets his job or

rents his land from the same middleman and is thought to

be exploited in each transaction.

Third perspective (which is closely related to

the second) , views public credit institutions as

providing part of the supervised education and credit

package designed to induce traditional farmers to adopt

modern inputs.

A fourth perspective views credit as an income

transfer mechanism to lessen

distribution in rural areas.

inequalities in Income

The fifth perspective views subsidized credlt

as an incentive to farmers to expand production in spite

of disincentives resulting from market interventions or

exchange rate distortions that discriminate agaInst

farmers in product markets.

The ongoing programmes of the Indian

government to develop the rural areas in general and

small and marginal farmers and agricultural labourers in

particular, with the help of credit institutIons are

based on the fifth perspective.

43

SECTION II

REVIEW OF EMPIRICAL STUDIES

This review (of empirical studies) focuses on

the aspects/issues discussed and the methodologies

adopted by the selected studies.

Several aspects/issues touched upon in thesl!

studies may be categorised, for the convenience in

discussion, as follows:-

i ) Availability/Accessibility and utilisation

of credit,

i i ) Impact of credit Dairy loans,

iii ) Impact of credit Minor irrigation loans,

i v ) Loan repayment, and

y) Viability of loans.

iL Availability/Accessibility and Utilisatign of Credit

While studying about the problems of small and

marginal farmers in India, the National CommissiOn on

A. 71

grlculture ( 1976) observed that IIi t has been

increasingly realised that the small and marginal

farmers, if helped with necessary resource and guidance,

can increase their crop production. The handicaps from

44

which the small and marginal farmers suffer are lack of

resources, facilities, technical guidance and allocative

efficiency."

Mukhopadhyay and Ra072

stated that the

strategy of agricultural development during the sixties

and seventies was characterised by accent on higher

productivity of foodgrains, rather than on equity norms

in terms of accessibility of material, advisory benefits

to different categories of farmers and gains therefrom.

Pate1 73 in hiS study found that the large

farmers were cornering the institutional credit because

of their easy access to these institutions. H d .74

a iman 1

found that since the rural poor were not having the

political power to control credit organisations like

cooperatives they were deprived of credit facilities.

Moreover, the process of getting loan itself was not

easy and liberal to the small farmers, as observed by

7S Singh and others. And they also stated that the small

and marginal farmers were not receiving required

assistance from the extension officials to adopt new

technology since most of them were illiterates.

The CRAFICAR076

study found that the access

to relatively low interest bearing institutional loans

was extremely limited for the virtually assetless social

4S

classes such as the agricultural labour and the artisan

households and those cultivator households (in

particular, the marginal and the small farmers) who were

at the lower end of the asset scale.

R 77 . f Mohana ao examined the accessibility 0 the

borrowers from a different point of view. According to

him the typical borrower in the unorganised credit

market has no access to the organised mark~t. This

isolation, coupled with an inelastic demand for credit,

allows the private moneylenders to decide freely what

interest rate to charge. Furthermore, the highly

personalised relations between lender and borrower

permit the lender to secure from the borrower the

collateral which the latter cannot employ in the

organised market.

78 A study conducted by Roshan Singh and others

in Bidpuri block in U.P. revealed that the avallability

of commercial bank credit was much higher on large farms

as compared to small and medium farms. It concluded, on

the basis of primary and secondary data analysis, that

the problem of providing adequate credit to small

farmers deserved immediate and adequate attention.

Rao79 observed that even the inadequate supply

(credit, fertilizer, pestiCides, storage and marketing

facilities) was not well distributed among the farmers

46

of various categories and between irrigated and

unirrigated areas. The small and marginal farmers were

having a low and sometimes even nil rate of access to

such supplies in the rural areas. This observation was

found to hold good by an empirical study conducted by

Thingalaya80

in Karnataka.

The PED study 81 which covered 16 $tates, 33

districts allover India in 1985 found that nearly 613

beneficiary households out of a total of 1170 households

selected faced problems in getting loans. Around 23 per

cent of the selected households experienced delays in

getting loans sanctioned. And another 20 percent of the

households complained that the bank branches catering to

their areas were located at a considerable distance from

their villages.

The NABARD study 82 which covered 60 blocks

and 30 districts in 15 states allover India and

branches of the financing banks and a sample of

122

1498

programme beneficiaries noted that the actual amounts

of subsidy and loan provided were relatively low. The

information collected from sample beneficiaries showed

that 50 percent of beneficiaries, financed for minor

irrigation schemes, found the amount of loan and subsidy

received inadequate to cover the actual investment cost.

47

Subba Ra083

demonstrated that the demand for

short-term production credit for both small and large

farmers was directly related to the current level of

input requirements and inVersely with the self financing

ability of the farmers, given risk and uncertainty. And

the supply of long-term institutional (cooperati.ve as

well as commercial bank) credit was a direct function of

asset (land) endowments.

On the basis of 'internal progress reports' on

Marginal Farmers and Agricultural Labourers (MFAL)

programmes and empirical studies carried out in Delhi,

84 UP and West Bengal, Pandey concluded that due to lack

of effective expansion of banking facility, and lack of

effective adoption of various programmes, the large

share of advantages had gone to the better-off section

among marginal farmers and agricultural labourers.

Mishra 85 . and others In their study conducted in Basti

district of Uttar Pradesh found that nearly 76 per cent

of the credit borrowed from cooperatives, 98 percent of

the credit borrowed from commercial banks and 95 per

cent of the Land Development Banks by the 100 farmers

selected have been spent for production purposes.

and

According

NABARD,87

to the studies conducted by PE086

the beneficiaries, to receive the

subsidized loans under IRDP, were selected mostly by the

48

village level workers and block level officials without

consulting the bank officials. This led to th.

misutilisation of loans by the beneficiaries. These

studies also found some cases of misappropriation of

subsidy amount by the lower level functionaries with the

connivance of the bank and block officials.

Precisely for this reason the CRAFICARD88

report, on the basis of the survey warned that if the

beneficiaries were not properly identified, the credit

would become a burden on those borrowed.

Mohana Ra089

in his study found that in

irrigated areas the loans borrowed from a RR8 were

almost completely utilised for productive purposes

utilisation was 98 %). However, Raju and 90

Patel

( the

in

their study on IRDP found that only 34 per cent of the

small borrowers utilised the assistance properly, and

nearly 22 per cent of the borrowers completely

misutilised the loans, and the remaining 44 per cent of

them partly misutilised.

Indira Hirway91 elaborately e~pl.ined how the

improper identification of beneficiaries led to the

misutilisation of loans by the rich in the rural areas.

Supporting evidence to this came from the PE092

study

which noted that as many as 302 out of a total of 1170

sample beneficiary households (26%) had an annual income

49

exceeding the poverty line limit (Rs.3500) at the time

of their selection.

According 93 to Dhawan what really tilted the

balance in the matter of income benefits per unit of

irrigation water (Publ ic canal) in favour of large

farmers was their superior access to all input".

irrigation, credit, agricultural extension services,

bureaucracy, education, cooperatives, etc.

A large number of studies found the problem of

non-eligible borrowers getting loans by submitting false

records to the credit institutions., Notable among them

are by Sinha and Jagdish Prasad94 (1980) and Rao and

95 Malya. Sinha and Jagdish Prasad in their study about

the special programmes implemented for the wsaker

sections in Musahari block in Muzaffarpur District,

Bihar found that the large bulk of beneficiary

households belonged to the richer sections of the

community and not to the poor sections. However, they

further noted that the programmes resulted in creatinQ a

positive impact on generating employment and increasing

earnings of those poorest sections of the society who

managed to get the loan assistance. Rao and Malya in

their study conducted in South Canara district in

Karnataka found that big farmers by manipulating the

land records availed loans meant for small farmers.

50

U) Impact of Credit 1. Dairy Loans

A large number of studies about the impact of

dairy loans on the small borrowers is available.

However, the methods they have followed to collect data

and the techniques they have used to analyse the

collected data are found to be weak and inadequate in

the sense~that they could not demonstrate clearly the

impact of dairy development alone on the social and

economic conditions of farmers as pointed by Sidhu96 in

his Rapporteur's report on 'Dairy Development and Bovine

Economy' • Another point is that most of the studies

have taken

neglecting

into account the case of small

the marginal, farmers and

farmers by

agricultural

labourers.

The following review takes into account only

the important studies which have analysed the impact of

dairy enterprise on the economic conditions of small

borrowers.

grouping

Further, the review has been done

these selected studies on the basis of

by

the

methodology followed to workout the impact of dairy

loans. The following are the major types:

a) Studies adopting inte~-temporal analysis.

b) Studies adopting cross-sectional analysis

c) Studies adopting a combination of both (a) & (b)

51

d) Studies comparing irrigated ar~a with

unirrigated area

e ) Studies using statistical tools like

production function, lin~ar discriminant

function, and cost-benefit ratio, to workout

the impact of dairy loans.

(a) Studies Adopting Inter-temporal Analysis

M ' h 97 15 ra,

This methodology

C ' 98 hlkara, 99

Rao,

has been

N 'd 100 a 1 U,

followed

Pawar

by

and

101 Subhash, SBI 102 , thl! PE0 103 and NABARO. 104

They

have worked out the differences in the income and

employment levels of the beneficiaries of dairy loans

between two periods, i.e., before and after the dairy

loan. In other words, they evaluated the U post

conditions of the selected beneficiaries in the lIght of

U ante conditions., By this way, they have attributed

the differences in the selected variables, if any, to

the daIry schemes. The NABARD study terms it as pre and

post-development income. IRMA studyl05 terms it as

'Then and Now' approach.

Chikara in his study conducted in six villages

of Hissar district (Haryana) found that the advances

given by the banks helped the selected households in

increasing the gainful employment and income.

52

An evaluation study of a scheme re1inanced by

Agricultural and Rural Development Corporation (AADC)

conducted by State 8ank of India (S8I) in Pondicherry in

1978 revealed that, of the total investment in dairy

activity, the 8ank's loan formed 55 to 67 per cent,

subsidy 25 to 33 percent, and borrowers' share 10 to 18

per cent among the differential size groups of farmers.

The gross return from dairy activity worked out to about

As. 125 per month per animal. The net surplus was Rs.

41.48 per animal, while it was only Rs. 3.98 in the pre-

loan period. Similarly, the dairy activity offered

employment for 22.15 man days per month in the post loan

period as against 12.95 mandays in the pre-loan period.

The study by NA8ARD found that the benefits

were not sustainable in the case of animal husbandry

schemes in general and the milch animals in partlcular.

Apart from the poor quality animals, the other reasons

for this state of affairs were death of animals (26 out

of 273 sample units) and sale of animals (31 out of 273

sample units).

The PEO study found a significant increase in

the income and employment levels of dairy loan

beneficiaries during the study period. The slmllar

conclusion has been arrived at by the other researchers

listed earlier through their studies conducted in

various locations at different points of time.

53

(b) Studies Adopting Cross-sectional Analysis

The second type of methodology, cross-

sectional analysis termed as 'with and without approach'

has been followed by Singh and 106 Das, Pandey and

107 Khanna, 108

Satpute, Singh and 109 Pandey, and Tej

Bahadur 110

and others. They have compared the income

and employment levels of beneficiaries with that of non-

beneficiaries, and the differences, if any, in the

selected variables have been attributed to the dairy

scheme. Almost all the studies found an improvement in

the income and employment levels of the beneficiaries

compared to non-beneficiaries.

According to Pandey and Khanna, due to SFDA

scheme, the average levels of all the socio-economic

indicators increased in the case of beneficiaries as

compared to the non-beneficiaries in the two districts

in Haryana, where the study was conducted. The findings

further revealed that the SFDA made a positlve lmpact in

transforming the bulk of non-viable weaker sectlons lnto

viable ones in both the districts.

Singh and Das used this 'Wi th and Without

approach' and attributed the observed differences in the

values of selected parameters between the cooperatives

(with) and the control villages (without) to Operation

54

Flood-I. They found that the income generatIon was mora

In the case of villages where the MPCSs were

functioning.

(c) Studies Adopting ~ Combination of Both ~ ~ (b)

A few studies notably by Agarwal 111 and SaInI,

Peter . 112 113 and SebastIan, and Kannathal analysed the

impact of dairy programmes on the economy of small and

marginal farmers by using inter-temporal, (comparing the

overtime situation) and cross-sectional (comparing at a

point of time) approaches. Agarwal and Saini concluded

that the SFDA brought a significant posItive Impact on

cropping intensity, farm investment, net farm income and

human labour employment on the small and marginal

farmers, who participated in the various programmes of

the agency.

Peter and Sebastian studied the impact of SFDA

assistance on the small borrowers and found that there

was a positively significant increase in the levels of

economic variables like net worth of farm, cropping

intensity and net profit per acre, due to SFDA

assistance. According to Kannathal though an increase

in the income and employment level was observed aftar

SFDA assistance, the standard of living of small farmers

had not improved perceptibly.

55

(d) Studies Comparing Irrigated Area with Unirrigated

In his study conducted In Parbhanl dlstrlct in

114 Maharastra, Satpute found that the lmpact of speclal

schemes implemented under MFAL programme was bett~r in

dry region as compared to the irrigated f"'eglon. A

115 similar conclusion was arrived by Mohana Rao when he

compared the impact of the RRB loans made in irrigated

116 area. Even the PED study, since It was conducted at

the All-India level, divided the study areas into four

categories namely, agriculturally developed areta,

agricul turally less developed area, areas with good

administrative infrastructure and areas with poor

infrastructure. Accordingly, the study found that the

incremental income in the case of animal husbandry

schemes was the highest in the areas wIth good

administrative infrastructure and the lowest where the

infrastructure was poor.

A study conducted by the AERC at Vallabbh

Vidyanagarl17 showed that the proportion of income from

dairying to the total farm income was higher in the case

of farmers with small holdings. Similar findings were

arrived at by many studies. For example, in a review

article, Mishra l18 stated that the introduction of dairy

enterprise on a small farm of 1.7 hectare could increase

56

the annual farm income from Rs. 5,692 to Rs.12, 275 and

the employment level from 4,016 man-hours to 4,412 man-

hours per year. On marginal farms also a similar

increasing trend could be envisaged in income and

employment. Further, Mishra noted that introductlon of

a dairy enterprise increased the incomes of small farm,.

of 2.5 hectares by 67 per cent, of the medlum farmers of

5.0 hectares by 32 per cent and large farmers of 10.0

hectares by 41 per cent.

(e) Studies Using Statistical Tools to Workout ~ Impact

of Dairy Loans

A few studies used statistical tools to find

out the impact of dairy loans. The AERC, Madras

evaluated th e dai ry schemes of SFDA in Tirunelveli

district (in Tami I Nadu) in 1979 by using production

function analysis 119 George and Chokshi,

120 calculated

costs and returns of dairying to analyse the lnvestment

worth in dairying. The same method was adopted by

George d S . 121

an rlvastava. Pandey and 122

Muralldharan

and Singh 123 and Pandey used an advanced statlstlcal

technique namely linear discriminant functlon analYSls

to know the impact of selected variables on the

viability of the farmers who borrowed agrlcultural

loans. The major findings of these studles were (,) the

57

returns from dairying were significantly influenced by

the amount spent on fodder and cattle feed, and (il) the

viability of small farmers was determined by the

cropping intensity and the value of inputs like

fertilizer used in the crop production.

By working out the rat" of return on

lnvestments made with the help of bank finance by the

big, medium, small and marginal farmers in u. P • ,

124 Shukla, found that the unit return on investment was

higher among marginal farmers followed by small farmers

and medium farmers. The rate of return on inveiitment

was the lowest among large farmers.

Impact of Credit Minor-Irrigation Loans

A few studies are available about the imp ac t

of minor irrigation loans on the

As observed by Pal,125

small and marginal

farmers. in India, several

researchers have touched upon different aspects of how

irrigation may contribute to agricultural production.

Many of the studies have adopted a simple production

function approach to show quantitatively how irrigatlon

raises agricultural productivity under the

paribus condition. Another set of studles has analysed

the impact of irrigation on cropping intensity and hence

(indirectly) on agricultural production. Some studles

58

have also discussed the role of irrigat10n in br1nging

about changes in cropping pattern and stability 1n

agricultural production. In accordance wi th the

objective of the present study, a brief review of the

available studies on the impact of minor irrigation

schemes undertaken by the small and marginal farmers

with the help of loans has been done in this section.

A study conducted in 126

Karnataka found that

though the irrigation facilities provided to the farmers

positively contributed to the increase in the output of

first crop, lack of credit facilities, among other

factors, inhibited raising of second and subsequent

crops ..

127 According to the NA8ARD study, 50 per cent

'of beneficiaries out of 158 beneficiaries f1nanced for

minor irrigation found the amount of loans and subsidy

received was inadequate to cover the actual 1nvestment

cost. However the minor irrigat10n sources created by

the loans increased the employment per benef1c1ary

household to 120 mandays. And the income generat10n was

decidedly better for minor irrigation in all the states.

Kulkarni128

analysed the returns to investment

1n minor irrigation by selecting four small farmers and

eleven big farmers in Kolhapur district who have

59

borrowed from ARDC Credit Project II of the Maharastra

Land Development Bank to dig well and to install

Pumpsets. He found that only 73 percent of the total

cost was met out of the loan amount. The cropping

intensity had increased, after the scheme was taken up.

As far as cropping pattern was concerned, a wide

difference between expected and actual positions of the

selected farmers was observed. Despite the fact that

farmers grew more cash-crops, the actual net income

realised by the farmers was considerably less than the

expected one.

129 Prasad conducted a post-utilisation ~tudy

on the advances to minor irrigation by a PLDB operating

in Channapatna Taluk of Bangalore District of Karnataka

during 1980. The sample was drawn from six villages of

the taluka covering 15 small and 15 big farmers who had

borrowed loans from the PLDB to dig new wells. By

comparing the post-loan situation with that of pre-loan

situation of the same farm, the study found dIstinct

changes in the cropping pattern after the well was sunk

by the selected farmers. The pre-loan per acre average

net income of small farmers was Rs. 370 and th is

increased to Rs. 2152 during the post-loan period. The

corresponding figures for big farmers were found lower

at Rs. 308 and Rs. 1056 respectively.

60

iv) Loan Repayment

A large number of studies and r~ports IS

available about the loan repayment problems of farmers

who have borrowed from cooperatives, commercial banks

and Land Development Banks. However, only a f~w

relevant studies are reviewed here keeping in mind the

scope of the present study.

A study team of RBI 130 noted that the 1 arge

amounts of overdues to the cooperatives was a standing

testimony to the wilful default and non-payment by some

of the borrowers from cooperatives who were mostly large

farmers.

A dh . 131 va an 1 . S study found that the repayment

performance of large farmers was poorer than th a t of

marginal farmers, implying thereby that part of theIr

funds could have been used for unauthorised purposes.

Sinha and Prasad (1982)132 in their study

found the repayment habits of 102 beneficiary households

selected as fairly poor. One of the reas.ons, according

to them, for poor repayment was that the schemes were

generally accepted as a 'dole' or relief programme by

the beneficiaries.

61

The 133 PEO study reported that in many areas

the percentage of overdues varied from 50 to 60 p&rcent.

It was as high as 70 percent in one of the selected

districts in uttar Pradesh which in real terms meant

that no instalment of loan had been repaid, besides

adjustment of subsidy.

A review of nearly 20 micro-level

conducted in various parts of India during the period

1967 to 1991 on defaults of institutlonal loans to

134 agriculture was done by Anandteerth and Basanna . On

the basis of the results of these 20 studies, the review

concluded that institutional loans to agriculture had

been defaulted by all the categories of farmers - both

wilfully and non-wilfully. The main reason for non-

wilful default was found as the fai lure of the

institutional loans to generate adequate income to the

borrowers to repay the loans promptly. And the major

reason for wilful default was found to be lack of

supervision on the part of the officials of the

financial institutions.

135 The CRAFICARD report characterlsed defaults

being, by and large, wilful arising from the lack of

will and discipline on the part of the cultivators. It

also mentioned that the State governments dominated as

they are by the landed interests, condoned wllful non-

62

repayment, prevented coercive steps from being taken for

the recovery of overdues and sometimes did even write-

off debts for all cultivators by paying the same out of

the eKchequer. It thus appears that excessive

politicisation and officialisation have been responsible

for the twin factors of uneconomic size and rising

overdues leading to the the economic non-viabillty of

PACs as a financial institution.

v) Viability of the Schemes/Loans.

A study sponsored by the Planning Commission

in 1972 136 went into the details of economic vlability

of farms in Udaipur district, Rajasthan. The study

found that operational holdings below two hectares were

economically non-viable and the economically viable size

of operational holding varied with soil condi tions,

cropping pattern and irrigation. However, the

definition of viability lacked precision in this study.

George and Srivatsava 137 analysed the

viability of a dairy scheme initiated by a bank in

Baroda district (Gujaratlin 1972. They used pay-back

period, net present value, internal rate of return and

benefit-cost

of the loans.

ratio analysis to determine the viabi llty

They observed that the dairy development

scheme was viable and feasible from the point of view of

63

both the direct beneficiaries (farmers and the bank) and

indirect beneficiaries (cooperative societies and the

Dairy). However, they did not analyse the viability of

big, medium and the small farmers and marginal farmers

separately.

Another study conducted by the Centre for

Management in 138 Agrlculture Ahmedabad in 1973 went

into the question of how small farmer holdings could

best be helped to become viable units based on the1r

existing holdings. By preparing a Farm Business Index

and by using a correlation matrix the study found that

the size of operational holdings, availabil1ty of

working capital, and intensity of cropping were a few

variables determining the viability of the farm. Here

the term viability was .interpreted as a "situation

which a small farmer household is capable of at least

maintaining the prevailing standard of liv1ng 1n a

particular region u• The study used the benchmark of

Rs.2,400 as the viability floor or the cut-off point to

divide the sample farmers into viable and non-viable.

Singh and 139

Pandey used the linllar

discriminant function analysiS to identify those factors

which would make the small farmers and landless farmers

a viable entity. For their study they collected data

from 71 non-beneficiaries and 22 SFDA beneficiaries from

64

four villages of Barara block in Ambala district of

Haryana for the year 1977-78. A viable small farmer was

defined as one who had positive net income after meetin~

all the farm and family expenses. They found that per

hectare fertilizer use,area under high yielding

varieties, operational size of holding and working

capi tal were the major factors which affected the

viability of small farmers.

140 Kurulkar,

feasibility analysis

in his study, adopted financial

to estimate the benefits of the

farm investment in new wells and pumpsets and tractors.

He adopted cost-benefit analysis to measure the

By financial feasibility of the selected projects.

preparing feasibility equations he tested the financial

feasibility of the selected projects, and found that all

the three schemes studied were financially feasible.

141 Gunasekaran also did financial Viability

analysis by using cost-benefit analysis and production­

function analysis to know the impact of credit provided

to small

district,

farmers under SFDA programme

Tami I Nadu State, and found

in ThanJavur

that the

productivity of credit was high in the block where the

SFDA was in operation compared to a non-SFDA block.

The IFMR evaluation study142 used the concept

of incremental capital output ratio (leOR) to know the

65

impac:t of loans sanc:tioned under IRD Programme.

Ac:c:ording to this study, the ICOR c:ame c:lose to the

Planning Commission's assumption of 1.5, in the better

developed distric:ts only while in the c:ase of others, it

ranged between 2 and 3. This being the c:ase, the most

optimistic: projec:tion of incremental income c:ame to

Rs.2000, while the most pessimistic estImate worked out

to Rs.1,333 in 1984. By taking this result 143 Bagchl

argued that if the initial household income is Rs.4,800

then the gross income will range between Rs.6,800 and

Rs. 6,133 but as this does not take into ac:c:ount the

loan repayment amount the ac:tual probability of the

household c:rossing the poverty line would be low.

In their study conducted In Tamil Nadu,

144 Namashivayam and Balasundaram analysed the financial

performance of the agricultural-allied projects financed

under IRDP in 19B5-86. For this they randomly selected

a sample of 230 benefic:iaries (not classified) from four

districts. Out of this,60 benefic:iaries (26\0 were

financ:ed to undertake dairy scheme. The finanCIal

analysis showed that the mi lch an i ma 1 sc:heme was

financially feasible at 12 percent discount rate In

terms of both NPV and BCR criteria. IRR was estImated

to be 25 percent. It implied that it would be

financially desirable to invest in the milch anlmal

66

scheme so long as the rate of interest on milch animal

schemes is equal to, or less than 25 percent.

To find out the income generation under IRDP,

145 Padmanabhan used the data collected by concurrent

evaluation surveys on IRDP since 1985 at NIRD, Hyd~rabad

in respect of Andhra Pradesh. He has analysed the

changes in the total income of beneficiary through an

income Shift Matri~. The study found that the average

f ami I y income, which was Rs. 3284 prior to IRDP

assistance has increased to Rs. 4827. In other words,

there was an increase of 47 percent (or Rs. 1543) on an

average without allowing for price changes.

Research Gaps Identified from the Review of Literature

From the foregoing review it appears that many

of the studies are wanting either in terms of

methodologies or in terms of issues covered by them.

The following may be offered as important research gaps

IdentIfied on the basis of our review.

a) Many studies while analysing the impact Gf loans on

economic condition of borrowers looked Into the

question whether the income had increased or not

and did not focus attention on the changes In other

factors like employment and assets.

67

b) Most of the studies reviewed here were not able to

demonstrate clearly the impact of dairy or minor

irrigation loans alone on the income and employment

levels of small and marginal farmers and

agricultural labourers.

c) A very few studies analysed the financial viability

d )

e )

f )

of loans but failed to conduct such analysis,

scheme-wise, as well as across different classes of

borrowers separately.

Though the issue of effectiveness of c red i t

programmes to the small borrowers In relatIon to

their acceSS to other infrastructural facilities

and services in the rural areas was touched upon by

many studies, their treatment to

problem was found to be inadequate.

Very

role

few studies made an attempt to

of subsidies in improving

viability of the project.

this specific

identify the

the fInancial

The studies dealing with the changes In the

had economic conditions of small farmers who

borrowed institutional finance limited their

analysis to income and employment and did not

68

e~plain the changes in their farming practices like

input use, cropping intensity, irrigation

intensity, cropping pattern, etc. in detail.

g) Majority of the studies concentrated their analysis

on the issue of the utilisation and impact of loans

h)

on the small farmers and to a certain extent on

marginal farmers but very few studies took up these

questions with regard to agricultural labourers.

The problem of cattle insurance with respect to

dairying scheme adopted by small borrowers was not

touched by the studies reviewed here.

Therefore, there is need for a comprehensive

study on the role and impact of institutional credit to

the small and marginal farmers and agricultural

labourers. The present study is a modest attempt in this

direction.

69

Notes and References

1 Abdi, Al i Issa, Commercial Bankt; and Economic Development, New York, Praeger, 1977, p 1,

2

3.

Goldsmith, R Development, New

1969, p 390.

W, Financial Structure Haven, Yale University Press,

Schumpeter, Development, Press, 1949.

J A, The theorv of Cambridge, Mass: Harward

Economic Unlversity

4. Goldsmith, Q1h... cit., p. 408.

5 Adelman, Irma and Morris, Cynthia, $oci"ty, Politics ~ Economic Development: a guantltative Approach, Baltimore, John HopklnS Press, 1967, pp 118-23,

6 Came ron Rando (Ed. ) , Bank ing and Economlc Development: Some Lessons of History, New York, Oxford University Press, 1972, p.25.

7 Gerschenkron, Alexander, Economic Backwardness in Historical Perspective: a Book of E;s'lays, Cambridge, Harward University Press, 1962, pp 12-45

8 Money and Capital Washington: The

McKinnan, R.J., Development, Institution, 1973, pp89-117.

9 Goldsmith, ~ Cit.

ill Economic Brookings

10 Hugh, Patrick, "Financial Development and Economic Growth in Underdeveloped Countries",Economic Development and Cultural Change, (14)2, Jan 1966, pp 101-14, and

11 Shaw, Edward, Financial Deepening ~ Economic Development, London, Oxford University Press, 1973.

12 Schumpeter, ~ Cit.

13 Gerschenkron, OP.Ct.

70

14 Cameron, QQ...... Cit. p. 6.

15 Gurley J G and Shaw E S, Money ~ ~ Theory of Finance, Brookings, 1960.

16 Cameron, R, Banking ill Industrialisation: ~ Study History, 1969, p. 291.

the Early 6tag~s of ~ Comparatlve Economic

17 Abdi, Ali Issa, QQ......Cit.,

18 Engels F (ed.) Karl Political Publishers,

Economy 1971, P

Marx Vol

607.

Capital L ~ Critigue QL III, Moscow, Progress

19 Abdi, Ali Issa, QQ...... Citl., pp. 28-9.

20 Keynes, J M, The General Theory of Interest, and Money, Brace and World,

Employment. Inc., 1936.

21 Nurkse, Ragnar, QQ...... Cit.

22 Lewis Arthur W, The Theorv of Economic Growth, New York, Harper and Row, 1970, p. 266, and

23

Rostow WW, The Stages of Economic Growth, London, Cambridge, University Press, 1960, pp 39-45.

Cameron, Op.Cit., M~kinnan, QQ...... Cit., QQ......Cit.

and Shaw,

24 a) Von Pischke J Donald (Ed.),

D, Dale W QQ......Cit.

Adams and Gordon

b) Adams D W, Douglas H Graham, & Von Plschke QQ...... Ci t.

J D,

25 Gerschenkron, QQ...... Cit.,

26 A detailed account can be seen in Todaro, Mlchael P., Economlc Development ill the ThIrd World, New York, Longman, 1981, pp 23-55.

27

28

Belshaw, H, QQ......Cit.,

Baun, E L, Diesslin M G, & Earl 0 CapItal and Credit Needs ~

Agriculture, Ames, Iowa, USA, University Press, 1961.

71

Heady (Eds), ~ ChangIng Iowa State

29 Murray, W G, Agricultural Finance, Principles and Practice of Farm Credit, Ames, Iowa, USA, Iowa State College Press, 1949.

30 Gurley and Shaw, ~ Cit.

31 Schultz, T W, ~ Cit.

32 Hayami Y, and Ruttan V, ~ Cit.

33 Stevens, Robert, D, ~ ~

34 Bathrick David D, Agricultural Credit for Small Farm Development: Policies and Pr~ctices. Colorado, Westview Press Inc., 1981.

35 Ursula K Hicks, Development FinancelPlannlng Control, Oxford, 1965. P 58.

36 For want of space the list is not provided.

37 They are many and to name a few

a) RBI, Report of the Study Team on of Cooperative Credit Institutions, RB I, 1974.

Overdues Bombay,

b) RBI, Loan Policy and Procedural Arrangement ln Relation to the Institutional Credit System ln India, Bombay, RBI, 1976.

38 Important among them are:

39

il World Bank, Adoption of Agricultural Innov,J­tion ~ Developing countries: ~ Survey, World Bank Staff Working Papers, No. 542, 1982.

i i )

iii )

i v)

New FAD,

Approach 1964.

to Agricultural Credit, Rome,

World Bank, Rural Development: Sector Policy Paper, Washington, World Bank, 1975.

Singh, Landless No. 320,

Inderjit, Small Farmers and the ~ South Asia, World Bank Staff Paper February 1979.

Myrdal G. Asian Drama, New York, Pantheon, pp 1033-52.

1968,

40 lipton, Michel, (1977>, ~Cit.

72

41 Streeton, Paul and Lipton, Michel (Eds), The CriSIS ~ Indian Planning L Economic POlICY ~ ~ 1960s, Oxford, 1968.

42 Krishna, Raj, "Unemployment in India", Indian Journal of Agricultural Economics, 28(1) Jan-March 1973, pp 1-23, and "Small Farmer Development", Economic and Pol i tical Weekly, May 26, 1979, pp 913-8.

43 Nanjundappa D M "Rural-Urban Conundrum in Indian Planning", Indian Economic Journal, April-Junv, 1982, pp 1-18.

44 Quoted by G Raghava Reddy in "PolItIcal Banking and Rural Development", (Paper at a National Seminar on Bank Finance Development, held at Tirupati, India Ap r ii, 1984.

Economy of presented

and Rural on 7&8

45 Quoted in Malabika Das Gupta, "A Note On Grlffin"s Views on Innovation and the Small Farmer", The IndIan Economic Journal, 26 (4-5) AprIl-June 1979, pp. 67-73.

46

47

48

Lipton, Michel, (1976) QQ.... Cit ..

Rao, C H H, (1975), QQ.... Cit ..

Parthsarathy G, "Agricultural Development Small Farmers: ~ Study ~ Andhra Pradesh, Delhi, Vikas, 1971.

i!.nd New

49 Tendulkar, Suresh D, "Rural InstItutional Credit and Rural Development", Indian Economic ReView, 18(1), Jan-June 1983, pp. 101-37.

50 Ronald Tinnermelr and Chris Dowswell, Small Farmer Credit, Agricultural Development Council, Inc., New York, RTN-Working Report No.1, March 1973, P. 1 •

51 Jakhade V M and Gadgil M V, Productlon-and­Repayment-CapaCIty-Oriented Lending for Farm Investment, RBI Bulletin, January 1970, pp 56-77.

52 Rostow., ~ Cit.

53 Kuznets, Simon, Modern Economic Growth: Rate, Structure and Spread, New Haven, Yale UniverSIty Press, 1966.

73

54 Lewis., QQ...... Cit.

55 Srara. The Political Economv of Rural Development, New Delhi, Allied, 1983, p. 6.

56 Rao, C H H, Technological Change and of Gains in Indian Agriculture. MalcMlllan, 1975(a).

DIstrIbution New DelhI,

57 Desai S M, Viability and Eouitv Objective9 ~ Institutional Credit for Agriculture, Ahmedabad, IndIan Institute of Management, 1978.

58 Shalla G S, "Peasant Movement and AgrarIan Change In IndIa", In Krishnarao et.al (Eds) Peasant Farming and Growth of CapitalIsm ill Indian AgrIculture, Vijyawada, Vishalandhra, 1984.

59 Shalla G S and Chadha G K, Green Revolut,on and the Small Peasant: ~ Study of Income DIstrIbutIon Among PunJab Cultivators, 1983.

New DelhI, Concept,

60 Dantwala M L "Technology, Growth and Equity In Agriculture", in Mellor J Wand DesaI G M IEds), Agricultural Change and Rural Poverty: VarIatIons ~ i:!.. Theme Qy Dharm Narain, BaltImore, Johns Hopkins, 1985.

61

62

Reserve Sank of IndIa, All IndIa Rural Review Committee Report, Sombay,1969.

Credit

Joshi and 1986,

PC, Marxism and other Essays,

p. 181.

Social Revolution ill IndIa New Delhi, Patriot,

63 Nanjundappa, D M, Development with SOCIal Justice, New Delhi, Oxford & ISH, 1976.

64 Joshi P C, QQ...... Cit., p 39.

65 Sardhan K Pranab, Land Labour and Rural Poverty Essays ~ Development Economics, New Delhi, Oxford University Press, 1989.

66 Rudra A, and Sardhan P "Interlinkages of Land, Labour and Credit Relations: An AnalYSiS of Village Survey Data in East India", EconomiC: and Political Weekly, February, 1978, pp 367-84.

67 Kurien C T, Poverty, Planning and Social Trans­formation, New Delhi, Allied Publishers, 1978.

74

68 Joshi, P C, Poverty, Land Hunger and Emerging Class Conflicts in Rural India, in Steve Jones, Joshi P C, Miguel Mormis (Eds) Rural Poverty and Agrarian Reform, New Delhi, Allied, 1982

69 Bhaduri, Amit, "Class Relations and the Pattern of Accumulation in an Agrarian Economy",Cambridge Journal of Economics, March 1981 and The Economic Structure ~ Backward Agriculture, New Delhi, MacMillan, 1984.

70 For more details, Vernon W, Ruttan, "Assistance to Expand Agricultural Production",World Development, 14 (1) 1986, pp 39-63.

71 National Commission on Agriculture: Interim Report on Credit Servlce to Small and Marginal Farmers and agricultural Labourers, New Delhi, 1971.

72 Mukhopadhyay Arun K, and Rao Somasekara Small Farms Resource Use and Technology: A ~ Maharashtra, Hyderabaed, NIRD, 1980.

VBRS, Study

73 Patel K V, Farm Structure and Resource Use in Drought Prone Area, NIBM, Bombay, 1978, P 19B.

74 Hadimani R N, The Politics ~ Poverty, New Delhi, Ash i sh, 1984.

75 Singh R I, Prasad, V, Dmprakash and Singh R K, "Borrowing Behaviour of Small Farmers in SFDA Project, Fatehpur, UP", Indlan Journal of Agricultureal Economlcs, 30(3), July-Sept, 1975, p. 247.

76 Reserve Bank of India, Committee to Review Arrangements for Instltutlonal Credit for Agriculture and Rural Development (CRAFICARD) Chairman B Sivaraman, Bombay, RBI, 1981.

77 Mohana Rao Agricul ture", No 14, 1980, P.

J, "Interest Rates Cambridge Journal 159.

In ~

Backward Economics,

78 Rosh an Singh, Balishter and Singh R K, "Flow of Institutional Credit in Agrlculture (WIth Speclal Reference to Commerclal Bank's FInance), Agricultural Situation iQ India, December 1980, pp 675-9.

75

79 Rao V K R V in the Introduction to the book Role of Irrigation ~ the Development ~ India's Agriculture, IJAE Seminar Series No. XIII, IJAE, Bomb ay, 1976, P X I X •

80 Thingalaya N K, Marainal Farmers and Agricultural

81

82

Labourers ~ South Kanara District: Economic Analy~is. Manipal, Syndicate Bank, 1976.

Government Programme I1Evaluation Programme ll

t

of India, Planning Commission, Evaluation Organisation (PEO),

Report on Integrated Rural Development New Delhi, Planning Commission, 1985.

National Bank for Development (NABARD), IRDP", Mimeo, Bombay,

Agriculture and Rural "Study of implementation of NABARD, 1985.

83 Subbarao K, "Institutional Credit, uncertainty and Adoption of HYV Technology: A comparison of East UP wi th West UP", Indian Journal Q!. Agricultural Economics, 30(1), Jan-March 1980.

84 Pandey J M, "Development Programmes for Marginal Farmers and Agricultural Labourers: An Appraisal", Social Action, 27(1), Jan-March, 1977, pp 53-71.

85 Mishra,JP: Singh R I; Singh G N and Pandey K N "Role of Farm Financing Institutions in IRDP (A Case Study)", Indian Journal of Agricultural Economics, 32(3), July-September 1977, p. 164.

86 PEO, ~ Cit. P. 119.

87 NABARD, ~ Cit., p.l0.

88 CRAFICARD, ~ Cit.,

89 Rao, Mohana, "I mpact of Programmes on Ta rg e t Groups Case study of RRB", Indi an Journal 9i Agricultural Economics. 35(4), Oct-Dec 1980, PP 73-77.

90 Raju J Band Ashok A Patel, "Utilisation of Assistance Under IRDP" , Indian Cooperative Review, 1 9 ( 2), Jan 1982, p P 181-190.

91 Hirway, Indira, "Garibi Hatao: Can IRDP Do It?", Economic ~ Political Weekly, 20(13), March 30, 1985, pp. 561-4.

92 PED, ~ Cit., P 162.

76

93 Dhawan B D, "Diff.rential Income Impact of Public Canal Irrigtion in Maharashtra" in Niranjan Pant (Ed) Productivity and Equity iu Irrigation Systems, Ashish, New Delhi, 1984, pp 138-9.

94 Sinha S P and Jagdish Prasad, "Special Programmes for Weaker Sections: An Evaluation (A Case Study of Programmes in Musahari Block, District Muzaffarpur, Bihar)", Indian Journal of Agricultural Economics, 35(4), Oct-Dec 1980, Conference Number, pp 42-49.

95 Rao V G and Paramjit Malya~ Agricultural Finance ~ Commercial Banks, New Delhi, Ashish, 1980.

96 Sidhu D S, "Rapporteur's Report on 'Dairy Development and Bovine Economy", Indian Journal of Agricultural Economics, 30(3), July-September, 1975.

97 Mishra G P, "Distributional Effects of Rural Development Strategies: A Case Study, Economic and Political Weekly, Review of Agriculture, 14(39), Sept 29, PP A-86 to A-92.

98 Chikara, "Impact of Institutional Credit on Weaker Sections", Kurukshetra, 26(5), Dec.l, 1977.

99 Rao, Srinivasa V. "Financing of Small Farmers - A case study of a few small farmers 1n Coimbatore District, Tamil Nadu", Indian Journal of Agricultural Economics, 30(3), July-Sept 1975, p. 276.

100 Naidu L K, "Financing of weaker sections by commercial Banks", (paper read at a National Seminar ~ Bank Finance and Rural Development held at Tirupathy, India on 7& 8 April 1984.

101 Pawar, Jagannatharao Rand Subhash R, "Impact of Lower Interest Rate Finance on Economic Conditions of Rural Weaker Section,"Indian Journal 9.i. Agricultural Economics,37(3), July-Sept. 1982, pp. 265-72.

102 State Bank of India, Dairv Development 9.i. Pondicherry: An Evlauation Study 9.i. ~ Scheme Refinanced ~ ARDC, Evaluation and Monitoring Cell, Central Office, Bombay, 1978.

103 PED, ~ Cit.

77

104 NABARD, ~ Cit.

105 Singh, Katar, and Das Mukunda, Impact QL Opqration Flood II the Village Level, Research Repol't, Institute of Rural Management, Anand, <IRMA), July 1982.

106 Singh, Katal', ~ Cit., 1982.

107 Pandey U K, and Khanna SS, "An Economic Evaluation of SFDA for Weaker Sections in Haryana", Indian Journal of Agricultural Economics, 35(4), Oct-Dec, 1980, pp 49-58.

108 Satpute T G, "Impact of Kurukshetra, 26(12) March 16,

MFAL Programme", 1978, pp 17-9.

109 Singh JK and Pandey U K, "Discriminant Function Analysis of Small Farmers and Landless in India", Journal of Agricultural Economlcs, 32(2) May 1981, pp 211-17.

110 Tej Bahadur,Veeraswamy S and Parthasarathy P B, "Economic Aspects of Small-Scale Farming", Indian A

Journal of Agricultural Economlcs, 30(3) July-Sept 1975, p 245.

111 Agarwal N L and Saini G P, "SFDA-Impact on Economy of Small and Marginal Farmers RaJasthan", CooperatIve News Digest, 29(10), 1978, pp 164-66.

the in

Oct

112 Peter A, and Sebastian, "Impact of SFDAA Assistance on Small Farmers in Thuraiyur Block of Tl'ichIl'apalli Distl'ict, Tamil Nadu" Indlan Journal ~ Agricultural EconomIcs, 35(4), Oct-Dec 1980, p. 83.

113 Kannathal V E, "Impact of SFDA Programme on Income Distribution of Weaker Section: A Case of Enathirimangalam VIllage, South Arcot District, Tami 1 Nadu", Indian Journal !?.i. Agncul tural Economics, 35(4), Oct-Dec 1980, p 87.

114 Satpute. ~ Cit.

115 Rao, Mohana, ~ Cit.

116 PEO, ~ Cit.

78

117 Patel A Rand Jodha N S, Economic Relationship between Crop Farming and Dairying in ~ Developing

118

119

120

Area (Mimeo), AERC, Vallabbh Vidyanagar (Gujarat), 1979.

Mishra SEDME,

S P, "Developing 10(2) June 1983.

Dairy Entrepreneurs",

Agro-Economic Research Centre, Evaluation in Tirunelveli District. Madras, Tamil AERC, 1979.

gi. SFDA Nadu

George P Decisions Monograph,

Sand Chokshi S ~ Farm Level, No.66.

N, Dalry Development Ahmedabad, 11M, CMA

121 George P Sand Srivatsava, "Institutional Finance for Dairy Development", Indian Journal of Agricultural Economics, 30(3), July-Sept, 1975, pp 90-96.

122 Pandey V K and Muralidharan, "An Application of Discrlminant Function in Agricultural Finance", Indian Journal of Agricultural EconomiCS, (32), 1977, PP 41-51.

123 Singh J and Pandey U K, ~ Cit.

124

125

Shukla P Savlng) at A II ah abad,

C, Liguidity Farm Household 1982.

Management (Credit and Level ~ East UP, AERC,

Pal S P, Contribution of Irrigation to Agricultural Production and Productivity, New De I h " National Council of Applied Economic Research (NCAER) , 1985, p.3.

126 Quoted in, Indian Soclety of Agrlcultural Economics (ISAE), Role gi. Irrigatlon ~ ~ Develooment of India's Agrlculture. Bombay, Seminar Series, XI I I, ISAE, 1976.

127 NABARD, ~ Cit.

128 Kulkarni B N, ~ Study ~ Return, from Investment in Minor Irrigation, Bombay, Natioal Cooperatlve Land Development Banks Federation (NCLDBF) Ltd., 1981.

129 Prasad, J V L, ~ Post-utilisation Study Advances to Minor Irrigation ~ LDBs, Bomb ay, 1981.

79

~ ~ NCLDBF,

130 Reserve Bank of India, Report of the Overdues of Cooperative Credit Bombay, RBI, 1974.

Study Team on InstitutiOn$,

131 Avadhani V A, "Rural Retrogression and Institutional Finance", Economic and Pol itical Weekly,14(26), June 30, 1979, pp A75-84.

132 Sinha S P and Jagadish Prasad, "Impact of Farm Subsidies on Productivity, Income and employment in Bihar (A case study in Musahari Block, District Muzaffarpur, Bihar)", Indian Journal of Agricultural Economics, 37(3), July-Sept 1982.

133 P E 0, ~ Cit., P 121.

134 Anandteerth, Kittur and Basanna H, "A Review of Some Micro-studies on Defaults of InstItutional loans to Agriculture", Land Bank Journal, 31 (1),

Sept 1992, pp 53-5.

135 RBI, CRAFICARD, 1981, ~ Cit.

136 Tandon B K and Murdia B S, Economic Vlability of Farms in Udaipur District (Rajasthan). (Report of a Study Sponsored by the Research Programms Committee, Planning Commission, Government of India), New Delhi, Jain Brothers Publications, 1972.

137 George and Srivatsava, ~ Cit., 1975.

138 Centre for Management in Farmers: Problems ~

Development, Ahmedabad, IMM 1973.

Agriculture, Small Possibllities of Monograph No. 34,

139 Singh and Pandey, ~ Cit., 1981.

140 Kurulkar R P, Agricultural Finance ~ a Backward Region, Bombay, Himalaya, 1983.

141 Gunasekaran S, Small Farmers and Institutional· Credit, New Delhi, Ashish, 1985.

142 Institute for Financial Management and Research, 'An Economic Assessment of Poverty EradicatIon and Rural Unemployment Programmes and theIr Prospects', Mlmeo, Madras, IFMR, Aprll 1984.

80

1-13 f).1C)cl"lCC, SandcC'p, "Poverty Allcvlatlon Programmes

1 .~ ·1

, .. . "')

In SI'ventl1 Plan: An Appraisal", Econ~ and f.'~!:lJLl.Lr:"'-L \oJ.!'~_, 22 (~ ), J an 2~, 1987, pp 139-48.

t J .1 m .1 <:, 1 v ol Y .) m

t 111' R I ._-, k

"SubS1dy 111 Agr1cultural

P T' () J I' C t '.-, : n ilprll-June

I) ilnd Bal~sundaram 5 K, Preference 01 Allied SenC:,lllvlty AntilysIs",

1909, f'p 89-103. t1argln, 21(3),

F .-1 cl r:i .1 rI ol t) h .1 n r'j ,

! G pP , 1~~.!""'D_..!l.L l'~';(', l}:(,--C~t).

Income GeneratIon Process 9_~ f3~~~ ~~ D {"' v (' I op m r nt, 9 ( 1 1 \

81

under Jan

CHAPTER III

THE STRUCTURE AND GROWTH OF RURAL INSTITUTIONAL CREDIT IN INDIA

The history of rural credit in India may be

said to be the history of efforts to institutionalise

it. The reasons and purposes behind these efforts were

different at different times. In this Chapter, at the

first instance, the changes that have taken place in the

structure (implying an institutional framework) of rural

over the years have been briefly explained.

Secondly, a brief note on the special efforts taken both

by the RBI and Government of India in the field of rural

credit has been given. Thirdly, the institution-wise

growth of number of banks/branches, amount advanced as

well as the distribution of these loans among different

category of borrowers and the problem of overdues are

analysed. And finally, the efforts made to bring the

rural credit to the poor in different phases are

outlined. While doing so, the relevant information and

data taken from the sources like RBI publications and

Reports, publications of NABARD, Planning commission

Reports and Statistical Handbook of Tamil Nadu, 1991 are

consulted and used.

82

Rural Financial Market

A rural financial market can be defined as an

institution that provides continuous linkages between

suppliers and users of funds in the rural areas. It

encompasses all transactions in such financial

instruments as currency, bank deposits, savings with

post offices, loans, mortgages, bonds, corporate

securities, and non-monetary barter transactions which

are quite common in rural India. A rural flnancial

market comprises the capital market, credit market and

money or funds market and is a segment of the overall

financial market that pertains to rural sectors. As

transactions take place between buyers and sellers of

financlal instruments, the rural financial market

includes all those agencies which deal with purchase and

sale of these instruments.

The rural financial market performs two major

functions: mobilisation of rural savings and allocat ion

of such savings for competing uses by way of lendlng.

Structure of Rural Financial Market

The rural financial market conslsts of two

distlnCt segments: (il Organised or formal segment

(institutional) and ( i i ) Unorganised or lnformal

83

segment (non-institutional). While the formal segment

functions within the provisions of the Indlan Banking

Companies Act (1956) and maintains accounts which are

open to audit and regular inspection, the informal

segment operates outside this Act. The informal segment

consists of indigenous banks, nidhis, chit funds, and

professional and non-professional money-lenders. These

sources are also known as non-institutional agencies.

The formal segment consists of the Reserve

Bank of India (RBI), National Bank for Agriculture and

Rural Development (NABARD), Industrial Development Bank

of India (lOBI), Publlc and private sector commercial

banks, Regional Rural Banks (RRBs), Land Development

Banks <LOBs), State Cooperative Banks, Distrlct Central

Cooperative Banks, Primary Agricultural Credit Societies

(PACS) etc.

RBI is responsible for overall monetary policy

and provides accommodation to NABARD and lOBI for

agriculture and industries respectively. NABARD In turn

provides refinance to the commercial banks including

RRBs, Cooperative Banks and Land Development Banks. The

refinance from NABARD is distributed to the rural

entrepreneurs through two and three tier Cooperative

structures respectively for long-term, short-term and

medium-term lending. In the case of commercial banks

and RRBs the refinance directly flows to the users.

84

Growth of Institutional Credit in India

Modern Banking in India commenced with the

opening of a limited number of banks by British Agency

Houses, mainly in the port centres and for financing of

trade in raw-materials needed for British industries.

It was only in the first quarter of the 20th century

that Indian capital and business made their debut into

the banking sphere, that too into the prestigious

sectors of commerce and industry, quite befitting the

nomenclature of commercial banks. The Indian commercial

banking system grew with a large number of small and

very small banks and a small number of relatively larger

banks. These banks were, in their earlier decades quite

different from the type of traditional banks. There was

no banking regulation by the government and there was no

central banking institution. The Reserve Bank of India

was established only in 1935. A Banking Companies

(Inspection) Ordinance was promulgated in 1946 and a

full-fledged Banking Regulation Act was passed only 1n

1949.

The Rural Banking Enquiry Committee ( 1950)

recognised that the need of the rural areas for finance

was considerable and this could be met by developing a

variety of credit institutions in the cooperative

structure (e.g., credit societies, multi-purpose

85

societies, marketing societies and land mortgage banks).

However, the emphasis was not placed on commercial banks

to extend their direct credit to rural areas.

The All-India Rural Credit Survey, conducted

for the year 1951-52 revealed the dependence of rural

households for credit, agency-wise. Accordingly,

households

cooperatives

the

per family

institutional

borrowing of rural

sources (government,

from

and

commercial banks) was only a mere 7.3 per cent to the

total borrowings whereas the non-institutional sources

(professional, and agriculturist money-lenders, traders

and landlords) supplied the lions share of 92.7 per

cent. This startling finding made the government to

realise the fact that in the sphere of rural credit the

first step was to identify, organise and equip the most

suitable institutional agency. For this purpose The

All-India Rural Credit Survey Committee (AIRCSC) was set

up in 1952 under the auspices of Reserve Bank of India

(RBI) to make comprehensive recommendations in these

regards and allied matters. (Just then the First Five

Year Plan was introduced and the Community Development

Projects were launched in 1952 with the prime objective

of eradicating

rural India).

appropriately

poverty, disease, and illiteracy from

AIRCSC in its report (1954),

and imperatively in tune with the

86

integrated development approach of the Community

Development Programme, proposed an outline for an

integrated rural credit service. AIRCSC was of the

opinion that cooperatives at the village level were the

suitable agencies for institutional credit, and there

was no alternative to them. Refraining from defining

any positive role for commercial banks in direct rural

credit, but amplifying the role recommended by the Rural

Banking Enquiry Committee, AIRCSC recommended the

conversion of Imperial Bank of India into State Bank of

India (SBI) and assigned to the SBI a prominent role of

being responsive to the needs of cooperative

institutions concerned with credit, particularly in the

areas of marketing

produce.

and processing of agricultural

AIRCSC also recommended organisation of large­

sized primary cooperative credit societies, capable of

operating as viable business units, covering groups of

villages with reasonably large membership and share

employing full-time paid secretaries. capital base,

Following this recommendation quite a large number of

large-sized societies were formed. Later, in November

1958, the National Development Council advocated the

organisation of primary credit societies wlth village as

the basis.

87

On the basis of the recommendations of AIRCSC,

SBI came into existence on 1st July 1955, carrying a

statutory obligation of opening not less than 400

branches within five years. Between July 1955 and June

1960, SBI opened 416 branches, out of which 274 were

located in rural and semi-urban areas.

RBI set up the National Agricultural

(Long-term Operations) Fund in 1956 and the

Agricultural Credit (Stabilisation) Fund in

Credit

National

1965 as

recommended by the AIRCSC. The latter Fund was to

provide financial assistance to cooperative banks to

enable conversion of short-term loans into medium-term

loans consequent on the borrowers becoming unable to

repay the short-term loans due to natural calamities

causing crop failures.

An evaluation of the changes in the credit

delivery pattern, after the All-India Rural Credit

Survey (1951-52), was made by the All-India Rural Debt

and Investment Survey (AIRDIS) in 1961-62, ie, after a

decade.

sector

This AIRDIS found that the share of organised

in the provision of rural credit had increased

from 7.3 per cent to 19.7 per cent during this ten year

period thanks to the five-fold increase in the share of

co-operatives from 3.1 per cent to 13.5 per cent; but

the shares of government and commercial banks remained

88

the same (Table 3 . 1 ) • HOl')P'J(-r, t ~l. c· r. r ~ '. ,: ~ ( • f' -- •

con t 1 r,ur(~ 'cO

domInant component des PIt (> 1 t-.- d (> ell n (. f r c:.

cent ln 1951-52 to 80.3 per cent In 1"61-~::.

Tab 1 e 3. 1

Sources of Rural CredIt

Year 51 No Source

1 c: 6 I - t: 2

I .

2.

3.

4.

5 .

Source:

Government 3.3 3.3

CooperatIve Credlt SOcIetIes 3. ISc5

CommercIal Banks 0.9 0.9

Moneylenders 90.9 6 f <~ , . ~

Others I .8 1 -, 9

Report of the All Indla Rural Credlt Revlcw Commlttee, 1969, p. 100.

The of the above 6U r '·'('y t II I'

Indlan government and the RBI to InItIate varIOuS ~t{'r:'_\

to strengthen the instItutIonal setup 1n the oj

rural fInance.

The Agricul tural Ret Inance Corpcr<';'lC~·.

came into eXIstence on 1st July 1963, by t.::::: :. c '

89

Parliament, as a separate institution in RBI, with an

obje~tive of granting medium and long-term credit by way

of refinan~e or otherwise for the development of

agri~ulture, including animal husbandry, dairy farming,

pisci-culture, and poultry farming. State Cooperative

Banks, Central Land Development Banks, and Scheduled

Commer~ial Banks who were members of ARC were eligible

for assistan~e from it in the form of refinan~e. <This

~orporation was renamed as Agricultural Refinance and

Development Corporation (ARDC) subsequently in November

1975) •

In 1964, the Informal Group on lnsti tutlonal

Arrangements for Agricultural Credit indire~tly endorsed

the 1 imi ted role of ~ommer~ial banks in agrl~uJtural

credit. However, the se~ond half of the sixties

witnessed several important developments and events in

the sphere of agri~ulture and rural

introdu~tion of New Agri~ultural

~redlt like

1 Technology

the

and

nationalisation of 14 major ~ommer~ial banks ( 1969)

whi~h have seen an in~reasing parti~ipation of both PACS

and commer~ial banks in the field of agri~ultural and

rural ~redit. And later in 1975 the Regional Rural

Banks (RRBs) came into existen~e.

Before looking into the institutionwise growth

and expansion of ~redit in rural areas, certain special

90

efforts that were taken up after 1968 both by the

government of India and RBI are outllned ln the

the following paragraphs. This is done to drive home

point that the process of institutionallsation of rural

credit was not smooth. In otherwords, the relieving of

rural poor and the farmers from the clutches of non-

institutional sources like money-lenders was a Challenge

which warranted a multi-dimensional approach.

Special Efforts in the Institutionalisation QL Rural

Credit in India

(i) Bank Nationalisation

With the introduction of new technology in

agriculture the demand for credit had risen manifold

during the late sixties. It was felt that cooperative9

alone could not cater to the credit needs of the

farmers. Therefore, to meet increased demand and for

the commercial banks to play an increased role in the

development of rural economies, 14 major scheduled

commercial banks were nationalised in 1969 (si>< more

banks were nationalised in 1980). Nationalisation was

meant to ensure that no viable productive endeavour

should falter for the lack of credit support. It was

designed to make the system reach out to small men and

to remote rural areas.

91

(ii) Lead Bank Scheme (LBS)

To adopt the strategy of area approach, the

LBS was introduced shortly after nationalisation

(Dec.1969l. The emphasis under the LBS was to make

banks an important instrument of local development by

entrusting individual lead bank with the responsibility

to identify growth centres, assess deposit potential,

identify credit gaps and evolve a coordinated programme

of credit deployment in consultation with other banks

and credit agencies in the area of its operation.

allotted

All the districts in the country had been

to specific public sector banks and a few

specific private sector banks. The lead bank

constituted consultative committees at district and

block levels. The district level committee consisted of

the collector as the Chairman, the representative of the

lead bank as the Convenor and representatives from all

commercial banks, cooperative banks, RRBs, term .ending

financial institutions and developmental agencies in the

fields of agriculture, small scale industries etc.,

besides the concerned district level departmental heads

of the state government. This forum was to exchange

views and information about lending to the priority

sectors, identifying the bankable schemes and evolving

methods of financing them in a coordinated manner.

92

( iii) District Credit Plans

A district credit plan is a blueprint of

ac t ion by banks and other financial instltutions for

bringing about an overall development of the district.

These plans identify the economic activities to be

financed, prepare bankable schemes for them, and

estimate credit demand under each bankable scheme.

( i v) Priority Sector Lending

At the time of nationalisation of major banks

the bulk of their business was concentrated in urban and

metropolitan areas, catering to the needs of large and

medium sized industries. Consequently agriculture,

small scale industries, etc., did not receive adequate

attention. Under the priority sector lending the banks

were supposed to lend a specified proportion of their

total lending to specifically identified sectors like

agriculture, small scale industries, retail trade and

small business.

RBI provided refinance facilities for banks at

concessional rate in order to enable them to lend to

priority sectors. The priority sector lending should

constitute 40 per cent of aggregate bank advances,

according to RBI instructions.

93

(v) Differential Rate of Interest (DRII Scheme

The DRI scheme was introduced ln 1972. Under

this scheme, banks were to lend to weaker sections of

the society at a concessional rate of 4 per cent per

annum. The basis of selection of beneficiaries under

the scheme was the weak economic status of the

borrowers, that is, those who did not have any tangible

security to offer and also were not able to produce a

security. Also an income ceiling was fixed annual

income of a borrower should be below Rs.2000 in rural

areas and below Rs. 3000 in urban areas. One per cent

of the total bank credit was earmarked for this scheme,

and ntleast 40 per cent of the credit granted under the

scheme was required to be given to the eligible

borrowers from scheduled castes and scheduled tribes.

(viI Village Adoption Scheme (VAS)

According to this scheme, a relatively

backward village is adopted by a financial/developmen­

tal/voluntary agency with an objective of attempting an

overall development of that village. The concept behind

adoption of a village is to provide a supportive

organisation

developlmental

which

efforts

could

in the

94

coordinate

region.

all

The

local

the

parent

institution has

direct assistance

dual role to play;

to the village

first, to provide

development, and

secondly, to playa role of co-ordinator between various

Governmental, Financial and Voluntary agencies to see

that benefits flow in a right direction towards the real

target group without any leakage. The VAS is based on

area approach' and its objective is to develop the

village economy in all its aspects in a phased manner.

This scheme was formulated in 1973-74.

The VAS was originally adopted by the State

Bank of India but later other banks have also adopted

it. As per the data available at the end of June, 1988

banks had adopted 1,81,842 villages and financed 12.82

million accounts involving an amount of Rs. 2,557 crores

as against 1,28,111 villages and 4.19 million accounts

involving Rs 1250 crores, at the end of June 1982. With

the implementation of the Service Area Approach, the VAS

has been subsumed under the new approach from 1st April

1989.

(vii) Regional Rural Banks

The Banking Commission in its report in 1972

identified

commercial

the possibility of

banks in rural areas.

95

further expansion of

Keeping this in view

the government appointed a Working Group On Rural Banks

under the Chairmanship of Narasimham to examine the

proposed setting up of rural banks. The worklng group

recommended the setting up of state-sponsored regional-

based and rural-oriented commercial banks. The major

objective of the new institutions was to mobilise

resources from the region and deploy them wlthin the

same region. Atleast 50 per cent of the lending should .

be to provide productive credit to small and marginal

farmers, landless labourers, rural artisans and other

weaker sections of the society. Based on the

recommendations of the group, the first batch of six

RRBs was set up in October 1975.

(viii) Integrated Rural Development Programme (IRDP)

Taking into consideration the weaknesses of

the previous developmental programmes, the Government of

India launched the IRDP in 1978-79. This programme is a

synthesis of the strategies tested and the experience of

implementing various special programmes llke SFDA.

Drought Prone Area Programme (DPAP) and Marg~n~l Farmers

and Agricultural Labourers Programme (MFAL). The main

objectives of this programme ( I RDP ) were to raise

fami lies in the identified target groups above the

poverty line; and to create substantial additional

96

employment opportunities in the rural sector. The

target group consists of the poorest among the poor in

rural areas-broadly speaking small and

farmers, agricultural and non-agricultural

marginal

labourers,

rural artisans and craftsmen, scheduled castes and

scheduled tribes. The target groups from among these

categories were identified using the norms prescribed by

the Ministry of Rural Reconstruction, Government of

India. Then they were given assets like milch animals,

work bullocks, sheep and goats to generate income with

the help of both financial institutions like commercial

banks, PACS and RR8s and developmental departments.

(i~) National Bank for Agriculture and Rural Development

(NA8ARD)

NA8ARD has been established on July 12, 1982

to take up the role of a leader bank for the entire

rural credit system in the country. It has been set up

by merging the Agricultural Credit Department of the R8I

and the Agricul tural Refinance and Development

(ARDC). It is thus T"esponsible for Corporation

development,

coordination,

policy, planning, operational matters,

monitoring, research, trainlng and

conSUltancy relating to rural credit. It also provides

refinance to cooperatives, commercial banks and RR8s not

97

only for production but also for marketing and

distribution arrangements.

(x) Service Area Approach (SAP)

gather

The RBI conducted a survey in November 1987 to

requisite feedback on rural lending to find out

as to how far the stated objectives of bank credit had

been realised, viz., i) increasing the

production,

productivity,

popUlation.

(ii) enhancing

and (ii i) raising the

After this survey,

the

income

as a

agricultural

agricultural

of the rural

follow-up, a

seminar was organised by the RBI in January 1988. At

this seminar, the issues relating to the rural credit

delivery system arising out of the field surveys were

discussed. An important recommendatlon of the seminar

was that with the large network of rural and semi-urban

branches of commercial banks it was high time that

specific area assigned to each of such bank branches be

referred to as its I'service area". The service area of

a branch should be mutually exclusive from the service

area of other branches of commercial banks.

Following the seminar, the RBI decided to implement the

service area approach for rural and seml-urban branches

of commercial banks, and issued detailed instructions.

This is how the SAA has come into being and has been put

98

to implementation with effect from April 1 , 1989.

The SAA has five important components as followsl

1 • Identification and allocation of service area for each bank branch.

2. Survey of villages in the Service Area for assessing the potential for lending activities and identification of beneficiaries for assistance.

3. Preparation the service

of the credit plan on annual basis area by each branch.

for

4. Coordination between credit institutions on the one hand and field level development agencies on the other on an ongoing basis for the effective implementation of credit plans, and

5. System of continuous monitoring of progress in the implementation of plans.

Under the SAA, a total of 6,18,216 Villages

have been allocated amongst 42,158 branch offices of

publlc sector banks, Regional Rural Banks and private

sector banks.

These were certain policies and schemes which

were pursued and implemented from time to time in the

field of rural credit in India. What follows in the

following pages is a brief account of the nature and

growth of rural credit agency-wise, in India In general

and wherever possible in Tamil Nadu in particular. For

this purpose four major credit institutions have been

taken into account, viz; PACSs, Land Development

Banks, Commercial Banks, and Regional Rural Banks.

99

Institutionwise E~pansion of Rural Credit

B..... Cooperatives

The cooperative movement in the field of

agricultural credit was started in the beginning of the

current century and Over time the three tier credit

structure for short and medium term credit and the two

tier structure tor long-term credit were evolved in

different states.

The short-term (upto 15 months) credit and

medium-term (15 months to 5 years) credit are provided

by the Primary Agricultural Credit Societies (PACSs)

which operate at the village level, Central Cooperative

Sanks (CCSs) at the district level and the Stat!!

Cooperative Sank (SCS) at the apex of the cooperative

credit structure. The long-term (5 to 25 years) credit

is provided by the Primary Land Development Sanks

(PLDSs) at the base and State/Central land Development

Sanks (SLDSs) at the top in the two-tier structure.

The progress of PACS in terms of number of

societies, membership, advances made and also the

problem of overdues is briefly discussed here.

Due to continued efforts at revltalisation and

reorganisation of PACSs to form viable ones their number

has declined steadily over the years. However, the

100

membership and the amount sanctioned as loan to

agriculture have registered a continuous increase during

the period 1950-51 to 1988-89 (Table 3.2).

Table 3.2

The Performance of PACS in India

Year No. of Member- loans loans Loans Perc en-socie- ship and Out- Over- tag" of ties <l akh) advan- stand- due overdue (I akh) ces ing (Rs In to out-

(Rs in IRs in crores) standlng cron~s) crores)

1950-51 1.15 51 23 1B 6 20.69

1960-61 2.12 170 203 218 44 20.18

1970-71 1.61 304 580 784 322 41.07

1980-81 0.94 577 1769 2621 1085 41.40

1984-85 0.92 691 2693 3980 1630 40.95

1987-88 0.90 873 3687 5262 2132 40.52

1988-89 NA NA 4364 NA NA NA

Note: NA : Not Available.

Sources: 1. Dandekar V M and Wadia F K, "Development of Institutional Finance for Agriculture in India", Journal of Indian School of Political Economy, 1(2), July-December 1989, p. 206.

2. RBI Report on Currency and Finance, 1990-91.

101

About membership 2 in PACs Rath observed,

published by NABARD and the RBI show that in case of the

PACs the percentage of members in the smallest Size

class of agricultural land holdings availing short term

loans was not much smaller than the percentages in case

of members in higher size classes in most states, except

states like Bihar and Kerala. The real

appears in the membership of small farmers as against

the others. Taking country as a whole hardly 30 per

cent of the smallest size cultivators were members of

PACS, whereas this proportion was 75 to 100 per cent in

the case of the rest. Therefore, hardly 10 per cent of

the smallest farmers in the country received short term

loans from the cooperatives in any year."

As the loans overdue steeply increased with an

increase in the amount of loans outstanding during the

above period, the percentage of overdues to outstandings

also increased from 20.69 in 1950-51 to 40.52 in 1987-

88.

The details about the loans and advances

issued by PACS to different category of borrowers, for

selected years, are presented in Table 3.3.

102

Tab 1 e 3.3

DIstribution of Loans and Advances Issued by P(,[S ?.:c[;r:":ll-.Cj tc

Category of Borrowers - All Indl.1 and Tar-d) Uadu

(Rs In crare'S)

-----------------------------------------------------------------------Pe Clod All IndIa

Category of Borrowers

Farmers who own TAL ~ Total ---------------- others Upto 2 hec­tares

Above 2 hec­tares

Tlml} fJJdu

-------------------------------Category of Borrowers

------------------------Farmers who own TAL L

----------------- others

UPto 2 hec­tares

Above 2 hec­tarts

Tot.1

------------------------------------------------------------------------

1979-80 3480 6735 388 10603 222 267 30 519

to (32.8) (63.5) (3.7J (100) (42.8) (51.4) (5.8) ( 100)

1983-84

1984-85 6685 9789 907 17382 to (38.5) (56.0) (5.0) ( 100)

1988-89

1985-87 252 275 22 5~9

(45.9) (50.0) (4.0) ( 100)

Note: TAL = Tenants, Agricultural Labourers

Figures in parentheses are percentages.

For Tamil Nadu the data for the year. 1984-85, 19E7-88 2nd 1958-80; are not reported.

Source: Calculated from RBI Report on Currency and FInance lor rrlrv,nl years.

A cursory look Into Table 3.3 reveals the iact

th a t those farmers who own more than two hcc~2r0s of

land have got Issued a large portIon of loans fro~ P~[S

103

during the period under study. The share of this

category of farmers is around 50 per cent in Tamil Nadu

and is 56 to 63 per cent in the case of all-India

data. The small farmers category (less than 2 hectares)

received a share of 33 to 35 per cent at the all India

level and for Tamil Nadu it was little better at 43 to

46 per cent. The other category, tenant cultlvators,

agricultural labourers and other rural people were found

as neglected by the PACS. Thus, as the size of

landholding increased the percentage share of credit

received also increased indicatlng a positive

association between the two. This situation was even

worse during the year 1971-72 as observed by Slngh and

3 Asokan. That is, the farmers who owned above 2

hectares had received around 70 per cent of the loans

from PACS during that year.

B. Primary Land Development Banks

The performance of Primary Land Development

(earlier Mortgage) Banks (PLDBs) in providing term loans

to the farmers in India is rather very dismal as shown

in Table 3.4.

104

Table 3.4

Advances by Primary Land Mortgage/Development Banks in India

(Rs. in croras) --------------------------------------------------------

Year No. of Member- Loans Loans Loans Percen-Banks ship and Out- Over- tage of (lakh) ( 1 akh ) advan- stand- due Overdues

ces Ing to out-standing

--------------------------------------------------------

1948-49 272 1. 51 1 4 0.4 10.00

1950-51 286 2.15 1 6 O. 1 1.67

1960-61 463 6.69 7 25 1 .0 4.00

1970-71 865 35.37 104 448 18.0 4.02

1980-81 858 65.66 234 986 130.0 13.18

1983-84 885 69.86 280 1262 176.0 13.95

1986-87 899 87.95 390 1461 196.0 13.41

1988-89 NA NA 422 NA NA NA

Note: NA = Not available

Source: As in Table 3.2.

Even though the number of PLOSs and the

membership in them have increased manIfold durIng the

last four decades, their loans and advances have not

correspondingly increased. The percentage of overdues

to outstandings, though low, shows a continuous increase

during the same period.

105

Wi th respect to the dlstribution of loans and

advances of PLOBs to different category of farmers the

following picture emerges (for the five year period

1982-83 to 1986-87, in the case of Tamil Nadu and for 7

years (1982-83 to 1988-89) in the case of all-India].

Table 3.5

Classlfication of Loans Issued by PLOBs Accordlng to

size of Ownership Holdings - All Indla and Tamll Nadu

Per 1 ad

1982-83 to

1986-87

1987-89

Upto 2 hec­tares

1033 (47.3)

360 (46.2)

All Indla

Above 2 hec­tares

1151 (52.7l

419 (53.8)

Total Upto

2184 (100 )

779 (100 )

2 hec­tares

71 (56.3)

(Rs crores)

Tamll Nadu

Above 2 hec­tares

55 (43.7l

Total

126 (100 )

-------------------------------------------------------Source Calculated from RBI Report on Currency and

Finance for relevant years.

As for as the distributlon of the loans by the

PLOBs was concerned, it was found to be more or IQSS

equally distributed between the two categories of the

farmers during the period under study both at all Indla

level as well as at Tamil Nadu level.

106

Table 3.6 depicts the position of cooperative

credit societies in Tamil Nadu in 1989-90, and also of

Milk Producers' Co-operative Societies (MPCS) in 1988-89.

Table 3.6

IlJober, " .. .bership, Paid-up Share Capital, Loans Advanced, Outstanding and Overdue of Cooperative

SI Type af Soci,ties 110 •

I. Taei I N.du State Coopefltive Bank

2. T .. i I lI.du Stat. Land O.velop.,nt Bank

3. C.ntral Cooperative Banks

4. Prioary Agricultur.l Cr,dit Societi.s (including FSS)

5. Prioary Cooperativ, LOBs

6. Milk Produc.rs Co-oprrati v, societies ( 1900-891

Banks/Societies in Taoil Nadu - 1999-90

Nuab.r Meab.rship of Socie-ties

2,28,73B

181

19 15,51,256

4,596 71,21,340

181 69,32,31

7,925 25,53,000

Paid-up Capital Rs lakhs

558.27

2,190.14

7,631,07

8,269.80

2,082.30

536.57

Loans Advanced Rs '000

91,3Q9.71

2,41,557

4,07,100.55

57,647.32

2,41,503

Loans Outstanding Rs '000

91,309.71

2O,031.3B

1,32,072.82

76,690.91

19,293,64

Loans Overdue Rs '000

516.73

%,6117

29,624.42

39.5115.31

9,760,78

Sourc.: Statistic.1 Hand Book of Tanil Nadu, 1991, is.ued by Dir,ctor of St.tistics, Depart.ent af Statistics, H.dras.

107

As shown in Table 3.6 the oyerdue position of

both the PACSs and PLDBs in Tamil Nadu is alarming. Due

to poor

difficult

recovery these institutions were finding it

to expand or to diyersify their lending

operations. The number of MPCSs as on 1988-89 was found

as 7925. The ayerage number of members pe~ PACS, PLDB

and MPCS comes to 1549, 3830 and 322 respectively. The

amount of overdue per member is Rs. 8613 In the case of

PACS and Rs 1264 in the case of PLDSs. The overdue as

percentage to the loans outstanding is 51.6 and 47.9

respectively for PACS and PLDSs, during the year 1989-90.

C. Commercial Banks

witnessed

branches.

The period after the national,satlon of Sanks

a remarkable increase in the number of bank

From just 8,262 branches in June 1969 the

number has increased to 60,101 in March 1991, growth of

over seven fold. This enormous increase in the number

of branches has brought down the population served from

65,000 to 14,081 per bank office during 1969-1991. The

number of branches in Tamil Nadu has also Increased from

1371 in June 1971 to 4274 in March 1991 and the

population per branch is 13,069 as on March 1991.

The lending to priority sectors has grown from

Rs 504 crores in 1969 to Rs 35,242 crores in 1989 and

108

its share in the total bank credit has increased from 15

per cent to 42.2 per cent during the same period.

banks'

The share of rural branches in the commercial

total network of branches has steadily gone up

from a little over 22 per cent in June 1969 to 57.6 per

cent by the end of March 1990. Rural areas, which had a,

meagre share of 1.5 per cent in total bank credit in

1969 have over the years increased the1r share to about

15.8 per cent in the year 1989. And the upward

movement of credit-deposit ratio of rural branches from

a level of 37.2 per cent in June 1969 to 63.9 per cent

in March 1990, has also observed.

Financing under IRDP started in 1980 under

which commercial banks' lending 1S linked with central

government subsidy for the development of weaker

sections of the society like marginal farmers, rural

artisans and agr1cultural labourers. Table 3.7 glves

the details about the performance of IRDP during the

Si~th and Seventh Five Year Plan periods and also dur1ng

1990-91. The total term credit made available by the

financial institutions to this programme over the period

as shown in Table 3.7 indicates the increasing

participation of the credit institut10ns in programmes

implemented for the benefit of rural poor.

109

1

2.

3.

4 .

5.

6.

7.

8.

Table 3.7

Performance of IRDP in the Sixth and Seventh Five Year Plans and in 1990-91

Particulars

Total alloca-tion

Central allo-cat i on

Subsidy uti-lised

Total Term credit

Total f inan-cial help

No of bene-ficiaries (lakhs)

ST/SC bene-ficiaries(%)

Per account Rs.

i ) Loan

i i ) Subsidy

iii ) Total

Sixth Plan (1980-85 )

1766.81

901.08

1598.90

3101.68

4762.70

165.42

38.80

1820.00

977.00

2797.00

(Rs. in crores)

Seventh Plan 1990-91 (1985-90 )

3000.27 747.31

1513.84 374.56

3315.81 809.49

5372.53 1190.03

8688.34 1999.52

181.77 28.16

45.10 49.90

2956.00 4106.00

1824.00 2793.00

4780.00 6900.00 --------------------------------------------------------

Sources: Seventh Five Eighth Five Government of Delhi.

Year Plan (1985-90, Vol.II), Year Plan (1992-97, Vol India, Planning Commission,

110

and II ) ,

New

The financial help extended to th"

implementation of IRDP by the credit instltutions

(mostly Commercial Banks) has increased from Rs. 3101.68

crores during 1980-85 to Rs. 5372.52 Crores during 1985-

90. And during the year 1990-91 their contribution was

around Rs 2000 crores. The total financial assistance

per beneficiary also increased from Rs 2797 during Sixth

P I an to Rs 4780 during Seventh Plan and to Rs 6,900

during 1990-91 possibly to compensate for the

during the corresponding period.

inflatIon

Distribution of commercial bank credit (both

short-term and long-term) to various categories of

farmers may be seen from Table 3.8.

Short-term loans (including crop loans) are

given for purchase of production inputs, such as, seeds,

fertilizers, pesticides etc., and to meet the cost of

cultivation which includes labour charges for carrying

out agricultural operations, irrigation charges etc.

These loans are normally repayable within a period of 12

months and in certain cases 15 to 18 months, the

repayment schedule being related to the harvesting and

marketing of the particular crop.

Term (medium/long) loans are granted for

development purposes like development of irrigation

potential, purchase of tractors and other agricultural'

implements and machinery, improvement of land, purchase

111

of pumpsets/oil engines, plough animals etc. The period

of repayment of these loans generally extends from 3 to

10 years. It may be longer, particularly in cases when

refinance from NABARD is available.

For the convenience of analysis the ten year

period 1980-89 was taken into account and the same is

splitted into two five year periods viz., 1980-84 and

1985-89.

Table 3.8

Scheduled C"""ercill Banks' Direct Finance to Fareers - Percentage Distribution of Short Ind Long Ter. loans According to Size of land Holding - All India and Ta.il ~adu

Ttra IOills and period

Upto I hectare

A.I. T.N.

5iz. of land Holding

1-2 hectares Above 2 hectares

A.I. LN. A.I. T.N.

(Rs in lakhs)

Total

A.I. LN.

-----------------------------------------------------------------------ShorH.ra

1. 1980-81 Bb050 26430 60Bb1 13259 (35.31) (53.55) (25.0) (26.871

2. 19S5-89 251810 71511 221919 60155 m.95) (4).86) (30.811

lonQ-hrtl

1. 1980-84 31700 3057 3197b (16.09) (30.91) (16.23)

2. 1988-89 106926 16361 115349 118.28) !3l.62) (19.22)

Nate: A.I. ' All Indiaj T.N.' Taoil Nadu. FiQures In parentheses are in percentage.

(35.39)

2257 (22.83)

12635 (25.971

96593 (39.671

246817 (34.26)

\33359 (67.69)

362824 (62.0)

9672 (19.60)

38896 m.m

4576 (46.271

19671 (40.42)

243504 49361 1100.0) 1100.0)

720576 170Bb2 (100.0) 1100.0)

197035 9890 (100.0) (100.0)

585099 48667 (100.01 (100.01

Source: Calcul.ted frOi RBI Report on Currency and FinancI, for relevant ye.rs.

112

The distribution of short-term loans was found

relatively more in favour of marginal farmers (upto 1

hectare) followed by small farmers (1-2 hectares) in

Tami I Naduj Just opposite was the case at all-India

level (Table 3.8). And in the distribut,on of lung-term

loans a relatively more skewed pattern was observed at

all India level than in Tamil Nadu - 62 to 68 per cent

of the loans going to big farmers (above 2 hectares) at

all-India level; it was only 40 to 46 per cent in the

case of Tamil Nadu.

The percentage of overdues to demand in the

case of commercial banks was 47 in 1980-81 which has

decreased to 43 in 1985-86 and remained steady

thereafter upto 1988-89.

D. Regional Rural Banks (RRBs)

Within the time span of 15 years, the number

of RRBs has gone up to 196 in 21 states and two Union

Territories. As on September 1990 the number of

districts served by 14511 branches was 380. The

deposits mobilised by these branches increased from a

meagre Rs. 20 lakhs in 1975 to Rs 426752 lakhs in

September 1990 and the amount of outstanding advances

also increased enormously from Rs. 10 lakhs to Rs.

354750 lakhs during the same period. The overdues as

113

percentage of annual demand for repayment of loans by

RR8s was found to be 47.8 per cent and 32 per cent

respectively during 1982-83 and September 1990.

In Tamil Nadu a Regional Rural Bank was started

on 9th March 1977 in the name of 'Pandian Grama 8ank'

with its area of operation restricted to only two

districts: Ramanathapuram and Thirunelveli. As on

September 1990, the number of RR8s in the State was 3

and the number of districts covered by them was 7. The

number of branches of RRBs in the State has 1ncreased

from 50 in 197B to 208 in 1990. The deposits increased

nearly ten fold between 1980 to 1990 i.e. from Rs 491

lakhs 1n 1982 to Rs 4253 lakhs in 1990. Their advances

also steadily increased: Rs 1174 lakhs in 1980 to Rs3589

lakhs in 1987 and to Rs 5297 lakhs in 1990.

Refinance Performance of NABARD

The major activities refinanced by NABARD are

minor irrigation, dai~y development, farm mechanization,

land development, IRDP, gobar gas plants, fisheries,

poultry, plantation and horticulture. The refinance

performance of NABARD is given in Table 3.9.

114

Table 3.9

Disbursement of Refinance for Vaf'ious Purposes by NABARD ( 1982-83 to 1991-92)

(Rs crores) --------------------------------------------------------

Year Minor IRDP Dairy Farm Others Total irri- Deve- mecha-ga t i on lop- nisa-

ment tion --------------------------------------------------------

1982-83

1983-84

1984-85

1985-86

1986-87

1987-88

1988-89

1989-90

1990-91

1991-92

Total

244

312

335

385

460

473

387

498

496

502

4092 (30.1)

185 24

233 13

354 23

376 29

379 48

448 52

403 51

549 75

602 73

647 84

4176 472 (30.7) (3.5)

147

204

170

200

192

200

158

225

338

381

2215 <16.3)

103

130

179

202

255

309

271

355

393

440

2637 <19.4)

Note: Figures in parentheses are percentages.

703

892

1061

1192

1334

1482

1270

1702

1902

2054

13592 ( 100.0)

Others include land development, poultry, gobar gas, plantation and horticulture.

fisheries,

Source: National Bank News Review, 8(2) April 1992.

115

Sinc:e its inc:eption in 1982 NABAAD has

inc:reasi.ngly refinanced various activities related to

agriculture and rural development. The total refinance

from NABAAD has increased from As 703 crores in 1982-83

to As 2054 crores in 1991-92. A large portion of the

refinance has gone to major activities namely, minor

irrigation (30 XI, IADP (31 XI and farm mechanisation

(16 XI. Dairy development and other schemes were

allotted the remaining amount.

The foregoing analysis reveals that though the

financial institutions - PACS, PLDBs, commercial banks

and AABs - were involved in the provision of credit to

the farmers of all . 4

categories and agricultural

labourers and rural artisans, the performance of each

institution differred from another as far as providing

credit to the small borrowers is conc:erned. The thrC!e

major features which dominate the rural c:redit scene

are:

al mounting overdues of the credit institutions;

bl neglect of small borrowers; and

cl continuing dominance of non-institutional credit.

As the details regarding the first two

featUres were discussed already in the foregoing

paragraphs, the discussion on the remaining one 1S taken

up in the follOWing:

116

Dominance of Informal Segment (or) Non-Institutional Sources in the Rural Credit Scene.

Inspite of various measures taken both by the

Government and the Banking Institutions to extend the

credit to rural areas, the non-institutional sources

still matter a great deal in the area of rural credit

for various 5 reasons. Table 3.10 gives the share of

formal and informal segments in the total rural debt

pertaining to rural households between 1951 and 1981.

Tab I e 3. 10

The Share of Debt of Rural Households Held by Different Creditors: The Official Evidence

Creditor

Total debt (Rs crores at 1971-72 prices)

I. Institutional agencies (Banks, Co-operatives and Government)

II. Non-institutional agencies

Of this:

(a) Money lenders

(b) Relatives and friends

(c) Others

(Per cent)

1951 1961 1971 1981

N.A. 36,100 37,541 23,361

7.2 17.3 29.2 61.2

92.8 82.7 70.8 38.8

80.2 69.4· 54.2 24.3

11.5 5.8 13.8 9.0

1.1 7.5 2.8 5.5

Source: Katula, Rajni and Gulati, Ashok, "Institutional Credit to Agriculture:Issues Related to Interest and Default Subsidy", Journal 9.f. Indian School of Political Economy 4(4), October-December 1992, p. 701.

117

THE SHARE OF DEBT OF RURAL HOUSE-HOLDS HELD BY DIFFERENT CREDITORS

1951

1971

//\

I \ " \ , , ,-----\

\ , '

'" \

\ \

), . ::~::~. ! .... ~:~.!., f •

/

1961

1981

j 1 0

As shown in Table 3.10, though the dependence

on non-institutional sources for rural credit could not

be completely eliminated, the efforts of the' gov@rnment

and the banking institutions may be deemed to have

achieved a measure of success in this direction for the

share of non-institutional credit declined from 92.8 per

cent in 1951 to 38.8 per cent in 1981 and

correspondingly the share of institutional credit has

increased from a mere 7.2 per cent in 1951 to 61.2 per

cent in 1981.

INSTITUTIONAL CREDIT AND THE SHALL BORROWERS

In this section, a brief analysis about the

attempts made to reach the small borrowers (small and

marginal farmers, agricultural labourers, rural artisans

and other poor people in the rural areas) both by the

Government

Commercial

appreciate

and the Credit Institutions (RB I , NABARD,

Banks,

the

Cooperatives, and RRBs) is done to

in issues involved not only

institutional ising the credit (as discus~ed earlier) but

also in the process of taking such institutionalised

credit to the rural poor.

For the convenience of analysis and to

highlight the changes that have taken place from time to

119

time which have determined the policy modifications in

the field of rural institutional credit, the post-

independence period of 40 years (1947 to 1987)

divided into four distinct Phases.6

may be

A. First phase - period of Neglect (1947-1968)

B. Second phase - period of Consideration (1969-74)

c. Third phase - Period of Consolidation (1975-1978)

D. Fourth phase - Period of Real Attention (1979-1987).

A.First-Phase Period of Neglect (1947-68)

After the country became independent in 1947

various strategies were thought of by the Planners to

develop the economy. The most widely accepted was the

concept of Five Year Planning. QUite naturally during

the First Five Year Plan, the development of rural

India, where more than 80 per cent of her vast

population

attention.

lived was given high priority and greater

During the First-phase ( 1947-1968) by

tradltion and training, commercial banks in the country

including the then Imperial Bank of India (Now State

8ank of India) were prospering in the urban sector

mainly providing short-term finance to trade and

industry, concerned as they were With the two main

considerations of liquidity and profitability. They were

thus not equipped to satisfactorily respond to the

120

credit needs and requirements of the agricultural

sector in particular and the rural sector in general.

During this period the institutions providing

credit in the rural areas were Primary Agricultural

Cooperative Credit Societles and Land Mortgage Banks

(LMBs). As the name indicates, the LMBs give long-term

loans ranging from 5 years to 20 years against the

mortgage of land of borrower. The PACSs catered to the

short and medium-term credit needs of the farmers. The

rest of the rural population was left ln the hands of

non-institutional sources like money lenders, traders , and indigenous bankers. And the services of the above

two credit instltutions were cornered by the big farmers

as they belonged to the prosperous section of the Rural

Community controlling these institutions. These aspects

were well brought out by the two surveys conducted by

the Reserve Bank of India during this phase namely, AII-

India Rural Credit Survey (1951-52) and the All-India

Rural Debt and Investment Survey (1961-62).

During this phase the agricultural development

had been equated with rural development. Hence the

efforts of the government were directed towards

introducing the 'new technology' in agriculture during

the early sixties which succeeded in bringlng out a

'Green Revolution' during the late sixties. However,

121

this success was confined only to wheat growing areas

like Punjab, Haryana and Western UP and to a limited

extent to the rice growing areas. The success was in

the areas where assured i rri g at ion facilities were

available. Many research studies 7 pointed out that

only those big and medium farmers who had ac:cess to

inputs like credit adopted the new technology and the

small and marginal farmers lagged behind. Further, it

was observed that the gains of the increase in yield did

not adequately reach the agricultural labourers and

other rural poor.

B.Second Phase Period of Consideration (1969-74)

The recognition of the above said facts led

the All-India Rural Credit Review Committee (1969) to

suggest various measures to ensure better flow of credit

to the poor farmers. In pursuance of the

recommendations of thiS committee, the Government of

India

help

Agency

formulated two special, and specific schemes to

the rural poor namely, Small Farmers Development

(SFDA) and Marginal Farmers and "gricultu,.ai

Labourers Programme (MFAL). This reflected the concern

on the part of the development authorities to help the

rural poor during this phase. The economic philosophy

which led to the launching of the SFDA scheme in 1971

122

( and later MFAL) was simply that special preferentIal

arrangements were necessary for the supply of Inputs to

small farmers because the markets for inputs and

particularly credit which was the pre-condition for

access to all material inputs and equipment were

imperfect and non-neutral.

The bank natioalisation (1969) was a turning

point in the banking policy of the government, for it

intended to make the banking system reach the rural

areas.

a 1so

During the same year the Lead Bank Scheme was

introduced to make the banking system more

effective. The introduction of differential interest

rate scheme (OrR) in 1972 was another landmark in the

process of taking the institutional credit to the

poorest among the poor in rural areas~ National

Commission on AgricultUre (1976) emphasised a change of

approach

Commission

Societies

to credit.

towards the credit to small borrowers. The

recommended formation of Farmers'

(FSS) to improve the access of small

SerVic:e

farmers

The new technology introduced in agrIcultUre

was found to be neutral to scale but at the same time

capital intensive. This increased the demand for credit

by the farmers of all the size groups. The multI-agency

approach was suggested though lack of coordinatIon among

123

the credit institutions like cooperatives and commercial

banks had posed some field level problems.

The evaluation of credit schemes by the

research t . 8

s udles conducted during this phase showed

that th~ cooperatives had not extended the credit to the

small and marginal farmers to the expected level. But

it was refreshing to note that during this phase the

participation of commercial banks in financi n 9

agricultural operations had continuously increased.

However, the credit worthiness of the borrower was still

a norm that the commercial banks insisted to sanction

loans to the small borrowers. In the circumstances the.

number of small borrowers availing credit from

commercial banks did not increase conspicuously.

C.Third-Phase Period of Consolidation (1975-78)

The rapid expansion and dlverslficatlon of

operations of commercial banking upto 1975 by themselves

were not found to be adequate to serve the rural areas

effectively. A number of factors, both organisational

and operational, retarded the spread of the commercial

banking network into the economic llfe of rural areas.

Rural bias and rural orientation to banking was felt as

the need of the hour. At this juncture the Narasimham

Working Group (1975) suggested setting up of Regional

124

Rural Banks with the main objective of providing credit

and other facilities especially to the small and

marginal farmers, agricultural labourers, artisans and

sma 11 entrepreneurs in rural areas. The related

objective was to free the rural poor from the clutches

of exploitative money-lenders.

Hence, lt can be stated that only ln this

phase the consolidation of gains from the rapid

expansion of banking system in favour of rural poor was

started.

D.Fourth-Phase -Period of Real Attention (1979-87)

banks

After the substantial expansion of commercial

it was found that they mobilised sizeable amount

of savings from rural areas but channelised a certain

portion of

metropolitan

those

9 areas.

rural savings into urban

This development was obvious

and

from

the fact that finally the Reserve Bank of India had to

step in and stipulate that the public sector commercial

banks must ensure by the end of March 1979 that atleast

60 per cent of the deposits mobilised by them ln rural

(and semi-urban) areas would be deployed ln those areas

only.

125

The weaknesses found in the target oriented

programmes

introduce

like SFDA and MFAL made the Government to

the Integrated Rural Development Programme

(IRDP) in 1978-79 in 2,300 development blocks which was

extended to the entire country from October 1980. The

two special aspects of this programme are: Change of

approach ie, from individual orientation to household

programmes of income generation through asset and skill

endowment, and effective integration of the activlti"s

of the credit agencies and the development agencies

(like block office, District Rural Development Agency)

in the process of implementing such programmes.

In the meantime six more commerCIal banks were

nationalised in 1980. The CRAFICARD report In 1981

emphasised

borrowers

the need for identification of potential

among the rural poor to provide credit and

also subsidy to make them financially viable entItIes.

On the basis of the recommendatlons of thls report the

NA8ARD was established in July 1982. Speclfic aims and

objectives like 40 per cent of total advances was to go

to the priority sectors by March 1985; 25 per cent of

priority sector credit or 20 per cent of total

was to go to 'weaker sections' by March 1986, etc.

indicated to commercial banks.

126

credit

were

Summing up, the discussion on the structure

and growth of rura 1 institutional credit, this

chapter, was based essentially on secondary data at the

country level and at the state level. Wh 11 e 1t did

serve a useful purpose in understanding some of the

quantitatIve aspects/dlmens1ons of the problem on rural

cred it, we could not get useful inSIghts 1nto the

qualItative aspects, espec1ally relat1ng to the small

barrOl')!? rs. The present study based as It on m1cro-level

fIeld research, attempts to fill this gap.

127

Notes and References

1 The introduction of new High Yielding Var1ety (HYV) seeds, application of fertilizers and pesticides and adoption of scientific methods in irrigation and other farming practices were termed as 'New Agricul tural Technology'. That is, a set of compiementary inputs, which must be adopted and appl1ed together if the potential increase in output is to be secured. During late nineteen slxties these efforts boosted the per hectare yield of wheat and paddy and these improvements, in the course of time, came to be called as 'Green Revolution'.

2 Rath, Nilakantha, "Institutional Cred1t for

3

Agriculture in India", Journal of Indian School of Political Economy, 1(2) July-December 1989, p. 242.

Asokan, S Rand ill Rural Ind1a: Oxford and IBH,

Singh, Gurdev, Institutional F1nance Efficiency and Efficacy, New Delhi, 1988, p. 46.

4 The National Commission on Agriculture (1976) has estimated the credit requirement at Rs 16,000 crorQS by 1985 at full programme and at the graduated level 1t was Rs 9,400 crores. The actual advanced for the year 1984-85 was Rs 5,456 crores WhiCh formed 58 per cent of the credit requirement by the NCA. For details, Desai D K, "Institutional Credit Requirements for Agricultural Production - 2000 A D", Indian Journal of Agricultural Econom1cs, 53(3), July-September 1988, p. 538.

5 Reasons are simple procedures, timely availabil1ty, consumption loans and personal knowledge; for details, Asokan and Singh, ~ cit.

6 In the earlier paragraphs the process of institutionalisation of rural credit was studied 1n a chronological order. But in this section the whole process was divided into four phases to emphasise and to bring out in a nutshell the changes that were taken place in the field of rural credit in India.

128

7 Among others:

Bardhan, P K and Srinivasan, T N, ~ cit.; Singh Katar, ~ cit.; Johl, S S, ~ cit. and Raju, V T, QJh.cit.

8 After a detailed review of development of institutional finance for agriculture in India over four decades, Dandekar and Wadia conclude that the small farmer continues to be inadequately attended to. For details, Dandekar V M and Wadia F K, "Development of Institutional Finance for Agricul­ture in India", Journal of Indian School of Political Economy 1(2), July-December 1989, pp. 167-211.

9 In his study, taken at the district level, Viswanathan found that the credit deposit ratio in rural and semi-urban centres was less than one for Lead Bank. In the case of non-lead banks though lt was less than one in rural areas lt was greater than one in semi-urban centres. However, the credlt deposit ratio in the urban centres was found to be greater than one for both Lead and non-lead banks. This phenomenon explains how funds mobilised in other areas were deployed in the urban centres of the distrlct. For full details: Viswanathan S.P., A Study of the Lead Bank Scheme with Speclal Reference to Coimbatore Distrlct, Unpubllshed doctoral dissertation, Bharathiar Unlversity, COlmbatore, 1988.

129

CHAPTER IV

METHODOLOGY

It may be recalled that as spelt out in the

introductory chapter, the major focus of the present

study

credit

Tami 1

is on analysing various aspects of institutional

vis-a-vis small borrowers in the rural areas of

Nadu. The methodology followed in undertaking

this study is detailed out in this chapter.

A. Selection of the Study District

It may be mentioned at the outset that due to

constraints of time and resources, and for operational

convenience, the selection of villages for this study

was restricted to Coimbatore district. Coimbatore

distrIct was selected purposively on the basis of the

following considerations:-

(i) Among all the districts in Tamil Nadu percentage

of agricultural labourers to the total rural

population in a given district was the hIghest in

Coimbatore (27.13 per cent in 1980-81).

130

( i i )

( ii i )

( i v )

Banking facilities (measured in terms of avt!rage

population per bank office) were fairly well-

developed compared to other districts (the

average population per bank office was 11830 as

on 31.12.1982 and was the lowest compared to all

other districts).

Under IRDP, subsidy per family and loan per

family were higher than the corresponding state

average figures.

Schemewise particulars about the allocation and

achievement under IRDP for the year 1981 revealed

that minor irrigation and dairying were the two

important ones that benefitted most both ln the

state and in the district.

(v) Agro-climatic conditions in the district in the

year 1983-84, the reference year for our field

investigation to be conducted were normal, unlike

in many other districts (e. g • , Thanjavur,

Tiruchi, Tirunelveli and Ramanathapuram) which

were severely affected by floods during the

months of February and March 1984.

Apart from the above considerations, the fact

that the researcher hailed from Coimbatore district lent

an added advantage in appreCiating the naunces of socio- •

131

political-economic system prevailing in the district

that would influence the working of various i~st1tutions

including banks, co-operatives, etc.

Background of the Study District

Coimbatore district, endowed with vast

and natural resources as well as technical physical

skills and enterprise, is better known for its te><tile

mills, power looms, hand-looms, hosieries, electrical

motors and pumpsets, small and cottage 1ndustries. The

district has 7 taluks and 21 administrative blocks. In

terms of economic activities the distr1ct 1S very much

balanced with both agriculture and 1ndustry being the

major sectors of the economy. There is a fairly a well-

developed and well-spread network of financial

institutions within the district. In 1981 the d1strict

had 12 branches of the Central Cooperative Bank, 289

Village Cooperative Agricultural Credit Societies, 13

Primary Land Development Banks and 247 branches of

commercial banks.

The focus of the study be1ng on !lsmall

borrowers" it is pertinent to mention that among various

schemes of the government, relatively speaking, IRDP

benefitted most the small borrowers. And the single

highest contribution to this programme in the district

132

came from the commercial banks (with 93 per cent of the

total credit under IRDP financed by the ~ommercial

banks) • The role of cooperatives and the PLDSs in

financing the IRD Programme in the district was not

significant. Therefore, considering the above aspects,

the present study confines itself to the analysis of the

participation of commercial banks in financing small

borrowers and the impact the bank credit under the

had on the beneficiaries' economic conditions.

B. Selection of Taluks and Blocks for the Study

IRDP

Following the selection of Coimbatore district

for the study, we proposed to select two taluks: one

less relatively

developed,

differential

developed and another relatIvely

for the purpose of understanding the

levels of utilization of credit by the

small borrowers in relation to the level of development

of the taluks. Here the developed taluk meant, the

taluk having comparatively well developed banklng

facilities,

veterinary

facilities.

markets,

hospitals

irrigation, milk

and other

cooperatives,

Infrastructural

At the time of selection of the study region,

Coimbatore dist'rict consisted of 6 taluks only

(Avinashi, COimbatore, Mettupalayam, Palladam, Pollachl

133

and Udumalpet). Subsequently in 1984 one more taluk

(Valparai) was carved out of the then existing 6 taluks.

Since Coimbatore taluk was more urban in nature (the

percentage of rural population to total population was

22 as per 1981 census), it was not considered for

selection.

The selection of taluks was

constructing a composite index based on four

in the following manner.

Indicators:

1) Concentration of rural population

2) Level of infrastructural facilities

3) Concentration of small holdings, and

4) IRDP performance.

made by

indicators

The first indicator was measured in terms of

three ratios:

a) Percentage of rural population to the total

population (1981 Census).

b) Percentage of agricultural labourers population to

total population <1981 census) and

c) The percentage of cultivators population to total

population (1981 census).

134

The second indicator was measured in terms of

a) Per bank population,

b) The percentage share of irrigated area in the net

sown area,

c) Number of cultivators per regulated market,

d) Veterinary hospital facilities (Number of

livestock per VH),

e) Number of milk producers cooperative societies,

and

f) Number of village cooperative agricultural credit

societies.

The third indicator was measured 1n terms of

a) Proportion of marginal holdings (below 2.5 acres)

to the total holdings (Nos), and

b) the proportion of small holdings

acres) to the total holdings (Nos).

And the fourth indicator,

(2.5 to 5.00

the IRDP

performance, was measured in terms of :

a ) The percentage of agricul tural labourers

benef1tted upto December 1982 under the IRDP to

the total agricultural labourers' population.

135

b) Loan amount per beneficiary(IRDP 1982-83).

c) Subsidy amount per beneficiary (lRDP 1982-83).

d) The percentage of total number of beneficiaries

benefitted upto May 1983 under lRDP to the total

number of beneficiaries identified by the

District Rural Development Agency <DRDA) as

eligible for IRDP scheme.

After giving ranks to each taluk according to

its place in each indicator, the ranks were combined in

order to arrive at the composite index, <Table 4.1).

Accordingly, it was found that Udumalpet taluk got first

and Palladam taluk the last rank.

Table 4.1

Ranking of the Five Taluks of Coimbatore Distrlct on the Basis of Selected Indlcators

Taluk

AVlnashi

Mettu-palayam

Pall adam

Pollachi

Udumalpet

Combined Rank of Selected Indicators

First indica­tor

2

5

3

4

1

Second indlca­tor

2.5

4

5

2.5

1

Th i rd indica­tor

2

1

3.5

5

3.5

Fourth indica­tor

3

4

5

2

1

Composite Rank

2

4

5

3

1 --------------------------------------------------------

136

These two taluks were, therefore, selected for

the purpose of the study to represent a relatively

developed and a relatively less developed region

respectively.

Udumalpet taluk consists of three blocks

namely, Gudimangalam, Madathukulam and Udumalpet. And

the Palladam taluk consists of five blocks namely,

Palladam~ Pongalur, Sultanpet, Sulur and Tiruppur. The

next stage was to select one block from each of these

two taluks. While selecting the blocks, Udumalpet block

in Udumalpet taluk and Tirupur block in Palladam taluk

were not considered because of their being urban in

nature. Another reason was that out of the 28 bank

branches in Tiruppur block, 25 were situated in Tirupur

town alone, and in the same way, in Udumalpet block out

of the 15 bank branches 8 were situated in Udumalpet

town itself.

Leaving aSlde these above cited blocks

(Tiruppur and Udumalpetl, for the selection of one block

each in the taluks of Udumalpet and Pall ad am

respectively, the following procedure waS fullowed: A

composite index was constructed on the basis of three

indicators: The first ,ndicator was the level of

infrastructural facilities which was measured in terms

of (al per bank population, (bl percentage of irrigated

137

•

area to net area sown, (c) Veterinary service facilities

(area/villages per veterinary hospital), (d) Milk

producers cooperative societies, and (e) Village

cooperative agricultural credit societies.

The second indicator consisted of two

variables to denote the concentration of poor people:

one was the percentage of small holdings (less than 2

hectares) to the total number of holdings, and the other

was the percentage of identified poor people by DRDA

(upto 31 .5. 1983 ) to the total population of the

respective blocks.

And the third indicator was the IRDP

performance which was measured in terms of:

( a ) The amount of credit (loan + subSldy) per

beneficiary under the IRDP during 1982-83 and

(b) The percentage of beneficiaries benefitted (upto

31 .3.1983 ) under IRDP out of the total number of

identified beneficiaries (upto 31.5.1983).

The ranking of the blocks in each taluk

separately, based on the composite inde~ with reference

to selected indlcators is given in Tab 1 e 4.2.

Accordingly, Madathukulam block in Udumalpet taluk (as

developed) and Pongalur block ln Palladam taluk (as

less developed) were selected for the study (See Map-I).

138

INDIA

N

10 TAMIL NAD~:"r:.':i-/1._

• ;';"-','.r ~) £ '::, ,-~.

lf~:. ~~.'~ ~t~·: '--.-. ." ~ ..J . ~.., ~ -- -, ...... . v_,. c. -', I

C· ,:::J:~'-' , ... ' I _.:._.

, .~,,- ." ..

SMIPLE BLOCKS

1 MADATIiUKULAM

2 PONGALUR

(NOT TO SCALEl

COIMBATORE

STATE BOUNOJ\RY DISTRICT BOUND~RY TALUK BOUNDARY RIVER & STRI:::AMS BL.O.(.K aOIJNl'A'RY

139

..... c ~ .~ .. --- ..... ---

Table 4.2

Ranking of the Blocks on the Basis of Se12cted Indicators

---------------------------------------------~----------Blocks Combined Rank of Sel~cted

Indicators Composite

Rank --------------------------------First Second Third indicator indicator Indicator

--------------------------------------------------------1 Udumalpet Taluk:

a) Gudimanga-I am

b ) Madathu-kulam

£ Palladam Taluk:

a) Palladam

b) Pongalur

c) Sultanpet

d) Sulur

2 2 1.5

1 1 1 .5

3 4 2

4 1.5 4

1 1.5 3

2 3 1 --------------------------------------------

Supporting information

2

1

3

4

1

2 ------------

our

selection of blocks comes from the COlmbatore

Credit Plan Report 1983. According to this report,

though both Madathukulam and Pongalur blocks were

predominantly rural in character, Madathukula~ block was

comparatively well pi ac ed in terms of varIOUS

infrastructural facilities and extension services,

whereas Pongalur block was a dry block devoid ot

infrastructural facilities.

140

The performance of IRDP in the selected blocks

in terms of number of beneficiaries, credit and subsidy

sanctioned and credit-subsidy ratio is given

Table 4.3.

Table 4.3

IRDP Performance in the Selected Blocks (1982-83 )

Madathukulam Pongalur

1 . Total number of beneficiaries 1,129 500

2 Total credit sanctioned (Rs) 25,31,317 8,63,898

3 Credit per bene-ficiary (Rs) 2,242 1,727

4 Total subsidy utilised iRs) 7,67,866 2,72,757

5 SubSidy per beneficiary (Rs) 680 545

6 Credit to subsidy 3.29 3.16 ratio

in

The available information on the IRDP

performance in 1982-83 in terms of number of

beneficiaries, credit and subsidy per beneficiary and

the credit subsidy ratio clearly indicates that the

Madathukulam block fared well compared to that of

Pongalur block.

141

C Selection of Schemes

Though the small borrowers have been financed

by the credit institutions to undertake various schemes

the present study proposed to limit the analysis to two

major schemes only. Accordingly, sample beneficiaries

were drawn from the minor irrigation schemes

(representing farm investment loans) and dairy scheme

(representing subsidiary occupation loans). It was

found that among the farm investment loans, Minor

Irrigation scheme received priority - both in terms of

allocation (44% to total) and achievement (77%), the

percentage of performance beIng 171 during the year

1981 in Coimbatore district. Similarly, among the

subsidiary occupation loans (Animal husbandry and other

allied activities), the proviSIon of milch animals

dominated,

allocation

by receiving 45 per cent of

and involving 55 per cent of

the total

the total

e><penditure, the percentage of performance being 132.

For the above said reasons, the minor irrIgatIon scheme

and the dairy scheme were purposively selected for an

in-depth analysis.

D Selection of Banks/Credit Instjtution

Having selected the blocks and decided the

schemes to be studied, the next step was to select the

bank branches for the present study.

142

The available information with respect to bank

branchwise performance in financing small borrowers was

collected from DRDA office at Coimbatore and from the

respective block offices. The details are given

Tables 4.4 and 4.5.

Financing Small Branches in

Table 4.4

Borrowers under IRDP by Various Madathukulam Block during 1980-83

in

Bank

Name of the Branch Small Marginal Agrl. Total

1 Branches located within the block

a. lOB, Kaniyur

b. Canara Bank, Madathukulam

c. lOB, Komara-ling am

d. Canara Bank, Thungavi

e • LDB, Kaniyur

f. VCACS, Madathu-kulam

2. Branches located outside but also serving the block

a. CBI, Udumalpet

b. SBI, Udumalpet

c. lOB, Udumalpet

d. Canara Bank, Udumalpet

e . LDB, Udumalpet

farmers farmers labourers

87 121 445 653

17 29 212 258

7 13 62 82

8 16 75 99

1 1

5 :;

25 1 200 226

124 124

9 7 16

1 2 3

2 2 --------------------------------------------------------

143

As shown in Table 4.4 judging from the

branchwise performance, the lOB branch at Kaniyur and

Canara Bank branch at Madathukulam were selected and a

detailed list of beneficiaries of the dairy scheme for

the year 1982 was obtained to represent the Madathukulam

block (hereinafter Block I).

Table 4.5

Financing Small Branches

Borrowers under IRDP by Various in Pongalur Block during 1980-83

Name of the Branch

1 Branches located within the block

a. SB1, Pongalur

2. Branches located outside but also serving the block

a. SBl, Tiruppur

b. Canara Bank, Tiruppur

c. lOB, Tiruppur

d • Canara Bank, Palladam

e • Others

Small Marginal Agricul-farmers farmers tural

labourers

109 181 253

Bank

Total

543

41

32

128

2

23

--------------------------------------------------------

144

As shown in Table 4.5, the State Bank of India

branch at Pongalur (hereinafter Block II) provides a

large chunk of the credit and the participation of other

banks which are operating from outside the block was

very less. In view of the above, SBI branch at Pongalur

was selected as the sample branch. (Actually another

commercial bank called South Indian Bank Ltd., was also

working at Koduvai in the same block but its

contribution to the IRDP was found nil).

E Selection of Beneficiaries

a. Sample Beneficiaries from Minor Irrigation Scheme

As stated earlier, the complete list of

beneficiaries under various minor irrigation schemes was

obtained from the DRDA office at Coimbatore and the bank

branches selected from the two blocks. Using that

information, beneficiaries were classified under variOUS

schemes over the period 1978-82 as given in Table 4.6.

Considering the importance and number of beneficiaries

under each scheme, the beneficiaries were seiected from

the following schemes: New Well, Deepening of well and

oil engine. The other schemes, like pipe line, provision

of Electric Motor Pumpset, well repair and other such

schemes were not considered for the present study. And

145

Table 4.6

Number of Beneficiaries Financed Under Minor Irrlgation

Schemes in the Selected Blocks during 1978-82

-------------------------------------------------------Schemes 810ck I 810ck II

-------------------------------------------------------

1. New well 7

2. Deepening of well 23 22

3. Oil engine 10 12

4. Pipe 1 ine 8 6

5. Electric motor pumpset 3 4

6. Others 5

-------------------------------------------------------

also it was decided to have beneficiaries from the year

1978 onwards to 1982. This was mainly for two reasons:

(1) to have a sufficient number of benef1ciarles, i .. e .. ,

from 1978-82; the total number of small and marginal

farmers benefitted under the above sald three schemes

was 40 in Block I and 34 in Block II and (ii) the number

of beneficiaries benefitted before 1978 was very small.

Moreover, to estimate the impact of the schemes a

reasonable gap (say two years) between the investment

made and the evaluation period is required. Henc e, a II

the beneficiaries who have borrowed during the years

1978-82 were selected. Accordingly, all the 40

146

beneficiaries from Block I and all the 34 beneficiaries

from Block II were selected. Schemewise breakup of the

selected beneficiaries is given in Table 4.7

Table 4.7

Number of Beneficiaries Selected Under Minor

Schemes

1 New well

2 Deepening of well

3 Oi I engine

Total

Irrigation Schemes

No. of sample beneficiaries selected from

Blocl< I Block II

7

23 22

10 12

40 34

b. Sample beneficiaries from Dairy Scheme

Total

7

45

22

74

The data obtained from the selected bank

branches regarding the categorywlse number of

beneficiaries under dairy scheme for the year 1982 were

given in Table 4.8.

147

Table 4.8

Bank Branchwise Number of Beneficlaries under Dairy Scheme in 1982 in the Selected Blocks

-------------------------------------------------------Block and Bank Category of Borrowers

Small Marginal Farmers Farmers

Agricultural Labourers

------------------------------------------------------Block I

1 Canara Bank 4 10 50

2 Indian Overseas Bank 39 44 68

TOTAL 43 54 118

Block II

1 State Bank of India 32 50 76

-------------------------------------------------------

Keeping in view the time and financial

resources available and also to have a fairly

representative sample, 50 per cent of the beneficiaries

were selected randomly from the lists which were

obtained from the respective bank branche9.

Accordingly, the following is the sample size of the

three categories in the two blocks under study.

148

Table 4.9

Number of Beneficiaries Selected from Dairy Scheme

Block

1 Block I

2 Block II

categorywise and blockwise

Beneficiaries Selected

Small Marginal Farmers Farmers

22 27

16 25

3B 52

Agricultural Labourers

59

3B

97

Total

lOB

79

187

Apart from this, the data were also collected

from 30 randomly selected non-beneficiaries each in the

two blocks (10 small farmers, 10 marginal farmers and 10

agricultural labourers) from the lists available in the

block offices. Adding this, the sample size of the

present study comes to 321, as given below.

1. Minor Irrigation beneficiaries

2 Dairy scheme

Block I

40

beneficiaries lOB

3 Non-beneficiaries 30

TOTAL 178

Block II

34

79

30

143

149

TOTAL

74

IB7

60

321

F. Method of Data Collection

The required data were collected from the

sample beneficiaries by canvassing a pre-tested and

structured interview schedule.

While collecting data from the benefIciaries

in the selected blocks, lnformal d,Scusslons were also

held WIth the various functIonaries at the block and

village levels (See Table 4.10) who were found involved

Table 4.10

FunctIonaries Consulted DurIng the Field Survey

Functionaries Block I Block II

1 • Block Development OffIcer 1

2. Officers at the block offIce 2 2

3. Bank branch managers 2

4. AgrIcultural Fleld OffIcers 1 1

5. Land Development Bank OffIcers 2 2

6. Veterinary Doctors 1 1

7. Vlliage Level workers 3 2

8. MPCS PreSidents 2

9. MPCS secretaries 6 5

10. ASCS secretaries 2 2 ---------------------

Total 22 15 ------------------------------------------------------

150

in the implementation of special schemes for the welfare

of the

check

rural poor. This exercise was done

the information obtained from the

to cross

selected

benefic:iaries; to have a fair knowledge and

understanding about the working of the selected schemes

at the village/block levels; and also to obtain the

views of the concerned functionaries at the block as

well as village levels.

The data pertaining to the amount of loan and

subsidy sanctioned to the selected beneficiaries was

collected from the records of both block office as well

as the selected bank branches. The information about

the actual amount spent to purchase the milch animals

was gathered,

Secretaries of

Workers (VLWs).

apart from the beneficiaries, from

Milk Societies and the Village

the

Level

The Information about the repayment of dairy

loan by the selected beneficiaries was obtained from the

bank records, from the Secretaries of MPCSs and from the

beneficiaries themselves.

G.Method of Data Analysis

The primary data collected was tabulated and

analysed by using the statistical tools and methods like

averages, percentages, regression analysis and fInancial

151

viability analysis. The collected data have been

classified schemewise

comparative analysis.

and categorywise to facliltate

To find out the impact of dairy loans on the

income, employment and asset position of the selected

beneficiaries two methods have been adopted. The first

one is the inter-temporal (before-after) method wherein

the post-loan income, employment and asset position of

the selected beneficiaries have been compared with that

of their pre-loan levels. The differences found betw.en

the two points of time are attributed to the impact of

the loan. The second method is the cross-sectional

analysis in which the income levels of the selected

beneficiaries are compared with that of selected non-

beneficiaries and the difference in income level of

beneficiaries, if any, has been attributed to the impact

of the financed scheme.

Further, to capture the impact of dairy loans

in a more realistic manner, the income and employment of

the selected small and marginal farmers, who took dairy

loans have been classified into three categories net

farm income and employment, net non-farm income and

employment and net income and employment from dairying.

The pre-loan levels of these three categories of income A

and employment are compared with that of post-loan

152

levels to reveal the impact of dairying. Simi larly, the

income and employment levels of selected agricultural

labourers have been classified lnto three types: wage

employment and income, employment and income from other

than wage labour (goats/sheep/piggery/poultry) and

employment and income from dairying. The pre-loan

position wi th regard to the above mentioned three

categories of income and employment has been compared

with that of post-loan position to find out the impact

of dairy loans.

Net farm income is arrived at by deductlng thR

cost lnvolved in cultivation (i.e. all the pald-out

costs) from the gross farm income. Net lncome from

dairying arrived at by deducting the expenditure

involved in maintaining the animal from the income

earned by the sale of milk. The money value of farm

products and milk consumed by the beneflciary

households, lncome earned by the sale of calves and cow-

dung are also included in the income.

The working days of women and children

converted into mandays of eight working hours .

The rate of •

change in income and

were

the

incremental income-investment ratios are also worked

out.

153

A linear production function technique hns

been employed to estimate the relative shares of factors

of production in the earnings from dairylng. The

following variables, per dairy unit basis,

used for the production function analysis. The

prevailed market value/cost is imputed for the family

labour and for the fodder cultivated on the farm

respectively.

Milk Production Function

Where:

bl Y = a.x!

Y = Value of milk production (in Rs)

xl = Value of fodder (in Rs)

><2 = Value of concentrates (in Rs)

x3 = Labour charges (in Rs)

x4 = Veterinary expenses (in Rs)

x5 = Other expenses (in Rs)

u = Error term

To work out the impact of minor irrigatlon

schemes on the farm economy of the selected small and

marginal farmers, the inter-temporal approach (before

and after the loan) has been adopted. The changes which

were observed in the case of selected variables due to

the minor irrigation works undertaken by the selected

154

beneficiaries have been attributed to the Impact of such

loans. The details of variables selected, the methods

of computation of cost and value of output are discussed

in the respective sections of the relevant chapter.

To evaluate the financial viability of the

dairy loans, four criteria were used: ( i ) pay-back

period,

ratio,

( ii ) Net present value, ( iii )

return;

Benefit-cost

and (iv) Internal rate of for

irrigation schemes only Benefit-Cost Ratio and

Rate of return were used.

iL Pay-Back Period

minor

Internal

The pay-back period is the tIme It takes the

beneficiaries to recOVer the initial investment which

they made on the cattle or farm, out of the earnings

from the purchased animals or farm. In the case of

investment at a single time period, and constant income

streams over a period of years, the pay-back period has

been obtained by dividing the total investment with the

income for one occasion. When the returns are discrete

and non-uniform, as In the case of milch cattle, the

pay-back period can be taken as the time required to

recover the cost of purchase and maintenance of milch

cattle from its returns. This can be e~pressed as:

155

Where At = returns in period t

Ct = Cost in period t; t=l, 2

Co = the initial investment

t* = time pe r iod in which the returns e)(ceed costs.

iil Net Present Value

Costs and returns at different periods of time

are not strictly comparable in the sense that one rupee

received or spent at one point of time is not e)(actly

the same as the same amount at another time. This

differential time value of money arises on account of

the investment opportunities available, and the changes

in the purchasing power of money. To make the revenue

and cost figures comparable for permitting additions

over a period, the present value of future returns and

costs are calculated using discounting principles. The

net present value of an investment is defined as the

discounted sum of streams of income during the

productive life period of the milch cattle or for

investment. In algebraic terms it could be represented

as: l\..

NPV 2. Rt - c,t t~, (1;- \'y

156

Where Rt and Ct have the same meaning as in

the case of pay-back period, and r corresponds to the

discount rate. The number of years is taken to be n.

An initial investment will be justifiable if the amount

required to be invested is less than the NPV. In cases

where the initial investments themselves are considered

along with the cost, the investment will be sound as

long as the NPV is positive.

iii ) Internal Rate of Return

It is a measure of the interest-paying

capaci ty of the project. It is defined as the rate of

return which makes the NPV equal to zero when the

initial investment is considered along wi th cost. In

other words, the internal rate of return is that

discount rate which equals initial investment on milch

cattle or on farm with the discounted net returns from

the investment during the productive l'fe period of the

animal or asset. Using the symbols, the internal rate

would be the value of r obtained while solving the

equation:

Where Rt and Ct when t =1, 2, ...• corresponds

to the same definitions used earlier, co-corresponds to

the initial investment and Ro is zero.

157

After calculating the value of r it will be

compared with the cost of capital. The investment in

milch cattle or farm will be considered desirable if the

internal rate of return is higher than the cost of

capital.

iv) Benefit-Cost Ratio

The benefit-cost ratio gives the returns per

rupee invested during the entire productive life period

of the farm investment or milch cattle, which in symbols

can be expressed as:

The investment in the milch cattle or on farm

can be justified if the benefit-cost ratio is more than

one.

158

CONCEPTS

A brief e~planation about some of the

important concepts and terms used in the present study

is given below,

i) Small Borrowers

Those small and marginal farmers and

agricultural labourers who have received loans for

financial productive purposes from the organised

institutions.

The Ministry of Rural Reconstruction,

Government of India, laid down the following criteria

to define

population.

and identify the poor among the rural

a) Small FarmersL A cultivator with a landholding of 5

acres or below is a small farmer. A farmer who has

Class I irrigated land, as defined in the State Land

Ceiling Act, of 2.5 acres or less, wi I 1 also be

considered as a small farmer. Where the I and is

irrigated but not of Class I, a suitable conversion may

be adopted by the State Government with a ceiling of

five acres.

159

b) Marginal Farmers: A person with a land holding of

2.5 acres or below is a marginal farmer. In the case of

Class I irrigated land, the ceiling is 1.5 acres.

c) Agricultural Labour: A person without any land, but

having a homestead and deriving more than 50 per cent of

his income from agricultural wages is an agricultural

labourer.

iiI Institutional Credit

The credit provided by the organised agencies

like Commercial Banks, Cooperative Credit Societies,

Regional Rural Banks, and Land Development Banks.

However, the present study covers only commercial banks

and LOBs.

iii I Rural Areas:

The 1981 census definition of rural areas was

followed in selecting the study area.

ivl Accessibility

Accessibility includes, the access to the

information about the bank loans, special schemes, and

subsidies, the ability of the small borrowers to contact

the bank or the agency and their capacity to avail the

services provided by the cooperative credit societies

and milk producers cooperative societies.

160

The term access can further be divided

two, namely, 'formal access and 'effective ace ess' .

The presence

cooperative

of or the functioning of bank

societies, veterinary hospitals,

branches,

marketing

centres in the selected villages indicate the formal

access to the small borrowers to such agencies.

effective access will be measured in terms of the

The

small

borrowers' participation in the above said institutions

and organisations, which in turn increase their economic

well being.

v) Utilisation of Loan

A loan is taken to be utilised when the

purpose for which it was sanctioned had been achieved

and the benefits from it had started flowing to

borrowers anytime during the period of survey.

vi) Impact of Loans

The increase or decrease in employment,

income or assets or a combination of all these of

borrower who has invested the borrowed amount

productive purpose, is termed as an impact of loans.

or

the

or

a

a

The changes caused by the loan uti lis a t ion

(investment) in the income and employment levels, asset

161

position or in the farm business of a borrower is termed

as impact of loan.

vii) Minor Irrigation Schemes

In the present study the analysis is confined

to those minor irrigation schemes which directly helped

the small and marginal farmers to increase the area

under irrigation or to increase their cropping

intensity. Accordingly, only the following schemes were

included in the present study: New Well, deepening of

well and oi I engine. The schemes like pipe line,

parapet wall construction, and well repair, were eKcluded.

viii)Financial Viability of Loan

The viability of the loan is determined on the

basis of private costs and returns accruing to the

borrowers, and their ability to repay the loans as

stipulated by the provisions of the loan agreement.

162

CHAPTER V

RETURNS TO INVESTMENT IN DAIRY SCHEME

Based on detailed data collected from sample

borrowers who availed bank loan for dairying in selected

blocks, this chapter deals with the returns to

investment in dairying. The discussion is presented in

two sections. The procedures adopted by the block

officials to identify the beneficiaries to sanct10n the

loans and the selected beneficiaries' access to banks,

milk societies, veterinary services and cattle insurance

are briefly discussed in the first section. The impact

of the scheme on employment level, income and asset

position of the sample beneficiaries is analysed, by

comparing the status of beneficiaries on such aspects at

two points of time before and after the loan 1n the

the second section. The comparison between

beneficiaries and the non-beneficiaries,

necessary, is also done in this section.

wherever

Product i on

function technique is used in particular to workout the

contribution of selected independent variables to the

dependent variable namely, income from dairy scheme.

163

SECTION I

Identification of Beneficiaries

The manual on IRDP published by the Government

of India and the guidelines issued by the NABARD to the

commercial

procedures

to the

banks gave clear-cut definitions and

to identify the small borrowers. According

procedures laid down, the Distrlct Rural

Development Agency (DRDA) with the help of block level

machinery was to identify the eligible beneficiaries

through a household survey. For this survey the bank

officials were also expected to extend their co-

operation to the block officials. After the household

survey the banks were to prepare a technically feasible

and financially viable project/scheme for the concerned

household according to the needs and potentials of the

household by keeping in view the resources available in

the region.

The above mentioned procedures were found to

have been hardly followed in practice in the study area.

For example, in both the blocks no household survey was

undertaken prior to sanctioning dairy loans to small and

marginal farmers. By and large similar was the case

while selecting the beneficiaries from the class of

agricultural labourers, although some semblance at a

164

household survey was evident in Block-I only. Out of 59

agricul tural labourers selected in Block I, 17 were

identified through a limited household survey. The rest

were selected arbitrarily by village level worker6

(VLWs) in consultation with the Presidents and

Secretaries of the Milk Producers Co-operative Societies

(MPCSs) and political leaders.

Literacy Level of the Selected Beneficiaries

Table 5.1 gives details about the literacy

level of the selected beneficiaries.

Table 5.1

Literacy Level of the Selected Beneficiaries ----------------------------.. -----------

Block I Block II ----------------

Literacy level Harginal SlId I Agricul tural Marginal 5 •• 11 Agricul tural faroers farlers. libourers far.ers faraers labourers

------SCs Others SCs Others --------------------

I. 11 literates 7 4 41 7 9 3 21 B (25.9) (1B.21 (83.7) (70.0) (36.0) (1B.7) 177.8) 172.7)

2. Priury 19 14 8 3 16 10 6 3 (70.4) (63.6) (16.3) (30.0) (64.0) (62.5) 122.2) 127.11

3. Secondary I 3 2 ( 3.71 (13.6) n2.5)

4. Collegiate 1 1 ( 4.5) ( 6.3)

---------------------27 22 49 10 25 16 27 \I

(100.0) (100.01 (100.01 (100.0) (100.01 (100.01 (100.0) (100.01 --------------------------Figures in Parentheses are percentages to the total nulber of beneficiaries selected under each category.

165

The percentage of literates among the selected

agricultural labourers in both the blocks was found very

low, whereas the corresponding percentages for the

selected small and marginal farmers in both the blocks

were found to be highly impressive. The literacy rate

of the selected scheduled castel labourers' 1S very low

it is 16.3 per cent in block I, and 22.2 per cent in

block I I . The overall literacy rate of the selected

beneficiaries is 43.5 per cent and 48.1 per cent,

respectively in Block I and in Block II.

Selected Beneficiaries' Access to MPCS

The selected beneficiaries seemed to have fair

access to MPCS. To start with, thanks to the insistence

from the functionaries, they all became the members of

MPCSs, for the milch animal loans were sanctioned mostly

to the members of the MPCSs or to those who assured that

they would supply the milk to the MPCSs as it would make

the recovery of loans by the banks easy. It was

gathered during the course of the field survey, that in

the preceding years, agricultural labourers,

particularly the scheduled caste households, ware not

allowed to become the members of MPCSs. Even if a

scheduled caste household possessed a milch animal the

milking as such was done by the milk vendors themselves

166

by using their own vessels. But at the time of the

field survey, the picture seemed to have changed, to a

certain extent, as reflected in Table 5.2.

As seen in Table 5.2, only in four MPCSs

Kadathur, Sholamadevi, Pongalur and Vadugapalayam it

was found that S.Cs were also admitted as members along

with others.

MPCSs were

In Kaniyur and Madathukulam the members in

exclusively S.Cs and in Sholamadevi a

separate society was organised exclusively for the

Muslims who lived there. It was disheartening to note

that in Kandiyan Koil the S.Cs were not allowed to

become members in MPCS, though they

considerable portion of the total population

village.

167

formed a

in that

Tabl. 5.2

H.ob.rship and Daily Milk Procur ••• nt in the S.I.ct.d MPCSs

51 H ... of the yillag.s Total Out of Th. y.ar Total 1M of which P.r day Milk No where HPCSs are Villag. Ioilich in which eel- ----- Procure •• nt

si tUlted Popuh- SC the HPCS bers loan S.C. in lttru) tion Popu- started .eo- lel-(1991 lation bers b.rs Mini- MIXi- At thl census) lUI lUI iii' of

dah collec-tion

~l

1 Ariyanlchi Pallya. 1447 Nil 1994 137 42 Nil 150

2. Kadathur 2780 978 1975 356 195 110 300 720 300

3. Kaniyur. 6550 NIl 1975 298 125 Hi I 100 300 100

4. M.dathukul .. 9105 2276 1974 160 90 160 70 200 75

5. Rudnp.hy .. 2454 NIl 1975 375 190 Nil eo 190 B5

6. Shol ... d.yi" 4513 1504 1992 45 30 30 40 ~ 40

~11

7. Kandiyan Koilllt 6238 1403 1975 130 Nil Hi I 50 150 150

8. Koyilp.l.ya. Pudur 1625 252 1974 170 19 Nil 250 350 250

9. Pongl!ur 4714 1252 1975 174 8 6 50 150 60

10 V.d .. alai p.l.yaa 3407 829 1975 94 Hi 1 Nil 100 150 150

\I Vaduga P,hy .. 2584 461 1972 241 65 35 3BO 625 420

---------NIl I Not available

• Two lOr. Soci.ties were functioning. one exclusively for SCs and the other on. for non S.Cs.

II : One lore society was functioning exclusively for Muslims in this Yillage.

flf : SCs .ere not allowed to b.co •••• mh.rs of the society in this village.

168

Selected Beneficiaries' Access to Bank Credit

In the first place, it was found that the

relationship between the bank and the small borrowers

was not direct. That is, the block administration

decided the scheme for the beneficiary and the subsidy

amount thereof and according to that the banks were

asked to sanction the loan amount. The purchasing

committee (formed at the block level consisting block

officials, veterinary doctors and representatives from

financial institutions) would purchase the milch animals

and distribute them to the selected beneficiaries. All

the selected beneficiaries reported that they were not

involved

animals.

or consulted while purchasing the milch

the So, right from the beginning

beneficiaries' access to information about the scheme

(here quality of the milch animal), loan amount, subsidy

amount and repayment procedures was found to be limited.

The NABARD has had issued guidelines to

sanction subsequent loans (second loan) to enable a

beneficiary to become financially sound. To know the

performance in the provision of second loans, the

details regarding this issue are gathered and analysed

here.

169

Nearly half of the selected beneficiaries in

block I (from all the three categories) and 25 out of 66

beneficiaries in block II opined that though they

frequently approached the banks for the second loan

through the secretaries of milk societies despite their

being

their

regular in supplying milk to the milk societies,

applications were not forwarded. A few

beneficiaries did succeed in securing a second loan.

However, some of them mentioned that the second loan was

adjusted against the repayment of outstanding first

loan, while in few other cases the subsidy component

of the second loan was adjusted for the arrears of first

loan (Table 5.3). These adjustments were done at the

bank-branch level to show an impressive performance in

loan recovery. This was indeed confirmed by the bank

officials, who explained that this they were forced to

do to get the sanction of funds for new loans.

The blockwise analysis regarding the provlsion

of second loans to the beneficiaries covered by the

present study gives the following details:

Out of the 35 first-loan beneflclarles who

app li ed for a second loan in block I, only 15 (42.8 Xl

got the sanction. However, out of this only 8 loans

were given fully; 5 loans were adjusted for the overdues

of first loan; and in the case of remainlng two loans,

170

Table 5.3

Nulber of Bentfici,ries ~plied for and Sanctiontd of Second Loan

-------------------------51 Particulars No.

Block I Block 11 --_._-------- ---

"'rgin,1 SI,II Agricultural ",rginal Soall Agricultural far.ers farltrs Labourers far.trs faraers Labourers

S.Cs Othtrs S.Cs Others

6r.nd Totll

----------------------.-----------Tohl ll10btr of beneficiaries selected 27 22 49 10 2S 16 27 II 1B1

2 ll1,",er of Beneficiaries

il ~plied for second loan 14 10 8 3 9 9 4 3 60

iiI Sanctioned second loan 6 6 2 2 18

3 Nulber of Cases in which

i I the second loan uount is ,djusttd for tht oyerdues 01 the first loan 2 5

iiI The subsidy is adjusted for tht overdue of

3 first loan 2

iiilThe beneficia-ries got the

10 full uount 3 4

----------

171

the subsidy amount was adjusted for the overdues of

first loan. In block II the relative picture was poorer

still: out of the 25 first loan beneficiaries who

app lied for a second loan, only 3 <12 Yo) got it

sanctioned.

labourer got

Moreover, not a single agricultural

a secpnd loan in block II. However, in

Block I, one agricultural labourer got the full amount

out of the three loans sanctioned to this category

(T ab 1 e 5.3).

Selected Beneficiaries' Access to Veterinary Services

As explained earlier, in block I, three

four veterinary dispensaries were functionlng With

veterinary sub-centers; in block II only one veterinary

dispensary functioned with six veterlnary sub-c~nters.

With the gradual spread of veterinary facilities, the

selected beneficiaries could be deemed to have a

'formal' access towards them. However, the effective>

utilisation of these facilities depended on the status

of the beneficiary and his contacts with the president

or secretary of milk society. Almost aU the

agricultural labourers in both the blocks complained

that they were not properly served by the Veterinary

staff even in case of emergency. The small and marginal

farmers in the remote villages expressed that the

172

veterinary staff's visit to their milk societies was

highly irregular. They complained that in case of

emergency the veterinary doctors themselves would go to

big farmers' houses only and got paid for that. All

others had to take their milch animals to the veterinary

centers or to the milk societies, which the veterinary

doctor would visit once a week or a fortnight.

Selected Beneficiaries' Access to Cattle Insurance

A special feature of dairy animal loans is the

lnsurance of animals. The cattle insurance is necessary

since the cross-bred milch animals are prone to diseases

if not maintained properly. That is the reason why the

cattle insurance was compulsorily done at the time of

giving the animals to the beneficiaries. To know the

awareness on the part of the selected beneficiaries

about the cattle insurance, the answers to the "following

questions were elicited. Whether their animal is

insured or not, what is the premium they have paldJhave

to pay, and whom and how to contact the concerned

officials if the animal dies, that is, how to claim the

insurance when the animal dies. The results are

presented in Table 5.4.

173

Table 5.4

Th. Awareness of Selected Beneficiaries About Cattle lnsur>nc, 5ch •• e

Sl Particulars No.

Totol mllber of Beneficiaries selected

2 ~tr of Beneficiaries Mho

il do not know my thing about cattle insuranc.e

i j) aware that their cattle 15 insured

iii) have know­ledge aboot the prelillll md p roc edu­res of insuranct! chils

Block I ------------ ---

Block II 6rrod Tot,l

Marginal Small Agricultural Marginal Soall Agrlcultural farmers tarlers labourers hrlers farlers Labrurers

27

9 (33.3)

II (40.7)

7 (25.91

S.Cs Others

22 49 10 25

II 34 6 7 (50.0) (69.4)(60.0) (28.0)

7 9 2 II (31.8) (18.41(20.0) (44.0)

4 6 2 7 (18.2) (12.2)(20.0) (28.0)

------------------

16

3 IIB.71

10 (62.5)

J 118.71

S.Cs Others

27 II 187

20 7 97 174.1)(63.6) 151.9)

5 2 57 118.51119.2) 130.51

2 2 17.4)(18.2) (17.6)

Figures in par.ntheses are percentage. to the total nwoller of beneficiarIes In .,ch

category/block.

174

From Table 5.4, it is clear that 60

beneficiaries out of 108 in block 1 and 37 beneficiaries

out of 79 in block II did not know anything about cattle

insurance. In other words, nearly 56 per cent of the

beneficiaries

beneficiaries

in block I and 47 per cent of the

in block II did not even know that

cattle was insured. This percentage is correspondingly

more in the case of agricultural labourers belonging to

scheduled castes. Even among those beneflclaries who

were aware that their animals were insured, the number

of beneficiaries having knowledge about the premium to

be paid and the procedures of insurance clalms was far

less. On the whole, only 17.6 per cent of the

beneficiaries

comparatively

in both the blocks were

adequate knowledge about the

found havlng

details of

cattle insurance. Accordingly,

the selected small borrowers'

it may be concluded that

access (in the sense of

their knowledge about cattle insurance scheme and its

benefits) to cattle insurance was rather limited.

Possession of Cattle Shed/Shelter for Animals

The cross-bred animals need to be protected

from the sun and rain to get good milk yield. For this,

the beneficiaries require cattle sheds. In the present

context, those beneficiaries who provided shelter for

175

animals may be divided into two groups: (i) those who

have properly built tiled sheds (pucca) and (ii) those

having cattle sheds with thatched roofs and walls made

out of coconut/palm tree leaves (kutcha). It is evident

from Table 5.5 that the milch animals were poorly

maintained by almost all the agricultural labourers in

both the blocks. (Majority of them in block I had no

shelter and kept the animals in open space and in block

II the situation was somewhat better in that they housed

Table 5.5

Possession of Cattle Sheds by the Selected Beneficiaries

Block I Block \I ------- -----

Total No.of beneficiaries hav, Total No.of benefiCiaries have

Catogory of Beneficiari!5

I. Margin,l fal'tlers

2. Sa,l1 hl'tl.rs

3. Agricul turi! hbourrrs

i) SCs

iii others

Total

No.of benefi-daries

27

22

49

10

108

-------------- No.of No Kutcha Puce a benefi- No Kutch, PUCCi shelter daries shelter

7 11 9 25 b 14 5

5 B Ib 2 5

44 4 27 11 Ib

7 3 11 b 5

b3 27 18 79 « 10

176

the animals in kutcha shedsl. The picture with regard

to small and marginal farmers also was no better for

majority of them kept the animals in kutch a sheds. On

the whole, only 18 out of lOB beneficiaries (16.7Yo) in

block I and 10 out of 79 beneficiaries (12.6Yo) in block

II had pucca cattle sheds to house the milch animals.

Utilisation of Dairy loans

The aspect of utilisation of the schemes by

the small borrowers, in other words, their ability to

keep

in

the animals against the odds assumes signiflcance

the context of risk bearing ability of such

borrowers. At the time of field survey, was

ascertained from the selected beneficiaries whether they

possessed still milch animals which they had bought wlth

the help of bank loans. To the extent possible the

physical verification was done. The reasons provided by

the beneficiary for the sale of milch animals were cross

checked wherever possible. The sale of animals,

whatever may be the reason, by the beneficiaries has

been termed here as misutilisation of the scheme. The

data collected with respect to this problem has been

presented in Table 5.6.

177

Tabl, 5.b

Utilisation of Qairy loans by th, S,l,ct,d B,n,fici.ri,s

--------------------------------51 Pirticulirs No.

NuAb,r of ben,fici.ries selected

2 Number of beneficaries sold the anlla1

3 Reasons for the sale of ani.al l

i I due to low .ilk yi.ld

ill Fodder shortage

iii I Oth,r reasons

Block I Block II

Marginal 50all Agricultural Marginal S.all Agricultural hr.ers far.ers labourers hr.,rs hro,rs labour,rs

27

3 (I!.\!

2

S.Cs Oth,rs

22 49 10

4 14 2 I1B.21 (28.6)(20.01

3 5

b

3

25

3 112.01

Ib

2 ( 12.51

2

S.Cs others

27 11

~ 1 114.81 (9.11

Grand Toti!

187

33 (17.bl

18

9

b

---------------------------------------------------Figures in parenth,ses ar, perc.ntages to the total nwober of beneficiaries.

Table 5.6 reveals some interesting points. As

high as 28.6 per cent of SC labourers (14 out of 491 in

block I sold their animals. Majority of them sold

because of fodder shortage and the low milk Yield from

the purchased animal. Due to low milk yield, 3 small

and 2 marginal farmers in Block I and one marginal

178

farmer and 2 small farmers in Block II sold their

animals. The non-SC agricultural labourers in block I

misutilised to the extent of 20 per cent. As far as

block II

15 and

is concerned the misutilisation percentages are

9 for SCs and non-SCs respectively. On the

whole, a sizeable number of the beneficiaries (18 out of

33) who sold their animals reported that it wa,. not

remunerative to keep them since the milk yield was very

low. Added to this discomfiture was the fact tha t the

animals were purchased at a high cost by the Purchasing

Committee. The next major reason to sell the

was fodder shortage which was more pronounced in block I

compared to block II. The other reasons were lack of

shelter (1 case), death of calf (1 case) and contlngency

to meet the unforeseen expenditure (4 cases).

up, the overall percentage of misutilisation was 17.6.

In other words, 33 out of 187 beneficiaries selected for

the study sold their animals, for the reasons stated

above, at the time of field survey.

In what follows, by leaving aside the

misutilised cases, the investment made on the dairy

animal by the selected beneficiaries who were utilising

the scheme and its impact on their income and employment

levels are analysed.

179

SECTION II

Investment in Dairy Scheme

After the sanction of loans alon9 with the

subsidy* the Purchasing Committee would purchase the

milch animals in bulk to distribute to the

beneficiaries. The selected respondents of the present

study pointed out two problems in this process.

Firstly, when the purchase of milch animals was

undertaken in large numbers, it created a psychology of

scarcity in the supply of milch animals in the market.

This psychology of scarcity in the market was exploited

by 2 the traders, to their advantage, by hiking up the

prices of animal to be sold. Secondly, In some cases

the officials in collusion with the traders purchased

the low quality animals (quality of the an ima I is

measured in terms of its age, breed and milk Yield) at a

higher price. The net result was the investment became

costlier to the beneficiary.

* The subsidy component is determined according to the economic category of the borrowers and also their caste. For example, during the reference year, in the study blocks, the subsidy amount for a small farmer was 25 per cent of the loan, for marginal farmers and for non-Se agricultural labourers it was 33 per cent, and for se agricultural labourers it was 50 per cent of the loan.

180

The details about the average loan and subsidy

amount sanctioned to the selected beneficiaries and the

actual amount spent to purchase the animals are given in

table 5.7.

Table 5.7

Investlent Hade in Dairy Sche.e by the Selected BeneficIaries

C,t.gory of Beneficiaries

Block I

Average AoIount Sanctioned Actual (in Rs.l Amount

Spent to Credi t Subsidy Total purcha ..

the ani.al

I. So,ll farlers 2080 bbO 2740 2500

2. H'rgind far.us 2150 650 2800 2500

3. Agricul turd Labour.rsl

i I S.Cs 2500 1250 3750 2760

iiI Others 2500 690 3190 2700

--- -----------------

181

Block II

Average Amount SanctIoned Actual (in Rs.l Aoount

Sp.nt to CredIt Subsidy Total purchase

the Ini .. 1

2000 500 2500 2370

2000 665 2665 2450

2000 1000 3000 2500

2000 665 2665 2400

It is clear from table 5.7 that there is a

difference between the amount sanctioned and the actual

amount spent on purchasing the animals. The difference

is as high as at Rs.990 in the case of agricultural

labourers belonging to scheduled castes in block I and

Rs.500 in the case of their counterparts in block II.

However, the officials point out that a considerable

amount goes as incidental expenditure as they move from

market to market - within the district and sometimes

outside the district also - for the purchase of animals

and a part of the expenditure is incurred on

transportation of animals from market to villages.

Changes in Income Levels of Small and Marainal Farmers

For

beneficiaries

the analytical convenience

are divided into two groups : small

the

and

marginal farmers as one group and agricultural labourers

as another group. Agricultural labourers in turn are

classified into two sub-groups as se's and others

because the subsidy amount differs with caste.

To find out the changes in income levels of

the selected farmers after the dairy loan the mean

incomes have been worked-out : before and after the loan

assistance and mean differences in lncome have been

tested for their statistical significance. Further, the

182

net income earned from dairy enterprise alone by the

sample beneficiaries is calculated by divldlng the

farmers' income into three groups: net farm income, net

non-farm income (the -non-farming activities include

hiring out of labour, hiring out of bullocks and carts,

petty trade and services) and net income from dairying.

This would give an easy method to find out the

differences in dairy income accrued to the beneficlAry

by undertaking dairy loan. The results are given in

Table 5.B.

Table 5.B

Change in Incooe Levels of Selected Soall and Marginal Faroers : Testing of M.an Differenc. Betw •• n Pre and Post-loan periods.

Block and Category of Far •• rs

Net Far. Incoo. Net Non-faro Incoo. Net Dairy Incooe

Mean Mean t H.an Mean t value Valu. value value Valu. value (8.for.) IAfter) (Before) (After)

"ean ".an value Value (B. for.) (Aft.r)

t value

-------------------------------------------

~l

I. Harginal ns ns Far.ers 3383 3478 0.9200 500 61B 1.5072 3bO 1746 6.6564.

2. SIIal I ns ns Far.ers 7065 8109 1.5819 559 631 0.9428 457 1531 4.46981

~ll

I. "arginal ns ns Fan.rs 2479 2561 0.2908 547 565 0.1336 227 635 4.6592.

2. Sull ns ns Far.ers 5800 5861 0.0756 633 713 0.4758 478 B22 1.34931

----------------------------------------------Note : 1 - Significant at 1 per cent level

ns - Not significant

1B3

The calculated net income data shown in Table

5.8 are in money terms and to that e~tent fail to bring

out the change in income in real terms. However, SlnCe

the reference years pertaining to pre and post-loan

periods are quite close, the estimates would not be

affected in a serious manner.

It is clear from Table 5.8 that in the case of

small and marginal farmers in both the blocks no

significant change was found in their net farm income

and net non-farm income between the two periods, but the

increase in their net dairy income between the two

periods was found highly significant (1 per cent level).

It may be observed further that in both the Blocks the

size of increase in net income under dairYIng was

comparatively more in the case of marginal farmers than

in the case of small farmers; and marginal farmers

Block I benefitted more than their counterparts in Block

I I •

The reasons for the differential income

from dairying between the groups and blocks could be

well illustrated by taking into account the amount of

investment made on dairy animal, feeding practices and

the composition of family income. The price of milk is

184

the same in both the biocks since it is collected

through MPCSs and the price is determined on the basis

of fat content. However, the average investment made on

the milch animal is low in block II, as e)(plained

earlier, than in block I and this is the maln reason for

the low income since the low value animal (which is an

index of the quality of the animall yields less quantity

of milk per lactation.

And, the differential in dairy income betw~en

the blocks is because of the fact that the block I is

having more irrigated lands and the availability of the

green fodder to the small and marglnal farmers lS higher

compared to the block II which is a dry block.

Incremental Income-Investment Ratio

The investment per dalry animal by the

selected farmers has been already given and the

incremental income has been arrived at by deducting the

net dairy income (beforel from the net dairy income

(afterl for each category of farmers. This would help

to workout the incremental

for each group of farmers.

income-investment ratios

The worked out ratios are

given in Table 5.9. This would furnish an idea of the

return on investment in dairy scheme to the small and

ma"rginal farmers in selected blocks.

185

Table 5.9

Incr •• ental IncOl.-lnvestoent Ratio Per Unit of Dairy Enterprise

-----------------------------------------Block I Block II

Cltegory Investoent Increoental Incremental lnvestoent Increlental Incr ... nhl p.r untt inc one IncOllle per uni t inco.e Incoo. IRs. ) per uni t Invest.ent (Rs. ) per unit investotnt

IRs. ) Ratio IRs. ) Rltio ------------------------

I. Marginal 2500 1386 1 :0. 554 2450 408 1 :0.167 Far.ers (2800) (1 :0.495) (2665) 11,0.153)

2. Small 2500 1074 1:0.430 2370 344 110.145 For.ers (2740) 11:0.392) (2500) 11:0.138)

-----------------------------------------------Nole: Figures in parenth.s.s are actual a • .aunt of loan sanction.d and the

corr.sponding I-I ratios.

In Block-I the rate of return per rupee

invested is higher in the case of marginal farmers

followed by the small farmers. However, it 15 very low

in the case of small and marginal farmers in block II.

The point to be emphasised here is that when tile

Incremental Income-Investment ratio is worked out for

the actual loan amount sanctioned, the ratios turned out

to be very low as shown in Table 5.9. Had they

purchased the animals for the entire amount without any

leakage (animals with higher milk yield), the rate of

return would have been higher than what is given here.

This point will be further analysed while discussing

about the viability of the loans.

186

Changes in Employment Levels

One of the LharaLteristiLs of small and

marginal farmers Lompared to large farmers is the use of

more family labour in their farming aLtivitles.

Nevertheless, their landholding size belng limited they

may not be in a position to work all the days in a year

on their own farms. In these LlrLumstanLes they have to

find additional employment either on large farms or

outside the agriLulture. However, the possibility of

getting additional employment on large farms is also

limited, among others, due to low intensity of Lropping

(mainly due to insuffiLient water supply in summer

season). Further, it was gathered" during the field

survey that the availability of non-farm employment also

was limited. In sULh LirLumstanLes it may be expeL ted

that the provision of milLh animals may inLrease not

only their inLome levels but also employment levels. To

test this hypothesis the Lhanges in employment levels of

the seleLted farmers between the pre-and post-loan

periods have been worked-out.

As was done in the Lase of income analysis,

the employment levels also are dlvided under three

headings farm employment,

employment in dairy farming.

given in table 5.10.

non-farm employment and

The worked out details are

187

Change

Block and Cat'gory of Fnaers

~l

I. "a"9inal Far •• rs

2. Slall Farl.rs

~ll

I. Marginal Fnaers

2. Sull F ..... rs

Table 5.10

in the Emplay.ent Levels of Selected Soall and Mar9inal Far.erg : Testing of Hean DIfference Between Pre-and Post-loan perIods

(Han days of 8 ~rklng hoursl -------------------------------------

Far. Emplay.ent

Hean Hean t valu. Valu. valu. (Befarel (Afterl

204 227 2.5376'"

291 317 3.9754>

170 194 6.0320>

216 226 1.7>"

Non-far. Employeent

Hean Hean t value Value value (Before I (Afterl

ns 57 62 O.b452

ns 29 30 0.2288

ns 31 33 0.5258

ns 34 3b 0.J395

Eoploy.ent in Dairy F art!lng

----------Mean Hean t valu. Value value (Beforel (Afterl

151 24. 'lB'14I

197 13.4055-

33 134 9.92311

31 140 6.1501-

-------- -----Note : - - Significant at I p.r cent !eve 1 .. - Significant at 5 per cent level

tff- Significant at 10 per cent \eve 1 ns - Not signi ficant

Small farmers in block 1 and marginal farmers

in block II have registered a significant increase (at 1

per cent level) in their farm employment levels compared

to the other groupS. However, non-farm employment level

of none of the groups has improved between the two

periods. As far as changes in employment due to

dairying is concerned, it is found that the employment

188

levels have increased significantly (at 1 per cent

level) for all the farmers in both the blocks. This

indicates the employment potential the dairying has on

the small and marginal farmers.

Changes in the Asset Position of ~ Selected Farmers

Another aspect to be looked into wh i Ie

evaluating the dairy scheme is the change in the asset

position of the beneficiary farmers. The assets of the

selected farmers were grouped into two as physical

assets (land, implements, buildings, household utensils

and other durables) and livestock (cows, buffaloes,

bullocks, goats, and sheep). The value for these items

has been imputed in accordance with the prevailed market

price in the area.

It can be seen from Table 5.11 that before the

loan the value of livestock formed only a small

percentage to the total asset value. However, after the

loan, though no change In the value of physical

is found, the value of livestock to the total

assets

assets

has appreciably increased in the case of both small and

marginal farmers of both the Blocks. This has been due

to the milch animal given to them and the calves they

acquired thereafter. The net change In the value of

assets worked out to Rs.3695 in the case of small

189

Table 5.11

Value of Assets Before and After the Loan Period of the Sele~ted Farmers

--------------------------------------------------------Average Value of Assets per Household

Particulars Block I

Marginal Small Farmers Farmers

Block II

Marginal Small Farmers Farm~rs

-------------------------------------------------_._-----a. Physical

assets ( in Rs.)

b. Livestock (Rs. )

Percentage of Livestock value to the total Assets

23740 (23700)

4':'47 ( 1555 )

16 (6)

28400 (28000)

4985 ( 1690)

15 (6)

10370 (10600)

4184 (840)

40 (8 )

15':'00 ( 15300)

4047 (':'50)

21 (4)

--------------------------------------------------------Note:

farmers

block

Figures in parentheses are denoting the average value of assets per household before the loan.

and Rs 3132 in the case of marginal farmers in

I and ln block lIlt was Rs 3697 and Rs.3114

respectively, for the small and marglnal farmers.

Total Income of the Selected Farmer Hpuseholds

The total income of the households consists of

the net incomes from farming, non-farming and livestock.

The details of total in~ome of the beneflciary

households category-wise and block-wlse are glven ln

Tab 1 e 5. 12.

190

51 Sources of No Inc"".

I. FaNling

2. llon-hNllflg

3. Livestock

Tohl Net Change

Table 5.12

Changes in Total IncDle of Per Beneficiary Soill and Marginal Faraer Households in Selected Blocks.

!In Rsi.

Block I Block II

MaNjin.1 Fara,rs Soall Far.ers ------- -------Before After Before After

--------------3383

500

360

5842

me

618

1746

BB4S 15qq

7065

559

457

BOBI

8109

631

1531

10271 2190

Marginal Far.ers ------Before

2479

547

227

3253

After

25bl

565

635

3761 50B

-------------

a..11 FaNle"

Before After

SBOO 5901

b33 m

478 B22

69\1 7396 485

It is seen from Table 5.12 that the total

income of the beneficiary small farmers households in

black I has changed significantly (Rs.21491 between the

two periods followed by the marginal farmers of the same

block (Rs.15491. However, only a marginal change in the

income of small and marginal farmer households was found

In block II.

In addition to above analY5is, the income

levels of benefICIary farmers were compared WIth the

income levels of non-beneficiary small and marginal

farmers to know the difference that exists, If any,

between these two groups. The details are glven In

Table 5.13.

191

MARQINAl. FARMERS 6MAll FAAMERS

• •

T T T T h • h • 0

o • u •

• • u a • • • n •

d • n

• d

0 ~INO NO ..... FOOVING lIVESTOCIt "'FlWING NON-PORa.tNQ LlYUTOCK -. .- ~AltM -- ~., ...

BLOCK I BLOCK I

'" N CHANGES IN INCOME OF BENEFICIARIES

MARClNAl. FARr.IERS SMAU._

• •

T T T T h

o • h •

u • 0 u • • • • • a a n a

d • n

• d •

0 0 ~RWINQ NON--FORWlNQ UVlS'fOC,I{ flt..RI.UNQ NotH'ORWlNQ LM!8TOCK

= ..... ~AI ... !!!III_*- ~U.r

BlOCK II BLOCK II

Table 5.13

Totll !nccae Per Ben.ficilry and non-beneficilry Sial I and Marginal Filra.r IbJstholdo.; in Selected Blocks

Sl Sources of Block I Block II No Inccae ----------------

Harginal Faraers Soall Faroers Marginill Faroers Saall Filrae"" --------- -------Benefi- Non- Benefi- Non- Beneh- Non- Ben,h- 'iln-ciary Benefi- ciary Benefi- ciary Benefi- ciary Benefi-

ciary ciary ciary ciilry ---------------------

Faraing 3478 3400 8109 71>00 2561 2450 5abl 5b70

2 Non-faroing bl8 abO 631 '150 565 b40 m 850

3 Liyestock 1746 m 1531 m b35 240 822 280 ----- ---------------

Total 5842 4533 10271 8845 37M me 7396 b800

The level of income of the non-beneficlary

households of both small and marginal farmer$ in the two

blocks was found lower than the beneficiary households.

They continued to supplement their income from non-

farming sources <mostly from hiring out of labour) and

were receiving only a meagre income from livestock. And

this shows the relatively better position of beneficiary

farmers over the non-beneficiary farmers.

Production Function Analysis

The production function analysis was used for

both the groups in the two blocks. The results of the

analysis are given in Table 5.14.

193

Table 5.14

Milk ProductiOll FunctiOlls for Stoall and Marginal Far •• rs of the Selected Blocks

------------------------------------------------------------_.----------------------------------REGRESSIOO CQ-EFFlClENTS Block and

Cat.gory ------------------------------------------------------------

---_._---------------------------------------------------------

eJru 1

1. Marginal 0.2381ns 1.0330' _O.O·173ns (1.3846)0& 4.0672" 0.78 •

Far •• rs <0.428) (4.9345) (-0.3407) !O.4592) 11.9790)

2. S.all Far •• rs 0-0221ns 1.3992' 0.4n9

f1 _2.b856ns

O.I734ns

0.90 • 10.0758) (8.0419) (1.7) (-0.7747) (0.1320)

eJru II

Marginal -0.9502' 1.4867' 2.9642' 14.64bbns

5.2984n5

0.73 ,

F .... rs (-2.7726) (3.8159) (2.7850) 11.2211) (0.7400)

2 Sull Far."s 0.3426ns 1.5970' 0.0416

n5 -3.5263n5

-16.5Imns o.n'

10.6882) 14.bl87) (0.0349) (-0.3162) (-2.b262)

Note I , - Signi ficant .t I per c.nt \ev.l .. - Significant at 5 per cent \ev.l ns - Not signi ficant

It is interesting to note that the variable,

expenditure on concentrates (x2) is hlghly significant

(at 1 per cent level) in all the four caseS. The highly

significant share of the concentrates in the value of

milk production reveals the fact that the milk price

depends on the fat content of the milk and in turn the

fat content is determined by the composition of

concentrates loil cakes, cotton seed, rice bran, etc. )

194

fed to the animals along with fodder. In respect of

fodder (Xl) the small and marginal farmers are feeding

their animals with their own-fodder and.being inadequat.

are also taking out the animals for grazing in the waste

lands. However, the grazing lands availability is

limited in block I but green fodder availability is

relatively more; in block II the grazing lands

availability is relatively more but green fodder supply

is very limited. The value of fodder, is found to be not

significant in influencing the mIlk yield; In fact, In

the case of marginal farmers in block II it shows a

nega.ti ve relationshIp with the mIlk y,eld implYIng that

the grazing of milch animals in waste lands has not

influenced the value of milk productIon. The varIable

labour expenses (X3) is found SIgnificant In the case of

small farmers in Block I and marginal farmers In Block

I I . The other two variables veterinary expenses (X 4 )

and other expenses (X5) are not found significant.

2 The values of R , the coefficient of multIple

determination, are significant at 1 per cent level in

both the blocks. The five variables Included in the

milk production function explained 90 per cent of the

variation in the gross output or value In the case of

small farmers; it explained variations upto 78 per cent

in the case of marginal farmers in block I. In bloc k I I

195

e~plained 77 per cent of variation in the mllk

production in the case of small farmers and 73 per cent

in the case of marginal farmers. The remainlng amount of

une~plained variations may be due to the variations in

managerial practices, age of the animal and such other

factors not included in the analysis.

Thus, the availability and use of concentrates

by the small and marginal farmers highly influences the

value of milk production and the differences in their

income levels can be attributed mostly to this variable.

Repayment Performance of Selected Small

Marginal Farmers

The information about the repayment of daIry

loans by the selected farmers was obtalned from the bank

records, from the SecretarIes of MPCSs and from

beneficiaries themselves. As given in Tabl~ 5.6

earlier, 3 out of 27 marginal farmers, 4 out of 22 small

farmers in block I and 3 out of 25 marglnal farmers and

2 out of 16 small farmers in block I I were not

possessing the milch animal during the time of the

survey. That is, they had sold them out amountIng to

misutilisation of the loan/scheme. Out of the above

misutilised cases, three small farmers in block I and

one marginal farmer in block II however did repay a part

196

of the loan to the bank, while all the remaining

beneficiary small and marginal farmers did not repay any

amount towards their loan.

Leaving aSlde the above cases, the repayment

performance of the other small and marginal farmers was

analysed and the results are presented in Table 5.15.

Table 5.15

Loan Repayment Performance of Selected Small and Marginal Farmers

51 Particulars No.

1 Number of Beneficiaries studied

2 Number of BenefiCiaries

i ) Fu lly repaid

i i ) Partly repaid

iii ) Regularly paying instalments

iv) DefaUlted

Block I Block II

Marginal Small Marginal Small Farmers Farmers Farmers Farmers

24 18 22 14

18 10 8 7 (75.0) (55.5) (36.4) (50.0)

1 2 9 4 (4.2) (11.1) (40.9) (28.6)

3 3 1 2 <12.5) (16.7) ( 4.5) (14.3)

2 3 4 1 ( 8.3) <16.7) <18.2) ( 7. 1 )

Figures in parentheses are percentages to the beneficiaries studied.

total

197

The repayment performance of the selected

small and marginal farmers in block I was found

satisfactory as shown in Table 5.16. Out of 24 marginal

farmers

repaid,

remaining

farmers,

18 (75 %) repaid the loan fully, one partly

three were in the process of repayment and the

two were defaulters. In the case of small

10 out of 18 (55.5%) repaid fully, two repaid

partly, 3 were regular in repayment of instalments, and,

however, another three farmers were defaulters.

In block II the performance of small farmers

was found better compared to the marginal farmers. Only

8 marginal farmers out of 22 (36.4%) repaid the loan

amount completely, 9 partly repaid, one was regular in

repayment and 4 were defaulters. But in the case of

small farmers 7 out of 14 (501.) fully repaid, 4 partly

repaid, 2 were regular in repayment and only one small

farmer was a defaulter in repayment.

One important reason for the good repayment

performance of small and marginal farmers in block I and

small farmers in block II and the moderate performance

of the marginal farmers in block II is their membership

in MPCS. The milk society and the bank together evolved

an arrangement in which the loan amount is deducted from

the value of milk supplied by the beneficiary in regular

198

instalments. The loan amount due is collected mostly

during two lactation periods and in a few cases in one

lactation period ,itself. A few farmers who had

animals other than the one bought with the help of

loan could easily repay the loan.

milch

bank

Those beneficiary farmers who were found to

have partly repaid the loans were also members ln

they could not get adequate income from the

MPCS,

supply but

of milk to the MPC5. So, the loan amount could not be

fully

This

long

recovered, even after two or three lac tat ions.

is mainly due to, apart from the low milk yield,

inter-calving period (the gap between

lactations) in the case of many milch animals. If

two

this

period exceeds three or four months, it becomes

uneconomical to the beneficiary. The timely veterinary

service becomes crucial (the artificial insemination is

done in veterinary hospitals and veterinary sub-

centers) ; however, the beneficiaries' aCCQSS to

veterinary services was found to be limited.

Beneficiary-farmers who were paying tne loan

instalments regularly were also those who were

supplying milk regularly to the MPCS. This was verified

from individual pass books (supplied by the MPCS). The

199

chances of recovering the entire loan amount from this

group of beneficiaries are quite bright as

regularly supplying the milk to the MPCS.

it is

Five farmers each in both the blocks were

found as defaulters. In block I these farmers are

supplying the milk to the tea shops/hotels and

better price and in block II they sell to the

get a

private

milk vendors. But they have not deliberately repaid the

loan - a case of wilful default.

Summing uP. two factors: the beneflciary's

membership in MPCS (i.e. tie-up arrangement between

the banks and MPCS) and the milk yield were found to be

influencing largely the loan repayment performance of

the sample farmers. In contrast, non-membership in

MPCS and lack of supervision by the bank and block

officials led to defaults.

200

Dairy Loa~ and Agricultural Labourers

The details about ,the investment made by the

agricultural labourers in the dairy animal and their

utilisation of dairy scheme vis-a-vis their access to

other facilities were analysed so far. In the

following, the impact that the dairy scheme made on the

labourers income and employment levels has been

analysed. •

Mean differences between pre-and post-loan

incomes and their Significance tests are given in Table

5. 16. It is important to note that ln both the Blocks

no change ln the wage income levels of the agricultural

labourers between the two periods was observed. No

was noticed in the other component, name ly change

income from other than wages, as for as the labourers

however, of the block II were concerned. In block I ,

there was a significant decline in the wages from the

above said sources among labourers. This can be

attributed to the reported fact that the children and

a few women labourers in many households, who were

previously engaged in mat-weavlng, beedi rolling,

cowdung

looking

through

these

collecting, and firewood gathering are now

after the milch animal which they received

loan. This has brought down the income trom

sourceS which however is not effectively

compensated by the income increase in dairy enterprlse.

201

T,ble 5.16

C!,"nge~ in IncOll. L."l~ of A<jricultural laboor,rs in 5e\ect.d Bloc" 1cstlng of the Diff,r.nc, Bet.,en Means

-----------------------------------Block and Wag. Incoo. IRs.) Incooe froo Oth,r than lnc~~ froo Dlll)'lng Labour Wag" IRs.) IRs) C~tegory ------------

~ean Hean t Hoan Hean t Mean Mean yalu. Value valu. value Value y,lu. value V,lu, Vi: lu! IB,for.) IAft,r) lBefore) IAfter) 18,for.) IAft,r)

-----------------------------llinl

I. Schedul.d 4681 5287 0.7129ns

219 107 4.m7' 44 }I'I 8.3511' Ca~te~

2 Others 4594 5080 0.2328"5 457 258 2.2751"'· 191 619 4.092S ,

0.749'r , ,

3 All 461.2 5241 271 140 3.9146 76 4()1, 7.8917

llinll

I. Scheduled 2449 2661 1.0742"s 81 79 0.143Ons t

87 462 13.4620 C~stes

0.4484"s 0.4938"S t

2 Others 2670 2854 lOB 94 124 621 10.B405

3 All 2508 2711 1.5212ns

BB 83 0.3458ns

96 503 \5.3155 ,

-----------------------------------------Note, , - Sig"ificant at I per c.nt lev.1

'" - Significant at 10 p.r cent l,v.l ns - Not significant

8Dth the sub-groups In the two blocks have

registered a significant increase in their net lncome

(at 1 Yo level) from dairying. But the level varles

between the blocks and also between the soclal

202

groups. The average increase in net dairy income ln

the case of scheduled caste labourers is Rs 303 in block

I

an

and Rs.375 in block II. 'Other labourers'

increase of Rs.428 in block I and Rs 497

realised

in block

II. Apart from the fact that most of the selected

labourers were provided with low quality animals their

poor maintenance of animals also led to low income

dairying.

from

Incremental Income-Investment Ratio

The investment and incremental income per

dairy animal of the selected agr1cultural labourers and

the incremental income-investment ratios are given ln

Table 5.17.

The rate of return per rupee invested 1S very

low in the case of all the labourers: ranged from 11

paise to 20 paise. Income-investment ratio is still

lower when it is worked out for the actual amount of

loan and subsidy sanctioned to the labourers. If the

labourers had been given the animals matchlng 1n

quality to the actual amount sanctioned, then they might

have realised a higher rate of return.

203

Tab Ie 5.17

Incremental Income-Investment Ratio Per Unit of Dairy Enterpr1se of Selected Agricultural labourers

Block I Block II ------------------------- ------------------------

category of Invest- Incre- Incre- Inves- Incre- Incre-Agricultural ment mental mental ment mental mental labourers per Income Income per lncome Income

unit per Invest- unit per Invest-(Rs. ) Unit ment (Rs. ) Unit ment

(Rs) Ratio (Rs) Ratio --------------------------------------------------------------------

Scheduled 2760 303 1 :0: 110 2500 375 1:0.15 Castes (3750) (1:0.081) (3000) (1:0.125)

2 Othe rs 2700 428 1:0.159 2400 497 1 :0.207 (3190) (1:0.134) (2665) (1:0.186)

--------------------------------------------------------------------

Note: Figures in parentheses are actual loan amount sanct10ned to labourers and corresponding I - I ratios.

Change in Employment Levels

Table 5.18 gives the details of change 1n

employment levels of the selected labourers between the

pre-and post-loan periods. As shown in Table 5.18 no

significant change in wage employment was found among

the labourers in both the blocks. ThiS shows the very

limited possibility of getting employment

204

Table 5.18

Chang. in Eaploy.ent Le,.l. of S,l.ct.d AgrIcultural Labour ... : T'5\1n9 of Dltf,r.nc, Betw •• n Mean.

IAnnual In oandays at 8 worhng hour. 1 ---------------------------.-------------------------------------------------------------------Block Wag. Labour Olher than Wag' Labour Employ.ent In Dal rylng

----------------------- ----------------------- -----------------------Mean Mean I Mean t1ean I Mean Hean "lu. Value "lu. "lu. V.lue "lu. value Value valuE! IB'forel IAfterl (B.for.1 (After 1 IB.fore) (After )

--------------------------------------------------------_.-------------------------------------

e.J.ru 1

1. S.C. 499 521 0.5661 n• 42

Ii 2 Others 396 430 2.6311 52

3 All Labourers 477 501 0.5661 n• 44

alW.ll

5 Cs 259 258 0.3080n5

18

2 Other. 273 283 1.3931ns

28

3 All Labourer. 263 265 0.5388n• 20

Not.: • - Significant at 1 p.r c.nt 1.,.1 ,. - Significant at 5 per cent 1.,.1 n. - Not significant

21 5.4096 t

14 144 18.3135 • 30 3.2212

t 20 204 12.5441

t

• • 23 4.5907 16 157 14.9475

17 0.4990n• 19 • 141 IB.7B25

25 1.3o.14ns

29 155 9.5490 •

19 0.499On• 21 144 22.9625'

agricultural operations in the selected areas and the

need for looklng for new avenues. Agaln, no change

respect of employment in other sources was found In the

case of labourers in block I!. In fact, In block I ,

the employment level declined slgnlficantly. HOl'Je v e r,

the increase in employment level due to daIrying 15

205

found to be highly significant (at IX lev~l) for all the

labourers in both the blocks. This is so because,

before availing the diary loans, the agricultural

labourers had only a few goats or sheep and thanks to

the dairy loans for the first time they could acquIre

mIlch animals.

Changes in the Asset Position of Selected Labourers

The assets of agrIcultural labourers were

classified into two physical assets (buIldIng,

utensils, and Implements) and livestock (buffaloes,

cows, sheep and goats). And the changes In their asset

position has been gIven in Table 5.19.

Value

Table 5.19

of Assets Before and After the Loan PerIod the Selected Agricultural Labourers

of

Average value of assets per household (,n Rs.)

Block I Block I I

S Cs Others 5 Cs Others

a. Physical 6060 7800 6134 7668 assets (6000) (7800 ) (6000) (7600)

b • LIvestock 3600 4200 3860 4450 (775) (800) (480) (700 )

X of livestock value to the 37 35 39 37 total assets (6 ) (9 ) ( 7) (8)

Note: F,gures In parentheses denote the average value of assets per household before the loan.

206

As men~lQned already, 1t 1S the f 1 rs t time

that

bank

institutional finance in the form of commercIal

loan has been made ava1lable to maJor1ty of

agricultural 1 abourers 1n the study area for

purpose of dairy enterprise. This

the

the

has specific

resulted

livestock

in tremendous increase in the average

loan,

assets

the

was

value as shown 1n Table 5. 19. Before the

percentage of livestock value to the total

meagre (6 to 9 per cent) per household.

But after the loan, th1s has lncreased to 35 to 39 per

cent per household. However, no change was found 1n the

average value

households 1n

of physical assets of

the corT'esponding per10d.

the

In

labouT'er

absolute

terms the net change in the average value of assets 1S

Rs.2885 for SCs and Rs.3400 for other 1 abou re rs 1n

block I and Rs.3514 and Rs.3818 for SCs and other

labourers respectively 1n block II.

Total Income of the Selected LaboureT's' Households

The tot a I income of agricultuT'al labourer·s

household consists of income from wage labour,

income

sheep,

income

sources

from dairying and also from other sources

goats, piggery and poultry. The average

of the benef1ciary labour households from

mentioned above is given in Table 5.20.

207

net

11k e

net

the

Tabl, 5.20

ChiJlg" in the Incoo, of Per B,n'fiClary Household - Agricultural l,bourers

(In Rs.)

-----------------------------------------------------------------------51 Sources of Block I Block 11 No incoae -----------------------------

Sch,dul,d C,st. Other Sch,dul,d C,st, Oth.r Labourers labourers L,bourers labourers

B'fore After B'fore After B'fore After B'fore Afl" ---------------------------------------------------------------------

W'g' Incoo,

2 Non-wag' Incoc,

3 Incoo, froo 011 rylng

Tot.1

N, I Ch lng,

4681

219

44

4944

5287

107

347

5741

797

4594 5080 2449 2661

457 25B 81 79

191 617 87 462

5242 5957 2617 3202

715 585

The net change in the income of se

2676 2854

lOB 94

124 621

2908 3569

660

labourers

and other labourers in block I comes to Rs.797 and

Rs.715 respectively, but it was comparatively lOllJ for

the same category of workers in block II - Rs.585 fDr

se labourers and Rs.660 for other workers.

208

a-iANG 2S IN INCOM:'; OF BE1'IEFICIARIES - AGRICULTU~L LABOURORS

S C LABOURERS aTHER LABCURERS

, • • •

l~j .. T T h

o • u •

• • a n ,

OJ .. d 2 •

,(d",3 0

"""'. NO*'WI.G. DAlRY """- NO .... """" DAIRY

.ISI'", mATTIR _.'OAI ~}J'TlR

N BLOCK I BLOCK I 0

'" S C LABOUF'ERB OTHER LABOIJRERS

• •

T Tt T h • h 0 0 u • u • • • • n • d

• r-:;r.7/..--v.::4 ...... """""""" """'"

_. UON-....,.. DAIRY

lDiIapQR:I. ~ """" _PfORI ~ATT.R

BLOCK II BLCO< II

Comparison of the Beneficiaries Income

Beneficiaries Income

The details of total income of the

beneficiary as well as non-beneficiary households are

Tab I e 5.21.

Table 5.21

C"",,irlS"" of Tot.1 Inco., of Beneficiary and Non-ben,flciary Agricultural l.bourer Households

IA,erage per household in Rs.l

Block I Block II

SI Sources No of Inco&e

Beneflclary

s.c. Other labou- l.bou-rers rers

Wage Incoo, 5297 5080

2 Non-wage incoae

3 Inco&, Ir"" DaIrYIng

lotal

107

347

5741

When

258

619

5957

Non-Beneficiary BenefiCIary floo-B,n,flcury

S.c. Other s.c. Oth,r s.c. Other labou- labou- l.bou- labou- labou- Libou-rers rers rers rers rers rers

5265 5000 2661 2954 2600 2950

240 475 79 94 110 140

47 180 462 621 65 105

5552 5655 3202 3569 2775 3195

the total household lncome

agricultural labour beneflclaries was compared

non-beneficlary households of the same category,

210

of

wi th

the

difference in their income ~Jas found to be

considerable. Due to the higher income from dairYing,

the beneficiary SC and non-SC households are better

placed than the corresponding nan-beneficiary

households.

Production Function Analysis

All the labourers are conSidered as one group,

without sub-classifying them an the basis of caste for

th I s analYSIS specifically because of the small sample

SIze.

The 2

value of R IS found as 0.91 in the case

of block I and It is 0.99 in the case of block II. The

values being high Imply that the Independent

variables conSidered In the production function are

capable of e~plalning a very large proportion of

variatIons In the dependent variable namely, the value

of milk production in black I and II respectively.

In the case of agricultural labourers In

block I, the variables: fodder (Xl) and concentrates

to be significant (at 1 per cent level)

In explaining the variations in the value of milk

p roduc t ion. On the other hand, in the case of

agricultural labourers in block I I the varlables:

211

Table 5.22

Hilk Production Function Analysis - Agricultural Labourers

------------------------------------------------------------------------REGRESSION COEFFICIENTS

------------------------------------------------------------------------------

-_ .... -------------------------------------------------------------------------

Block I 0.2102' 0.135b • 0.0273ns 0.0102"5 -o.0003

n5 0.91 15.54811 14.68551 10.71b1> (0.81421 (-.24971

8lock II 0.0024"5 0.0914' 0.2875' 0.0027"5 -o.OO8b"S 0.99 (0.3001 13.958b) 110.9093) 10.42421 1-0.91541

---------------------------------------------------------------------, Signifio"t at 1 per cenl leYel.

ns ' not Significant.

concentrates (X 2 ' and labour expenses (X3) are found

to be significant (at 1 per cent level). As noted

earlier the avaIlability of grazing lands IS lImIted

In block I compared to block II. That may be the

reason why much of the variatIons In the mIlk yield 15

explaIned by fodder and concentrates In block I, while

labour expenses and concentrates explaIn much

variations In the milk yield In block II.

212

~ Repayment Performance of Agricultural Labourers

As discussed earlier (Table 5.6) 16 out of 5S

agricultural labourers selected in block I and 5 out of

38 in block I I : tha t is, in all 21 out of 97

agricul tural labourers in the study area sold their

animals mainly due to the low milk Yleld and fodder

shortage. Out of the 21 labourers who sold thelr

animals,

1 abourer

only three labourers 1n block I and only

in block II repaid the loan partially.

one

The

remalning labourers did not repay any amount since they

sold the an1mals wlth1n one or two months after the

purchase of such anlmals. We could gather In the

course of the field survey, that no supervlslon was done

either by

officials,

the bank officials or by the block

and also no stringent measures were taken

against those who misutilised the loans, wlth the

resul t loan amount due from these labourers could not

be recovered.

The loan

labourers who were

repayment performance of

found utilising the scheme

the

has

been analysed with the help of the 1nformatlon obtained

from the records of the banks and MPCS. As most

the selected labourers were 111 iterates

knowledge and acquaintance with bank and

records/pass books were found very much llmited.

213

of

the1r

~IPCS

They

were not given correct figures about the amount of

loan and subsidy, the amount to be repaid and the

interest rate. So, the information collected from these

labourers were cross-checked with the bank records and

MPCS Secretaries. The particulars are given In Table

5.23.

Table 5.23

Loan Repayment Performance of the Selected Agricultural Labourers

51 No.

1

2

1 )

Particulars

Number of beneficiarIes studied

Out of which, number of benefIcIaries

Fu 11 y repaid

Il)Partially rep aid

i i ilRegul arly paying instalments

iv)Defaulted

Block I

Agricultural Labourers

SCs Others

35 8

8 4 (22.8) (50.0)

6 ( 17. 1 )

9 3 (25.7) (37.5)

12 1 ( 34 • 3) ( 1 2 . 5 )

Block II

Agricultural Labourers

SCs Others

23 10

4 2 ( 17 • 4 ) (20. 0 )

4 3 ( 17. 4) (30. 0)

7 4 (30.4) (40.0)

8 1 (34.8) <10.0)

Grand Total

76

18 (23.7)

13 (17.1)

23 (30.3)

22 (28.9)

Figures in parentheses are percentages to total number of beneficiaries studied.

214

high

•

The percentage of default Cases was found verY

among the S C agricultural labourers In both the

blocks compared to other labourers, the overall default

rate being 29 per cent <Table 5.23),

the study area, percentage of labourers

repaying

In

the loan regularly ranged from 30 to 40.

Interestingly, those who were repaying the loan

regularly were all members of MPCS, supplying mIlk to

the society.

whol e

block

The agricultural labourers who repaId the

amount (8 out of 35 SCs, 4 out of 8 others In

I and 4 out of 23 SCs and 2 out of 10 others In

block II) in both the blocks did so WIthin two Or three

lactation periods. However, the rest of the labourers

repaid cnly a part of the loan amount even after three

lactation periods mainly due to low mIlk YIeld from

animals.

The major reasons, for the poor repayment

performance and default on the part of the sample

agricultural labourers are presented below:

i ) Most of the selected labourers was prOVIded

WIth low qualIty (low milk yield) mIlch animals

leading to lower rate of return on the

investment made.

215

iii Dairying activity was novel to the majority of

the selected labourers (91 out of 97). As such

they were not well versed with the knowledge

and maintenance of milch animals.

iii) Al though a large number of selected labourers

i v)

were members to MPCS and supplied milk to it 1

this in itself did not ensure adequate income.

The

of

price of milk fixed as it is on the basIs

fat content, which In turn is directly

influenced by the amount of concentrates fed to

the animal along with adequate dry and green

fodder, the high cost of concentrates acted as

a constraint in using such items on a

sc ale.

required

Long inter-calving period (gap between two

lactations) in many cases makes the scheme

uneconomical. Due to lack of knowledge and poor

access to the veterinary services on the part

of the labourers, the timely artificial

insemination, which is crucial for the mi lch

animals, was not planned.

v) Lack of proper cattle shed.

vi) Follow-up services and supervision on the part

of both bank and block officIals were found

wanting leading to carelessness and default on

the part of the selected labourers.

216

Notes and References

1. To get a soclal dimenslon the selected beneficiaries were dlvided lnto two groups Scheduled castes and non-Scheduled Castes. However, this distInctIon was possible only among the selected agricultural labourers, as among the selected small and marglnal farmers no one belonged to Scheduled Caste. Moreover, this distribution was useful In apprecIatlng the differential in sUbSldy amount as It varied wIth the caste of agrIcultural labourers, as explained e15ewhere In thls Chapter.

2. Milch animals are purchased wIthout properly testing the mllk yield and handed over to the beneficiary. The traders follow certAin methods to show that the anImals glve a higher milk yield. One method lS feedlng the animal heavily on the preVIOUS day and another method is not mIlkIng the an1mal for more than 16 hours before the day It IS brought to the market. Generally the traders form a group and in collusion very eaSIly lncrease the prlce, to take advantage of the increased demand situatlon caused by bulk purchases by the purchase commIttee.

217

CHAPTER - VI

RETURNS TO INVESTMENT IN MINOR IRRIGATION SCHEMES

Analysls in this chapter has been done under

two sections to facilitate the understanding of the

Issues in a proper perspective. The first section

describes same of the characterlstlcs of the mlnor

IrrIgatIon beneficiarles, thelr 1dentification and

utIlIsatIon of the loans. And In the second sectlon the

Impact of the mInor irrlgation schemes on the economy of

the small and marginal farmers 1S analysed.

SECTION - I

Characteristics of the Minor Irrigation Beneficiaries

The effectlve utilisatlon of mInor Irrlgation

loans and the subsequent successful operatIon of the

agricultural activltles by the small and margInal

farmers depends, to a large extent, on the prOVlSlon of

follow-up services by the developmental agencle9 and

departments (credit institutions, cooperat,ve SOcletles

218

and agricultural departments) and the access of the

beneflciaries to those serVlces. The purpose of

flnanclng agricultural development through instltutlons

IS not Just putting out money or to replace lndlvidual

money lenders with institutlonallsed money lenders, but

to enable agrlculture and the farmer to move on to a

level of technology that would create a sustained basls

for increase In agrlcultural output, to lncrease the

number of mandays of employment and to have much better

lndicators of development in terms of productIvity of

land, labour and capital itself. This entails a blg

responsIbIlity on the credlt lnstitutlons to e~tend

their functlon beyond credit purveyance and look into

the arrangements avallable for input supplles, that too

in the interest of theIr credit being used properly.

Similarly, the farmers should have the access to the

Agriculture Service CooperatIve Societies (ASeS), and

E~tension SerVIce ~raining and VISIt system T&V). An

understanding of the problems and perceptIons of the

sma 11 borrowers on the above saId pOInts WIll help in

arriving at more objective and effective credit schemes.

An attempt is, therefore, made in this sectIon to

e~amlne the baslc socio-economic characteristIcs of the

sample benefiCIaries, their identificatIon for loans,

and the pattern of loan utilisation.

219

The classification ot the selecte~ farmers on

the basis of their landholding size and the purpose for

which they have beeen provided wlth loans, is given in

Table 6.1.

Table: 6.1

Classificatlon of the Selected Farmers Oy Slze of Landholding and purpose of loans

Block and category of Farmers

Block 1

1 • Marglnal Farmers

2. Small Farmers

Block II

1 • Marglnal Farmers

2. Small Farmers

Total

Purpose of Loan

New Well

2

5

7

Deepenlng 011 Englne of Well

9 3

14 7

8 4

14 8

45 22

TOTAL

14

26

12

22

74

In Black II under new well scheme no farmer

got benefitted during the period 1978 to 1982. The

scheme: deepening of well, has received greater

attention followed by the provision of oil engines WhlCh

220

help the small and marginal farmers to bailout the

water from canals and or wells.

The three non-economic parameters that may be

of considerable importance for analysing the impact of

irrigation loans are educational level of ~he

small borrowers, their membership in organlsations like

and Agricultural SerVIce Cooperative SocIeties (ASCS)

their participation in agricultural eKtension programme~

like Training and Visit Programme (T&V). The rationale

behind the selection of the first variable (Education)

is that the educational level may help the farmers to

understand the procedures and get confidence to approach

the banks for loans, cooperative SOCIetIes for both

input requirements and marketIng the output (like sugar

cooperatives). Membership in organisations llke ASCS

lends a special advantage to the farmers to practice

improved technology and also to be lnnovative. It gives

them access to get inputs like HYV seeds, and seedlings,

fertilizer, and pesticides, at fair price and al~o 1n

adequate quantity. And the equipments like Tractor,

power sprayer, and thresher, are available for hirIng

through these societies. This helps the farmers to

speed up their preparatory work and other agricultural

operations. Keeping this in mind, the information was

collected from the selected small and marginal farmers

221

regarding their membership in ASCS. The knowledge and

awareness about the agricultural ewtension programmes,

it is assumed, may prepare them to undertake improved

agricultural practices.

Literacy Level

Out of the 26 marginal farmers selected from

both the Blocks, 12 are literates (46.5 X) and out of 48

small farmers 26 are literates (54 X). Among the 38

literate small and marginal farmers 29 studied upto

primary level and only nine farmers studied upto high

school level.

Membership in Agricultural Service Cooperative SOCiety

As shown in Table 6.2, in Block I 17 out of 26

selected small farmers (65.4 X) and 5 out of 14 marg1nal

farmers (35.7 X) are members in ASeS. HO"Jever, 1n block

I I it 1S too low: Only one out of 12 marglnal farmers

(8.3 X) and 5 out of 22 small farmers (22.7 X) ar"

m"mbers in ASeS.

222

Table 6.2

Membership of Selected Farmers to ASCS

Block and Category of Farmers

Total No of Farmers Selected

No of Far­mers hold­ing ASCS membership

Percen­tage

-------~------------------------------------------------Block L

a. Marginal farmers 14 5 35.7

b. Small farmers 26 17 65.4

Block II

a. MargInal farmers 12 1 8.3

b. Small farmers 22 5 22.7

Total 74 28 37.8

Knowledge about Training and Visit System

Questions were asked to ascertaIn the sample

beneficiaries' knowledge and level of understandIng

about the T&V system. It can be seen from Table 6.3

that two marginal farmers each In Block I and Block 11,

five small farmers in Block II are ignorant about the

programme. Another group of farmers (8 marginal farmers

and 5 small farmers in Block I and 6 farmers each In the

categories of small and marinal farmers in Block II) are

those who are aware of the programme but have not

benefitted from it. Though they have heard somethIng

223

about T&V Programme the purpose and objectives of It are

still vague to them.

Benefits under T&V Programme

The sample farmers who have recelved some

benefits under T&V programme are classified Into two

groups: (i) benefitted and (ii) effectively benef,tted.

Table 6.3

Knowledge and Benefits Received under T&V Programme by the Selected Farmers

---------------------------------------------------------Category No. of of farmers farmers

Knowledge and the Benef,ts ReceIved under T and V

Do not know

Known but not Bene­fltted

Bene­fitted

Effec­tively Bene­fItted

---------------------------------------------------------Block I

1 . Marginal 14 farmers

2. Small 26 farmers

Block II

1 . Marginal 12 farmers

2. Small 22 farmers

TOTAL 74

2 ( 14.4)

2 (16.7)

5 (22.7)

9 (12.2)

B (57.1)

5 ( 19.2)

6 (50.0)

6 (27.3)

25 (33.8)

3 (21.4)

17 (65.4)

4 (33.3)

9 (40.9)

33 (44.6)

1 (7. 1 )

4 {j5.4)

2 (9. 1 )

7 (9. 1 )

Note: Figures in parentheses are percentages to the total number of farmers in each category and In thE last row It is to the total number of farmers selected in both the blocks put together.

224

Those farm~rs who are frequently contacting the Village

Extension Worker (VEW) or the Assistant Agrlcultural

Officer (AAO), adopting HYVs and modern technology at

the instance of VEW's advice are all comlng under the

category of 'benefitted farmers'. And those who have

received HYV seeds and seedlings, and undergone farmers'

training programmes, are all coming under the category

of 'effectively benefitted'. Accordingly, only one

marginal farmer and 4 small farmers in block I and only

2 small farmers in block II are coming under the

'effectively benefitted' category. In all (both blocks

put together) more than 12 per cent of the selected

farmers did not know anything about T&V system, 27 per

cent knew about it but was not benefltted, 44 per cent

benefitted and only 9 per cent was effectively

benefitted.

Opinion of Small and Mar9inal Farmers on the Working of T&V System

The poor response of the T&V system to the

needs of the small and marginal farmers prompted to

probe this matter further. Leaving aside those who were

totally ignorant about the T&V programme in both the

blocks, the rest were asked about their opinion on the

working of T&V programme in their villages. The answers

are given in a tabular form (Table 6.4).

225

Table 6.4

Opinions of the Selected Small and Marginal Farmers on T&V System

OPINION

1 Useful and working satisfactorily

BLOCK I BLOCK II

Marginal Small Farmers Farmers

2 6 (16.7> (23.0)

MargInal Small Farmers Farmers

1 2 (10.0) (11.8)

2 Serves only 6 8 7 12 bIg farmers (66.7) (30.7) (70.0) (70.6)

3 More a publicity 9 5 5 6 than practisIng it (75.00) 19.2) (50.0) (35.3)

4 The visits of VEW are not frequent 8 12 4 9 and th" visit of (66.7) (46. 1 ) (40.0) (52.9) AAO 1S rare

Note: Figures in parentheses are percentages to the total number of farmers (except those who are totally ignorant about T&V) ln each category.

It is clear from Table 6.4 that only 16.7 par

cent of the small farmers and 23 per cent of marglnal

farmers in Block I and 10 per cent of the small farmers

and 11.8 per cent of the marginal farmers in Block I I

are havlng a good opinion about the T&V and also they

found it a useful programme for them. Majority of the

selected small and marginal farmers were of the opinIon

tha t th is extension system served only big farmers.

Other serious complaints are about the publicity gIven

to the programme without practicing it and the poor

226

attention paid to the problems of sm~ll

farmers by the extension workers and offic1als.

Sources of Information to the Selected Farmers

The selected farmers were asked about their

sources of information about the minor irrigation

schemes. They received the information from varied

sources as shown in Table 6.5.

Table 6.5

Sources of Information to the Selected Farmers

Block and Category of Farmers

No of Sources of Informat10n Selec- ------------------------------------ted Village Ex-Farmers tension

Workers/VLW

Bank/ASeS! LDB Dff1-cials

B19 Farmers/ Poll beal Leaders

--------------------------------------------------------

Block L

a. Marginal Farmers

b. Small Farmers

Block li

a. Marginal Farmers

b. Small Farmers

14

26

12

22 --------------------

13 4 2

13 15 1

9 5 2

11 12 3 -----------------------------------

227

both the

schemes

village

Majority of the small and marginal farmers, in

blocks, have received information about

from the village level functionaries

the

11 ke

level worker, and village extension worker and

from the officials of financial institutions. A few of

them came to know through the blg farmers and vlliage

leaders.

Beneficiary Identification

The first step in sanctioning the

small borrowers by the financial institutions

identification

necessitated

of eligible

because the

beneficiaries.

loan involves a

loans to

is the

This is

subSldy

component which is meant only for the small and marglnal

farmers. The special agency at the dlstrlct level

(DRDA) with the coordination of block and bank officials

has to undertake this job of identifYlng eligible

beneficiaries. In this connectlon NASARD has glven

instructions (and the LDS's are also having norms)

regarding the distance between two wells, size of the

well, unit cost, HP of the oil engine and Electrlc Motor

Pumpset. The banks are supposed to workout the

financial feasibility of the schemes and in the case of

new well they have to give a feasibility certiflcBte to

get electricity connection. The data collected

228

regarding this aspect has been analysed h~re to know

whether the survey had been conducted to worxout the

feasibility of the project by the banks.

The analysis shows that in the case of seven

new well

undertook

schemes in block I , the bank officials

the project formulation exercise before

sanctioning the loans. For the rest of the schemes, as

per the records, the financial outlays were prepared by

the concerned offlcials of the blocks/or the banks. The

selected farmers however were not consulted whlle

deciding the financial outlays for these schemes.

It was evident from the field investlgation

that there was not much of an effort on the part of the

officals to impress upon the farmers about the prospects

underlying the minor irrigation schemes. Instead, there

was a misplaced emphasls on the subsidy aspect

scheme/s with an intention to lure the farmers

of

to

the

the

scheme/s, so that official targets could be fulfliled.

Besides, while sanctioning the schemes, such farmers who

were recommended by the large farmers

political leaders/or who bribed the

and/or

focal

functionaries were favoured at the cost of

genuinely deserving poor farmers for the scheme.

229

local

level

other

Time Taken to Sanction the Loans

As far as the time taken to sanction the loans

to the selected small farmers is concerned the loans are

sanctioned quickly and not much delay has been found.

Majority of the selected farmers (55 out of

74) received the loans within two months since the

application was submitted. Sixteen farmers received the

loans within a month and in the case of remaining three

farmers

loans.

it took more than two months to receive the

The beneficiaries received loans without much

delay owing to the fact that the financial

were under pressure to reach the targets.

institutions

Problems Faced ~ the Selected Farmers in Obtaining

Loans:

The selected farmers were asked about the

they faced in getting the loans. All the 14 problems

marginal farmers and 16 out of 26 small farmers in

block I and all the 12 marginal farmers and 15 aut of 22

small

able

farmers in black II explained that they were nat

to understand the procedural intrlcacies tnvolved

in getting the loan sanctioned from the Bank.

230

Selected Farmers Access ~ Credit

Facilities

The utilisation of loans and 1tS

borrowers' economic status depends

Marketioq

1mpact on

largely on small

their access to inputs like credit and mater1al 1tems

and to marketing of their produce. As far as credit

faci I ities

departments

from ASeS and services from

are concerned, their access

extension

to them 15

limited as explained earlier. But it was found that

the access to commercial banks' crop loan facilities

also are too limited to the selected small and marg1nal

farmers. That is, only 4 out of the 40 farmers

selected in block I received crop loans during the study

period. However, those small and marginal farmers who

cultivated sugarcane got loans from the sugar m111 by

entering into a contract with it. Accordingly, the

sugarcane 1S harvested by the mill and the loan amount

is deducted when the amount is paid to the farmer for

his sugarcane.

marketing.

That 1S, the credit 1S 11nked w1th

For marketing of other produces

groundnut, coconuts, jowar and ma1ze, the

like paddy,

small and

marg1nal farmers depended on the traders at the v11lage

level, more so because there was no regulated market In

this block. The vegetables produced were marketed In the

231

nearby town, Udumalpet through the Commission Agents who

collected 10 per cent of the sal e proceeds as

commission.

The selected small and marginal farmers

Block II expressed that they were deprived of crop loans

from the commercial bank (State Bank of India) situated

in the block headquarters. In this block too, no

regulated market lS functioning. The

cotton, red chillies, groundnut, jowar,

maize are marketed through traders.

produces

tob acco

However,

llke

and

the

vegetables and flowers are taken to the nearby markets

at Tlruppur and Palladam by the small and marglnal

farmers themselves durlng the early hours of the day.

Here also, the commlSSlon agents collect 10 per cent on

the sale proceeds as their commission.

Utilization of loans

The credit is of course important, but of more

importance is its proper utilisation. Especially, the

subsidised loans meant for small borrowers should reach

them, However, during the survey it was ascertalned that

in two cases big farmers received the above sald

subsidised loans in the guise of small farmers. (Among

these two farmers one farmer owned a ric e mlll and

another a cement pipes manufacturing unit). Both of

232

U1cm got loans to acqulre 011 eng1nes. For the purp0E;e

of our J,nalYS1S, hO(lJever, these tliJO cases not

lnc\udC'd. All ott'l~r caSES \'Jere found as genulne.

233

SECTION II

lmpijct Ri Mingr Irrigatign Loans on Farm Operations

In the earlier section the identificatlon of

small and marginal farmers for bank loans, their access

to credit facilitles and thelr social (non-economIC)

characteristics ln terms of their llteracy level,

membershlp in cooperatlves, the knowledge about T & V

system and the benefl ts they receIved from tlHt

though programme were analysed. And it was found that

the small and marglnal farmers were provided wlth mlnor

irrigation loans, their access to some other credlt

facllities such as crop loans were limlted and also they

were deprived of extension services. The maln aim of

the minor irrigation loans is to help farmers to

increase their income levels either through increaslng

the net sown area or through increasing the cropplng

intensity or by both. It may also facilltate a switch

over to a better cropping pattern when the lrrlgatlon

lS assured. The purpose of the present section is to

examine the net additional benefits derlved by farmers

by undertaking minor irrigation schemes Vla changes ln

land utilisation pattern, cropping intensity, cropping

pattern and cultural practices.

234

A word about the limitations of our analysis

is necessary at this juncture. It was observed that a

few farmers of our sample had taken loans both from

banks and non-institutional sources, at various p01nts

of time and accounting for all these loans, which

borrowed for different purposes, and separating

they

their

impact was not possible. But this may not restrain

comparison in toto, as the obJective is to capture

trend and not absolute gains.

the

the

For measurement of the benefits, as has been

mentioned earlier, all farmers were requested to furn1sh

information on their farm practices, relating to two

points of time: pre-loan period and post-loan period.

Hereafter these are referred to as 'before' the loan and

'after' the loan period, respectively.

I t was gathered during the survey tha t 1n

block I the cost of digging a new well, on an average,

worked out to Rs12.000; motor pumpset and other costs

like payment to electricity board, fitt1ng charges etc.,

came to around Rs 5000. It IS obvious, therefore, th at

the loan amount sanctioned was just enough to d·g a well

and the remaining amount was to be borne by the

benefiCiary <T ab I e 6.6). However, in the case of other

235

1

Table 6.6

Amount of Loan and Subsidy Received by the Selected Borrowers in Block I

Scheme/Activity Average Amount (Rs)

Credit Subsidy Total

New Well

a) Marginal farmers 9985 3212 13197

b) Small farmers 10080 2872 12952

2 Deepening of Well

a) Marginal farmers 5755 2150 7905

b) Small farmers 5800 1600 7400

3 Oil Engine

a) Marginal farmers 5000 1250 6250

b) Sma 11 farmers 5000 1250 6250

schemes (deepening of well, oil engine) the amount of

loan sanctioned was found adequate to cover the total

cost.

In block II, the selected farmers received

loans for deepening of wells and to purchase all

engines, and Table 6.7 gives the details.

The cost of deepening a well is relatively

less in block II compared to block I because of the

differences In the wages paid to the labourers who are

engaged in digging wells and construction works. For

236

Table 6.7

Amount of loan and subsidy Received by the Selected Farmers 1n Slock II

Average Amount ( Rs ) Scheme

Credit SUbS1dy Total

1 Deepening of Well:

A) Marg1nal Farmers 4657 1312 5969

b) Small Farmers 4760 1200 5960

a) Marginal Farmers 5000 1250 6250

b) Small Farmers 5000 1250 6250

example, a male labourer in block I gets, on an average,

Rs. 16 per day compared to his counterpart 1n block I I

who receives Rs. 12 per day for such works.

Benefits under Minor Irrigation Schemes

Wh i I e the benefits of 1rrigat1on are w1dely

recognised, their very nature, stemm1ng from

simultaneous changes technology, input use~ and

resource allocation by the farmers makes very

difficult to quantify and attribute them to a single

factor such as irrigation. However, it 1S hypothes1sed

237

that the

farmers,

i )

i i )

iii )

v)

severally

farmers.

reliable and timely water supply en ab I e

to bring new land under cultivation;

to increase cropping intensitYI

to shift to HYVs (which are more responsive to good moisture conditions);

to shift to crops which have higher (commercial crops);

to use higher particularly Ylelds.

levels of complementary fertillzers, which

value

inputs, enhance

The above mentioned changes elther slngly or

help lncrease the yield and returns of the

Irrigation thus provides small farmers a way

to increase the productlvity of thelr 11ml ted 1 and

slgnlficantly leadlng to increase In their lncome and

employment levels.

At the outset, it may be p01nted out that the

two aspects namely, productlvity and comparatlve

efflclency of dlfferent i rr i gat i on systems are not

analysed here. Worklng out the difference in

productivity between rainfed land and irrlgated land Dr

before the loan and after the loan have not been

attempted here, since there are changes cropp 1 ;,g

pattern and also input usage includlng labour the

study areas. Moreover, except seven new I'''' I I

238

beneficiaries who did dry-land farming earlier, the

other sample farmers neither did exclusively dry land

farming nor lrrlgated farming before the loan. And thlS

rendered it difficult to get the 'controlled farmers'

for comparison; therefore, the 'before' and 'after' the

loan approach was adopted to workout the differences.

As there are a number of factors besides

lrrigation, which can bring about yield variation,

measuring the Impact of irrigation is a difficult task.

Theoretically, the net effect of irrigation on Yleld

should be studied by comparing the yield differences

between irrigated and unirrigated lands, on ly aft e r

eliminatlng the other sources of variation in Yleld,

both on account of technlcal and non-technical factors.

However, the yield differences due to some technlcal

factors can not be isolated as their role IS, more often

than not, complementary to irrigation. Moreover,

the field conditlon is not possible to

observations which would enable one to test

under

get

the

hypothesls under the ceteris paribus clause, even

the observations are chosen from a fairly homogenous

group. Thus, an accurate measurement of the

contribution of irrigation to Yleld 15 possible only

under a controlled experiment. Since it 1S not poss1ble

to do th1s experiment in the present study for reasons

stated earlier, a different approach to measure the

239

economic impact of minor irrigation schemes on the

selected farmers was followed. Accordingly, the changes

in the following variables have been analysed in order:

in land utilisation, cropping intenSity, changes

cropping pattern and the cultural practices like lnput

use, and adoption of HYVs. And then, the lmpact such

changes made on the farmers income and employment levels

was analysed by comparing their position between the two

periods namely, before and after the loan. The rate of

return on investment made in each scheme was also worked

out to measure the financial viability of the loans.

Land Utilisation

One of the ways in which irrigation

contributes to growth in agricultural production is by

e~panding the area under cultivation. It helps to bring

additional lands <which are otherwise fallow/barren)

under cultivation and also it makes cultivation pOSSible

in dry seasons <when lands remain fallow for lack of

water) and thereby helps raise more than one crop from

the same piece of land. An insight into these aspects

may be obtained by analysing the additional area brought

under cultivation after the implementation of the

schemes by the selected farmers. Relevant details to

this analysiS are given in Table 6.B.

240

Table 6.B

Land Utilisation by the Selected Farmers -Before and After the Loan

--------------------------------------------------------Blocks and Category of Farmers

Before

Irrigated land (in acres)

After Percen­tage Change

Unirrigated land <in acres)

--------------------Before After Percen­

tage Change

--------------------------------------------------------

Block L

1 Marginal Farmers

2 Small Farmers

Block II

1 Marginal Farmers

2 Small Farmers

12.75 (0.92)

45.9 (1.76)

13.4 (1.12)

46.95 (2.13)

24.45 (1.74)

88.8 (3.42)

19.9 ( 1 .66 )

67.45 (3.06)

92

93

48

44

15.55 (1.12)

75.60 (2.91 )

9.20 (0.77)

45.45 (2.06)

2.85 -82 (0.20 )

32.70 -57 ( 1 .26)

2.30 -75 <0.19)

24.95 -45 (1.13)

-------------------------------------------------------Figures in parentheses are average landholding size.

Firstly, through the field investigatlon, the

changes in the size of landholding, if any, due to the

sale and purchase of lands (durlng the reference period)

by the selected farmers were noted to be insigniflcant.

In Block I only two small farmers and one marginal

farmer sold their lands (involving in all 1.90 acres)

and one small farmer purchased land (0.80 acres). In

block II one marginal farmer sold 1.50 acres of hiS land

while another farmer purchased 0.46 acres. And the

241

tenancy ie, leasing out and leasing 1n of lands for

cultivation by the selected farmers was also found to

be insignificant in the study area.

It can be seen from table 6.8 that 1n block I

both the small and marginal farmers have 1ncreased the1r

area under irrigation after the schemes to the extent of

93 percent and 92 percent respectively. In block I I the

increase in area under irrigation in the case of Sma 11

farmers is 44 percent and in the case of marg1nal

farmers it is 48 per cent. However, if the average area

under irrigation is taken into account then the marginal

farmers in both the blocks are having more or less the

same amount of irrigated area. The average

are a of the small farmers in blocks I 1S 11ttle h1gher

(3.06 (3.42 acres) than their counterparts 1n block II

acres) .. The average unirrigated area operated by both

the category of farmers across the blocks 1S almost

same ,. To get some more ins1ghts the scheme-WiSE'

1ncrease in irrigated area is analysed.

Table 6.9 gives the details about the scheme-

Wlse increase in the irrigated area of the selected

farmers. The new well scheme has totally brought 6.09

acres of dryland under irrigation for the marglnal

farmers (thereby elevated them to the status of sma 1 I

farmers) and 17.17 acres in the case of small farmers 1n

242

Table 6.9

Chonges in the Extent of Irrigated Lond by B,neficiaries According to Nature of Assistance Receiyed

------------------------------------------------------------------------------_.--------B L 0 C K - I BLOCK-II

SCf£HES HAR6lNAL FMHERS SHAll FARIIERS HARGlNAl FARMERS SMALL FAR!OS --------------------- ----------------- ------------------- -------------Before After X age Before After X age Before After X 'g' Be fore Aller X age

inc- inc- 1nc- inc-rease rease Na~1! ruse

----------- -----------------------------------------

Ne. 0 6.09 2.40 19.51 115 Well (3.04) 1O.4B) (3.911

2. Deepen- B.22 12.12 55 24.l2 39.40 03 B.9b 12.BB 44 31.15 44.10 42 Ing of 10.911 (1.41 ) (1.72) (2.Bl ) (1.12) (I.oll (2.23) (3.15) we II

3. Oi 1 4.53 5.64 25 19.3B 29.B3 54 4.44 7.02 5B 15.BO 23.35 4B Engine ( 1.511 (1.88) (2.m (4.20) (l.lll (1.15) (1.97) (2.92)

TOTAL 12.75 24.45 45.90 BB.BO 13.4 19.90 46.95 01.45

Note: Figurts in parentheses are average londholding size.

block I. The other two schemes, deepening of well and

oil englne have increased the irrigated area to the

extent of 63 per cent and 54 per cent respectlvely In

the case of small farmers in the same block. But,

however, it varies in the case of marglnal farmers: 25

percent in the case of oil engine scheme and 55 percent

in the case of deepening of well. In block II all

engine scheme helped to bring more area under lrrlgatlon

both for the small farmers (48X) and marginal farmers

243

158%) and the deepening ot well scheme broweht nearly 44

percent ot the additional area under lrrlgat10n 1n the

case of marginal farmers and 42 per cent in the case of

small farmers.

Thanks to the schemes mentioned above, the

average dryland area of the selected farmers declined

owing to the increase In irrigated area. As shown in

Table 6.8 in absolute terms, the dryland area reduced

trom a total of 15.55 acres to 2.85 acres in the case of

marginal farmers and from a total ot 75.60 acreS to

32.70 acres in the case of small tarmers. In block II

in the case of marginal farmers it reduced from a total

small of 9.20 acres to 2.3 acres and in the case of

farmers from a total of 45.45 acres to 24.45 acres. The

changes are more pronounced in the case of margInal

farmers compared to small farmers.

Changes in Cropping Pattern

Wi th the provision of loans to Improve the

irrigation conditions, i.e, enabling the farmers to get

an assured irr1gation faCility, changes in the

pattern can come either through an increase in

intensity or through changes in the allocation

cropping

cropping

of the

area for different crops. The allocation of area under

different crops of a borrower-farmer 1S e~pected to be

244

governed by profit-maKimlsation motive, and hence, more

and more acreages are expected to be allocated for

superior and/or commercial crops. In the followlng, the

changes

between

that have taken place In the cropp'ng pat tern

the two periods are analysed before talong up

the changes in cropping intensity.

It can be seen from tab I e 6. 10 tha t the

increase in the area under sugarcane in block I IS very

high (both proportionally and absolutely) compared to

other crops. This has been made possible because of the

contract the farmers made with the sugar mlll by WhlCh

the farmers received loans to purchase inputs 11ke

fertilizer and also e~tension serVices. While the area

under jowar (HYV) , groundnut and other food crops

decreased slightly, the area under local jowar decreased

from 42.85 acres to 21.5 acres in the case of small

farms and from 10 acres to 1.85 acres in the case of

marginal farms. In the case of other commercial crops

(vegetables, tobacco, banana, sun flower, and ch,ll,es)

the re was a significant increase in area both in

absolute and relative terms. There was an inc~ease in

area under paddy from 10.1 acres to 15.9 acres 1n the

case of marginal farms and from 23.9 acres to 44.92

acres in the case of small farms.

245

Table b.IO

Changes in the cropping p,tt.rn of the Selected Far.,rs

8l0CK-\ BLOCK -II

CR(j'S Muginil Ftroers Soal! Farters H.rgina\ Farcers 5&1l! F.rcers

1. P,ddy

2. low,r IHYVI

3. loo,r Ilonl)

4. Olher

8efore After Xage 8efare change

After Xage change

10.1 15.9 57 (211 (27.51

b.7 1141

b.2 -7 110.71

23.9 44.92 B8 (12.51 122)

Ib.9S 15.05 -II (0) I 7.5)

10.05 1.85 -BI 42.85 21.5 -50 1211 13) (22) 110.7)

2 o Ib.2 - 7 tood crops (4)

2 (3)

17.5 (9) (B)

Before After X ag' change

0.5 2.5 400 10.11 (b)

b.21 7.b5 23 (20) (IB.5)

B.B4 2.3 -74 12B) (5.b)

1.85 4 lib (b) 19.7)

Before Afl,r X ag' chang.

._--------

B.OS II.OS 43 15.B) Ib.7)

Ib.B ( 12)

30.9 (22)

4.5 (3)

21.5 28 112.5)

19.75 -36 (t L5)

10 15.8)

121

-------------------------------------.---------------Sub-tat.l 28.85 25.95 -10 101.2 98.b7 -3

(bO) t4S) (53) (49)

-----------------_.---------

COF~ercial ~

1. Sugorcane 1.7 5.b 229 B.7 21.2 144 (3.5) (9.7) (U) (10.5)

2. Caltoo

3. Groundnul 11.7 (24)

4. Other crops

b 112)

9.b -18 4b.83 33.39 -28 (Ib.b) (24.5) 117)

lb.55 17b 34 48.41 42 (29) liB) (24)

17.4 Ib.45 -5 ISS) (40)

5.75 8.25 43 (t8) (20)

4.9 b.5 33 m.5) m.l)

3.51 10.11 188 (Ill (24.4)

60.25 b2.75 4 (H) (37)

17.35 23.85 37 (12.b) 113.9)

28.15 26.4 -6 120.0) !IS.4)

32.3 (23)

58 79 (34)

----------------------_.---------_.---------------------------------------------Sub-lata I 19.4 31.75 b4 89.b3 103.10 15 14.lb 24.8b 75 77.8 108.25 39

(40) ISS) (47) 1511 (45) (60) (5b) (b3)

Tal.l 4B.25 57.7 20 190.73 201.77 5 31.5b 41.31 31 138.05 171.0 24 (100) (tOO) 1100_ (100) 1100_ (tOO) (100) 11(0)

-----------.------------------.---------------------------------------------------------------------tIDI.: Figures In p.rentheses are percentages to the total area under various crops.

246

Wi th referenc:e to Block I I due

additional area brought under cultivation,

under commercial crops increased significantly.

be pointed out that the area under an

commercial crop namely cotton, (which Involves

cost of cultivation), registered only a

increase. However, a significant increase

to

the

It

the

area

may

important

a high

margInal

has been

noticed

(tobacco

selected

in the cultivation of other commercial crops

chillies, onion and vegetables) by the

farmers. In all, the percentage area under

commercial crops has increased from 45 to 60 on margInal

farms and from 56 to 63 on small farms. At the same

time, the proportion of area under food crops declined

from 55 per cent to 40 per cent on marginal farms and 44

per cent to 37 per cent on small farms. However, the

area under food crops more or less remained the same In

this block. The reason behind the contInuous reliance

on food crops like paddy, jowar, ragi and other millets

by most of the selected farmers in block II are, to meet

their household consumption needs and to have fodder to

feed their cattle.

Cropping Intensity

The cropping intensity on the farms of the

sample farmers for the two periods before and after the

irrIgation scheme have been presented in Table 6.11.

247

Table 6.11

Cropping IntensitIes of the Selected Farmers

-------------------------------------------------------Block/Category of Farmers

Cropping IntensIty Percenta"e change

Block

1. Marginal Farmers 2. Small Farmers

Block L1.

1. Marginal Farmers 2. Small Farmers

Before

170 157

140 149

After

211 167

186 185

24 6

33 24

Cropping intensity reflects the effICIent use

of per unit of land by the farmers. In block I the

cropping intensity was higher on the margInal farms than

on the small farms and also improved faster. By and

large, similar was the situation in Block II.

It is intended to see also the scheme-wIse

changes in the cropping intensity to know the difference

that each of the scheme has meant to croppIng Intensity.

Table 6.12 provides the details.

In Block I the cropping intenSIty increased

significantly in the case of new well scheme and In the

case of other two schemes it increased margInally. In

block II, the two schemes selected have conSlderably

increased the intensity of cropping of both the margInal

and small farms.

248

Tahh 6.12

Ching's in th. Cropping Int.nsity of th. S.l.cled Far •• rs According 10 th. Assistance R,c.iv.d

SCl£MES

1 fie. Well

BlOCK-I B l 0 C K - II

Harginal Faroers SoIall Faroers Harginal Faro"s SoIall Farlers

B,for, Aft.r Xag' Befor, chang'

145 200 38 no

After

160

Xage Before After X a9' change change

23

Before After X age chang.

2 Deep.-n1ng 100 204 13 100 190 5 142 190 34 156 207 TI of wei 1

3 Oi 1 177 217 22 167 190 14 146 184 26 147 171 16 £ngin,

Changes in Cultural Practices

In literature, lack of adequate credit

facilities and extension se~vices have been argued as

the main factors responsIble for the small and margInal

farmers not going in for new technology. Baslcally new

technology means the use of improved or HYV seeds,

chemical fertilizers, insecticides and pesticlues. Even

if the farmers adopt HYV seeds, without the support of a

package prDgramme, the HYV seeds alone may not gIve

expected d,vldends. Keeping this In mind the cultural

practices of the selected farmers in terms Df their

249

adoption of HVVs and also the use of modern in8wts RPF

studied. The proportion of area under HYV crops to the

total area cultivated and the use of modern Inputs

(fertilizer, pesticides and insecticides) have be~n

taken as indicators of the farmers' adoption of the

advanced farm-technology. The value of Inputs

calculated at current prices is given on per hectare

b as IS. Table 6.13 provides an overall view on the

adoption of new agricultural practices by the selected

farmers.

Table 6.13

Adoption of New Agricultural PractIces by the Selected Farmers

Blockl Category

ProportIon of area under HYV Crops to the total

area cultivated (Yo)

Before After Yo

Change

The value of per hectare modern Inputs {In Rs.l

Before After 'I. Change

-------------------------------------------------------------------

Block 1

MargInal Farmers

2 Small Farmers

1. Marginal Farmers

2. Small Farmers

49

51

43

44

-----------------

65 33

77 51

51 19

55 25

---------------------

250

716.59 1151.49 61

1087.24 1705.00 57

469.49 667.17 42

555.79 840.14 51

-----------------------------

The small and marginal farmers in Blo~k I

allocated more lands under HYV crops compared to their

counterparts in block II. The percentage change in the

proportion of area under HYVs between the two periods is

the highest in the case of small farmers (51) in block I

followed by the marginal farmers (33) of the same block.

As mentioned earlier the mere adoption of HYVs will not

yield dividends if it is not matched adequately w1th

other 1nputs. In this count also the small farmers 1n

block I ranked first by using Rs. 1705 worth of inputs

per hectare, followed by marginal farmers (Rs. 1151

worth of inputs per hectare). But their counterparts 1n

block I I are using the inputs far below th,S level.

This seems to support our hypothesls that the spread of

fertil,zer use could be restr1cted because of non­

availab111ty of cred1t ie crop loans for these small and

marg1nal farmers.

Impact ~ Gross Output. Cost and Income

The ultimate obJective of all credit schemes

is to help the farmers to move to higher echelons of the

income levels. The other parameter that can adequately

be visualised as an appropriate one is the augmentation

in net 1ncome of the borrower farmers, after ava1ling

the bank loans. In the following paragraphs an analysis

251

is made to know the impact of irriQation lo~nq on ~Oqt

of cultivation, gross output and net income of the

selected farmers.

Cost of Cultivation

The general practice to calculate the cost of

cultivation is to adopt one of the four alternative cost

concepts glven by the Farm Management Studies. The

concepts used at the fIrst stage of cost analysis here

correspond to cost A of the Farm Management Studies.

This cost A includes all the paid-out costs ( i . e •

purchase of the material inputs like manure,

fertilizers, pesticides, insecticides, and seed) plus

value of hired human labour and value of bullock labour

(hired as well as owned) and imputed cost of farm

produced inputs like manure and seeds, if they were

used.

cost

The annual overheads, which constitute another

item, include repairs and maintenance of farm

capital, cost of anImal feed and treatment, electricity

charges, water charges, land revenue, ,nterest pald on

loans, etc.

In the second stage, the lmputed cost of

family labour is included in the above cost. <It may

be noted that imputed rent on own land and depreclatlon

of capital are not included in costs). Thls cost

252

appro~imately corresponds to the cost C concept of farm

management studies. This method is followed with a

view tti comparing the viability of the Schemes under th~

above two situations since the participatlon of family

labour in the production process is normally higher in

the case of small and marginal farmers.

Valuation of Output

in the

The main interest of the present analysis is

farm economy of the household, rather than in

individual crops and their productivity dIfferences

between size of holdings and between blocks. These

dIfferences have been IndIrectly explaIned the

previous section in terms of croppIng

croppIng pattern and use of modern inputs.

IntenSIty,

Here an

effort is made to find out the differences in net income

of the small and marginal farmers due to the dIfferent

minor irrigation schemes.

First the output has been valued in terms of

market prices. Output can also be valued at realIsed

prices because prices differ between dIfferent farmers

within a village and across Villages. ThIS depends not

merely on the quality of the product but also on the

time and place of sale, access to market and the

bargainIng position of the concerned partIes the

253

market. The output is valued at both the pr1ces

separately - realised prices and uniform (market) prices

first at the village level.

Both these sets have analytical significance.

It is the realised prices which determine actually the

income of farmers and not notional prices. As such the

valuation of output at realised prices has been done for

the purpose of computation of income. And the

valuation of output at a uniform price 1S also done to

compare it with that of realised prices WhICh may

indicate the access of the small and marginal farmers to

the market.

The realised prices are defined here, for the

purpose of valuation, as the prices actually rece1ved by

the respective farmers in their sale transactIon. The

valuation of unsold product10n (self consumption and

payments

prices.

in kind) is also done as per the realised

For an alternative valuation we have used the

uniform price, being the average of prIces for the

concerned crop realised. by all farmers 1n the concerned

village. However, since the ratio at the v1llage level

diverged only a little (the range being 98.4 to 85.9 1n

block II and 93.5 to 80.4 in block I) across the

villages, the uniform price at the block level has been

used.

254

Yet another alternative valuation taken 1nto

consideration is the district level prices.

know whether particular block as a whole

This 1S to

suffered a

price disadvantage. The pr1ces of respectIve crops at

the important marketing centres of the district have

been averaged for this purpose.

It has also been tried to see from the

information gathered from farmers if whether the quantum

of product sold gave a relative price advantage

respect of individual crops. However, no consIstent

picture was found in thIS respect and hence thIS aspect

has not been taken into account in the present analysis.

price

crops

Further we have trIed to probe whether the

disadvantage differs between the sale of

and commercial crops. This, it 1S hoped,

food

w 1 11

explaIn the access of the small and marg1nal farmers to

the markets 1n a real Sense since normally their

marketable surplus is lower in the case of foodgrains

compared to the commercial crops. And also, the cost of

cultivation of commercial crops is relatively hIgh to

that of food crops and more often than not the poor

farmers borrowed to raise the commercial crops (cotton,

banana, groundnut and sugarcane In the study area) WhICh

forces them to go for distress sale, i.e. as soon as the

255

harv"st is oV"r th"y will sell the produce at a 101"el'

price to repay the debt.

First, the valuation of produces has b"en done

at the

valuation

level of holdings and Table 6.14 giv"s

at realised prices as a percentage over

th"

the

valuation at block average price for th" two cat"gories

of farmers.

The analysis clearly indicates the existence

of considerable difference between the

valuations. This elaborate e~ercise divlding the gross

output into two groups as commercial crops and food

crops Yielded expected patterns. The difference between

the two sets of valuations is more pronounced in the

case of commercial crops compared to th" food crops. It

clearly explaIns that the marginal farmers are often at

a disadvantage, the ratiO In block I 15 81.4 and

block II it IS 71.4 for commercial crops, and 90.3 and

80.9 respect,vely for food crops. The small farmers are

relatively better placed In block I compared to the

position of their counterparts in block II. The access

to the fair price markets is limited to both

categories of farmers and it is more so in the marketIng

of commercial crops.

256

Table 6.14

Gross Value of Agricultural Output (GVAO) at Reallsed Prices as Per cent Over GVAO Block Average Prlce

Block/Categoryof Farmers/ Crops

Block L

1 • Marginal Farmers:

A. Commercial Crops

B. Food Crops

C. Overall

2. Small Farmers:

A. Commerclal Crops

B. Food Crops

C. Overall

Block !.l

1. Marginal Farmers:

A. Commercial Crops

B. Food Crops

C. Overall

2. Small Farmers:

A. Commercial Crops

B. Food Crops

C. Overall

---------------------------

GVAO at realised prices as percent over GVAD at Block Average prlce

81.4

90.3

85.8

90.5

100.0

95.3

71.4

80.9

76.1

80.7

80.6

80.6

----------------------------

257

As mentioned previously, in the second staQe

it is also explored whether any particular block as a

whole suffered a price disadvantage. For this purpose,

another set of valuation of agricultural output

(separately for commercial crops and food crops) using

district average prices of respective crops has been

computed, and the value of agricultural output at block

level prices has been expressed as a percentage over the

value at the distrlct average price for the two blocks.

Thls valuat,on has been done only at the block level and

not at the level of holdlngs. The results are presented

In Table 6.15.

Table 6.15

Block PrIce Levels Relat,ve to District Average, for Farm Produce (ratios in percent)

Blocks CommerCIal Crops Food Crops

1. 81 oc k I 84.4 97.5

2. 810ck II 79.6 86.9

It is interesting to note that the d,fference

between the average price at the block levels to

district level price is significantly hIgh in the case

of commercial crops; block II is more dIsadvantageously

placed than 810ck I in respect of both the crops.

258

This could be due to the situation that prices

realised by a given region are determined by a number of

factors like access the villages have to 1nfrastructural

facil1ties, quality of products sold, the e><tent of

commercialisation, the level of development and

divers1fication of act1vities.

The foregoing discussion was undertaken with a

V1eW to apprec1ating as to what difference the valuat10n

of output at the block level uniform pr1ces would make

to the income status of the sample farmers. Except for

its conceptual significance, the above discussion would

not indicate the . actual' income status of the sample

farmers, Slnce it is realised prices which count really

in the matter. Therefore, the discuss10n that follows 1S

based on "real ised prices ll•

Impact on Gross Output, Cost and Net Income Per Household

It 1S proposed to examine the 1mpact of

irrigation loans on the small and marginal farmers'

gross income, cost and net income by comparlng the sa1d

variables at two pOints of time namely, . before' and

. after' the loan. The blockwise and schemewlse analysls

wi 11 facilitate clear understanding about the

performance and the financial viability of each scheme.

259

-.----

The si2e classwise details regarding cost of

cultivation, its composition (both with and without

imputed cost items) and gross and n~t income are

presented in the appendices A and B. A summary view,

block-wise has been given in Tables 6.16 and 6.17,

respectively.

Table 6.16

Output, Cost and Estimated Per Acr. Net Crop Inco.e of Sample Faroers In Block

-----------------------------------------------------------------------------------------Category of Far •• rsl Scheles

1lAR61NAl FARHERS

1. N •• Well

2. Deepening well

3. Oil Engine

S!\All F ARt1ERS

I. Ne. Well

2. DeepenIng of well

Before the loan

Output Cost OIC %

3553 22IB 160

720b 4118 175

7710 4106 188

7746 4056 191

12718 7961 160

3. Oil Engine 13291 8307 160

After the loan Net Inco.e per Acre

Output Cost ole ~

10788 6509 166

10846 6319 172

13200 7321 180

19065 8939 213

18636 9842 189

23103 12835 180

Before After ~ ago loan loan Increase

485 1556 221

1107 1623 47

1313 2303 63

770 2114 175

9a'I 182B B5

970 1998 106

-----------------------------------------------------------------------------------------

260

In Block I, the percentage increase in

lnCome is higher in the case of new well scheme;

net

both

the small and marginal farmers have realised increase 1n

their income levels. However, in absolute terms, the

net income per acr~ of marginal farmers who undertook

new we 11 scheme is the lowest (Rs. 1556) compared to

other schemes. The net .ncome of sma 11 farmers has

1ncreased substantially in the case of new well and all

englne schemes and marginally in the case of deepening

of well. On the whole, the schemes have resulted In an

lmprovement 1n the income level of the sample farmers.

Another striking feature is that the output-cost rat10

has substantially been increased after the loan 1n the

case of small farmers. In the case of marg1nal tarmers,

wi th respect to two schemes (deepen1ng of well and all

engine)the output-cost ratio has decreased sllghtly and

1n the case of new well scheme it has reg1stered a

marginal increase.

In block I I the net income per ac f' e

absolute terms is low compared to block I, the lowest

being Rs. 1113 in the c: ase of sma 1 1 farmers who

undertook

lncrease

and the

oil engine scheme. However, the pe,'centage

In net income per acre of them is higher (lOB)

output-cost ratio also 1ncreased marg1nall;.

As far as the marginal farmers are concerned, the 01 1

englne scheme has benefited them most: the output-COSt

261

Tab .. 6.17

Output, Cost and Esti.ated per Acre Net Crop Income of Sa.ple Far •• rs In Block II

------------------------------------------------------------------------------------Cat.gory of Far ... sl Sch .. ..

Before the loan

Output Cost ole x

~fter the loan

Output Cost OIC %

Net Inca •• p.r Acr.

B.for. After X ag' Loan loan inc:r!ase

------------------------------------------------------------------------------------

HMGINAL FAAMERS

1. Oe.p.nlng of •• 11 4466 2441 183 7615 4008 190 713 1270 78

2. Oil Engine 4033 2686 150 927b 4407 210 481 1739 261

SMll FARIIERS

1. Deep.ning of we 11 5967 3184 187 12951 6670 194 577 1303 126

2. Oil Engin. 6030 3422 176 12150 6717 181 534 11 !3 108

ratio increased from 150 to 210 between the two per10ds

and their net income increased to the tune of 261

percent. Interestingly, the per acre net Income 1S

higher 1n the case of marginal farmers over the small

farmers in the case of oil engine scheme.

262

Table 6.18

Loan Repayment Performance of the Selacted Farmers - Blockwlse, Schemewise and Categorywlse

BLOCK-I BLOCK-I I

PARTICULARS New Well Deepening Oi I Engine Deepening Oi I of well of well Engine

----------- ---------- ----------- ----------- ----------M F S F M F S F M F S F M F S F M F S F

No. of farmers 2 5 9 14 3 7 B 14 4 B

No. of farmers:

a) Completely repaid the loan 3 4 7 2 7 3 B 2

b) Aegul ady repaYing the Instal -ments 4 6 4 5 4 6

c) Defaulted 1 2 1 1

Note: MF = Marginal Farmers; SF = Small Farmers

A look into the schemewise performance shows

that 9 out of 10 farmers in block I and 2 out of 12 In

block II who borrowed to Install oil engines, prompt 1 y

repaid the loans, and the remainlng farmers ldE re

repaying the loan instalments regularly. In the case of

deepening of well scheme 11 out of 23 in block I and 11

out of 22 in block II repaid the loan completely. One

264

farmer each in both the categories and In both the

blocks were found to be defaulters. The remaIning

farmers who borrowed under this scheme, were found

regular in the repayment of loan instalments.

One marginal farmer and two small farmers who

obtaIned loans for digging a new well in block ! weT'e

found to be defaulters. The remaining four farmers

repaid the loans fully. Those who defaulted stated that

as they had spent more than the loan amoun t , by

borrowing from private sources to install electric motor

pumpset (or oi 1 engine) and to get the electrIcIty

connection, they were not able to repay the loans

promptly. They gave priority to the repayment of loans

borrowed from private sources.

"Inadequate income" was the reason attributed

by two farmers who defaulted in the case of deepenIng of

well scheme In block II. However, their counterparts in

block r defaulted wilfully, thinking that the Sta te

Government would write off their loans as it did on

earlier occasions.

The three important factors, among others,

tha t were attributed to the prompt repayment of

and regular repayment of loan instalments by

selected farmers were: the subsidy component of

265

loans

the

the

loan, free/concessional ele~tri~ity ~harQ~s ami th~

by additional income they were ab Ie to f'eceive

undertaking the minor irrigation schemes.

To sum up, the access of the selected small

and marginal farmers to the ASeS, extension services

(T&V system), banking and marketing facilIties was found

to be limited. Nevertheless, the minor Irrigation

schemes undertaken by them with the help of

institutional finance - new well, deepening of well and

oil engine - facilitated an improvement In theIr farmIng

conditions through positIve changes area under

cultivation, ~ropping pattern, cropping intenSIty and

cultural practices which in turn brought about an

Improvement in their farm in~ome which of course, varIed

across blocks, schemes and farmers.

266

CHAPTER VIr

FINANCIAL VIABILITY ANALYSIS

In this chapter, the financ1al v1ab1llty of

the two schemes studied namely, da1ry scheme and minor

irrigation scheme has been analysed and the results are

presented in two sections~ In the first section, the

financial viability of dairy loans 1S analysed by uSIng

four criteria, namely, Pay back perlod, Net Present

Value, Benefit-Cost Ratio and Internal Rate of Return

( I RR ) • And, in the second section, the results at

financial viability analysis of minor IrrigatIon

are discussed.

scemes

SECTION I

Financial Viability Analysis _ Dairy Scheme

It is possible to use the data on costs and

returns of dairying to analyse the investment worth on

dairying. To determine the impact of the scheme on tho

beneficiaries, i t has been conSIdered approprlate to

267

---------=---

determine the private costs and benefits of th~

for the beneficiaries. These information have been used

to determine the financial viability of the dairy loans

from

study

the beneficiaries point of view. As

dealt wi th the poor farmers and

the present

agrlcul tural

labourers and since they hardly hire labour to look

after their animals, the family labour contribution was

measured and analysed.

assumptions used in measuring costs and

benefits

below:

The

and in determining viability are explained

The Milk Yield and the Lactation Available

The quality of the animal is measured in terms

of breed, age, lactation number and the milk Yield.

Majority of the borrowers purchased cattle in the second

lactation and a few in the third lactation. Howeve r, In

those cases wherein the officials purchased the anImals

in the absence of beneficiaries and distrIbuted

the beneficiaries are not very much sure about its

and lactation number. This is a serious limitation

since there was no record as such to verify

them,

age

and

the

informatIon, the details about the ag e, lactation

number, breed and milk yield in such cases have been

268

cross-checked with the bank officials, VLWs, Veterinary

Producers doctors and the Secretaries of Milk

Cooperative Societies (MPCS) • All the milch animals

supplied to the beneficiaries were buffaloes; majority

of them were of local-breed purchased within the

district. Majority of the beneficiaries, especially all

the agr1cultural labourers, d1d not prefer to purchase

cross-bred animals owing to the following reasons.

a.

b.

c.

d.

The price of the cross-bred animal is very h1gh

1.e. the loan amount is not sufficient enough to

purchase one such animal.

Even if 1t is purchased, there is a h1gh rate of

risk associated wi th it. That is, the

maintenance becomes diff,cult Slnce maJOr1ty of

them are not having proper cattle shed and the

fodder supply 1S also not assured.

The cross-bred animals require more medical

attention than the local breeds. For th1S the

serVIce of veterInary centers and dIspensarIes 15

a must. But the veterInary servlce5 are not

evenly distributed to all the areas.

Though the animals are insured against the

at the time of supplying it to the benef1c1aries,

maJOrity of the agricultural labourers, small and

marginal farmers are not aware. The enqu1ry with

269

.-------,~.- -_.

the VLWs and other officials shows t t-.a t

themselves are not familiar with the cattle

insurance and the insurance company officials are

also not canvassing in the rural areas.

All the above factors kep t away the

agrIculture

animals.

labourers from purchasIng of cross-bred

The Buffaloes in the study area are capable of

givlng seven to elght lactations. Therefore, buffaloes

supplled in the study area, an an average, were stlll

1 eft wlth a product,ve period of about SIX more

lactatlons, (with havlng completed two lactatIons at the

t lme

mil k

days

b re ed.

Costs

of purchase by the beneficIaries). The number of

days (Mllk period/lactatIon) varies between 245

and 270 days depending upon the nourishment and

The costs associated wlth maintaining the mllk

cattle

namely;

can be classified into four broad categorles,

i) Out-of-pocket expenses incurred on purchased Items

like concentrates, fodder (both green and dry) ,

and hired labourers;

270

ii) Value of farm grown green, and dry fodder5;

iii) Domestic labour; and

iv) Cost of capital.

The farm grown items have been valued at

market prices/rates. Rearing of animals was undertaken

by the beneficiaries themselves and no hIred labour was

employed for the purpose. In other words, family labour

In particular, is e~tensively used for lookIng after the

animals.

The prevailing market wage rates have been

used to workout the cost of family labour involved

cattle rearing. This has been done contrary to some

earlier studies assuming that the opportunity cost IS

zero In the case of rearing in anImal!

needs to be pointed out that for

However,

the purpose

It

of

vIabilIty

includIng

analysis two sets of computatIons, one

imputed costs2

and another excluding Imputed

costs have been used.

Cost of Capital

The dairy loans given to the benefICIarIes

like sma II and marginal farmers and agricultural

labourers have to be rep a id wi th Inteiest

instalments. a VIew to linking the repayment of

271

loan with the income from milk production th~ P~riod of

loan has been tied at 4-5 years (2-3 lactations).

instruction is given by NABARD to the cooperative

This

banks

and commercial banks, and it also advised the commerCIal

banks to sanction loans only to those who are becoming

members

loans.

of the MPCSs to facilitate the recovery of

by

the

And the secretaries of MPCSs are in turn

the banks to deduct the loan amount from the

beneficlaries earned by the sale of mIlk

asked

lncome

In the

following way:

To be repaId in two lactation as per schedule

with a dry perIod of 4 months together WIth

commencing from:

I to IV months Rs. 120 per month

V to VI I months Rs., 100 per month

VIII to IX months Rs. 80 per month

X month Rs. 60.

interest

ThUS, It comes to Rs. 1000, l.e. pE>r lactatIon

the amount to be repaid is Rs. 1000. After deductIng

Rs.2000 durIng two lactation perlods the

amount, if any, will be deducted durlng the th 1 rd

lac tat lOn. However, ln practicE>, this was not followed.

In fact there was a complaint that ln some

secretaries of the MPCSs, on th E> ad vic e

272

cases

of

the

the

commercial ban k s , I.J.Jere deductIng hIgher amount por

month, recovering the ",ho Ie amount I.J.Jlthln a pi?rlGd of

one year, thus taking away the entIre IncomE from sal~

of milk of the beneficiary or forcing hIm to repay the

loan from his other sources of income or from other

borrowings. Leaving aside the above clted cases for the

convenience of the analysis, the follOWIng 1 D an

repayment pattern has been assumed.

In the present analysls, the lnterest rete has

been taken as the cost of capItal. The loan Instalments

can be taken as a part of the cost of capltal 1 f the

initial investment 1S taken as zero. But ,n the present

analYSis, considering the convenience ln calculatIng

the

for

measures of investment worth, 1nstead of

depreciation on the anImal every year, the

purchase price has been considered as the lnvestment,

and the resale value at the end of the elghth

(scrap value) has been taken as an Income.

lactation

The cost incurred by the beneflClarlE'S

maintaining the buffaloes during dIfferent lactabons

has been calculated using the above assumpt,ons. Since

the loan

marginal

amount

tarmers

varies between the

and the agrIcultural

sma 11 farmers,

labourers, the

viability analysis has been carrled out separately for

these three categories.

273

Benefits

The returns to the beneficiaries can include

the following:

i) Value of milk produced

ii) Cow-dung

iii ) Sale of calf/heifers at the end of each lactation, and

iv) Scrap value of the animal at the end of the productive life period.

The value of milk per lactation has been

calculated using the total milk yield in a lactation

and the market price realised by the beneficiaries.

However, those who are supplying the milk to the milk

societies realised the price according to the level of

fat content of milk. In these cases the statements made

by the beneficiaries regarding milk Yield and the income

they received have been cross-checked from their milk

SOCiety cards and also from milk society records. The

length of lactation period varied from 245 oays to 265

days in block I and 254 days to 270 days in block II.

The value of the cow-dung has been obtained by

taking into consideration its prevailing price (on per

bullock cart load basis) in the study area. The value

of the calf at the termination of the lactation periOd

has been estimated using the actual sales price reallsed

274

by tho beneflclarles dlSposing of the calf.

agrIcultural labourers and most of the

Almost

small

a I I

and

margInal farmers ln both the blocks sold thelr calves at

ttle tcr,nln~tlan of the lactatlon and only a very few of

second them retaIned ttle female calves for getting the

("') I' n (' f' ,1 t 1 on • ConsIderIng the above facts, the sale value

• 1 I~ l t1 P. [' n (1 of l h (' 1 act a t 1 on has bee r1 con S 1 d ere d for all

r: .) 1 '.' I' " Inslcalj 01 I~nrklng out the multIplIer effect

t.'lf' C.l''':'e of a if't.) beneilclar-les vJho retaln calves. The

.-; C r' ,j () ",' .1 1 t J f,' 0 f l I, [> <1 n 1 mal has bee n t a ken as the valUE?

!·P.1:!~-,(·(1 ;'.l th[· end of eIghth lactatIon, and the survey

-: ,\. (I"> ,IC ~_IJ;ll ''':'iI1 C's have neen ut lllsed to determIne

The '.'\ "I) III ty of the loan has been determIned

''Hi tt." !1.1'.'](-':' of prlvatL' costs and returns accruIng to

1 t·, t, t J r· r", I' f 1 c: 1 ;\ r- 1 (: ~-.. 'l n d tIl Co 1 r a b 1 lIt Y tor epa y the loans

.! '. 1. 1f)!I]"tr:c.1 hy tilt' provlsIons of the loan

til (: (1 c1 t it on costs ~nd returns the

agreeml?nt.

Investment

\,.l() r- tIl of tilt' scheme has bC'(ln calculated, USing four

(1 1 f f (. r" f' r1 l c r J l (' r~ 1 a t n am [' 1 y, 1) pay back perIod, 11 net

p r- f' '.-.. r'(1 t. ',/,l}ue, 11 I) Internal rate of return and 1 v )

275

dairy

the

To determine the financial viability of

loans from the benefi~iarIes point of Vlew,

above four measures have been ~al~ulated on

the

all

the

basis of the data ~olle~ted from the sample

beneficiaries. The inter-~alving period-wise cost and

returns are ~onverted into yearly ~osts and returns

data. The inter-calving period included nine months of

lactatIon and six months of dry period. Thus, the

~osts and returns for the entire period were readJusted

so that they are expressed on an annual basis. These

annual costs and returns are used to calculate the

measures of investment worth (Table 7.1).

In cal~ulating the measures two sets of cost

data were assumed: (1) all costs in~luding the out-of-

pocket expendItures, Imputed value of farm grown Items

and family labour and cost of capital (SItuat,on A) and

(2) cost excluding value of imputed items (SituatIon B).

The point is that costs Including the imputed Items may

be an over estimate and, therefore the measures based

on thIS are likely to be under-estimated. At the same

time exclusion of imputed cost assumes zero opportunIty

cost and, this tends to be an under-estimate of cost,

which implies that the measures based on this WIll be an

over-estimate. For this, two sets of measures

including and excluding imputed cost was presented In

Table 7.1. This is to indicate the probable range In

276

whlCh the two measures vary the measure including

imputed costs serving as a lower boundary. The

lnterpretations of these measures are provided here wlth

a view to drawing conclusions on the finanCIal

viability of the scheme to the three category of small

borrowers in the two blocks.

The pay-back period worked out to seven years

for the small farmers ln both the blocks; SIX years

the case of margInal farmers in both the blocksl seven

years for agrIcultural labourers in block 1; and six

years to their counterparts in block II when all cost

items were taken into account. If the Imputed costs are

not lncluded In the analysis the pay-back perIod becomes

much smaller three years in the case of all the three

categorIes of small borrowers In block II and marglnal

farmers In block I . , for the rest of two categories in

block I the period is little higher (four years). The

emerglng point is that, it takes six to seven years to

recover the cost of purchase and maintenance of mIlch

cattle from its returns to the beneficiaries and If the

lmputed costs are excluded it takes 3 to 4 years.

277

Table 7.1

Heasures of Iny.st.ent Worth Per Buffaloe in the S,l.cted Blocks

(N?V at Rsl

Block I Block I I

Measures Situalion A Situation B Situatwn A Situation B

SF HF AL SF MF AL SF MF AL SF HF Al -----------------------------------------------------------------------------------------------

I. P.y back p.riod

2 Net pres,nt value at

7 6 7 4 4 7 6 6 3 3 3

al Discount ral. lOX 2705 3340 1204 8943 9225 4336 2005 2693 2764 bb30 7673 6742

bl Discount rate 12X 2493 3078 1m 8306 85b5 4037 1550 2738 2594 6162 70'16 b34b

cl Discounl rat. 20X 1850 2284 859 0350 6539 3114

3 Inl'rnil rate of return

4 B,nefit cost ratio:

30 40 22 )50 )50 )50 (201 (201 (51

1143 2062 1925 4723 5483 4803

2B 35 30 )50 )50 )50 (101 1151 (251

.1 Discounl rat. lOX 1.22 1.31 1.13 2.49 2.64 1.75 1.18 1.31 1.29 2.51. 2.58 2.46

bl Discount ral, 12X 1.21 1.23 1.13 2.47 2.47 1.76 1.17 1.30 1.32 2.53 2.52 2.50

cl Discounl rale 20X 1.20 1.26 1.13 2.39 2.47 1.72 1.16 1.29 1.30 2.43 2.47 2.40

Not, : SltU.two A ~ Calculated Yalu,s when I"put,d costs includ,d. SituatIon B ~ Caleulat,d valu,s when I"put,d costs "elud.d.

SF: S.all Far.,rs H F : Marginal Farm.rs A l : Agrleulrural labour,rs

Flgur,s In par.nth.s.s ar. lntern.l r.t. of r.turn wh.n the subSIdy amount IS ta'.n .5 loan.

278

The net present value. as pointed out earlier,

is a function of the discount rate. For the purpose ot

the analYSiS, three discount rates (10 %, 12 % and 20 X)

are used. (The interest rate charged on the dairy loans

is 10 per cent, the opportunity cost of capital, usually

taken as 12 per cent in India and to indicate a higher

rate of return 20 per cent has been taken into account).

When the imputed cost ,tems are ,ncluded ,n the

calculat10ns, the present values worked out to Rs.2705,

Rs.2493 and Rs.1850 respectively for three

rates the case of small farmers in block

average investment 1S RS.2057

interest

I .

and

The

th1S

1nvestment has been justified when the d,scount rate 1S

at a llttle aver the 1nterest rate l.e., 12 per cent.

In the case of marginal farmers ln block I

the present values worked out to Rs.3340, Rs.3078 and

Rs.2284 respectively for the three discount rates. The

average initial investment is Rs.2150, and thls

lnvestment has been Justifled even when the dlscount

rate has been taken at 20 per cent. The net present

values in the case of agricultural labourers ln the same

block are very low (Rs.1204,Rs.1119 and Rs.859

respectively for the three discount rates) agalnst the

average initial investment of Rs.2500 and even at the 10

per cent interest rate level also the investment

justified.

279

lS net

In block II the average initial lnv •• tm~nt 01

the small farmers, Rs.2000, has been justified at 10 per

cent level but not at 12 and 20 per cent levels since

the present values worked out are Rs.2005, Rs.1550 and

Rs.1143 respectively for the three discount rates.

However, the average initial investment of Rs.2000 1n

the case of marginal farmers of the same block has

been justified at all the three interest rates since the

present values are Rs.2963, Rs.2738 and Rs.2062

respectively for the three discount rates.

initial investment made by agricultural

The average

labourers 1n

block II is Rs.2000 and this has been justif1ed at flrst

two interest rates - Rs.2764 at 10 per cent and

at 12 per cent - though it is not justified at

Rs.2594

20 per

cent since the present value is Rs.1925 at this rate.

The significant point is that the upper

(when imputed costs were excluded from the calculations)

indicates substantially higher present values in the

case of all the beneficiaries. However, 1n the case of

agrlcul tural labourers in block I the present values

are llttle lower when compared to others.

The internal rate of return also shows a

similar tendency as in the case of net present value.

It is (IRR) 22 in the case of agr1cul tural labourers

and for all others it is more than this value. For all

280

the categories, the JRR .s faIrly reascnabl •.

the imputed costs e><cluded, the IRR for the

categories turns to be more than 50. The pOInt to be

noted here is that in the absence of subs.dy amount tile

IRR was found much lower as shown In Table 7. 1 . That

• s, when the subsidy amount also taken as loan, then the

JRR the case of dairy schemes of sma I I farmers,

margInal farmers and agrIcultural labourers In block

was found as 20, 20 and 5 and In block II It vIas 10, 15

and 25 respectively.

The benefit-cost ratlDs are around 1 .21

the case of small farmers in block I, I.e., for every

rupee worth of cost incurred, the return IS 1 .21

the cost included the imputed values. ThIS rat10

higher at 1.31 in the case of marginal farmers of

the bloCks.

realise a

However, the small farmers In

lower benefit-cost ratIo at 1.18.

block

And

laJhen

IS

both

I I

the

agricultural labourers in block II have hIgher ratIo of

1.32

block

(at 12 % d r) comparing to the.r counterparts

I who have a lower ratio of 1 . 13. Though

investment in the milch cattle can be Just.fled .f

1n

the

the

benefit-cost ratio is more than one, the agr1cuiturai

1 abourers In block I, as seen earller In the case of

net present value, are not having a comfortable beneflt-

cost ratio compared to others. When It is worked out

excluding the imputed costs, the benefIt-cost ratiOS are

281

doubled to

the blocks except the agricultural labourers in block I.

Repaying Capacity

The financial viability of the scheme depends

also on the beneficiaries' ability to repay the loans

without affecting their other activitIes. In

otherwords, the receipts from milk supply should be

sufficient to meet the repayment obligatIons and the

expenses required for maintaining the cattle. Most of

the benefiCIaries sold their milk through mIlk co­

operatIve societies, and a portIon of the value of milk

has been deducted by the societies for loan repayment.

Thus, the amount paId by the mIlk societies to the

benefiCIarIes should be sufficient to meet the out-of­

pocket expenses on the cattle.

Expected Net Return from Dairy Scheme with ~ Buffalo

The following are the assumptions on the baSIS

of which the repaying capacity has been worked out on

per animal, per lactation and per annum baSIS.

i ) Beneficiaries feed their mIlch animals

adequately with concentrates and fodder-both

green and dry,

282

i i )

iii)

i v )

v)

V I )

The lactation period lasts for 300 days,

The per day mi lk yield is

For the first 120 days - 8 litres per

For the second 90 days 5 litres per

For the th i rd 60 days 3 litres per

For the fourth 30 days 2 litres per

The prIce of per litre milk is Rs.2.25.

The income from the sale of cow-dung,

butter milk is Rs.l00 per annum

The cost Involved per day to maIntaIn

animal is

LactatIon perIod for the first 120 days Rs.6 per

for the second 90 days Rs.5 per

for the th i rd 60 days Rs.2 per

.-~-=

day

day

day

day

and

the

day

day

day

for the fourth 30 days Rs.1.50 per day

Dry period - for 65 days Rs.2 per day

V II)

vii i)

i x )

Other expenses (,ncluding veterInary expenses,

rope and bucket) per annum is Rs.100.

The capital expenditure on cattle shed IS zero

The value of own fodder is not taken Into

account and the opportunity cost of famIly

labour is taken as zero.

283

,,)

or more

paying

There eMists no difference between the

blocks and/or between the three categories 01

borrowers in the feeding practlces,

yield, cost of inputs and price of milk.

The worked out figures are:

Total milk yield 1650 llters

Income from milk Rs.3712.50

Income from other sources Rs. 100.00

Tot ali ncome

Cost of milk production

Other expenses

Total e"pendi ture

Net Income

Loan amount deducted

Surplus income left to the beneficiary

Rs.3812.50

Rs.1465.00

Rs. 100.00

Rs.1565.00

Rs.2247.50

Rs.l000.00

Rs.1247.50

m 11k

Thus,if a beneficiary is left with Rs.1247.50

per annum, after meeting the expenses and

the loan instalment, then the dairy scheme

undertaken by the beneficiary can said to be a Viable

proposition. By assuming that the remaining loan amount

will be deducted in the next lactation, it can be

inferred that two years after the loan the beneficiary's

economic position improves Significantly.

At the same time, if the value for own labour

is imputed at Rs.3 per day then the surplus generated by

284

,.

the scheme becomes insignificant tRs.1247.50 - Rs.I095 =

Rs .152.50).

Now it is intended to compare the above worked

out anticipated income and repaying capacity with the

field level data. For this purpose the data collected

from both the beneficiaries and milk societIes are used.

The unIform pattern of deducting the loan amount from

the benef1ciaries by the m1lk societIes is absent 1n the

study

Into

v11lages. However, the averages have been taken

account to indicate the repaying capacIty of the

benefICIaries. The data are related to one lac tat 10n

perIod and given 1n Table 7.2.

The net addition to lncome due to daIry

enterprise varies from Rs.28b for agrIcultural labourers

In block I to Rs.1200 for marginal farmers of the same

block. The deductions towards loan do not add

financIal stra1ns on the beneficiar1es 1n the sense that

they need not raise addit10nal resources for meetIng the

out-of-pocket expenses incurred on cattle keeplng.

However,

deduct1ng

labour.

terms the

marginal

the net additlon to income is arrived wlthout

the imputed cost for fodder and domest1c

The above figures indicate thet In absolute

small and marginal farmers in block I and

farmers In. block II are reallslng hIgher

income than others.

285

Table 7.2

Average Value of Milk Supplied, loan Repayment and II,t AddItions to Incooe of the SelECteD Dairy loan BenefIcIaries

(In Rs. J

-----------------------------------------------------------------------------------------------Block/Category Average value Average amount M of Ilel addltloo DifferEnce of benefICiaries of .ilk deducted by pocket to InCO:f bet ... n the

supplied to sOCIeties for IMI - 101 e'penses IH-DI-E expected the .ilk loan (EI HI InCOIt and sOCIety per repayoent the actual lactatIon (HI (01 Incoaf

---------------------------------------------------------------------------------------~l

MargInal farmers 3445 1075 2370 1170 1200 47.50

2 Small tarlfrs 3054 1028 2026 lObO 966 29l.50

3 Aqricultural labourers 2021 1000 1021 m 2ab 961.50

~ll

Marginal faroen; 2499 1000 1498 Bl0 559.50

2 Small farurs 2123 1000 1123 700 m 824.50

3 Agrlcul tural labourers 2176 1000 1176 635 541 70b.50

If the expected net addItIon to lnCDme IS

taken Into account (Rs.1247.501, then it IS only the

marginal farmers in block I satisfy thiS norm. And for

all others the difference between the two v.lues has

been found high. This indicates that though the

beneficiaries are left with some surplus, It IS grossly

inadequate to make them economically vIable.

286

SECTION - II

Financial Viability Analysis Minor Irrigation Schemes

In Section II of Chapter VI, the costs and

benefits of each minor irrigation scheme and the net

income accrued to the sample farmers have been analysed.

In thIS section the financial benefit cost analysIs for

each scheme has been attempted in order to asses the

viability of the investment made in that scheme. The

benefit-cost ratio and Internal Rate of Return (IRRl are

computed for all the schemes separately. The method of

calculation

elaborated

of both benefits and costs has been

In Section II of Chapter VI. BenefIt-cost

ratIOS, (il without imputed costs and (il) WIth imputed

costs have been worked out for each scheme. The

Internal Rate of Return has been worked out tor three

situations:

il When only paid-out costs are included In the cost

Item, (situation A).

11) When the imputed costs also are Included WIth the

paid-out costs, (situation 8), and

1 i i ) When the subsidy component is lncluded In the

cost

part

of investment, I.e., subsidy treated as a

of loan to be repaid Wl th Interest

(situatlon C).

2B7

The third situation, it is hoped, will swplain

the importance of subsidy in the m1nor irrigation loans

to the small borrowers.

The details of the worked out results have

been given 1n the Appendices C and D. In wha t follows

is the scheme-wise financial viability analys1s.

1.New Well Scheme

The parameters of the viab1lity analys1s have

been computed subject to the following assumpt10nsl

1) The life of the well 1S 40 years.

ii) The life of the pumpset is 15 years.

11 i ) The pumpset is replaced during the 11fe of the

1 v )

well and the salvage value of I P set is taken

as 10 percent of the original cost.

The development benefit flow has the follow1ng

characteristics:

(a) No benefits accrue in the first year of well

construction since it continues for aver SlX

* months.

* In some cases the work will be over 1n less than six months but they have to wait for electr1c1ty connection; sometimes it takes more than a year to get the connection.

288

' .. _--_.'-

(b) Only 50 percent of the additional benefits is

realised in the second year.

(e) Total benefits start flowing after third year

v)

vi)

onwards.

The desilting of well and other repair work

for well are carried out every fIfth ** year.

The viability analysis assumes water table to

*** be constant over the life of the well.

The BIC ratio happens to be the same nable

7.3) for both the categories indicating a POSitive, If

not very high, returns from the scheme. However, the

IRR is high In the case of marginal farmers compared to

the small farmers. When the imputed cost is included,

the IRR becomes very low, and at the same time SIC ratio

also equals to one Indicating that the cont·rlbution of

own human and animal labour is making the otherWise non-

VI ab 1 e scheme into a Viable scheme. It is Interesting

to note that when the subsidy amount is Included In the

cost

-----

**

***

(situation C), the JRR is reduced In the case of

Based on the observations collected from the sample farmers.

The water table situation 1n Block-I IS

normally stable over the years With rarely the wells becoming dry.

289

•

· ..

Table 7.3

Financial Viability Analysis -New Well Scheme

--------------------------------------------------------Category of farmers

Benefit-cost Internal Rate of Return (%) Ratio at lOY. -------------------------

Situa­tion A

Si tua­t10n S

Sltua­tion C

--------------------------------------------------------

1 Marginal Farmers

2 Small Farmers

1 .29 ( 1 .05 )

1 .30 ( 1 .04 )

20

12

5 B

3 15

Note: Figures 1n brackets are SIC ratios when imputed costs included in the total cost.

marginal farmers indicating the importance of SUbSidy to

the small borrowers to undertake schemes like digging a

new well.

2 Deepening of well

The parameters of the financial

analysis of this scheme have been computed subject to

the follow1ng assumptions:

290

i i )

iii)

1 V )

.~ ----.. - ~--- , ...

The period of analysis has been taken

* years.

as 10

The desilting of well and other repalr works

** will be carried out in the fifth year.

The water tab lei s assumed to be constant

over the period of analysIs.

The additional benefits are realised from the

fIrst year onwards.

The detaIls are gIven in Table 7.4.

As far as th1s scheme 15 concerned, 1t IS very d,ff,cult to predIct the expected l.fe of the add.t,onal depth achIeved. Moreover, there .s no unIformIty In our sample regarding the depth at WhICh the well was dug further and the addItIonal depth achieved with the help of the loan, etc., However, the benefIts received by sample farmers In terms of lncrease 1n area under irrigatIon and changes in croppIng intensity, have already been d,scussed in SectIon II of Chapter VI. In VIew of the above facts, while applYIng the test of finanCIal VIability, the maXImum permIssIble repayment perIod and not the actual expected lIfe of thiS scheme, has been taken into account. The repayment period varied between 6 and 10 years; the upper lImit of the repayment perIod allowed by the banks, IS 10 years, so thIS has been taken Into account.

** Based on the observations collected from the sample farmers.

291

Table 7.4

Financial Viability Analysis - Deepening of well Scheme

-------------------------------------------------------Block and Benefitl In t e rna I Rate of Return ( 'l. ) Category cost ---------------------------------of farmers ratio at Situa- 5itua- 5i tua-

10% t ion A t ion B t ion C --------------------------------------------------------

Block L

1 Marginal Farmers

2 Small Farmers

Block li

1 Marg1nal Farmers

2 Small Farmers

1. 55 ( 1 .09)

1 .75 ( 1 . 32 )

1 .52 (1.29 )

1.55 (1.10)

50 12 35

> 50 50 > 50

40 20 30

> 50 15 50

Note: Figures 1n parentheses are BIC ratIOS when Imputed costs 1ncluded in the cost.

It is interesting to observe high Blc ratIO as

"J ell as IRR all the cases, making the scheme

fInancially viable one. However, in sltuat10n B, both

the Blc ratio and IRR have been reduced considerably.

In SItuation C, the IRR values indicate that even if the

subsidy component 1S taken as a part of the loan, the

scheme wi I I be financially viable to the small

borrowers.

292

3. Oil Engine Scheme

The paramters of the viability analysIs under

this scheme have been computed subject to the

assumptions:

( i ) The life of the oil engine IS 10 years.

( i i ) The engine is repaired every year; and

<i i i ) The salvage value at the end of 10 years

is 10 percent of the original cost.

Table 7.5

Financial Viability Analysis - Oil Engine

Block and Benefit/ Category cost of farmers ratio at

10%

Block 1.

1 MargInal Farmers

2 Small Farmers

Block li

1 Marginal Farmers

2 Small Farmers

1.30 (1.15)

1.59 ( 1 .30 )

1.62 (1.17>

1. 70 ( 1 . 23 )

Internal Rate of Return (%)

Situa­tion A

> 50

> 50

) 50

) 50

SItua­tion B

18

) 50

50

50

Situa­tIon C

> 50

) 50

) 50

) 50

Note: Figures in the parenthesses are B/c ratIos when imputed costs included in the cost.

293

This scheme has been financially viable to all

the farmers and it provides a higher Sic ratio combined

with a higher rate of IRR. Except in the case of

Marginal Farmers in block I whose IRR is very low in

situation B, on the whole, in all other Situations the

IRR is 50 and above 50. It is interesting to note that

in situation C all the four calculated values of IRR are

above 50.

Further, all the three schemes studled were

found as financially viable in terms of their benefit-

cost ratio and internal rate of return. However, under

two sltuations: (i) when the imputed costs were included

in the cost of the scheme, and (ii) when the SUbSidy

component was also considered as loan - the values of

both benefit-cost ratio and internal rate of return got

reduced. ThiS particularly happened ln the case of new

well and deepening of well schemes and was conspiCUOUS

in the case of marglnal farmers who undertook the

schemes.

above

The above findings imply that the small and

marginal farmers need subsidised loans to undertake the

mlnor lrrigation schemes; and their access to the

lnfrastructural facilities has to be improved to enable

them to realise the intended benefits.

294

This scheme has been financially viable to all

the farmers and it provides a higher B/c ratio combined

with a higher rate of IRR. Except in the case of

Marginal Farmers in block I whose IRR is very low ln

situation B, on the whole, in all other sltuations the

IRR is 50 and above 50. It is interesting to note that

in situation C all the four calculated values of IRR are

above 50.

Further, all the three schemes studled were

found as flnancially viable in terms of their benefit-

cost ratio and internal rate of return. However, under

two sltuations: (i) when the imputed costs were lncluded

ln the cost of the scheme, and (ii) when the subSldy

component was also considered as loan - the values of

both benefit-cost ratlo and internal rate of return got

reduced. This particularly happened ln the case of new

well and deepening of well schemes and was consplcuoUS

ln the case of marglnal farmers who undertook the

schemes.

above

The above findings imply that the small and

marginal farmers need subsidised loans to undertake the

mlnor irrigation schemes; and their access to the

lnfrastructural facilities has to be improved to enable

them to realise the lntended benefits.

294

r~ ,~ 1 I~ ','

1 n

Srlvalsava analysed sct1cmc InItIated by U it r'od if dIstrIct

tho vlaolllty

a commercIal (Gu)ardtl by

,j'c',lnn <..:.amplc':, from bIg, medium and small ~ ,,1 ,:',I'f'~, ld,C) l·J('t"(-' 11nJ.nc~d to undertake daIry

·.t:~d'(:,'· Ttley took ttle 0PDor'tun I ty cost 01 ,'. ),ltJ{,\jr '-).':. zero. George P Sand

. ,

'.' ,.'

.;','" \J L Instltutional Finance for ·1··.·(·ln;lr.il'nl, OD. Clt. 1975, p. 90 .

!-, '"1" ,~t l~~n<-, maelc-' by Gl ttlnger regardIng

",J! I" t'

,. (" 1

1 ("PI] t 1 nrJ :; 1 I. t. 1 r I {.1 l' r" ,

t ' ( • r- 1 ell 1 t \ 1 r' ;1 1 --- ---

ttle 1 ilbour cost ldere F'riCl..', J., Economic Pro)C'cts, B""ltlmore .. i!, ( ; (~ ~ , r -, ' Ilur.;1 lns Unlvc-rslly Press,

CHAPTER VIII

SUMMARY OF FINDINGS AND CONCLUSIONS

In this chpater, a summary of theoretical

Issues discussed and findings of the empirical analysis

carried out and the suggestions emanating from the

findings have been outlined.

sma 11

A positive discrimination in favour of poor

and marginal farmers, agricultural labourers and

rura 1 artisans in the credit oriented rural

development programmes and schemes has been observed

Since late nineteen seventies in most of the developing

countries including India. The organised financial

institutions in these countries [Primary Agricultural

Credit Cooperative Societies (PACS), Commercial

and Regional Rural Banks (RRBs) in the case of

Banks

India]

are required to involve themselves in providing loans at

concessional interest rates to those people identifIed

as poor by the state agencies or departments

DIstrict Rural Development Agency (DRDA) in India}. The

role of organised financial institutions, more

speCifically commercial banks, in the proviSion of cheap

296

credit has received both acclaims as well as criticisms

from the economists world over.

Theoretically, one school of thought favours

the involvement of such organised financial institutions

in the subsidised, low interest, credit programmes for

the following reasons:

1) to relieve the rural poor from the clutches of

11)

11 i )

non-institutional credit sources I ike village

money lenders, who not only charge exorbitant

interest rates on poor but in the process squeeze

off their productive assets.

to enhance the participation of rural poor

the production process there 15 a need

in

for

external financial assistance as they are cap1tal

starved.

interest

By granting the poor adequate low

rate loans to acqUIre new assets or to

improve the utilisation of existing assets, theIr

employment and income levels could be 1mproved.

as the utilisation of infrastructural fac1lItIes

and services is found positively associated with

the assets (land holdings, more speCIfically) of

rural households, there arises a need for

improving the access of the rural poor to such

facilities and services by improving theIr asset

base.

297

Hence, it is argued that by a change in the

policy orientation of the organised credit institut1ons,

the assetless and low-capital-base poor also can be

financed adequately which will help them to become

financially viable. And in the process the credit

worthiness of the poor will also improve.

Contrary to the above perspective, another

school of thought disfavours bringing into the scene

financial institutions to provide cheap credit to the

poor on the following grounds.

i )

1 1 )

The government interference, in any form, in the

banking structure 1S not desirable. The 1nterest

rates to be charged by the banks should be left to

the market forces to decide, and not to the

government. The administered structure of interest

rates,

c red i t

under which interest rates on deposits and

are specified and so also the mandatory

allocat1on of credit for specif1c sectors w1th

varying degrees of concessionality,

the banking system.

will distort

As the capital is scarce in developing countr1es

its allocation and use should base on ltS return.

However, in the process of serving a large number

of small borrowers the viability of f1nanclal

298

institutions may be eroded. That is, they can not

all oc at e the capital where the returns are very

high; instead, the capital is siphoned to cheap

credit schemes.

iii) The special programmes and schemes could better be

directed towards the improvement in the functioning

of product markets and e~tension services and

stabilisation of prices, which are, rather, more

powerful in determining the economic viability of a

poor person, say a small farmer, than the credIt

avaIlability.

Hence, the state should not Interfere In the

working of financial institutions either by fIXIng the

Interest rates or by llmiting their portfolio

allocations.

Yet another school argues that, without

disturbing property and social relations which presently

prevail in the rural areas of developing countries, no

amount of rural development programmes, even If they are

Implemented by application of business management

methods and sophisticated technologies, would succeed in

the upliftment of the poor. That is, gross inequalities

in the distribution of land, and other assets reduce the

impact of technological advances on employment and

levels of living among the poor. This school of thought

299

is against the attitude of helping th~ poor tv i th

subsidies and free doles by the government and the non-

governmental

tions.

organisations (NGOs)/voluntary organisa-

The controversial view pOInts apart,

empirical/field situation in the rural areas

developing countries like India is more complex

the

of

and

compl icated. The strategies followed by the government

of India, to improve the economic condItions of the

rural poor, time and again, orient with the involvement

of credit institutions. Prior to the nationaiisation of

major commercial banks in 1969, it was cooperatIve

credit societies which were expected to playa catalytic

rol e in the agricultural and rural

programmes. But after 1969, the commercial

development

banks and

their foster-child Regional Rural Banks (RRBs) WhICh

were established in 1975, are increasingly Involved In

fInancing the rural oriented schemes and programmes.

The perspective on which the rural development

programmes are formulated and implemented in IndIa IS on

the lines of "Rural Development: Sector Policy Paper"

of the World Bank (1975). The paper observed that

·'Rural Development is a strategy designed to improve the

economic and social life of a specific group of people -

the rural poor. It involves extending the benefits of

300

development to the poorest among those who seek a

livelihood in the rural areas. The group includes small­

scale farmers, tenants and landless".

In India, the thrust of rural credi t pol icy

has been on the provision of timely and adequate flow of

credit, especially to meet the requirements of small and

marginal farmers and the weaker sections of the SOCiety,

such as agricultural labourers and rural artisans. The

Seventh Five Year Plan Document (1985-90), Government of

India, listed the following as the instltutlonal

policy:

credlt

i 1

11)

To secure an

institutional

development;

To direct a

increase in the total volume of

c red i t for agricul ture and rura I

larger share of the credit to the

weaker sections;

i i 1) To reduce the regional imbalances ln the

1 V 1

v)

availability of credit;

To bring about greater co-ordinatlon between

different credit

agency system; and

institutions under the multl-

To improve the recovery of institutlonal loans to

ensure continuous re-cycling of credit.

301

Hence, in accordance with the above policy, a

large number of rural poor oriented programmes

Integrated Rural Development Programme ( I RDP )

like

and

Differential Interest Rate Scheme are under the process

of implementation and the commercial banks and RRBs are

taking care of the loan component; the subsidy amount is

sanctioned to the beneficiary by the government

the DRDA.

through

The secondary data analysis on the growth of

rura 1 credit in India shows a phenomenal growth of

commercial banks and RRBs in terms of number of

branches, deposits, credit disbursement, priority sector

advances and coverage of small borrowers ln the rura 1

areas (Chapter I I I).

The mechanism by which these banks flnance the

rural poor can be briefly stated as below:

The specially designated agency called DRDA at

the district level with the coordinatlon of respectlve

Block

Level

persons

Development Offices (BDO) and help of Vlllage

Workers (VLWs) identifies the eligible/poor

from the rural households by conductlng an

economic survey on such households.

After the survey, with the help of credlt

institutions (which are coordinated by the Lead Bank of

the district), bankable schemes/projects are prepared

302

<District Credit plan). While formulating such schemes,

the resource endowment/potential of a particular region,

and the level and availability of infrastructural

facilities are taken into account. That IS, area

specific, resource oriented, technically feaSible and

financially viable schemes are prepared.

The identified beneficiaries, In accordance

wi th the schemes formulated (such as dairYing, minor

irrigation, animal husbandry, artisans development), are

supplied with assets like milch cattle, sheep, goats,

bullocks,

implements,

bullock carts, tyre carts, tools and

oil engines and electric motor pumpsets.

Also, under minor irrigation schemes, the financial help

is extended to dig a new well, deepening of well and for

laying pipe line. To acquire these assets and to

improve the farming activities the loans are prOVided by

the financial institutions along with a subSidy from the

government. It is sufficient the beneficiaries repay

the loan component. The rate of subsidy IS fixed on

the basis of beneficiaries' economic as well as SOCial

status - 25 per cent for small farmers, 33 per cent for

marginal farmers and agricultural labourers and 50 per

cent for schedule caste agricultural labourers and women

beneficiaries.

303

(District Credit plan). While formulating such schemes,

the resource endowment/potential of a particular region,

and the

facilities

specific,

level and availability of

are taken into account.

resource oriented, techn1cally

financially viable schemes are prepared.

The identified beneficiaries,

infrastructural

That 1 S , area

feaSible and

1n accord anc e

wi th the schemes formulated (such as dairY1ng, mInor

irrigation, animal husbandry, artisans development), are

supplied with assets like milch cattle, sheep, goats,

bullocks, bullock carts, tyre carts, tools and

implements, oi 1 engines and electric motor pumpsets.

Also, under minor irrigation schemes, the financ1al help

is extended to dig a new well, deepening of well and for

laying pipe line. To acquire these assets and to

improve the farming activities the loans are prov1ded by

the financial institutions along with a SUbS1dy from the

government. It is sufficient the beneficiar1es repay

the loan component. The rate of SUbS1dy 1S flxed on

the basis of beneficiaries' economic as well as SOCial

status - 25 per cent for small farmers, 33 per cent for

marginal farmers and agricultural labourers and 50 per

cent for schedule caste agricultural labourers and women

beneficiaries.

303

It is expected that due to the enhanced asset

position and improved utilisation of existing assets,

the beneficiaries' employment and income

increase.

levels would

Section

The

I I )

review of empirical studies (Chapter

highlighted certain drawbacks

II,

the

implementation and in

specially designed

the working of

for the poor.

the schemes

Improper

identification of beneficiaries leading to

misutilisation of schemes, more particularly in respect

of the subsidy component, was brought out by some

stUdies. A few studies pointed out the lack of

supervision and follow-up by the block and bank

officials as the reasons for the poor performance of the

programmes leading to the problems of loan recovery and

the overdues. These drawbacks notwithstanding, some

studies did find improvement in the economiC condition -

in terms of assets, employment and income of the

beneficiaries after availing the loan.

The approaches followed by the earlier studies

to analyse the impact of special schemes on the poor not

only varied widely, but also their objectives and scope

were found to be varying. A very few studies worked

out the Viability of the loans provided to the small

borrowers. The shortcomings and drawbacks of the

304

earlier studies/approaches with respect to samplIng,

measurement, etc., were pOInted out (Chapter I I ) .

Keeping in view the research gaps CIted, the pr-E'sent

study was taken up.

The study focusses on the small borrowers who

have availed institutional credit and examInes VarlOUS

aspects relating to it. To elaborate, the study has set

before itself the following objectives:

( i )

( i i )

(iii)

( i v )

To study the procedures of benefICIary

identification

banks;

and project formulation by the

To examine the accessibility of the selected

small borrowers to the bank credit, lnfrastruc-

tural facilities and services;

investigate into the utilisatlon pattern of To

the loans borrowed by the selected small

borrowers;

To assess the changes in the economIc

of the selected borrowers between the

post-loan periods;

condItIon

pre-and

(v) To find out the rate of return on the investments

(v i )

made by

viability

borrowers;

To examine

the small borrowers and the fInancial

of the loans sanctIoned to such

the loan repayment performance of the

selected borrowers.

305

In order to conduct the present

Coimbatore district in the State of Tamll Nadu,

study,

India

was purposively selected by keeping in mind certain

like the relative concentration of indicators

agricultural labourers, the allotment of funds for the

benefit of small borrowers and the performance In th"

implementation of special schemes. On the basis of

similar

blocks

(Block

(Block

indicators referred above two blocks out of 21

in the district were selected Madathukulam

I ) , a relatively developed area and Pongalur

II) a less developed area. On the basis of an

analysis carried out on the credit-oriented schemes

implemented for the benefit of small and marglnal

farmers and agricultural labourers in these two blocks,

two relatively important schemes namely, mlnor

irrigation scheme and dairy loan scheme only were taken

up for the study. Under minor irrigation scheme, three

types were distinguished: new well, deepenlng of well

and oil engine.

under

Credit facilities to prospectlve beneflciarles

the two selected schemes were found to have been

implemented through commercial bank bra<lches and/or

Primary Land Development Bank operating in the two

selected blocks respectively. Hence, beneficiary lists

those of the selected schemes were obtained from

branches for the purposes of the field investigatlon.

306

All the borrowers who borrowed mlnor

irrigation loans for digging new well, deepEning of well

and to purchase oil engines from the above said

institutions between 1978 and 1982, together numbering

74, (40 from block I and 34 from block II) were selected

to conduct the survey. In the case of dairy scheme

however, as the number of beneficiaries was very large

by adopting random sampling method 187 beneficiaries

(108 from block I and 79 from block II) from the three

categories of borrowers, namely, small farmers, marginal

farmers and agricultural labourers were selected.

The primary data collected was tabulated and

analysed by using the statistical tools and methods like

averages, percentages, regression analysis, and ratios

and financial viability analysis.

has been classified schemewise

facilitate a comparative analysis.

The collected data

and categorywise to

To find out the impact of dairy loans on the

income, employment and asset position of the selected

beneficiaries, two methods have been adopted. The first

one is the inter-temporal (before-after) method wherein

the post-loan income, employment and asset position of

the selected beneficiaries have been compared With that

of their pre-loan levels. The differences found between

the two points of time are attributed to the impact of

307

,

the loan. The second method is the cross-sectional

analysis in which the income levels of the selected

beneficiaries are compared with that of selected non-

beneficiaries and the difference in income level of

beneficiaries, if any, has been attributed to the impact

of the financed schemes.

Further, to capture the impact of dai ry loans ln

a comprehensive manner, the income and employment of the

selected small and marginal farmers, who took dairy

loans have been classified into three categorles: net

farm Income and employment, net non-farm income and

employment and net income and employment from dairying.

The pre-loan levels of these three categorles of income

and employment are compared with that of post-loan

levels to reveal the impact of dairYlng. Similarly, the

income and employment levels of selected agricul tural

labourers have been classified into three types: wage

employment and income, employment and income from other

than wage labour and employment and lncome from

dairying. The pre-loan position with regard to the

above mentioned three categories of income and

employment has been compared with that of post-loan

position to find out the impact of dairy loans.

Apart from the above, a productlon functlon

has been used to know the influence of selected

independent variables on the milk production. And to

308

evaluate the financial viability of the dairy loans four

criteria are used. They are, (i) Pay-back period,

(iii) Benefit-cost ratio, and

<l i )

( i v ) Net present value,

Internal rate of return.

To work out the lmpact of minor IrrIgation

schemes on the farm economy of the selected small and

marginal farmers, the inter-temporal approach (before

and after the loan) has been adopted. The changes which

are observed in the case of selected variables due to

the minor irrigation works undertaken by the selected

beneficiaries have been attributed to the impact of such

loans. The details of variables selected, the methods

of computation of cost and value of output are discussed

in the respective sections of the relevant chapter

(Chapter VI). To measure the financial viability of

benefit-cost minor irrigation loans two criteria: (i)

rat io and (i i) internal rate of return, are used.

The important findings of the study are as follows:

Dairy Sc:heme

While identifying the eligible beneflclarles

for dairy loans no household survey was done in both the

blockS. The beneficiary lists were prepared by VLWs

arbitrarily with th~ help of secretaries of MPC5s.

309

The literacy rate among the selected

agriculture labourers was found to be very low compared

to that of the small and marginal farmers.

The access to the MPCS, of the selected

beneficiaries was fairly satisfactory. However, in one

village the Scheduled Caste agricultural labourers are

deliberately not allowed to become members on social

considerations. This social barrier has become a major

limiting factor in the way of economic 1mprovement of

such labourers.

The access of the selected beneficiaries to

the bank credit for a second dairy loan or crop loans

was found very low even in block I which 1S better

placed in terms of banking facilities. Simi I ar ",as the

case wi th their access to veterinary hosp1tals and

cattle insurance. This implies that the mere presence

of financial institutions (banks, ASCS), and veterinary

hospitals does not have any impact on the small

borrowers unless they are made to utilise such

facilities.

The overall percentage of misut1lisat1on of

dairy loan was found as 17.6. In other words, 33 out of

187 beneficiaries selected were found to have sold thelr

mi lch animals at the time of field survey. Low mllk

yield was the reason attributed to this phenomenon. As

they were supplied with low quality animals

unremunerative and hence the sale of animals.

310

it became

Returns to Investment in Dairy Scheme

Marginal Farmers

Sma 11 and

Those beneficiaries who were able to continue

maintaining the milch animals realised an inc re ase in

their income. The average net income from daIrYIng has

increased from Rs 360 (before the loan) to Rs 1746

(after

8lock-I

the loan) in the case of marginal farmers In

and from Rs. 227 to Rs. 835 for their

counterparts in 8lock II. In the case of small farmers

in 8lock-I the increase has been from Rs 457 to Rs 1531,

and for their counterparts in 8lock II the increase has

been from Rs 478 to Rs 822. The increase in income has

been more pronounced in the case of marginal

than small farmers.

farmers

The rate of return per rupee invested IS

higher in the case of marginal farmers followed by the

small farmers in Block I. However, it is very low in

the case of small and marginal farmers in Block II. The

point to be emphasised here is that when the incremental

income-investment ratio is worked out for the ac tua 1

loan amount sanctioned, the ratios turned out to be very

low. Had they purchased the animals for the entire

amount without any leakage the rate of return would have

been higher than what is obtained here.

311

.. "--,

The level of income of the non-benellclary

households of both small and marginal farmers In the two

blocks is found lower than the beneficIary households.

Significant improvements ln the employment

level and asset position (especially llvestockl of the

selected small and marginal farmers In both the blocks

are observed.

The production function analYSIS carrIed out

revealed the significant influence of concentrates all

cakes, cotton seed and rice bran on the value of mIlk

production (in the case of small and margInal farmers).

The loan repayment performance of the selected

small and marginal farmers in both the blocks was found

satisfactory. The percentage of benefICIarIes who

repaid the loan according to schedule of payment was

very high (75 Xl in the case of margInal farmers In

block I and was low (36 Xl in the case of theIr

counterparts in block II. This percentages were 55.5

and 50 in the case of small farmers in block r and r I

respectively. Two factors which facilitated the loan

recovery were the membership of the selected farmers In

MPCS and the tie-up arrangement that existed between the

MPCS and the branches of commercial banks In the study

area.

312

Dairy Scheme and Agricultural Labourers:

The impact made by the dairy scheme on the

employment level and the asset position of the selected

agricultural labourers was found as significant.

Mean differences between pre-and post-loan

incomes and their significance tests revealed that both

the sub-groups - SC labourers and 'other labourers' - in

the two blocks have registered a significant (at 1 per

cent level) increase in their net income from dairying.

But the level varied across the blocks and social

groups. In absolute terms the increase in the net

income of SC labourers was Rs 303 and Rs 375 In block I

and block II respectively. The corresponding figures

for other agricultural labourers were Rs 428 and Rs 497.

The rate of return per rupee invested in dairy

scheme was found as very low in the case of all

labourers. The reasons attributed to this situation

were the low milk yield and poor maintenance of the

milch animals by the beneficiaries.

When the total household income of

agricultural labour beneficiaries was compared with non-

beneficiary households of the same category, the

difference in their income was found to be considerable.

Due to the higher income from dai rying, the

313

benef,ciary SC and non-SC households are better placed

than the corresponding non-beneficiary households.

The results of production functlon analysIs

for the category of agricultural labourers considered

together show that the selected independent variables

namely, value of fodder and value of concentrates In

case of beneficiaries in block I and the value of

concentrates and labour expenses in case of block I I

significantly influenced the value of mllk productlon.

The loan repayment performance of the

agricultural labourers, particularly those belonglng to

SCs, was poor. That is, the percentage of cases of

default was found very high in the case of above

mentioned category of agricultural labourers in both the

blocks. The reasons for the poor repayment performance

were noted to be poor quality of the anlmal reflectlng

in low milk yield and low income, poor feeding practices

and also lack of supervision by the block as well as

bank officials.

Financial Viability Analysis Dairy Loans

The financial viability analYSIS revealed the

following: The worked out pay-back perlod for the dairy

loan scheme varied from 3 to 4 years; however, when the

314

imputed costs were included in the paid-out costs, this

period increased to 6 to 7 years. The IRR was higher in

the case of all the three categories of borrowers but

turned out as very low when the imputed costs were also

taken along with the paid-out costs. The benefit-cost

ratios estimated were found satisfactory for all the

categories excepting agricultural labourers In block T.

The economic viability of the daIry scheme was

also measured by working out the repaying capacity.

When the expected net income and the actual inc.ome

realised by the dairy scheme were computed and compared,

it was found that only the marginal farmers in block I

had adequate income and relatively better repayment

capacity and these were very low in the case of

agricultural labourers in the same block. In block I I

the repayment capacity of all the three categories of

the small borrowers was found as low.

Minor Irrigation Scheme

The overall literacy rate of the selected

small and marginal farmers was found as 51 per cent.

Their membership in ASeSs and the utilisation of

benefits of the Training and Visit System (T and V) were

poor. This was mainly due to the lack of access the

selected farmers had to the services of ASeS and T & V

315

System.

credit

Similarly, the selected farmers access to bank

was poor. Only four out of forty farmers

selected had received crop loans in block I whereas in

block II none was found to have received crop loans.

In the case of all the seven farmers who

have taken loans to dig new wellS, the bank officials

undertook the project formulation exercise befor.

sanctioning the loans. For the rest of the schemes no

such detailed advance flnancial analysiS was done.

As far as utilisation of loan is considered,

only in 2 out of the 74 cases, it was found that big

farmers got oil engines in the name of small farmers.

The loan and subsidy amount sanctioned to the

selected beneficiary farmers were found adequate e)(cept

In the case of new well scheme. After the schemes were

undertaken, the following are the changes observed:

schemes

New well

enabled

scheme as well as

an increase in the

the other

area

two

under

Irrigation. A significant change in the cropPing pattern

In favour of commercial crops - was observed after the

lncrease in area under irrigation. Increase in cropping

intensity was comparatively more in block II compared to

block I. However, the value of inputs used per hectare

was more in block I than in Block II.

316

Th e studied schemes have resulted in an

improvement in the income level of the selected farmers

in varying degrees in both the blocks. In Block I, the

percentage increase in net income is higher in the case

of new well scheme; both the small and marginal

have realised increase in their income levels.

farmers

However,

marginal in absolute terms, the net income per acre of

farmers who undertook new well scheme is the lowest (Rs

1556) compared to other schemes. The net income of

small farmers has increased substantially in the case of

new

case

have

the

the

after

case

well

well and oil engine schemes and marginally 1n the

of deepening of well. On the whole, the schemes

resulted in an improvement in the income level of

sample farmers. Another striking feature 1S that

output-cost ratio has substantially been increased

the loan in the case of small farmers. In

of margInal farmers, with respect to deepening

the

of

and oil engine schemes the output-cost ratio has

decreased slightly and in the case of new well scheme It

has registered a marginal increase.

In Block I I the net income per acre ln

absolute terms is low compared to block I, the lowest

being Rs 1113 in the case of small farmers who undertook

oil-engine scheme. However, the percentage increase ln

net Income per acre of them is higher (lOB 'l.) and the

output-cost ratio also has increased marginally. As for

317

as the marginal farmers are concerned the oil engine

scheme has benefitted them most: the output-cost ratio

increased from 150 to 210 between the two periods and

their net income increased to the tune of 261 per cent.

The loan repayment performance of the selected

farmers in both the blocks waS found better. Majority

of them found to have repaid the loans promptly. The

regular repayments by some of the farmers were also

observed. The three important factors, among others,

that were attributed to the prompt repayment of loan

instalments by the selected farmers were: the subsidy

electriCIty component of the loan, tree/conLessional

charges and additional income they were able to receive

by undertaking the minor irrigation schemes. And only In

a few cases - 5 out of 38 in block I, and 2 out of 34 in

block II defaults were found. The inadequate Income

was the main reason attributed for the non-repayment of

loan.

The financial viability analysis revealed the

following:

In the case of new well scheme the benefit

cost ratio was same for both small farmers and marginal

farmers

returns

indicating a positive if not very high (1.3 Xl

from the scheme. However, the IRR is high in

the case of marginal farmers compared to the small

farmers. When the imputed cost is included, the IRR

318

becomes very low and at the same time benefit cost rat10

also equals to one indicating the

contribution of own human 1 abour

fact that

is turning

the

the

otherwise non-viable scheme into a viable activity.

When the subsidy amount is included in the cost, the IRR

1S reduced in the case of marginal farmers indicating

the importance of subsidy to the small borrowers.

80th benefit cost ratio and IRR were found

high 1n the case of deepening of well scheme. Similarly

the oil engine scheme was found as financially viable in

respect of all the sample farmers concerned and it led

to a higher benefit cost ratio and IRR. However, under

two situations: ( i ) when the imputed costs

1ncluded in the cost of the scheme, and (ii) when

subsidy component was also considered as loan

were

the

the

values of both benefit-cost ratio and internal rate of

return got reduced. This particularly happened in the

case of new well and deepening of well schemes and was

conspicuous in the case of marginal farmers

undertook the above schemes.

The above findings imply that the small and

marginal farmers need subsidised loans to undertake the

mInor irrigation schemes; and their access to the

infrastructural facilities has to be improved to enable

them to realise the intended benefits.

319

_..e: -

Suggestions

findings

the rural

In the light of the above analysis and

the following suggestions are made to improve

credit delivery system which in turn may

narrow down the 'differential access to credit' and its

effective utilisation by the small borrowers. While

doing so, the recent policy changes announced both by

the central and state governments with respect to rural

credit structure, and the latest ideas e~pressed about

the rural credit 3ystem by a few scholars are also kept

in mind.

(i) In the process of helping the rural poor

under special programmes like IRDP three agencies are

involved - the DRDA, Block Development Office (BDO) and

the financial institutions like commercial banks and

RRBs. The DRDA draws up a programme for

covering different types of activit1es

categories of borrowers amongst small

every year

and varlOUS

and marg1nal

farmers and agricultural labourers. The Block level

machinery 1S e~pected to conduct household surveys to

identify eligible beneficiaries and formulate suitable

schemes in consultation with those identif1ed. Each

beneficiary is tagged to an individual bank branch to

320

get necessary financial assistance. The subsidy amount

to the particular beneficiary is released to the

respective bank branch and the branch sanctions the loan

along wlth the subsidy. A Purchase Committee IS formed

at every block level to get quality assets to the

beneficiary. Thus, the scheme envisages close

coordination of all the developmental agencIes and

fInancial institutions at block level.

However, during the field survey was

observed that in majority of the cases the much expected

coordination

was absent.

among the above three major functionaries

The bank branch would receive the list of

benefIciaries from the block office suggesting i t to

sanction the loans. The bank would not be having any

information or record about the beneficiaries. ThIs

happens, inspite of the fact that the bank branch has

its own financial norms/scale of finance and well

prepared financially feasible schemes to suit

beneficiaries. Thus, at the beginning itself

involvement of banks was found limited. Once the

the

the

loan

and subsidy is released and the beneficiary is supplIed

with an asset, the block machinery withdraws from the

scene and the onus of recovering the loan falls on the

bank branch. The bank has to chase the beneficiarIes to

recover the loan.

321

To avoid the above described irritant in the

smooth implementation of the schemes, it IS essentIal

that there is strict adherence of the agencies to the

guidelines given to them by the government. Apart from

this, a suitable publicity in the mass-media about the

credit schemes would help to create awareness among the

rural people. The awareness created among the poor

people regarding income assessment procedures, viable

schemes, loan and subsidy component, utilIsation of the

scheme, repayment procedures, the

extension services and marketing facilities and

lncentives would go a long way ImprovIng

of

the

the

implementation and working of special schemes deSigned

for the benefit of rural poor.

.. ;"

( i i ) With respect to dairy loans the recovery

rate was very high whereever there eXlsted a close

coordination or a tie-up arrangement between the bank

branch and the MPCS. This is a clear example showlng

how an effective cooperation between two agencies brlngs

fruits to all concerned. This should be emulated by the

district, block and village level functionarles wlth

respect to other schemes too in all the places.

(iii) Provision of quality animals ensures

higher income to the beneficiary. To a benefICIary who

successfully utilises the first loan, a second loan can

also be sanctioned to enhance his income further.·

322

( i v ) Only a viable eLonomiL aLtivlty whiLh

is likely to raise the inLome level of the benefiLiary

on a lasting basis should be taken up for

implementation. The emphasis should be on finanLlng one

or two sLhemes in whiLh the benefiLiary has a genU1ne

interest. This will ensure a better utilisation and

improved returns from the sLheme.

( v ) Though the demand Lurve for mllk 1S

always steep upwards right (i.e. along with a Lontlnuous

increase in the priLe of milk) in Coimbatore distriLt

and ensures a fair inLome to those who possess m1lLh

animals, the undue emphasis given to the dairy sLheme 1n

the rural poor oriented speLial programmes should be

avoided. The reason is that the supply of good quallty

milLh animals on a sustainable basis to the prospeLt1ve

benefiLiaries is not possible. Therefore, Lal f rearing

sLheme should be enLouraged, for it is a natural

LonLomitant of dairy development sLheme.

( vi) Future availability of good quallty

mi ILh animals depends upon the importanLe attaLhed to

Lalf rearing at present. As per the DistriLt Cred1t

Plan,! Coimbatore district, by rearing two ~eifer Lalves

the beneficiary can get a net inLome of Rs 5000 to Rs

6000 after 20-24 months time. That is, the value

addition Lurve has mULh steeper upward slope after about

10 to 12 months in the Lase of Lross-bred Lalves.

323

(v i i ) For the proper utilisation of dairy

scheme and calf rearing, the feed supply and veterinary

services have to be ensured. The genetic quality of

livestock can be improved by increasingly resorting to

maintenance of the cross-bred calves. Training the

beneficiaries in management of milch animals and milk

production practices assumes significance as the cross-

bred animals are more prone to diseases. In

otherwords, the risk involved in rearing cross-bred

calves and milch animals is very high compared to the

traditional breeds. Increasing facilities for vaccina-

tion and cattle health services would reduce such risks

to a great extent.

(viii) The emphasis placed here on the calf-

rearing scheme as well as milch animal scheme is not

merely on the basis of beneficiaries' point of view but

also from the view point of district economy as a whole.

That is, the Livestock Census2

of Coimbatore district

for the years 1982 and 1987 reveals that the tot al

number of cattle has declined from 4,86,616 in 1982 to

3,35,287 in 1987 (-38 X). The number of buffaloes has

declined from 2,07,788 in 1982 to 1,54,245 in 1987

(- 25.77 X). Also it is estimated that the fodder

production in the district showed a deficit of 1.58

million tonnes in the case of dry fodder and 1 .21

3 million tonnes in the case of green fodder. Therefore,

324

the district administration can either take up efforts

to increase green fodder production besides improv1ng

the genetic quality of milch animals or can compl~tely

give up calf rearing programme. That is, it is

economically unfeasible to rear cross-bred heifer calves

under fodder shortage situation as observed by NABARD4.

( i x ) Wi thout fodder base and regular feed

supply it is highly difficult to maintain milch animals.

And it was observed that the cost of animal feed has

increased

production

much faster than the price of milk

5 during the last ten years.

and milk

So, by

increasing the production of cattle feed by encourag1ng

such industries on a large scale on a priority basis, it

would not only be possible to ensure feed supply but

also to reduce the cost of feed.

(x) The identification of diversified schemes

would base on the resource potential/endowment of the

blocks on the one hand and the existing occupational

pattern of the beneficiaries on the other. Then only

the schemes implemented assure an lncrease 1n the

employment and income to the beneficiaries.

( xi) The percentage of landless households

has been one of the highest in Tamil Nadu, 19.13, next

only to Maharastra having 21.24, while that at all-Ind1a

325

level has been 6 11.33. Apart from this, what we

observed during the field survey in the selected blocks

calls for an increased outlay on non-land based schemes,

tha t is, the exodus of both agricultural labourers and

marginal farmers to the nearby cities and towns as

construction workers. Hence, the identification of non-

land based schemes assumes more signifIcance.

As far as minor irrigation scheme IS

concerned, th e following are a few points and

suggestions that can be postulated:

(x i i) Except in a few pockets, diggIng of new

wells In block II is an uneconomic proposition as the

ground water potential of the block is already over-

7 tapped. Wherever ground water units are available,

digging of wells and deepening of existing wells could

be undertaken but with an increased scale of finance as

the labour charges have increased and the water table

has declined not only in this block but also In the

8 district as well. Further, some portion of the area of

this block receives canal water supply in alternate

years, tha t too, of course, depending upon the water

level in the Aliar Reservoir Project. The poor

maintenance of supply channels was observed during the

field survey. This can be avoided to increase the area

under irrigation and also for the efficient utilisation

of the scarce water.

326

.-.C -

In block I, there is still much scope for both

digging new wells and for deepening of existing wells as

9 per ground water surveys . It has been reported that

around 1500 more new wells/digging of the existing ones

are possible in this 810ck10

. This indicates that there

is good scope for further minor irrigation activities.

The scale of finance should be increased for all the

minor irrigation schemes - new well, deepening of well,

oil engine, electric motor pumpset, laying pipe lines

as the cost of materials as well as labour charges have

increased over the years.

(xiii) At present the electricity is supplied

at free of cost to the farmers (for irrigation purposes)

of T ami I Nadu. Earlier, only the small and marginal

farmers availed this facility (free electricity supply)

and the other farmers paid electric charges on the basis

of horse power of their motor pumpset (Rs 100 per h p

per annum, payable in two instalments). Wi th

electricity supply being free to all the categories of

farmers,

farmers

of Tami 1

it benefitted not only the large and medium

to a great extent, but also increased the loss

Nadu Electricity Board <TNES) , 1 1

as l<le 11 .

(There are other reasons to the loss of TNEB 11k e

transmission loss). Crippled with deficit, the TNEB has

nOLlJ introduced a new scheme by which any farmer who

327

wants to get an electricity connection for the electric

motor pumpset fitted to the well has to deposit Rs

20,000 with the TNEB. Thus, even if a small or a

marginal farmer is financed along with subsidy to dig a

new well and/or to purchase an electric motor pumpset,

getting the electricity connection

to the above policy.

becomes extremely

difficult due To avoid this

situation the following is the suggestion made:

restored.

The imposition of power tariff has to be

The removed electricity meters of pumpsets

should be refitted, otherwise, the amount of electricity

consumed goes un~ccounted. The new electricity charges

can be levied on the basis of a slab system to benefit

the genuine small and marginal farmers and at the same

time to make the medium and large farmers to pay for the

use of electricity, a scarce input. For e><ample, the

slab system can be (tentative) of the following type on

an annual basis:

For the first 1000 units

Second 1000 units

Third 1000 units

Fourth 1000 units

Fifth 1000 units

and above 5000 units

free

5 paise per unit

10 paise per unit

15 paise per unit

20 paise per unit

25 paise per unit

328

-:-'.

This wi 11 put an end not only to the

indiscriminate use but also to the inequality the

supply of electricity to the farmers.

( w i v) The access of the small borrowers to

the banks, ASCSs, MPCSs, veterinary services, cattle

insurance schemes, ewtension programmes and marketing

facilities cannot be improved by merely establishing

them in the rural areas as revealed by the present

study. It is necessary that all the restrictions and

obstacles (both social and economic) in the way of

utilising those services by the poor should be removed.

This requires imparting of awareness among the rural

poor about the availability of services and their

SIgnIficance.

( x v) The repayment performance of the small

borrowers can be improved by the following (a) phasing

out loan instalments, (b) follow up services, (c)

arranging marketing facilities, and (d) taking stringent

measures against those who default.

( x vi) Recently it has been reported that the

RBI is contemplating on, among otrer things,

modification of rural banking structure, increasing

interest rates on agricultural loans, reducIng the

all oc at ion for priority sector lending and effectIng

changes in the directed programmes of rural . 12

credIt.

329

-,.....,--~- .

Wh i Ie, any step to improve the rural banking structure

is most desirable, the increase in agricultural lending

rates, reduction in priority sector lending and credit

oriented programmes may lead to undesirable

consequences. The increase in lending rates may force

the farmers, especially the small and marginal farmers,

to move towards the non-institutional sources like money

lenders. It has been observed that an increase In the

rate of interest for the purpose of equating supply and

demand is likely to affect the loan quality by reducing

the probability of repayment. That is, the hIgh-quality

borrowers will seek credit elsewhere or depart from the

market altogether, leaving only borrowers who are more

l ·k ltd f It h bl" t" 13 1 e y 0 e au on t eir olga lons

The expected reduction of priority sector

lending from the existing 40 per cent to 10 per cent

may reduce the quantum of credit available to the

sectors like agriculture from the organised finanCIal

InstItutions. The announcement that the ten per cent

allotted under priority sector lending will excluslvely

be earmarked to the small and marginal farmers may sound

we 1 1 , but at the same time, the mechanism should be

fool-proof to ensure that only those farmers who are

el igible will get such loans. The credit rationIng,

with a reduced outlay, is going to be a real challenge

In the years to come.

330

-' -::-

(xvii) Instead of abolition of directed rural

credit programmes, which may further deprive the rural

poor, the quality of rural lending can be improved.

(xviii> In accordance with the national mood,

there is a proposal from some quarters for bank

denationalization 14

in the country. This idea is put

forward to stall the decline in the profitability of the

banks and other evils that plague the banking industry.

The suggestion here is that, without gOing into the

details of it, the shortcomings in the banking system

can be removed by taking effective steps within the

e><isting framework. Denationalisation of banks will

take back to pre-1969 type of situation wherein the

rural people may not get adequate credit from the banks.

(x i x ) The political involvement the

conduct of "Loan Melas" and agricultural debt relief has

reduced the loan recovery of financial . . . 15 institutions.

This has eroded the lendable resources of many banks.

Keeping away the political interference would make the

banks serve better in the rural areas.

Finally, the question of viability of loans

sanctioned to the small borrowers has to be answered.

Theoretically, two opposite views have been

pu t forward:

331

,-:: .. ~--'- -. -.-"-_ . . - -.- ::

la) When subsidised loans are given to small borrowers

that would help them to become economically

v I ab 1 e; and

(b) If a bank goes on expanding its credit facilities

to a large number of small borrowers its viability

will be at stake.

The results of the present study suggest tha t

subsidy is an essential component which helped the

schemes undertaken by the small borrowers to become

financially viable. Implied in this is that without

subsidy the benefit-cost ratio and in te rn a 1 rate of

return would be very low. Therefore, subsidy is

Indispensable whIle sanctioning loans to small

borrowers.

However, it was observed that subSIdy has

become a source of misutilisation and/or exploitation.

That is, in some cases the subsidy was adjusted WIth the

loan to show a good recovery performance; in a few cases

the officials misappropriated the subsidy amount and the

mi lch animals were purchased only for the loan

component, thus, low qual ity animals Clow mi lk yield)

were

I 1985 )

supplied to the beneficiaries. The PEO 16 study

also reported some cases of misapproprIatIon of

the subsidy amount with the connivance of the bank and

block officials. It suggested that the government may

332

~::.r.2;::'

explore the possibility of introducing suitable checks

and procedures to prevent such malpractices.

A suggestion to avoid this type of

mlsutilisation of subsidy is as follows:-

Instead of subsidy the full amount can be

sanc t ioned as a loan. And to give an incentive to the

beneficiary to be regular in repayment, say once three

fourth or two third or half of the amount is repaid

depending upon the economic/social status of the

beneficiary - the remaining amount can be written off,

as shown below:

Category of Borrowers

1 Small Farmers

2 Marginal Farmers and agricultural labourers

3 Agricultural labourers who belong to SC & ST category

4 Women beneficiaries

Once a small

Loan amount Incentive

(in Rs) (in Yo) (in Rs)

4000 25 1000

4000 33 1333

4000 50 2000

4000 50 2000

farmer repays Rs 3000, the

marginal farmer and agricultural labourers Rs 2667 and

beneficiaries belonging to SC or ST or women Rs 2000,

then the remaining amount can be declared as written

off. That is, the loan is subsidised at a later stage.

333

.; ..;:

':' . -: -:

This method has some distinct advantages: One 1 S ,

unless the beneficiary repays the stipulated amount,

he/she will not be permitted to avail the subsidy

component and this becomes a binding on his/her part

forcing him/her to repay the amount at the earliest - a

conditional loan. Secondly, the beneficiaries may not

easily allow a portion of the loan amount to be taken

away by the middlemen as it happens in the Case of

subsidy. Finally, only those beneficiarIes who have

genuine interest in the schemes will come forward to

take up these loans thus, keeping out those who have

111-designs to misuse the subsidy. As a result, the

casual handling of the schemes, particularly at the

lower level represented by VLWs, would be halted.

In conclusion, viewed from the right

perspective, and as hoped by Gadgil,17 if the package of

practices developed under NABARD's "Pilot ProJect for

Improving the Credit Delivery System" (adequate field

staff, greater mobility for field visits, regular inter-

face between borrowers and bank staff, training of bank

staff and technical advice to borrowers) 15 globally

adopted, which may be feasible due to w1der Interest

margins, there could be a perceptible improvement In tile

quality of formal lending to small borrowers and In

their loan recovery.

334

Notes and References

1 District Credit Plan 1983-85, Coimbatore District, QQ.. cit., p. 115.

2 This information and other statistics pertaining to Coimbatore district were taken from Ramasamy C and Chinnadurai, M. "Agricultural Economy: Problems and Prospects", (Paper presented at a Seminar on Economic Development of Coimbatore DistrIct, held ;t Bharathiar University, Coimbatore on 22nd March, 1993) .

3 Ibid.

4 Quoted in Gadgi I M V., "Future of Institutional Agricultural Credit in India: Likely Impact of Narasimham and Khusro CommIttee Reports", Indian Journal ~ Agricultural Economics, 47(2), April-June 1992, PP' 255-65.

5 Based on the field data.

6 Madras Institute of Development Tamil Nadu Economv: Performance Delhi, Oxford &. IBH, 1988.

Studies (MIDS), and Issues, New

7 District Credit Plan 1983-85, Coimbatore District, QQ..,... Cit.

8 Yngve Gustafsson, Gunnar Jacks and Lars Y. Nilsoon Bengt Teranger, in their Project Report QD. water Resources and Water Supply in Coimbatore District, Stockholm, Department of Land Improvement and Drainage School, 1970, pointed out that •..• DeepenIng of wells from time to time and the excavation work has been going on since 1920s. During the forty years period from 1928-29 to 1968-69, it was found that the average lowering of water table was to the extent of 16.5 metres. (p. 5) .... The sinking of more new wells, increased densIty of open wells, indiscriminate deepening and installing deep bore wells in an attempt to capture the maximum quantity of ground water resources have come to cause damage to farming in Coimbatore. ThIS IS particularly so in areas devoid of any river course and built up irrigation dams and Coimbatore distrIct has very few natural storage magazines and consequently surface water storage hardly exists

335

(p. 7). Taken from Devarajan 5., Study on Water Resource Management ~ Garden Land AgrIculture, Unpublished Master's thesis, Tamil Nadu Agricultural University, Coimbatore, 1982.

9 Quoted by Ramasamy C and Chinnadurai M, ~ ~

10 Reported in District Credit Plan, C01mb a tore district, ~ cit.

11 Reported in The Hindu, 19-7-1992,

12 For a review of these measures, See 8ad911, M V., QQ.. cit.

13 Hyde F William in a review of a book Informal Cred1t Markets and the New Institutional Econom1cs: The Case of Philippine Agriculture, by Segran10 L Floro and Pan A Yotopoulos, Bowlder, Co, Westve1n Press, 1991, appeared in The Journal of Agr1cul tural Economics Research, 44(1) January 1993, pp. 45-47.

14 Balakrishnan, P Ills there a case for Bank Denationalisation " , The Hindu, Oct 8, 1991, P 17.

15 Katula and Gulati write: Another development in the last few years is the growing pol1tic1satlon of the credit system. With arbitrary announcements and sanctioning of loans by political d1gnitarles, popularly known as IIl oan melas ll

, the beneflclaries treat loans as aid with no obligation to repay. In 1990, Government instituted a scheme to write off agricultural loans to compensate farmers for bad years between 1986-89 which was estimated to cost Government eventually Rs 8,000 crores. Apart from cost to Government, such write offs generate an attitude of non-repayment which, in the long run, can undermine the entire credit structure. Katula and Gulati, ~ Cit., P, 712.

For more detai Is, (i) Gupta, Anll, K and 11"nu Shroff, Rural Banking Learning to Unlearn: An Act10n Research Enquiry, New Delhi, Oxford & IBH, 1990, and, (ii) Singh Surjeet, (Ed), Rural Cred1t: Issues for the Nineties, New Delhi, Oxford & IBH, 1991.

16 P E 0 Evaluation Report on IRDP, 1985, ~ C1t., p. 119,

17 Gadgil M V, ~ cit., P 260.

336

APPENDIX - A

Cost of Cultivation and IncDle froo Agriculture of the Selected Faroers under Minor IrrIgation Sche.e - Block I lIn Rsl

-------Before the loan After the loan

------------ :-Mate- Human Annual Total Gross Net Total Co5t Net Hate- Man Annual Total Gross Net Total cost Net

Farmers rial ~ Ani- Over- Cost. Output IncDle including IncOIle rial ~ ani- over- Cost. output Income including Incco! category! cost oal heads !incOOle I illlputed cost oal heads (inc,",e I illputed schemes labour cost- labour cost

2 3 4 5 b 7 8 9 10 11 12 13 14 15 16 17 -----------------

Marginal Farmers:

1. New Hell 1300 768 150 2218 3S53 1335 3468 as 3193 1292 2024 6509 10700 4279 7965 2823

w 2. Deepening w of well 2046 1318 754 4118 7206 3000 5618 1500 2493 1868 1958 6319 10846 4527 8399 2447 -.J

3. Oil Engine 2324 1070 712 4106 7710 3604 6094 1616 3214 1944 2170 7328 13200 5872 9428 3772 , , )

Small Frmers ,

11

1. N •• Well 2302 1152 602 4056 7746 3690 5596 2150 4321 2361 2257 8939 19065 10126 11639 7426 I 't

2. DeepenIng 'i ,

',~l of •• II 4078 2531 1352 7961 12718 4757 10461 2257 5078 2690 2074 9842 18636 8794 12442 6194

3. Oil EngIne 4600 1857 lasO 8307 13291 4984 10307 2984 7480 2580 2775 12835 23103 10268 15810 7293 r " ----------------------------------------------------------------------------------------------------------------------------.Paid out costs only I,. excluding ioput,d costs of own human labour).

I "

, • 1,...':'

" \~.: .

w w (l)

A P P £ N D I X - B

Cost of CultiYation and Incole fro. Agriculture of the Selected Faroers under Hinor IrrigatIon Sche.e - Block II (in Rs)

Before the loan After the loan ------------------ ---------

oate- Huoan Annual Total Gross Net Total Cost Net Mate- Human Annual Total Gross Net Total cost Net Faroers rial L Ani- OYer- Cost< Output lnc""e including IncDOe rial L ani- Dyer- Cost· output IncOllle including IncOlle categoryl cost mal heads (inCOMe) imputed cost lal heads (inc""e) imputed schemes labour cost- labour cost .---------------------------------------------------------- ----------- ._--------------

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 .---------------------------------------------------

Marginal Fanters

I Deepening of of .ell 1717 471 253 2441 4466 2025 3854 612 2260 742 1006 4008 7615 3607 5492 2123

2 Oil Engine 1860 542 284 2686 4033 1347 3812 221 2580 945 B82 4407 9276 4B69 6397 2879

Saall Faroers

1 Deepening of .ell lB37 980 367 31B4 5967 2783 5634 333 3400 1700 1570 6670 12951 6281 10070 2881

2 OIl Engine 1920 1094 408 3422 6030 2608 5612 418 3697 1940 1080 6717 12150 5433 '1903 2247 -----------------------.----------------------------------------------------.--------------------------------------------------------,Pald out costs only (ie excluding Imputed costs 01 own hUllan labour).

.' , ,. '. :, I. :i

A P PEN 0 I X - C

Financial Viability Analysis - Minor Irrigation Scheme Block-I

Category of farmers/ schemes

B. New Well Scheme

1 Marg inal Farmers

2 Small Farmers

12- Deegening of Well

1 Ma rg ina 1 Farmers

2 Small Farmers

G- Oi I Engine

1 Marg lnal Farmers

2 Sma 11 Farmers

Benefit-cost ratio

at lOX at 20X

1.29 1.22 ( 1 .05 ) (1.01)

1.30 1. 19 ( 1 .04 ) (0.96)

1.55 1.57 ( 1 .09 ) (1.15)

1. 75 1. 73 ( 1 .32 ) ( 1 .29)

1.39 1. 41 (1.15) (1.16)

1.59 1.57 ( 1 .30 ) ( 1 .28 )

Internal Rate of Return (y, )

Without When When imputed impu- subsidy costs ted amount

costs includ inclu ded in ded the cost

20 3 15

12 5 8

50 12 35

> 50 50 > 50

> 50 18 > 50

> 50 > 50 > 50

-------------------------------------------------------Note: Flgures in parentheses are B/C ratios when

imputed costs included in the total cost.

339

A P PEN D I X - D

Financial Viability Analysis - Minor Irrigation Scheme

Block-II

-------------------------------------------------------

Category of farmers/ schemes

Deegening of well

1 Marginal farmers

2 Small Farmers

B Oi I Engine

1 . Marginal Farmers

2 Small Farmers

Benefit-cost ratio

a t lOX at 20%

1.52 1. 51 ( 1 .29 ) (1.27 )

1.55 1.74 (1.10) ( 1 . 25 )

1.62 1. 61 (1.17) (1.17>

1. 70 1.69 ( 1 .23 ) ( 1 .20 )

Internal Rate of Return ( % )

Without ~'h en When imputed impu- subsidy costs ted amount

costs includ inclu ded in ded the cost

40 20 30

) 50 15 50

) 50 50 ) 50

) 50 50 > 50

-------------------------------------------------------Note: Figures in parentheses are BIC ratiOS when

imputed costs included in the total cost.

340

. -.......... ~

.-~

APPENDIX - E

INTERVIEW SCHEDULE

1 • General Particulars

1.1. Name of the beneficiary

1.2 Village

1 .3 Caste

1 .4 Category

II. Housing Condition

2.1. Own/rented/free

2.2. Tiled!Thatched! Tiled and Thatched

2.3 a. Number of rooms

b. Whether ventilated

2.4 Whether electrified

2.5 Cattle shed

341

:

Code

FM FI LM

Small Farmer/Marginal Farmer/Agricultural Labour

Yes!No

Yes!No

Yes!No. If yes, value Rs.

Pucca Rs.-------

Kutcha Rs. ------

III. Details of Melbers of Falily (including HHHI

---------------------------------------------------------------------------------------Education Occup.tion No.of Average

S!. Nale Rehtion- Age Sex ------------ --------- days aonthly No. ship to Pre- Expect- Hain Supple- e.loyed income

the Iffi sent ted .entary --------In In cash kind

IV. Identtfication <The available data frol lRDP Records will be incorporated/cross checkedl

~.I. Details of f .. ily incooe at the ti.e of identification

N ... of the far.er/ labour

S.x No.of days ... ployed (oonthl

Averag. nonthly Income from Total income

Main Other occupa- occupa-tion tion

oth.r sourc.s annual (if anyl incooe

4.2. Process ~ Identification

4.2.1. How did you come to know about the programme?

4.2.2.

Through VLW/Village Accountant/Bank Officer/ T & V/ Any other

Was any household identification?

Yes/No/Do not know.

survey undertaken

.' ~.

for

4.2.3. If no, did you approach anyone to get benefIt under the programme? Yes/No.

342

4.2.4

4.2.5.

If yes, who was contacted?

If no in 4.2.3., who motivated you to undertake benefit of the programme?

'.-i:

4.2.6. Month and year of identification:

4.3. Provision Q..f. Benefits:

4.3.1. Whether any economic benefit plan for your family was prepared: Yes/No/Do not know

4.3.2.

4.3.3.

4.3.4.

4.3.5.

4.3.6.

4.3.7.

4.3.8.

4.3.9.

If yes, did you indicate any choice? Yes/No/Do not know.

Were you consulted for the finalisation of the Plan? Yes/No.

What was the cost envisaged of the scheme?

Date of Application:

Date of Sanction I

Did you receive the benefits as opted by you? Yes/No.

Subsidy and loan amount were given to you purchaslng the milch animal/motor pumpset (A).

for

OR such things were purchased and given to you (B)?

If (B), were these things are reasonably good quality and or in working condition:

1.1. Details of benefits received: ----------------------------------------------------------------------------------------SI. He.

Na., of the N •• e of the fin-scheae ancIaI institu­

lioos sancliooed the loan

loan Subsidy Rate of Aoaunt 01 110.01 aoount amount interest instalDent lnstal •• n!

------------------------------------------------------------------------------

---------------------------------------------------------------------------------------

v. Beneficiary's access to other facilities

5 • 1 • Whether the covered the Yes/No.

343

total amount of assistance recelved entire cost of the scheme/proJect?

5.2.

5.3.

5.4.

5.5.

a.

b.

c.

d.

e .

1.

g.

5.6.

If no, how did you manage the balance amount?

Did you have to spend some money in obtaining benefit or in expediting it? Yes/No

If yes, give details:

the

Do you think that the existing infrastructure facilities in respect of the following are adequate?

Implementing agency Yes/No/Cannot say

Financi al agency Yes/No/Cannot say

Availability of benefit/ scheme Yes/No/Cannot say

Availability of inputs Yes/No/Cannot say

Marketing facility Yes/No/Cannot say

Veterinary services Yes/No/Cannot say

Electricity supply Yes/No/Cannot say

If no, in any of the items in 5.5., facilities are required for smooth your enterprise?

what additional functioning of

VI. Utilisation of the loan/investments made (minor irrigation)

51. Name of the No. project

prOVided

Vear Name of the bank

(investment In Rs.)

Investment made in Rs. Total ----------------------------- 5+6+7+8 Bank Govt. Benefi- Private Loan sub- ciary's loan

sidy contri- <If any) but ion

-----------------------------------------------------------------------

-----------------------------------------------------------------------

344

V I I • Impact of the Scheme

a. Details of the 'before' benefit:

yield and

of different crops sown after the receipt of the

-------------------------------------------------------------Year For area benefited by the scheme

---------------------------------------------Name of Area in Cost of the crop acres cultivation

Yield Value Net income

-------------------------------------------------------------Reference Year

Current Year -------------------------------------------------------------

b. Income and Employment:

OCCUPATION

PRIMARY SECONDARY

Duration of Employment

hid dim mid

Earnings Duration of Earnings Employment

pdlpmlpa hid dim m/y pdlpmlpa -------------------------------------------------------------

Before

After -------------------------------------------------------------

c . Impact of the scheme on the following aspects: -------------------------------------------------------------S 1 • No.

1.

2.

3.

Changes in Before After ---------------------------------------------------------

Cropping pattern

Cropping intensity

Asset position

4. Any other (specify) ------------------ -------------------------------­

~----------

345

VI. Utilisation of the loan/working of th. sch ••• IMilch anioall

lCost in Rs.1 -----------------------------------------------------F •• d fincluding Veterinary transport costl "p.ns.s

Fodder Coocen-trates

Cost of cattle shed

Labour exp.ns.s other "pens.s

Hired

lotal working cost

-------------------------------------------------------------

----------------------------------------------------------------------------------------

7,1, locoo. fro. the sche.e

---------------------------------------------------------

Av.rage i)Jaoti ty Price of No.of Annual Agency to Incooe fro. Incoo. froo .,Ik y"ld of oi I k per Ii t.r o,lk days incoo. which by products 5.11 ing (p.r dayl sold 0' I k ,n a year IRs. I supplied -------

(p.r dayl Calf Cow dung ------------------------------ ---------

~_.:s --,

7,2, Impact of the schemelloan ('Before' and 'After')

a, Income and Employment: -------------------------------------------------------------

OCCUPATION ----------------------------------------------

PRIMARY SECONDARY ----------------------Duration of Earnings Duration of Earnings Employment Employment ----------- -------- ----------- ---------hid dim mid pdlpmlpa hid dim m/y pdlpmlpa

-------------------------------------------------------------Before

After (at present)

----------------------------------------------------------

346

.. ;....:-.-

b. Asset position and other conditions

S 1 • No. Changes in Before After

1. Asset position

2. Indebtedness (other than benefit scheme loan)

3. Any other (specify)

V I I I • Repayment of the Loan

8 • 1 • Are you satisfied with the terms and conditions of the loan? Yes/NQ/cannot say

8.2.

8.3.

8.4.

8.5 .

8.6.

8.7.

I X •

If no, why?

How much loan have you repaid so far?

a. Have you repaid the loan out of the income derived from the scheme? Yes/No

b. If yes, wholly or partly? Wholly/partly

Are there any overdues Yes/No/Cannot say

If yes, how much?

Reasons for default

Farming operations and asset position of beneficiary (Small/marginal farmers only)

347

the

-.-::.-' . ":.,_ ... : '.:'. ""-.~"" ".~ ..... -

9. 1 . Land particulars:

--------------------------------------------------------Area Owned Leased Leased Gross

(in acres) in out value (Rs. )

--------------------------------------------------------

1. I r rig a t ed 1 and

2. Dry land

3. Garden land

4. Current fallow

--------------------------------------------------------

(iteos q.2 and Q.3 - Other than the area benefited by the .inor irrigation scheme in the case of Ilnor IrrigatIon beneficiaries)

Q.2. Cropping pattern (for one agricultural year) and cost of cui livation

---------------------------------------------------------------------Hue of the crop

Ar.. Whether Cost of cultivation Hunn labour Bullock In HYV or ----------------------- charges labour acres Inferior land Seeds Hanure Fertilizer ------- charges

pre- Qty Value Qty. Value Qty. Value Own Hired -------para­tion

Own Hi red

E!ec- Other tri- char-city! gos oil charge

--

Total

-----------------------------------------------------..",----------

9.3. Production and Sale particulars -----------------------------------------------------------------------------SI. No.

Item Production Sales

Quantity Value Quantity Value

To "'hom the sale is made

Transport and other charges

------------------------------------------------------------------------------

-------------------------------------------------------------------------

348

I X •

9. 1 .

a.

b.

working conditions and beneficiary (Agricultural

Working condition

Nature of work

Working hours per day

asset position of labourer's family)

the

c. Wage per day/month Male --- Female---- Child ---

d. Wage in kind/cash

e. Distance to the working p I ace

f. Did you receive any advance from the employer:

g. If yes, how much (month/year)

h. With any conditions (specify)

9.2/9.4. LIve stock and Birds

:

SI. No.

Items No. Value Cost of feed and maintenance (Rs.)

Gross income <Rs. )

Net Income (Rs. )

--------------------------------------------------------------------I. Bullocks

2. Cow (Milch)

3. Cows (Dry)

4. Buffaloes (Milch)

5. Buffaloes <Dry)

6. a. He-calf b. She-cal f

7. Sheep

8. Goats

9. poultry birds

10. Other'S -------------------------------

349

-------------------------------------

9.3/9.5. Othep assets ----------------------------------------------------------------SI. Items No. Value Cost of Gposs Net No. mainte- income income

n anc e fpom hiring

----------------------------------------------------------------1. Bullock cart 2. Plough 3. Powep/hand sprayer 4. Others ----------------------------------------------------------------

9.1/9.6 Did you possess: No. Value

1. Cycle 2. RatIo/Transistor 3. Watch/Time piece I. Furniture iteas 5. Others

X. Loan particulars (other than lROP)

Purpose of Source Year Aloount Inte- Subsi- Sub- Due Over Teras of loan Bank! rest dising sidy date due repay.ent

PAC rate agency a.t. ",!, -------Prlyate schem.e Perio- In5t.l-

dicity .ent

-----------------------------------------------------

I. To buy far. aachinery

2. Mllch ani .. ls

3. Raw .a\erials

I. Fara/crop inyestoent

5. My other (productive)

6. Marriage ~ other ( e rflDOll i es

7. Consuoption

8. My other ----------------------------------------------------------------

350

10.1. Jewel loans

a. Do you have any gold/jewels Yes/No

b . If yes, how many grams

c . Did you have the hab i t of taking jewel loans? Yes/No

d. If yes, where from Bank/Private

e . If private, why not from bank Reasons

10.2. Banking habits

a. Distance of the bank branch/PAC (in kms)

b. Do you have any account in

Amount in Rs. Interest Rate

1. Banks

2. Post Office

3. Relatives

4. Chit Funds

5. Others -------------------------------------------------------------

XI. Other particulars

11.1. Credit camp:

a. Are you aware of the credit camps? Yes/No

b. If yes, did you attend it Yes/No

c • If yes, how many times:

d • Where it was held (distance from his village):

351

11.2. Training ~ Visit II k ~ System

a. Have you heard of T & V programme: Yes/No

b. If yes, have you benefited out of that: YeslNo

c. If yes, in what way (remarks)

d. Have you undergone any Farmer's Training Programme: Yes/No.

11.3. Membership

a. Whether you or any of your family member 1S a member of

a. Co-op~rative credit society

b. Political party

c. Caste/Farmers/Workers Association

b. Nature of Membership:

XII. Opinion about the IRD programmes

12.1. Difficulties he e~perienced in getting the loan:

12.2. What are his suggestions to better the implementation of the programme:

352

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