Rural Finance of Indian Economy

RURAL FINANCE OF INDIAN ECONOMY
Project Report On
RURAL FINANCE OF INDIAN ECONOMY
SUBMITTED IN PARTIAL FULFILLMENT OF THE DEGREE OF BACHELORS OF
MANAGEMENT STUDIES (V)
AFFILIATED TO THE UNIVERSITY OF MUMBAI
SUBMITTED BY
NOEL HERALD KARKADA
07
RESEARCH GUIDE
PROF.
S.I.C.E.S
DEGREE COLLEGE OF SCIENCE & COMMERCE
AMBERNATH (WEST) 421 502
2015-2016
I, Prof. , officially state that Mr / Ms. Noel Herald Karkada studying in

S.I.C.E.S Degree college of Science & Commerce, Ambernath (West) 421
502, student of T.Y.BMS (Bachelor of Management Studies) has duly
completed his project on RURAL FINANCE OF INDIAN ECONOMY in the
academic year 2015-2016 under my guidance. The information submitted
by me is true and original to the best of my knowledge.
Prof.
(Research Guide)
DECLARATION
I, NoEL Herald Karkada, studying at S.I.C.E.S Degree college of Science &
Commerce, Ambernath (west), 421 202 student of T.Y. BMS, (BACHELORE
OF MANAGEMENT STUDIES) , HEREBY DECLARE THAT I HAVE DULY
COMPLETED MY PROJECT ON RURAL FINANCE OF INDIAN ECONOMY IN
THE ACADEMIC YEAR 2015-2016 UNDER THE GUIDANCE OF PROF.
THE INFORMATION SUBMITTED BY ME IS TRUE AND ORIGINAL TO
THE BEST OF MY KNOWLEDGE
ACKNOWLEDGEMENT
Men ought to know that in the theatre of human affairs,

It is only for gods and angles to be spectator
I convey my sincere thanks with the deepest gratitude to my respected

principal, Prof. & Prof. Bachelor of Management Studies Coordination; I am deeply
indebted to her whose help, time, support, inspiration, stimulating suggestions and
encouragement helped me in all the times of research and writing of this report and
who always kept an eye on the progress of my work during the initial stages and
always was available when I needed here opinion. My project is a result of the
inspiration and thoughtful guidance and supervision of my project guide Prof. for her
guidance and valuable guidance in completion of my project.
To end with, I thank the people who helped me indirectly but without their
assistance this project was not possible. I thank all my friends and dear ones for their
kind support.
METHODOLOGY
Assigned project task is completed by going through various books,

committee reports regarding Indian agriculture & non-farming sector, also role
of various financial institutions in this grassland.
The project report entitled here is purely study project and does not include
any predictions or forecast regarding the future trends in the rural sector.
The project is based on various references taken from book & reports
mentioned in the bibliography at the end of the assign project
SCOPE
OBJECTIVES
To revise the financial capability of the lending agencies in rural ares to

analysis the drawbacks & advantage of flow of credit in rural areas.
The rural credit system should be strengthen
To study the role of rural finance in Indian Economy.
EXECUTIVE SUMMARY
INDEX
SR.NO
TOPICS
PAGE NO.
1-2
MEANING OF UNDER DEVELOPED ECONOMY

(INTRODUCTION)
DISTRIBUTION OF WORLD POPULATION
DEFINATION
1-2
1.1
BASIC CHARACTERISTICS OF INDIAN ECONOMY
4-6
1.2
GROSS DOMESTIC INVESTMENTS AND SAVING
SR.NO.
TOPICS
PAGE NO.
2.0
HISTORY OF RURAL ECONOMIC STRUCTURE OF INDIA
6-7
2.1
INDIAN ECONOMY IN PRE BRITISH PERIOD
6-7
2.2
INDUSTRIES AND HANDICRAFT IN PRE BRITISH INDIA
7-8
2.2.1
8-9
2.3
DECLINE OF INDIAN HANDICRAFTS AND PROGESSIVE

RURALIZATION OF INDIAN ECONOMY
INDIAN POPULATION AND OVERVIEW
2.3.1
STATETICS OF INDIAN POPULATION
9-10
SR.NO.
TOPICS
PAGE NO.
3.0
NATURAL RESOURCE IN PROCESS OF ECONOMIC

DEVELOPMENT IN RURAL AREAS
INFRASTURCTURE IN PROCESS OF ECONIMIC
DEVELOPMENT IN RURAL AREAS
TYPES OF INFRASTRUCTURE FACILITIES OFTEN
REFERRED TOWARDS ECONOMIC AND SOCIAL
DEVELOPMENT OF RURAL INDIA
MODES OF TRANSPORT AND COMMUNICATION IN
RURAL AREAS
11-12
SR.NO.
TOPICS
PAGE NO.
4.0
MICRO FINANCE IN AN INDIAN CONTEXT
15-16
4.1
MICRO FINANCE AND POVERTY ALLEVATION
16-18
4.2
WEAKNESS OF EXISTING MICRO FINANCE MODELS
18-19
SR.NO.
TOPICS
PAGE NO.
5.0
19
5.1
RURAL MARKETS CONTRIBUTION IN TOTAL INDIAN

ECONOMY
PROFILE OF RURAL PEOPLE
19-20
5.2
STATISTICAL PROFILE OF RURAL BUSINESS IN INDIA
20-22
5.3
AGRICULTURAL IMPACT ON NATIONAL ECONOMY
22
5.4
AGRICULTURAL PRODUCTION
22
5.4.1
FOOD GRAINS PRODUCTION
23
3.1
3.2
3.3
13-14
13-14
14-15
5.4.2
23-24
5.4.3
AGRICULTURAL PRODUCTION OF MAJOR CROPS WITH

STATISTICS
AGRICULTURAL EXPORTS & IMPORTS
5.4.4
AGRICULTURAL MARKETS
24-25
5.5
AGRICULTURAL ROLE IN INDIAN ECONOMY
25
5.5.1
AGRICULTURE IN ECONOMIC PLANNING
25-26
5.5.2
CAPITAL FORMATION IN AGRICULTURE WITH

STATISTICS
26-27
SR.NO.
TOPICS
PAGE NO.
6.0
CHANGING SCENERIO OF RURAL CREDIT
27-29
6.1
STRUCTURE OF RURAL CREDIT IN INDIA
29
6.2
NATIIONAL POLICY AND ITS AIM
29-30
6.3
NEED OF CREDIT OF FARMERS
30-31
SR.NO.
TOPICS
PAGE NO.
7.0
SOURCE OF RURAL CREDIT
31-32
SR.NO.
TOPICS
PAGE NO.
8.0
PRIVATE AGENCY SOURCE
32-33
SR.NO.
TOPICS
PAGE NO.
9.0
INSTITUTIONAL SOURCE OF CREDIT
33
9.1
PROBLEMS IN INSTITUTIONAL SOURCE
33-34
9.1.1
COOPERATTIVES CREDIT SOCIETY
34-36
9.1.2
PROBLEMS OVERDUES TO COOPERATIVE CREDIT
36
9.2
LAND DEVELOPMENT BANKS
36-38
9.3
COMMERCIAL BANKS
38-41
9.4
REGIONAL BANKS
41-43
9.5
RESERVE BANK OF INDIA
43
9.5.1
NABARD AN OVERVIEW
43-44
SR.NO.
TOPICS
PAGE NO.
10.0
SCHEMES AND FACILITIES FROM THE VARIOUS BANKS
24
10.1
10.2
NABARD [RURAL NON FARM SECTOR FINANCE

SCHEME]
VARIOUS FINANCIAL SCHEME OFFERED FROM
GOVERNMENT
44-54
54-57
1.0 Meaning of an Underdeveloped Economy:
INTRODUCTION
There is a big difference between underdeveloped and developed countries.
The United Nations group of experts states, We have had some difficulty in
interpreting the term underdeveloped countries. We frankly consider that, per capita
real income is low when compared with the per capita real incomes of the United
States of America, Canada, Australia & Western europe. Briefly a poor country.
The term underdeveloped countries is relative. In practical, those countries
which have real per capita incomes less than a quarter of the per capita income of the
United States, are underdeveloped countries. But recently UN publication prefer to
describe them as Developing economies. The term developing economies signifies
that though still underdeveloped, the process of development has been initiated in
these countries. Thus, we have two economies developing economies & developed
economies. The World Bank issued in its World Development Report (1991)
classified the various countries on the basis of Gross National Product (GNP) per
capita. Developing countries are divided into: (a) Low income countries with GNP per
capita of $580 and below in 1989; and Middle income countries with GNP per capita
ranging between $ 580 and $ 6,000. As against them, the High-income Countries
which are mostly members of the Organisation for Economic Co-operation and
development (OECD) and some others have GNP per capita of more than $ 6,000.
The above data given in the table noted that in 1989 low income
countries comprise nearly 57 percent of the world population (2,948 million),
but account for only 5 percent of total world GNP. The middle income
countries, which are less developed than the highly developed than the low
income countries comprise about 21 percent of world population but account
for 11 percent of world GNP. Taking these two groups which are popularly
described as developing economies or underdeveloped economies, it may be
stated that they comprise over three-fourths of the world population but
account for about one-sixth of the world GNP. Most countries of Asia, Africa,
Latin America and some countries of Europe are included in them.
Rural Finance In Indian Economy
1. Distribution of World Population & World GNP among various

groups of Countries in 1989
1. Low Income Economies

2. Middle Income
Economies
3. High Income Economies
4. Other Economies World
India
GNP
Total
GNP Per
(Billion
Population Capita
US $)
981 (4.7)
(million)
2,948
(US $)
330
2,253
(56.6)
1,105
2,040
(10.9)
15,230
(21.2)
831 (16.0) 18,330
(73,4)
___
323 (6.2)
___
20,736
5,206
3,980
(100.0)
283 (1.4)
(100)
832 (15.9) 340
India with its population of 832 million in 1989 and with its per capita income of
$340 is among poorest of the economies of the world. It had a share of 15.9
per cent in world population, but a little more than 1 percent of world GNP.
Three observation made here regarding the U.N. classification of
developed and developing countries on the basis of per capita income. First, there
is gross inequality of incomes between the rich and the poor countries. Second,
the gap in per capita income (and naturally in the level of living) between the rich
and poor countries is even widening over the yearsthe annual rate of growth of
per capita income of the rich countries was higher during 1965-89 as compared
with the poor countries. More recently, the growth rate among low-income
countries has also shown an increase and if this is sustained, the gap may show a
decline over a period. Third, all the high income countries are not necessarily
developed countries. For instance, the high income oil-exporting countries have
high per capita income but this is mainly due to their exports of oil; really
speaking, they are not developed economies. Recently, with a decline in world oil
prices, the GNP per capita has started showing a decline in this group.
1 . Definition:
A country which has good potential prospects for using more capital or more
labour or more available natural resources, or all of these, to support its present
population on a higher level of living or if its per capita income level is already fairly
high, to support a large population on a not lower level of living. As per this definitions
the problem of development is mainly the problem of development is mainly the
problem of poverty and prosperity. The basic criterion then becomes whether the
country has good potential prospects of raising per capita income, or of maintaining
an existing high level of per capita income for an increased population.
1.1 Basic Characteristics Of The Indian Economy As An Underdeveloped

Economy:
India is an underdeveloped economy. Its is a vast country having an
area of 3.3 million sq. km. It has almost 5,76,000 villages. The population of
India is widely scattered over villages and towns. Nearly 75% of the population
lives in rural & semi urban areas, while the rest lives in towns. There is doubt
that the bulk of its population lives in conditions of misery. Poverty is not only
acute but is also a chronic malady in India. At the same time, there exist
unutilized natural resources. It is, therefore, quite important to understand the
basic characteristics of the Indian economy, treating it as one of the
underdeveloped but developing economies of the world.
1.
Low per capita income:- Underdeveloped economies are marked by the

existence of low per capita income. The per capita income of an India is lowest
in the world. The per capita income in Switzerland in 1989 was about 88 times,
in West Germany about 60 times, in U.S.A. 61 times and in Japan 70 times of
the per capita income in India. It is also important that developed economies
are growing at a faster rate than the Indian economy and as a consequence,
the disparity in the levels of income has become wider during period 1960-89.
2. Occupational pattern:- Primary producing. One of the basic characteristics of
an underdeveloped economy is that it is primary producing. A very high
proportion of working population is engaged in agriculture, which contributes
5
a very large share in the national income. In India, in 1981, about 71 per
cent of the working population was engaged in agriculture and its
contribution to national income was 36 per cent. In Asia, Africa and Middle
East countries countries from two-thirds to more than four-fifths of the
population earn their livelihood from agriculture, and in most Latin
American countries from two-thirds to three-fourths of population engaged
in agriculture in developed countries is much less than the proportion of
population engaged in agriculture in underdeveloped countries.
3. Heavy Population pressure:- The main problem in India is the high level of
birth rates coupled with a falling level of death rates. The rate of growth of
population which was about 1.31 per cent per annum during 1941-50 has
risen to 2.11 per cent during 1981-91. The chief cause of this rapid spurt to
population growth is the steep fall in death rate from 49 per thousand during
1911-20 to 9.6 per thousand in 1990; as compared to this, the birth rate has
declined from about 49 per thousand during 1911-20 to 29.9 per thousand in
1990. The fast rate of growth of population necessitates a higher rate of
economic growth in order to maintain the same standard of living of the
population. To maintain a rapidly growing population, the requirements of food,
clothing, shelter, medicine, schooling, etc. all rise. Thus, a rising population
imposes greater economic burdens and, consequently, society has to make a
much greater effort to initiate the process of growth.
4. Prevalence of chronic unemployment and underemployment: In India labour is

an abundant factor and, consequently, it is very difficult to provide gainful
employment to the entire working population. In developed countries,
unemployment is of a cyclical nature and occurs due to lack of effective
demand. In India unemployment is structural and is the result of a deficiency
of capital. The Indian economy does not find sufficient capital to expand its
industries to such an capacity that the entire labour force is absorbed.
5. Low rate of capital formation: Another basic characteristic of the Indian
economy is the existence of capital deficiency which is reflected in two ways
6
first, the amount of capital per head available is low; and secondly, the
current rate of capital formation is also low. Following table reveals that
gross capital formation in India is less than that of developed countries.
1.2 Gross Domestic Investment and Saving (As per cent of Gross Domestic
Product)
Gross Domestic
Gross Domestic
Investment
Saving
1965
1989
1965
1989
Japan
28
33
30
34
Australia
Germany
26
23
26
22
23
23
23
27
U.S.A.
U.K.
12
13
15
21
12
12
13
18
India
17
24
15
21
As per Colin Clark to maintain the same level of living a country requires an additional
investment of 4 percent per annum if its population increases at the rate of 1 percent
per annum. In a country like India where the rate of population growth is 2.11 percent
(during 1981-91), about 8 percent investment is needed to offset the additional
burdens imposed by a rising population. Thus, India required as high as 14 percent
level of gross capital formation in order that it may cover depreciation and maintain
same level of living. A still higher rate of gross capital formation alone can give a way
for economic growth to improve living standard of the population.
2.0 History Of The Rural Economic Structure Of India

2.1 Indian Economy in the Pre-British period:-
The Indian economy in the pre-British period consisted of isolated and selfsustaining villages on the one hand, and towns, which were the seats of
administration, pilgrimage, commerce and handicrafts, on the other. Means
transport &
7
Communication were highly underdeveloped and so the size of the market

was very small..
a. The structure and organization of villages: The village community was based
on a simple division of labour. The farmers cultivated the soil and tended
cattle. Similarly, there existed classes people called weavers, goldsmiths,
carpenters, potters, oil pressers, washer men, cobblers, barber-surgeons, etc.
All these occupations were hereditary and passed by tradition from father to
son. Most of the food produced in the village was consumed by the village
population itself. The raw materials produced from primary industries were the
feed for the handicrafts. Thus interdependence of agriculture and hand
industry provided the basis of the small village republics to function
independently. The villages of India were isolated and self-sufficient units
which formed an enduring organization. But this should not lead us to the
conclusion that they were unaffected by wars or political decisions. They did
suffer the aggressors and were forced to submit to exactions, plunder and
extortion, but the absence of the means of transport and communications and
a centralized government helped their survival.
b. Classes of Village India: There were three distinct classes in village India: (i)
the agriculturists, (ii) the village artisans and menials, and (iii) the village
officials. The agriculturists could be further divided into the land-owning and
the tenants. Labour and capital needed was either supplied by the producers
themselves out of their supplied by the producers themselves out of their
savings or by the village moneylender. These credit agencies supplied finance
at exorbitant rates of interest but since the moneylender and the landlord were
the only sources of credit, the peasants and even the artisans were forced to
depend on them. The village artisans and menials were the servants of the
village. Most of the villages had their panchayats or bodies of village elders to
settle local disputes. The panchayats were the court of justice.
2.2 Industries & handicrafts in Pre-British India:

The popular belief that India had never been an industrial country, is incorrect. It
was true that agriculture was the dominant occupation of its people but the products
of Indian industries enjoyed a worldwide reputation. The muslim of Dacca, the calicos
8
of Bengal, the sarees of Banaras and other cotton fabrics were known to the
foreigners. The chief industry spread over the whole country was textile handicrafts.
The textile handicrafts includes chintzes of Lucknow, dhotis and dopattas of
Ahmedabad, silk, bordered cloth of Nagpur and Murshidabad. In addition to cotton
fabrics, the shawls of Kashmir, Amritsar and Ludhiana were very famous. India was
also quite well-known for her artistic industries like marble-work, stone-carving,
jewellery, brass, copper and bell-metal wares, wood-carving, etc. The cast-iron pillar
near Delhi is a testament to the high level of metallurgy that existed in India. In this
way Indian industries, Not only supplied all local wants but also enabled India to
export its finished products to foreign countries.
2.2.1 Decline Of Indian Handicrafts And Progressive Ruralisation Of The

Indian Economy:
Before the beginning of Industrial Revolution in England, the East India
Company concentrated on the export of Indian manufactured goods, textiles,
spices, etc., to Europe where these articles were in great demand. But the
Industrial Revolution reversed the face of Indians foreign trade. Tremendous
expansion of productive capacity of manufactures resulted in increased demand
of raw materials for British industry and the need to capture foreign markets.
Following principal causes that led to the decay of handicrafts were as follows:a. Disappearance of Princely courts: The growth of industries is only possible
due to patronage of nawabs, princes, rajas & emperors who ruled in India.
The British rule meant the disappearance of this patronage enjoyed by the
handicrafts. Cotton and silk manufactures suffered especially.
b.
Competition of machine-made goods: The large-scale production that grew as a

result of Industrial Revolution meant a heavy reduction in costs. It also created a gigantic
industrial organization and, consequently, the machine-made goods began to compete
with the products of Indian industries nad handicrafts. This led to the decline of textile
handicrafts. Whereas the British emphasized the free import of machine-made
manufactured goods they did not allow the import of machinery as such. The decline of
Indian handicrafts created a vaccum which could be filled by the import of British
manufactures only.
c. The development of new forms and patterns of demand as a result of foreign

influence: With the spread of education, a new classs grew in India which was
9
keen to imitate western dress, manners, fashions and customs so as to

identify itself with the British officials. This led to a change in the pattern of
demand. Indigenous goods went out of fashion and the demand for European
commodities got a fillip. Besides, there was a loss of demand resulting from
the disappearance of princely courts and nobility. Thus, the British rule, silently
but surely, alienated the Indians not only from Indian culture but also diverted
in its favour their form and pattern of demand for goods.
2.3 Indian Population an Overview:India is one of the most populated countries in the world, next only to
China. Although India occupies only 2.4% of the total area of the world it supports
over 15% of the world population, as revealed by statistics. India is land of
diversity, spread across its cultures, landscape, languages and religion. India has
been invaded from the Iranian plateau, Central Asia, Arabia, Afghanistan, and the
West. The Indian people have absorbed these influences producing a remarkable
racial and cultural synthesis. Religion, caste, and language are major
determinants of social and political organization in India today. The government
has recognized 16 languages as official; Hindi is the most widely spoken.
Although Hinduism is the popular religion, comprising 83% of the population,
India is also home to one of the largest population of Muslims in the world--- more
than 120 million. The population also includes Christians, Sikhs, Jains, Buddhists, and
Parsis. The caste system reflects Indian historical occupation and religiously defined
hierarchies. Traditionally, there are four castes identified, plus a category of outcastes,
earlier called "untouchables" but now commonly referred to as "dalits," the oppressed.
In reality, however, there are thousands of sub-castes and it is with these sub-castes
that the majority of Hindus identify. Despite economic modernization and laws
countering discrimination against the lower end of the class structure, the caste
system remains an important factor in Indian society. Poverty is one of the major
problems facing India. An estimated 30-40 percent of the population lives in poverty.
Four out of five of India's poor live in rural areas. About 70% of the people live in more
than 550,000 villages, and the remainder in more than 200 towns and cities.
2.3.1 Statistics Of Population

Population: 966,783,171 (July 1997 est.)
10
Age structure: 0-14 years: 35% (male 173,420,822; female 163,433,648)

15-64 years: 61% (male 304,048,569; female 281,625,342)
65 years and over: 4% (male 22,536,104; female 21,718,686) (July

1997est.) Population growth rate: 1.72% (1997 est.)
Birth rate: 26.19 births/1,000 population (1997 est.)
Death rate: 8.87 deaths/1,000 population (1997 est.)
Net migration rate: -0.08 migrant(s)/1,000 population

(1997 est.) Sex ratio: at birth: 1.05 male(s)/female
under 15 years: 1.06 male(s)/female
15-64 years: 1.08 male(s)/female
65 years and over: 1.04 male(s)/female

total population : 1.07 male(s)/female (1997 est.)
Infant mortality rate: 65.5 deaths/1,000 live births (1997 est.)
Life expectancy at birth: total population: 62.41 years male: 61.68 years
female: 63.18 years (1997 est.)
Total fertility rate: 3.29 children born/woman (1997 est.)
3.0 Natural Resources In Process Of Economic Development In Rural

India:
To ahieve the development in national output, it is essential to combine
natural resources, human resources & capital. The existence or the absence
of favourable natural resources can facilitate or retard the process of economic
development. Natural resources include land, water resources, fisheries,
mineral resources, forests, marine resources, climate, rainfall and topography.
11
1. Land Resources: The total geographical area of India is about 329 million
hectares, but statistical information regarding land classification is
available for only about 305 million hectares; this information is based
partly on village papers and partly on estimates. We can explain land
utilization pattern from the following table:Land utilization pattern, 1986-87 (million hectares)
Particulars
1. Total geographical area
Area
329
Percent
--
2. Total reporting area
305
100
3. Barren land not available for cultivation
41
13
4. Area under forests
67
22
5. Permanent pastures and grazing land
12
6. Culturable waste lands, etc.
19
7. Fallow lands
26
8. Net area sown
140
46
9. Area sown more than once
37
12
10. Total cropped area (8+9)
177
58
2. Forest Resources: Forest are an important natural resource of India. They

have a moderating influence against floods and thus they protect the soil
against erosion. They provide raw materials to a number of important
industries, namely, furniture, matches, paper, rayon, construction, tanning,
etc. The total area under forests was 67 million hectares in 1986-87 which
was about 22 percent of the total geographical area, a recent estimate has
put it at 75 million hectares or 23 percent of the total geographical area.
Forests in India are mostly owned by states (95%); a small portion is under
the ownership of corporate bodies and private individuals.
12
3. Water Resources: India is one of the wettest countries in the world, with
average annual rainfall of 1100 m.m. Indias water policy, since
Independence, has mainly concentrated on highly visible large dams,
reservoirs and canal systems, but has ignored minor water works such
as tanks, dugwells and tubewells.
4. Fisheries: Broadly speaking, fishery resources of India are either inland or
marine. The principal rivers and their tributaries, canals, ponds, lakes,
reservoirs comprise the inland fisheries. The rivers extend over about 17,000
miles, and other subsidiary water channels comprise 70,000 miles. The
marine resources comprise the two wide arms of the Indian Ocean and a large
number of gulf and bays along the coast. About 1.8 million fishermen draw
their livelihood from fisheries, though they generally live on the verge of
extreme poverty. Out of a total catch of 3 million tones of fish in 1988-89, over
1 million tones came from inland fisheries and nearly 2 million tones from
marine sources. India is the seventh largest producer of fish in the world and
is second in inland fish production, which contributes 45 per cent of total
production in the country. Fish production reached the level of 5.4 million
tonnes in 1997-98, comprising 3.0 million tonnes of marine fishery and 2.4
million tonnes of inland fishery and is expected to reach 5.6 million tonnes in
1998-99 with 3.0 million tonnes of marine fishery and 2.6 million tonnes of
inland fishery, respectively. During 1998-99, the export of marine products
came down to US$ 1,038 million from US$ 1,208 million during 1997-98
3.1 Infrastructure In Process Of Economic Development In Rural India:

The prosperity of a Rural India depends directly upon the development of
agriculture and industry. Agricultural production, however, requires power, credit,
transport facilities, etc. Industrial production requires not only machinery & equipment
but also skilled man-power, management, energy, banking facilities, marketing
facilities, transport services which include railways, roads, shipping, communication
facilities, etc. All these facilities and services constitute collectively the infrastructure
of an economy and the development and expansion of these facilities
13
are an essential pre-condition for increasing agricultural & industrial production

in a rural area.
3.2 Types of Infrastructural facilitiesoften referred towards economic
and social development of rural India:
1. Energy: The most important single factor which can act constraint on economic
growth of a country is the availability of energy. There is a direct correlation
between the degree of economic growth, the size of per capita income and per
capita consumption of energy. Since energy is an essential input of all productive
economic activity, the process of economic development inevitably demands
increasing higher levels of energy consumption. There are broadly two sources of
energy commercial energy & non-commercial energy. Following are the various
commercial energy:- coal & lignite, Oil & gas, Hydro-electric resource, Uranium. &
non-commercial energy are Fuelwood, Agricultural wastes, Animal dung.
2.
Power: Electric power, which is one form of energy, is an essential ingredient

of economic development and, it is required for commercial and non-commercial
uses. Commercial uses of power refer to the use of electric power in industries,
agriculture and transport. Non-commercial uses include electric power required for
domestic lighting, cooking, use of mechanical gadgets like the refrigerators, air
conditioners, etc. With the growth of population and with the increase in the use of
modern gadgets in daily life, it is quite natural that the demand for electricity for
domestic use should grow at a fast rate.
3. Transport: If agriculture and industry are regarded as the body and the bones of the
economy, which help the circulation of men and materials. The transport system helps
to broaden the market for goods and by doing so, it makes possible large-scale
production through division of labour. It is also essential for the movement of raw
materials, fuel, machinery etc., to the places of production. The more extensive and
continuous the production in any branch of activity the greater will be the need for
transport facilities. Transport development helps to open up remote regions and
resources for production.
14
Regions may have abundant agricultural, forest and mineral resources but
they cannot be developed if they continue to be remote and inaccessible.
3.3 Modes of transport & communication facilities:

Indian Railways: The most important form of transport system in India is
the Indian railways, which is also the countrys largest single undertaking
with a capital investment of around Rs. 15,000 crores. In 1950-51, railway
route length was 53,600 kms but by 1990-91 it had increased to nearly
62,400 kms-an increase at the rate of 0.4 percent per annum.
Roads & Road Transport: Road transport plays an important role in rural
economy of country, since it is most suitable for short distances. It has also
the advantage of door-to-door service, flexibility, speed and reliability. The
utility of other modes of transport such as railways, internal waterways,
ports, etc. increase when linked to the road transport system. Road
construction and maintenance generate sizeable employment opportunities
factor of great importance in the context of growing population and
growing unemployment in the country. The rural road network now
connects about 70 percent of our villages.
Inland water transport: Inland water transport is the cheapest mode of
transport, for both long and short distances, so far as the points of origin
and destination of traffic are concerned. It is cheap as energy consumption
is low. India has over 14,500 kms. Of navigable inland waterways
comprising a variety of river systems, canals, backwaters, creeks, etc.
4. Communications: The communication system comprises posts and telegraphs,
telecommunication system, broad casting, television and information services.
By providing necessary information about the markets and also supplying
necessary motivation, the communication system helps to bring buyers and
sellers together effectively and helps to accelerate the growth of the economy.
15
4.0 Microfinance In An Indian Context:Microfinance institutions (MFIs), specialised financial institutions that serve the
poor, derive from the success of some micro enterprise credit programmes performed
mainly by practitioners in developing countries. microFinance (mF) is being practiced
as a tool to attack poverty the world over. During the last two decades, substantial
work has been done in developing and experimenting with different concepts and
approaches to reach financial services to the poor, thanks mainly to the
16
initiatives of the Non-Governmental Organisations (NGOs) and banks in

various parts of the country.
Despite having a wide network of rural bank branches in the country
and implementation of many credit linked poverty alleviation programmes, a
large number of the very poor continue to remain outside the fold of the formal
banking system. Various studies suggested that the existing policies, systems
and procedures and the savings and loan products often did not meet the
needs of the hardcore and assetless poor. Experiences of many anti-poverty
and other welfare programmes of the state as well as of international
organisations have also shown that the key to success lies in the evolution and
participation of community based organizations at the grassroots level.
4.1 Micro-finance and Poverty Alleviation:
Most poor people manage to mobilize resources to develop their
enterprises and their dwellings slowly over time. Financial services could
enable the poor to leverage their initiative, accelerating the process of building
incomes, assets and economic security. However, conventional finance
institutions seldom lend down-market to serve the needs of low-income
families and women-headed households. They are very often denied access to
credit for any purpose, making the discussion of the level of interest rate and
other terms of finance irrelevant. Therefore the fundamental problem is not so
much of unaffordable terms of loan as the lack of access to credit itself.
The lack of access to credit for the poor is attributable to practical difficulties
arising from the discrepancy between the mode of operation followed by financial
institutions and the economic characteristics and financing needs of low-income
households. For example, commercial lending institutions require that borrowers have a
stable source of income out of which principal and interest can be paid back according to
the agreed terms. However, the income of many self employed households is not stable,
regardless of its size. A large number of small loans are needed to serve the poor, but
lenders prefer dealing with large loans in small numbers to minimize administration costs.
They also look for collateral with a clear title - which many low-income households do not
have. In addition bankers tend to consider
17
low income households a bad risk imposing exceedingly high information

monitoring costs on operation.
In other words, although microfinance offers a promising institutional structure
to provide access to credit to the poor, the scale problem needs to be resolved so that
it can reach the vast majority of potential customers who demand access to credit at
market rates. To be successful, financial intermediaries that provide services and
generate domestic resources must have the capacity to meet high performance
standards. They must achieve excellent repayments and provide access to clients.
And they must build toward operating and financial self-sufficiency and expanding
client reach. In order to do so, microfinance institutions need to find ways to cut down
on their administrative costs and also to broaden their resource base. Cost reductions
can be achieved through simplified and decentralized loan application, approval and
collection processes, for instance, through group loans which give borrowers
responsibilities for much of the loan application process, allow the loan officers to
handle many more clients and hence reduce costs.
Savings facilities make large scale lending operations possible. On the

other hand, studies also show that the poor operating in the informal sector do
save, although not in financial assets, and hence value access to clientfriendly savings service at least as much access to credit. Savings mobilization
also makes financial instituttions accontable to local shareholders. Therefore,
adequate savings facilities both serve the demand for financial services by the
customers and fulfill an important requirement of financial sustainability to the
lenders. Microfinance institutions can either provide savings services directly
through deposit taking or make arrangements with other financial institutions to
provide savings facilities to tap small savings in a flexible manner.
Convenience of location, positive real rate of return, liquidity, and security
of savings are essential ingredients of successful savings mobilization. Once
microfinance institutions are engaged in deposit taking in order to mobilize
household savings, they become financial
intermediaries. Consequently,
prudential financial regulations become necessary to ensure the solvency and

financial soundness of the institution and to protect the depositors.
18
Governments should provide an enabling legal and regulatory

framework which encourages the development of a range of institutions and
allows them to operate as recognized financial intermediaries subject to
simple supervisory and reporting requirements.
One way of expanding the successful operation of microfinance institutions in
the informal sector is through strengthened linkages with their formal sector
counterparts. A mutually beneficial partnership should be based on comparative
strengths of each sectors. Informal sector microfinance institutions have comparative
advantage in terms of small transaction costs achieved through adaptability and
flexibility of operations. They are better equipped to deal with credit assessment of the
urban poor and hence to absorb the transaction costs associated with loan
processing. On the other hand, formal sector institutions have access to broader
resource-base and high leverage through deposit mobilization.
Therefore, formal sector finance institutions could form a joint venture with
informal sector institutions in which the former provide funds in the form of equity
and the later extends savings and loan facilities to the urban poor. Another form of
partnership can involve the formal sector institutions refinancing loans made by
the informal sector lenders. Under these settings, the informal sector institutions
are able to tap additional resources as well as having an incentive to exercise
greater financial discipline in their management. Microfinance institutions could
also serve as intermediaries between borrowers and the formal financial sector
and on-lend funds backed by a public sector guarantee.
4.2 Weaknesses of Existing Microfinance Models

One of the most successful models discussed around the world is the Grameen
type. The bank has successfully served the rural poor in Bangladesh with no physical
collateral relying on group responsibility to replace the collateral requirements. The brief
idea about Grameen is given in the next part of this report. This model, however, has
some weaknessed. It involves too much of external subsidy which is not replicable
Grameen bank has not oriented itself towards mobilising peoples' resources. The
repayment system of 50 weekly equal instalments is not practical because poor do not
have a stable job and have to migrate to other places for jobs. If the communities are
19
agrarian during lean seasons it becomes impossible for them to repay the loan.
Pressure for high repayment drives members to money lenders. Credit alone cannot
alleviate poverty and the Grameen model is based only on credit. Micro-finance is
time taking process. Haste can lead to wrong selection of activities and beneficiaries.
Another model is Kerala model (Shreyas). The rules make it difficult to give
adequate credit {only 40-50 percent of amount available for lending). In Nari
Nidhi/Pradan system perhaps not reaching the very poor. Most of the existing
microfinance institutions are facing problems regarding skilled labour which is not
available for local level accounting. Drop out of trained staff is very high. One
alternative is automation which is not looked at as yet. Most of the models do not
lend for agriculture. Agriculture lending has not been experimented.
Risk Management : yield risk and price risk
Insurance & Commodity Future Exchange could be explored
All the models lack in appropriate legal and financial structure. There is
a need to have a sub-group to brainstorm on statutory structure/ ownership
control/ management/ taxation aspects/ financial sector prudential norms. A
forum/ network of micro-financier (self regulating organization) is desired.
5.0 Rural Market Contribution In Total Indian Economy

When you consider a rural market then the measure part of the rural buiness directly
or indirectly connected with agriculture. In this condition,whenever you study about
rural market you have to consider the impact of agriculture towards Indian Economy.
5.1 Profile of Rural people:If we classify the rural people by their occupation, we find cultivators as the
predominant occupation group who account 72% of rural households.
Distribution of rural households by their profession or business activity
20
Occupation
Cultivators
Agricultural labourers
Other non-cultivators
Artisans
All house holds
Percentage of Households
72
15
11
2
100
However this group of cultivators contain both prosperous and well as

marginal cultivators within itself. This is rural Indias picture where 20% of rural
households (mostly cultivators) control about 66% of assets in rural India. In
this way rural population broadly divided into 6 categories:
1. Proprietors of land includes feudal tribute gatherers like zamindars, rich
moneylenders and traders who acquire large tracts of land and
companies or persons who own large populations.
2. Rich farmers who belong to dominant caste of the area.
3. Small peasants or marginal farmers owning uneconomic land holdings.
4. Tenant farmers operating on rented lands belonging to large land
holders and working on small uneconomic land holdings.
5. Agricultural labourers who work on lands of landlords and rich farmers.
6. Artisans and others, which include the unemployed also.
5.2 Stastitical Profile Of The Rural Business in India

TABLE: VILLAGE & SMALL INDUSTRIES (Production)
Industry
Unit #
<-------------------- Production --------------->

1973-74
1979-80
1984-85
1985-86
1990-91
1995-96!
M.Sq.Mtres
56.00
82.00
103.98
108.58
1088.8
1052.63
Value
(Rs. crores)
33.00
92.00
157.62
186.30
285.95
353.49
122.00
348.00
807.06
900.38
1994.06
356216
7020
Traditional
Industries:
Khadi
Village
Value
Industries
(Rs. crores)
Handlooms
Mill Meters
2100.00
2900.00
3600.00
3692.00
4888
Value
(Rs. crores)
840.00
1740.00
2880.00
2953.60
3633
Lakh Kgs. of
29.00
48.00
76.70
78.97
12836
Sericulture
21
13909
Industry
Ha
ndi
cra
fts
Traditional
Industries:
Khadi
Village
Coi
r
Industries
Handlooms
Sericulture
Su
btot
al
(A)
Mo
der
n
Ind
ust
ries
:
Sm
all
Sc
ale
Ind
ust
ries
Po
wer
loo
ms
Su
btot
al
(B)
To
tal
(V
SI)
raw
silk
(value
Rs.crores)
Value
(Rs. crores)
Lakh tonnes
of
fibre
Value
(Rs. crores)
Value
(Rs. crores)
Value
(Rs. crores)
Mill Meters
Value
(Rs. crores)
Value
(Rs. crores)
(Rs.
crores)
TABLE: VILLAGE & SMALL INDUSTR

(Employm
Unit #
M.Sq.Mtres
<-------------- Employment (Lakh persons) -1973-74
1979-80
1984-85
8.84
11.20
13.05
9.27
16.13
24.84
52.40
61.50
76.80
12.00
16.00
20.43
Value
(Rs. crores)
Value
(Rs. crores)
Mill Meters
Value
(Rs. crores)
Lakh Kgs. of
raw
22
19
silk
(value
Rs.crores)
Handicrafts
Value
15.00
20.30
27.40
28.00
43.84
5.00
5.59
5.89
8.00
5.46
65.50
(Rs. crores)
Coir
Lakh tonnes of
fibre
N.A.
Value
(Rs. crores)
Value
(Rs. crores)
Sub-total (A)
Modern Industries:
Small Scale
Industries
Value
(Rs. crores)
Powerlooms
Mill Meters
102.21
130.72
168.41
203.80
246.74
253.00
39.65
67.00
90.00
96.00
124.3
152.61
10.00
11.00
32.19
35.32
55.00
N.A.
Value
(Rs. crores)
5.3 Agricultural Impact on National Economy:

Agriculture is a backbone of the Indian Economy. It is important to note that
importance is given to industrialization in last four decades, agriculture is
largest industry in the country.
5.4 Agricultural Production

The agricultural sector as a whole is estimated to record a
real growth rate of 6.6 per cent during 1998-99. The overall
growth in agricultural production during 1998-99 has been
provisionally estimated at 6.8 per cent, as against a negative
growth rate of (-) 5.4 per cent during 1997-98. In spite of
the damage caused to the cotton crop in Punjab by excessive rains and unexpected
cyclonic storms in Andhra Pradesh in October 1998, cotton production was estimated
to be higher at 13.3 million bales in 1998-99, as against 11.1 million bales produced in
1997-98. Similarly, the sugarcane output is expected to touch 282.7 million tonnes
during 1998-99, compared to 276.3 million tonnes during 1997-98. The production of
oilseeds is also likely to be higher at 25.3 million tonnes during 1998-99, as against
22.0 million tonnes during 1997-98.
23
5.4.1 Foodgrains Production

The production of kharif foodgrains estimated at 102.5
million tonnes during 1998 showed a marginal growth of
1.4 per cent over the production achieved (101.1 million
tonnes) in 1997. The rabi foodgrains production for 199899 is expected to go up to 98.4 million tonnes compared to
91.3 million tonnes in 1997-98. The foodgrains production is estimated to be

200.9 million tonnes in 1998-99 compared to 192.4 million tonnes during 199798, recording an impressive increase by 4.4 per cent (Advance Estimates).
During 1998-99, efforts have also been initiated by various government
agencies to double the food production in the next decade.
During 1998-99 rice production is estimated to increase to 84.5 million tonnes
from 82.3 million tonnes produced in 1997-98, while the wheat production
during 1998-99 is estimated at 70.6 million tonnes, compared to the previous
year's level of 65.9 million tonnes, an increase by 7.1 per cent. Production of
pulses in 1998-99 is expected to be around 15.2 million tonnes, as against
13.1 million tonnes during 1997-98.
5.4.2 Agricultural Production-Major crops (in million tonnes)

Year
Crops
1995-96
Achiev-
Target
ement
1996-97
Achiev
Target
ement
change
over
1997-98
Achiev
-ement
change
over
199596
Target
199697
1998-99
Produ-
ction
change
over
(Adv.
Est.)
1997-98
Rice
77.0
81.0
81.7
6.1
83.0
82.3
0.7
84.2
84.5
2.7
Wheat
62.1
65.0
69.4
11.8
68.5
65.9
(-) 5.0
70.0
70.6
7.1
Coarse
Cereals
29.0
29.0
32.5
34.1
17.6
33.5
31.1
(-) 8.8
34.3
30.6
Pulses
12.3
15.0
14.2
15.4
15.0
13.1
(-) 7.7
15.5
15.2
16.0
Total
Foodgr-
180.4
193.5
199.4
10.5
200.0
192.4
(- 3.5
204.0
200.9
4.4
24
ains
Oilseeds
22.1
23.0
24.4
10.4
25.5
22.0
(-) 9.8
27.0
25.3
15.0
Sugarca
-ne
281.1
270.0
277.6
(-) 1.2
280.0
276.3
(-) 10.5
300.0
282.7
2.3
Cotton*
12.9
13.0
14.2
10.0
14.8
11.1
(-) 21.8
14.8
13.3
19.8
* Million bales of 170 kg. each.
5.4.3 Agricultural Exports and Imports
The share of exports of agriculture and allied products in the total

exports had declined marginally, from 18.9 per cent during 1997-98 to 17.8 per
cent during 1998-99. During the same period, the value of exports of
agriculture and allied products amounted to US$ 5,994 million, showing a
decline of 9.6 per cent from a level of US$ 6,634 million in 1997-98. Major
items of agricultural exports were basmati and non-basmati rice, raw cotton,
meat, oilmeals, tea, coffee, unmanufactured tobacco, cashew, spices, fresh
and processed fruits and juices, vegetables and marine products, etc.
Agricultural imports related to food and other items constituted 5.8 per
cent of the total imports during 1998-99, as against 4.0 per cent during
corresponding period of the previous year. Important agricultural items
imported during the year were vegetable oils (edible), sugar, wheat and fruits &
nuts. During 1998-99, the volume of agricultural imports aggregated US$
2,409 million, as against US$ 1,678 million during the corresponding period of
the previous year, recording a growth of 43.6 per cent.
Agricultural markets:
25
There were 7,062 agricultural regulated markets operating in India, 162

agricultural commodities considered for grading standards and 3,253 cold storage
with capacity of 8.73 million tonnes as on end March 1998. With the introduction
of economic reforms, futures trading was permitted in coffee, cotton, castor oil and
jute goods during 1997-98. Earlier futures trading were permitted in gur, potato,
castor seed, pepper, turmeric, etc. Further, during 1998-99, futures trading was
introduced in oilseeds, oil cakes and edible oils. A network of co-operatives at the
national, state and primary level operates to help farm producers with access and
further reach for sale of produce. As per the Annual Report (1998-99) of Ministry
of Agriculture, Government of India, the value of agricultural produce marketed
through co-operatives has registered a remarkable growth of 21.6 per cent, from
Rs.9,500 crore in 1994-95 to about Rs.11,551 crore in 1995-96.
5.5 Agriculture role in Indian Economy

Agriculture for Industrial Development:
Indian agriculture has been the source of supply of raw materials to our
leading industries. Cotton and jute, textiles, sugar, plantations all these directly
depend on agricultural output. There are many industries, which depend on
agriculture indirectly. Many of our small scale and cottage industries like
handlooms, oil crushing, etc depend on agriculture for their raw materials.
But then, in recent years, agriculture is losing its significance to

industries such as iron and steel, engineering, chemicals, etc. However in
recent years, the importance of food processing industries is being increasing
recognized both for generation of income and generation of employment.
Agriculture in economic planning:
26
Importance of agriculture in the national economy is indicated by many facts.

For example, agriculture is main support for transport sector as railways and
roadways secure bulk of their business from the movement of agricultural goods.
Further it is seen that good crops implying large purchasing power with the farmers
lead to greater demand for manufactures and therefore better prices. In other words
prosperity of farmers is also the prosperity of the industries and vice-versa. Agriculture
is backbone of the Indian economy and the prosperity of agriculture can also stand for
the prosperity of the economy. At the same time it is true that per capita productivity in
agriculture is less than in the industry. Many scholars think that so long as the Indian
Economy is dominated by agricultural activity, per capita income will not rise to an
extent, which is necessary and desirable.
5.4 Capital Formation in Agriculture

The Gross Capital Formation in agriculture, at 1993-94 prices, increased from
Rs.18,214 crore in 1994-95 to Rs.20,995 crore in 1997-98. The share of
private sector investment in agriculture has been registering an increasing
trend over the last four years. It increased from Rs.13,244 crore in 1994-95 to
Rs.15,555 crore in 1996-97 and further to Rs.16,579 crore in 1997-98. The
rising trend in the private investment in agriculture is attributable mainly to
accelerated flow of institutional credit. It is explain graphically as follows:
27
The public sector capital investment in agriculture which has been declining
from Rs. 4,970 crore in 1994-95 to Rs.4,776 crore in 1995-96 and further to
Rs.4,347 crore in 1996-97 showed an increase from Rs.4,347 crore in 199697 to Rs.4,416 crore (at 1993-94 prices) in 1997-98.
6.0 Changing Scenario Of Rural Credit

Indian rural credit structure is regarded all over the world as quite unique and
innovative. It required a careful feasibility study to understand rural structure. Evolved
over a period of last eight decades, it can perhaps claim the honour of being a very
important constituent of the most complex rural economy in the third world countries.
In India there is different caste, religion of people living together, the language of
every state, caste is different than each other. The land, weather, water availability is
different in different area, which give lots of problem in applying various policies. One
of the distinguishing features has been its ability to adapt itself, without much turmoil
and stress, to the socio-economic dynamics of the rural
28
scenario. Over the years it has developed into a multi faceted structure to
service almost the entire cross-section of rural population spread thoughtout
the length and breadth of our country.
In rural areas the indigenous moneylenders continued to be the banker in
need. Since these money-lenders had virtual monopoly in supplying credit in rural
areas, the poor were often subjected to exploitation. With the overriding monopoly the
money-lenders often resorted to usurious practices--- levying the exobirant rate of
interest, demanding gift/contribution to the temple funds out of the amount of credit,
demanding advance interest, etc. Besides, often the money-lenders resorted to
unethical practices like taking thumb impression on a blank paper for inserting some
arbitrary amount, manipulation of account to inflate the balance due. The poor villager
could not escape the clutches of these indigenous bankers as they had to keep on
borrowing from them under distress since they were the only source of credit for all
type of requirements--- production and consumption. The conditions of the poor
peasantry were perpetually so pathetic that an adagethey are born in debt, they
live in debt & die in debt was the usual description of their plight.
To mitigate the sufferings of the poor farmers the infrastructure of cooperative credit was brought into being in the matter of agricultural finance. The
Co-operatives Societies Act of 1904 provided the formation of primary agricultural
co-operatives credit societies. Later in 1912, the co-operative movement was
extended to formation of non-agricultural co-operative credit societies also.
The commercial banks on the other hand were participating in rural banking only
as an alien since they were programmed for meeting the financial requirements of trade
and commerce. In a view of the huge gap in rural credit from institutional sources and in a
bid to meet the growing needs of financial assistance to modernizing farming, the
government adopted the multi-agency approach. This was intended to increase the farm
productivity and thus raise the living standards of the poor farmers. The formation of State
Bank Of India which was formed my taking over the Imperial Bank of India by the
Government was with a objective of extension of banking facilities on a large scale more
particularly in the rural and semi-urban areas and for other diverse purposes. This was
an important milestone in the banking of rural India. Momentum was gained more
prominently after the concept of Social control over
29
commercial banks was propagated in 1967. With the setting up of National Credit
Council in 1968 to asses the demand for bank credit for various sectors of economy
and to determine priorities for the grant of loans, etc. it came to be felt increasingly
that banks should become instruments of economic and social development.
To this effect nationalization of 14 major Indian commercial banks in July

1969 can be described as a major landmark in the history of Indian financial
system and a big leap towards rural banking. With emphasis on lending to priority
sector agriculture, rural artisans and handicrafts, small scale industries, small
business and retail trade and other weaker sections of the society rural banking
came to the fore. The step was initiated to utilize effectively the professional skills
and acumen developed by the banking system for achieving the basic objective of
balanced socio-economic development.
Both
the
Co-operative
and
Commercial
banks
made
substantial
development in providing credit to agricultural and rural economy. The total share
of co-operatives in total borrowing of the rural household grew from 5,204 in july
1964 to 12,065 in Dec 1974. But still it was noticed that two-thirds of the total
credit was taken from non-institutional sources. The demand for rural credit was
on the increase owing to adoption of modern agriculture, which increasingly
required larger amounts of capital both short term & long term.
6.1 Structure of Rural Credit In India

In the village itself no form of credit organization will be suitable except the Cooperative SocietyCo-operation has failed, but co-operation must succeed.
--All-India Rural Credit Survey
National Policy & Itss Aim:
30
Agricultural credit is one of the most crucial inputs in all agricultural development
programmes. From olden days private money-lenders are main sources of credit
towards agricultural or rural products. After independence multi-agency approach
consisting of co-operatives, commercial banks and regional rural banks are
adopted due to its cheaper and adequate credit to farmers. The major policy in the
sphere of agricultural credit has been its progressive institutionalization for
supplying agriculture and rural development programmes with adequate and
timely flow of credit to assist weaker sections and less developed regions.
The basic aim of this Policy are as follows:a. To ensure timely & sufficient flow of credit to the farming sector;
b. To avoid money-lender chain from rural scene.
c. To reduce regional imbalance through their credit facilities.
d. To provide larger credit support to areas covered by special
programmes. e.g. National Oilseeds Development Project.
Need of Credit for Farmers:Farmers need finance mainly for the following thingsto pay current
expenses of cultivation such as the purchase of seed, manures, etc.; the
purchase of cattle, implements and raw materials; acquire new land; or improve
land by irrigation, drainage, wedding and planting; pay up old debts to build and
repair houses, to purchase food stuffs and other personal necessaries; pay land
revenue to the Government; meet expenses connected with marriage and other
social events in the family, but jewellery and conduct law suits. The credit need of
agriculturists can, therefore, be broadly divided into directly productive & indirectly
unproductive expenses. Unfortunately fact is that underdeveloped and old
countries are in need of both the types of credit.
31
7.0 Sources Of Rural Credit

There are mainly two sources available to the farmers private agencies &
institutional.
Private
agencies
means
relatives,
landlords,
agricultural
moneylenders, professional private moneylenders, traders & commission agents,

others. Where institutional agencies are a. commercial banks, b. the state bank, c.
co-operative societies & land mortgage banks d. agricultural finance Corporation.
Private agencies giving 93% of the total credit requirements in 1951-52 and
institutional sources including government giving for only 7% of the total credit needs.
But in 1960-61, the share of private agencies came down to 81.3 which was as
follows:-
Relatives
8.8%,
Landlords
0.6%,
Agricultural
moneylenders
36.0,
Professional private moneylenders 13.2%, traders & commission agents 8.8%, other
32
sources 13.9. that time institutionals sources were 18.7 and the break up was
government 2.6%, Co-operative 15.5%, Commercial banks 0.6%. As per the
All India Debt and Investment Survey (1981), estimated that the share of
private agencies had further slumped to about 37% & share of institutional
credit jumped to 63% break up was 30% of co-operative & 29% of commercial
banks. Government & Reserve Bank of India is supporting commercial bank &
co-operatives to meet the growing demand for agricultural credit.
8.1 Private Agencies Sources:
Money lenders: Though there are drawbacks, moneylenders are by far the
most important source of agricultural credit in India. That we have already seen
before, It is therefore, clear that the basic problem of the agricultural economy of
India is the huge indebtedness of farmers and their exploitation by private
moneylenders. For that government of India make provisions in act as follows a.
maintenance of accounts in prescribed forms, b. furnishing of the receipts and
periodical statements, c. fixing of maximum rates of interest, d. Protection of the
debtors from molestations and intimidations, e. licensing of moneylenders, and f.
penalties for infringement of the provisions. The basic objectives of such
legislative enactments can be stated as: I. To bring about an improvement in the
terms on which private credit was available to agriculturists and to place legal
restrictions on the unreasonable exactions of moneylenders, II. To enable civil
courts to do greater justice as between lenders and borrowers than was possible
in the prevailing circumstances under the ordinary Code of Civil Procedure.
Traders & commission agents: Traders & commsiion agents supply

funds to farmers for productive purposes much before the crops mature.
They force the farmers to sell their produce at low prices and they charge a
heavy commission for themselves.
Landlords & others: Farmers, predominantly small farmers & tenants,
depend upon landlords and others to meet their financial requirements. This
source of finance has all the defects associated with moneylenders, traders and
commission agents. Interests rates are exorbitant. Often the small farmers are
cheated and their lands are appropriated. What is worse, this source of finance is
33
becoming more importantfrom 3.3 percent in 1951-52 to 14.5 percent in

1961-62 but declined to 8.8 percent in 1981.
9.0 Institutional sources of credit:
These are the funds made available by co-operative societies,
commercial banks, & regional rural banks & state governments also. The need
for institutional credit arises because of the weakness or inadequacy of private
agencies to supply credit to farmers. Private credit is defective because:I.
It is based on profit motive &, therefore, it is always exploitative.

II. It is very expensive and is not related to the productivity of land.
III. It does not flow into most desirable channels and to most needy persons.
IV. It is not available for making agricultural improvementsand much of

the necessary improvements are not undertaken as funds are not
available for long periods at low rates of interest
V. It is not properly integrated with the agriculturists other needs.
Problems in Institutional sources:
The government was of the view that multi-agency approach to rural credit was the
real solution to the emancipation of small farmers from the clutches of the moneylenders. But withing a short period, number of problems have surfaced such as:
a) There was no coordination between different agencies operating in

the same area and, as a result, there was multiple financing, overfinancing in some areas and under-financing in others.
b) Despite the adoption of lead bank scheme and district credit plans, the
different agencies often failed to formulate and develop meaningful
agricultural credit programmes in given blocks and districts.

c) Despite guidelines issued by RBI, different agencies adopted different
procedures and policies in the matter of providing loans and their recover.
The result was unnecessary competition among the different agencies.
d) There were practical problems in the recovery of loans when different

agencies had lent to the same person against the same securities.
Ultimatlely, there were heavy overdues.
34
The major problem faced by lending institutions, particularly co-operatives, is

the most unsatisfactory level of overdues. The ration of overdues to that of demand is
around 40 to 42 percent in the case of co-operatives and 47 percent in the case of
Regional rural banks. Accordingly, health of rural credit institutions, both co-operative
and commercial banks, is in a very sad state in several parts of the country.
1. Co-operative credit societies [9.1]

It is the cheapest and the best source of rural credit. The rate of interest is low. Since
1951, the co-operative credit movement has started helping the farmers in a big manner.
During 1989-90 there were about 88,000 primary agricultural credit societies.
The stranglehold of the moneylenders on the peasants is not met by the

co-operatives. Besides, the small farmers find it difficult to meet all their credit
requirements from the co-operatives.
Primary Agricultural Credit Society:
The co-operative movement was started in India largely with a view to
providing agriculturists funds for agricultural operations at low rates of interest
and protect them from the clutches of moneylenders. The organization of the
co-operative credit for short period may be briefly outlined as follows:
A co-operative credit society, commonly known as the primary agricultural credit
society (PACS) may be started with ten or more persons, normaly belonging to a village.
The value of each share is generally nominal so as to enable even the poorest farmer to
become a member. The members have unlimited liability, that is each member is fully
responsible for the entire loss of the society in the event of failure. This will mean that all
the members should know each other intimately. The management of the society is under
an elected body consisting of President, Secretary & Treasurer. The management is
honorary, the only paid member being normally. Loans are given for short periods,
normally for one year, for carrying out agricultural operations, and the rate of interest is
low. Profits are not distributed as dividend to shareholders but are used for the welfare of
the village. In the construction of a well, or maintenance of a school, and so on. The
usefulness of the primary credit societies
35
has been rising steadily. In 1950-51, it advanced loans worth Rs.23 crores;
this rose to Rs. 200 crores in 1960-61, and to Rs. 4200 crores in 1988-89.
Financial Strength of PACs.: To make all primary agricultural societies viable and
ensure adequate and timely flow of co-operative credit to the rural areas the Reverse
Bank of India, in collaboration with State governments, had been taking a series of
steps to strengthen weak co-operative banks and to correct regional imbalances in cooperatives development. Steps were taken to reorganize viable PACs and for
amalgamation of non-viable societies with farmers service societies or large sized
multipurpose societies. These efforts are being intensified by providing larger funds to
weak societies to write off their losses, bad debts and overdues.
PACs and Weaker Sections: The major objective of the co-operative

development programmes is to ensure that the benefits of co-operative activities
flow increasingly to weaker sections including scheduled castes and scheduled
tribes. The government seeks to achieve this through expanding the
membership of the weaker sections in the existing PACs and ensuring larger
flow of funds and services to them. In the tribal areas, large sized multipurpose
societies are being organized mainly for the benefit of the tribals.
Co-operative Central Banks: These are federations of primary credit societies in
specified areas normally extending to the whole district meance they are sometimes
called as district co-operative banks. These banks have a few private individuals as
shareholders who provide both finance of management. Their main task is to lend to
village primary societies, but they were expected to attract deposits from the general
public. But the expectation has not been fulfilled and many of the co-operative central
banks act as intermediaries between the State Co-operative Bank on the one hand
and the village primary credit societies on the other.
State Co-operative Bank: This bank forms the apex of the co-operative credit structure
in each state. It finances and controls the working of the central co-operative banks in the
State. It serves as a link between the Reserve Bank of India from which it borrows and
the co-operative central banks and village primary societies. The State Co-operative Bank
obtain its working funds from its own share capital and reserves, deposits from the
general public and loans and advances from the Reserve Bank now
36
NABARDhas formulated a scheme for the rehabilitation of weak central cooperative banks. NABARD is providing liberal assistance to the State
Governments for contributing to the share capital of the weak central co-operative
banks selected for the purpose. The State Co-operative bank is not only
interested in helping the co-operative credit movement but also in promoting other
co-operative ventures and in extending the principles of co-operation.
Problem of overdues to Co-operative credit

A highly distressing fact of co-operative credit is the heavy overdues of cooperative credit institutions, now estimated between Rs.9,000 crores to Rs.10,000
crores. According to the RBI study team on overdues lack of will and discipline
among cultivators to repay loans was the principal factor responsible for the
prevalence of overdues of co-operatives. Defective lending policy pursued by cooperatives, the apathy of management in taking quick action against recalcitrant
members and absence of favourable climate were other contributing factors.
Apart from these commonly factors normally responsible for a high level of
overdues, intervention of external forces such as loan waivers, concession in
various forms towards repayment of principal and interest has also affected the
recovery performance of credit institutions to a significant extent. The problem
is further aggravated on the account of the state governments in ability to meet
the financial commitments to co-operative banks.
In recent years, the farmers are getting organized and one of their chief
demands of the farmer union is to cancel their debts to the co-operative societies
and banks. States have meekly surrended to such demands to write off the debts
in a matter of extreme concern, as it hampers the recovery of dues from the
farmers. The problem of loan overdues is a matter of serious concern, as it affects
the recycling of funds and credit expansion on one hand and economic viability of
the lending institutions, specially the co-operatives and RRBs, on the other.
2. Land development banks[9.2]: The need for long-term loan is being satisfied
by land development banks (formerly the were called land mortgage banks).
The objective of such banks is to provide long-term credit to the cultivators
37
against the mortgage of their lands. The loans from the land development banks
are quite cheap and are spread over a long period of 15 to 20 years. It is,
therefore, convenient ot borrow from these banks if previous debts have to be
cancelled or if additional land is to be purchased or if improvements have to be
made. Though land development banks have been making considerable
progress in recent years in this country, they have not really contributed much to
the financial need of the farmers. Most farmer are not even aware about this
bank & 70% of the land development banks are located in the three South
Indian States of Tamil Nadu, Andhra Pradesh & Karnataka. The loan sanction
by this bank has been increase annually from Rs. 3 crores to Rs. 770 crores
between 1950-51 and 1989-90. major drawback of this bank is they lend against
the security of land, and big landlords have taken advantage of them and, by
and large, small peasants have not benefited from them.
The Structure of LDBs:- The long term credit structure consists of the central
land development banks (generally one for each State) and primary land
development banks. In some States, there are no primary land developments
banks but in their place, there are branches of central land development banks.
Problems of LDBs:- Land development banking is yet to take strong

roots in India barring few States. However, LDBs have contributed in
large measure to agricultural development by lending specially for minor
irrigation. All their loans are for productive purposes benefiting mostly the
small farm holders. Though land development banking has made
considerable progress in recent years, it has not really contributed much
to the improvement of the financial position of the farmers. A large
number of factors are responsible for the relative ineffectiveness of LDBs.
Overdues Problems:- mounting overdues in most of the LDBs have crippled
the structure badly, in recent years. Overdues at the level of primary land
development banks have been put between 42 to 44 percent. Overdues have
caused innumerable financial problems besides limiting the capacity of LDBs to
lend and operate as viable units. The financial discipline imposed on the banks
in the matter of eligibility to undertake fresh lending based on recovery
38
performance has been the main limiting factor quantitative growth of

credit operations. To some extent, the banks themselves are to be
blamed for this predicament due to faulty loaning policies, inadequate
supervision, over-utilisation of loans, ineffective measures for recovery
etc. Which have contributed to the deterioration in recovering the loans.
3. Commercial Banks[9.3]: The commercial banks in India have long confined their
operations to urban areas, receiving deposits from the urban public and
financing trade and industry in urban public and financing trade and industry in
urban areas. Commercial banks are extending financial support to agriculture
both directly and indirectly Direct finance is extended for agricultural operations
for short and medium period. Indirect finance to farmers is made through
providing advances for the distribution of fertilizers, other inputs, etc, and also
through financing primary agricultural credit societies. Financing of investment in
agriculture is a major aspect of the farm credit activities of banks Credit needs of
service units providing services for warehousing, processing, marketing,
transporting, and repairing of tractors etc.
Direct Finance by Commercial Banks:- At the time of bank nationalization, it
was clearly conceded that the commercial banks did not have the necessary
experience or the personnel to deal with the farmers directly. While the cooperative had been specializing in rural credit since the beginning of the century.
Even then the nationalized banks were expected to go vigorously in the support
of the farmers in general and the small cultivators in particular. In the initial
stages, for obvious reasons the nationalized banks concentrated their attention
on large cultivators and other special category farmers such as those engaged
in raising high-yielding varieties of food-grains. At present short term crop loans
accounted for nearly 40 to 45% of the total loans disbursed by the commercial
banks to the farmers.
Term loans for varying periods for purchasing pump-sets, tractors and
other agricultural machinery, for construction of wells and tube-wells, for the
development of fruit and garden crops, or leveling and development of land, etc.
are provided. These term loans accounted for about 35 to 37% of the total loans
disbursed by commercial banks. Finally, commercial banks extend loans for
39
such activities such as dairying, poultry farming, piggery, bee keeping,

fisheries and others these loansaccount for 15 to16%. Region wise,
southern region accounts for the bulk of credit disbursed by commercial
banks viz. 52% of the total credit extended.
Indirect Finance by Copmmercial Banks: Even though the scope for
direct financing by commercial banks would be limited for some years to
come, there is a considerable scope for indirect financing by commercial
banks. For instance, commercial banks are financing co-operative societies
to enable them to expand their production credit to the farmers. More
especially they increasingly finance co-operatives engaged in marketing and
processing of agricultural produce or in the activities ancillary to agriculture
such as dairy farming, poultry farming, etc. In this connection, the Stated
Bank of India and its subsidiaries are already playing an active role in
financing co-operative marketing and processing. Commercial banks are
providing indirect finance for the distribution of fertilizers and other inputs.
Commercial banks extend credit to manufacturing or distribution
firms and agencies and co-operatives engaged in the supply of pump-sets
and other agricultural machinery on the hire-purchase basis. They finance
the operations of the Food Corporation of India, the state governments and
others in the procurement, storage and distribution of food grains.
Finally, commercial banks increasingly subscribe to the debentures of the
central land development banks and also extend advances to the latter. This
enables land development banks to expand their medium and long-term advances
to farmers for the purpose of land improvement and land development.
Commercial Banks & Small Farmers: It has been estimated that nearly 70
percent of farmers owning less than 2 hectares of land are not getting bank
credit; only large landowners have been found creditworthy and suitable for
banks advances. But such a situation cannot continue for long. Under the
direction of the Planning Commission, Small farmers Development Agencies
have been set up to identify small farmers and work out economically viable
schemes of agricultural development. Commercial banks have to group them
40
into various categories for credit support so as to enable them to become

viable cultivators. For instance, in areas where the subsoil water table is
high, the small cultivator has to be helped by banks to convert his dry
holding into wet holding. With pump set loan, the cultivator can change the
cropping pattern into double or even multiple cropping activity. As regards
small cultivators near urban areas and with irrigation facilities, commercial
banks can help them to go in for poultry farming and maintaining one or two
vegetable cultivation or combine it with small milch cattle.
Problems of Commercial Banks in Agricultural Credit:- The credit needs of
the agricultural sector in the next few years are estimated to rise to Rs.50,000 to
Rs.60,000 crores. To meet the needs is an enormous task, and responsibility will
have to be borne by co-operatives and commercial banks. As resources
available to commercial banks in the agricultural sector will naturally be limited,
it is important that every commercial bank attempts to make optimum use of its
limited resources in this sector. In the field of financing of agriculture, the
problem is not merely quantitative but also of coverage vis--vis the
organization and the personnel available to the nationalized banks. The majority
of the rural population consists of small farmers. Further, there are 5,50,000
villages spread throughout the country. To reach all of them with only about
47,000 banking offices is, no doubt, a stupendous task. Even with the
completion of branch extension programmes of the commercial banks now in
hand or those which may be undertaken during the next 5 to 10 years,
commercial bank may not be in a position to cover many of the villages.
Moreover in recent years, the rural branches of commercial banks in general
and branches of RRB in particular, have been under severe financial strain on
account of higher transaction cost involved in handling of large number of small
size loan accounts and somewhat lower interest income as a result of
concessional rate of interest on small size loans.
The lower proportion of current deposits in total deposits of rural

branches has also placed them at a disadvantage with regards to cost of
resources. Finally, the presence of overdues, particularly after the
41
implementation of Agricultural and Rural Credit Debt Relief Schemes, 1990 has
further adversely affected the viability of rural branches of commercial banks.
Under these conditions, if the development of agriculture is not

to suffer for want of credit and if there has to be some improvement in the
lot of innumerable small farmers, new dimensions will have to be given to
schemes of financing agriculture.
4. Regional Rural Banks [9.4]: These banks were first set up in 1975
specifically to give direct loans and advances to small and marginal
farmers, agricultural labourers, rural artisans and other of small means.
The loans are given for productive purposes. There were 196 RRBs
which have been lending around Rs. 3600 crores annually by way of
loans to rural people. Over 90 percent of the loans of RPBs are given to
the weaker sections in rural areas. The regional banks, though basically
scheduled commercial banks, differ from the latter in certain respects:
The area of regional rural banks is limited to a specified region
comprising one or more districts of a State.
The regional rural banks grant direct loans and advances only to
small and marginal farmers, rural artisans and agricultural labourers and
other of small means for productive purposes.
The lending rates of the regional rural banks should not be higer than the
prevailing lending rates of co-operatives societies in any particular State. The
sponsoring banks and the Reserve Bank of India provide many subsidies and
concessions to RRBs to enable the latter to function effectively
Concessions to RRBs: From the beginning, the sponsor banks have

continued to provide managerial and financial assistance to RRBs and
also other concessions such as lower rate of interest on the latters
borrowing from sponsor banks. Further, the cost of staff deputed to RRBs
and training expenses of RRB staff are borne by the sponsor banks. The
Reserve Bank of India has been granting many concessions to RRBs.
42
Progress of RRBs: There are now 196 regional rural banks in 23

States with 14,500 branches. As at the end of September 1990 the
regional rural banks had advanced Rs.3,560 crores by way of short-term
crop loans, term loans for agricultural activities, for rural artisans, village
and cottage industries, retail trade and self employed, consumption loans
etc. Nearly 90 percent of the loans of RRBs, were provided to the weaker
sections. State wise Uttar Pradesh found large number of offices.
Objectives of RRBs:
RRBs had followed instructions given by RBI and Government of
India regarding loan policies, procedures, etc.
The basic aim of setting up RRBs viz, developing the rural economy by
providing credit for the development of agriculture, trade, commerce industry
and other productive activities in rural areas, was being fulfilled and
RRBs had successfully maintained their image as a small mans bank by
confining their credit facilities to the target groups viz, small marginal farmers,
agricultural labourers, artisans and small enterprises for productive activities.
The recovery position on the whole was not satisfactory.
Problems in functioning of RRBs:

a. On account of the many restrictions place on the business they can
undertake, RRBs have lowearning capacity.
b. The wage and salary scales of RRBs have been rising and, in fact,
with the recent award of a tribunal, their scales would approximate
those of commercial banks; with the increase in salary scales, an
important rationale for the setting up of RRBs has ceased to exist.
43
c. The sponsoring banks are also running their own rural branches in the
very area of operations of the RRBs; this has given rise to certain
anamolies and to avoidable expenditure on controls and administration.
5. Reserve Bank of India [9.5]:

RBI had shown keen interest in agricultural credit and maintained a
separate department for this purpose. RBI extended short-term seasonal
credit as well as medium-term and long-term credit to agriculture through
State level co-operative banks and land developments banks. RBI had also
set up the Agricultural Refinance Development Corporation (ARDC) to
provide refinance support to the banks to promote programmes of
agricultural development, particularly those requiring term credit. With the
widening of the role of bank credit from agricultural development to rural
development the Government propo9sed to have a more broad-based
organization at the apex level to extend support and give guidance to credit
institutions in matter relating to the formulation and implementation of rural
development programmes. A National Bank for Agriculture and Rural
Development (NABARD) or National Bank was, therefore, set up to take
over the agricultural credit functions of RBI on the on hand and the
refinance functions of ARDC on the other.
9.5.a N A B A R D: an OverviewNABARD is an apex institution accredited with all matters

concerning policy, planning and operations in the field of credit for
agriculture and other economic activities in rural areas.
NABARD operates throughout the country through its Head Office at
Mumbai, 25 Regional Offices and on Sub-Office, located in the capitals
of all the states/union territories. It also has 4 training establishments.
44
It is an apex refinancing agency for the institutions providing

investment and production credit for promoting the various
developmental activities in rural areas.
It takes measures towards institution building for improving
absorptive capacity of the credit delivery system, including
monitoring, formulation of rehabilitation schemes, restructuring of
credit institution, training of personnel, etc.
It co-ordinates the rural financing activities of all the institutions
engaged in developmental work at the field level and maintains liaison
with Government of India, State Governments, Reserve Bank of India
and other national level institutions concerned with policy formulation.
It prepares, on annual basis, rural credit plans for all districts in

the country; these plans form the base for annual credit plans of all
rural financial institutions
o
It undertakes monitoring and evaluation of projects refinanced by it.

o It promotes research in the fields of rural banking, agriculture
and rural development.
10.1 Schemes & Facilities from the various banks

10.2 NABARD:RURAL NON-FARM SECTOR FINANCE SCHEME
Rural Non Farm Sector (RNFS) holds the key to faster
economic development of the country. It has potential and
45
promise for generating employment and increased income in the rural areas.
Hence, NABARD has identified financing, development and promotion of
RNFS as one of its thrust areas.
Schemes from NABARD for non-farming sector:
1. COMPOSITE LOAN SCHEME (CLS) - under ARF

Borrowers: Rural artisans, handicraftsmen, small entrepreneurs, groups of
individuals, partnership firms, co-operative societies, NGOs, etc.
Refinance ceiling -Maximum of Rs. 10 lakh per borrower.
Repayment period -3 to 10 years with suitable need based moratorium not
exceeding 18 months.
Eligible activities -All manufacturing, processing, and approved service activities.
2. INTEGRATED LOAN SCHEME (ILS) - under ARF

Borrowers: Individuals, artisans, groups of individuals, associations (formal and
informal), proprietary/ partnership firms/ co-operative societies, registered
institutions/ trusts, voluntary agencies, private and public limited companies, etc.
Refinance Repayment period 3 to 10 years with suitable need based

moratorium not exceeding 18 months.
Eligible activities Manufacturing, processing and approved service activities
in the cottage, village and tiny industry sector and modernization/ renovation/
expansion/ diversification of existing units.
3. Small Road and water Transport Operators SCHEME (SRWTO) - Under
ARF
Borrowers Individuals, groups of individuals, including partnership/ proprietary firms and
co-operative enterprises. The borrowers should be from the rural areas and should
46
utilise the vehicle mainly for transportation of Rural Farm and Non-Farm Products
and inputs and passengers to/ from marketing centres. The borrower or his
employee should possess a valid driving licence and the vehicle should be duly
registered with the Regional Transport Authority as public transport vehicle.
Refinance ceiling Maximum of Rs.15 lakh per borrower

Repayment period 5 years with moratorium of 6 months.
Eligible vehicles Transport vehicles including Light Motor vehicles, Jeeps,
Autorickshaws, Water transport units (boats, launches etc.)
4. Schemes under pre - sanction procedure
(i) Term Loan to SSI units (through CBs & Scheduled PCBs )
Borrowers : Individuals, Proprietary / Partnership concerns, Private/ Public
Limited Companies, Promotional/ Developmental Organisations, State
Level Federations/ Corporations, Joint Sector Undertakings.
(ii) Term Loan to Industrial Co-operatives (through SCBs)
Borrowers : Industrial Co-operative Societies identified as viable/
potentially viable by the State Government.
iii) Project Finance for Agro-Industries (through CBs, Scheduled
PCBs and SCBs)
Borrowers
1.
State level corporations such as agro-industries corporations, forest/

tribal development corporations, KVIC/ KVIB, state level cooperative
societies/ federations, co-operative marketing/ processing and industrial
societies, joint sector undertakings, registered societies in KVIC/ KVIB fold.
2.
Public/ private limited companies, partnership firms and proprietary concerns.
Repayment period: 3 to 10 years with moratorium of 12 months.
47
5. Soft Loan Assistance Scheme for Margin Money

Beneficiaries and purpose: Entrepreneurs having necessary talent/ skills,
but who lack monetary resources to meet the margin requirements stipulated
under the relevant schemes covering both ARF and prior sanction.
Purpose To set up new units as well as for modernisation/ renovation/
expansion/ diversification of existing units even if the units were not initially
refinanced by the Bank.
Eligibility criteria Refinance will be available on the banks' satisfying the
eligibility criteria based on recovery performance/the position of NPAs, as
prescribed by NABARD from time to time.
FARM SECTOR FINANCE SCHEME:
A) Refinance Assistance for financing farm mechanization
i) Tractors:
(a) The quantum of refinance in respect of financing for acquisition of second
tractor has been enhanced from existing level of 40% to 90% ( 95% in case of
SCARDBs) of the loan amount as in the case of first tractor.
(b) Though the minimum land holding required for financing tractors is 8 acre
perennially irrigated land, necessary discretion has been given to banks to
evolve their own area specific norms, if need be, and report such norms
evolved by them to the concerned RO of NABARD.
(c) Refinance facility for financing purchase of second hand tractors has been
extended to Gujarat in addition to Punjab, Haryana and Rajasthan.
ii) Power Tillers:
(a) Though the minimum land holding required for financing power tillers is 6
acres of perennially irrigated land, necessary discretion has been given to
banks to evolve their own area specific norms, if
48
need be, and report such norms evolved by them to the concerned RO of
NABARD.
(b) Banks have also been advised to give focused attention on financing
power tillers by preparing a three year banking plan for a compact area for the
benefit of the small farmers.
C) Swarnajayanti Gram Swarozgar Yojana (SGSY)
SGSY, formed by restructuring ongoing self employment programmes, viz.
IRDP, TRYSEM, DWCRA, etc., is under implementation from 01 April 1999.
The programme envisages formation of SGSY Groups and their linkage with
the banks. Individuals as also SGSY group members, below poverty line are
assisted under the programme
D) Scheme for setting up of Agriclinic and Agribusiness centers
In pursuance of the announcement made by the Union Finance Minister in the
budget speech for the year 2001-02, National Bank in consultation with the
Ministry of Agriculture, GOI and select banks formulated a scheme for financing
Agriculture Graduates for setting up Agriclinics and Agribusiness Centres The
scheme aims at supplementing the existing Extension Network to accelerate the
process of technology transfer to agriculture and supplement the efforts of State
Agencies in providing inputs and other services to the farmers.
E) Scheme for financing farmers for purchase of land for Agricultural purposes
In response to the Hon'ble Union Finance Minister's emphasis on the need to

step up priority sector lending and to examine financing farmers for purchase
of land for agricultural purposes, the Working Group constituted by Indian
Banks Association formulated a above scheme in consultation with the
Government of India, RBI and NABARD.
49
The objective of the Scheme is to finance the farmers to purchase, develop and
cultivate agricultural as well as fallow and waste lands as also consider financing
purchase of land for establishing or diversifying into other allied activities.
Eligibility (i) Small and marginal farmers i.e.. those who would own maximum of
5 acres of non- irrigated land or 2.5 acres of irrigated land including purchase of
land under the scheme and (ii) Share croppers / Tenant farmers are eligible.
F) Central Sector Capital Subsidy scheme for Investment Promotion (IPS)
A Central Sector Capital Subsidy scheme (Investment Promotion Scheme)
launched by the Government of India in collaboration with NABARD for development
of privately owned non-forest wastelands in the country is under implementation since
1998. Of the 40 schemes covering about 1500 ha sanctioned till date, the coverage is
mostly confined to the States of Tamil Nadu, Andhra Pradesh and Maharashtra, with
Tamil Nadu accounting for more than 20 schemes. The scheme provides for subsidy
upto 25% of bank loan with a ceiling of Rs. 25 lakh for taking up plantation and other
on-farm developments in private wastelands. In view of the availability of substantial
area under non-forest wasteland in all States and the need to develop them, a
nationwide awareness and publicity campaign was launched by the Government of
India in association with NABARD for popularizing the Investment Promotion Scheme
(IPS). As a part of this effort, workshops are being organized by NABARD in different
States/ regions.
G) Refinance Scheme for financing Farmers Service Center (FSC)

NABARD has decided to extend 100% refinance facility to banks for financing
Farmers Service Centres (FSC) set up in collaboration with Mahindra
Shubhlabh Services Ltd (MSSL) for providing various extension services to
farmers including supply of agri-inputs. FSC is intended to benefit farmers by
way of higher yields and productivity through private sector participation in
technology transfer and extension services.
Scheme for Rural Finance [10.2]:
50
SBI Caters to the needs of agriculturists and landless agricultural labourers

through a network of 6600 rural and semi-urban branches.There are 972 specialized
branches which have been set up in different parts of the country exclusively for the
development of agriculture through credit deployment.These branches include 427
Agricultural Development Branches (ADBs) and 547 branches with Agricultural
Banking Divisions (ADBs) and 2 Agricultural Business Branches at Chennai and
Hyderabad catering to the needs of hitech commercial agricultural projects.
The Bank has achieved tremendous growth in agricultural credit.As on March

2001 ,it has covered 48 lakh farmers with loan outstanding of Rs. 14962 crores ,
accounting for 28% of total agricultural advances of Public Sector Banks (PSBs)
Crop Loan
SBI offers financial assistance to meet cultivation expenses for various
crops as short Term Loan. With a repayment period not exceeding 18 months,
the Crop Loan is extended in the form of direct finance to cultivators.
Eligibility-Agriculturists, Tenant farmers and Share Croppers who actually
cultivate the lands are eligible for these loans. All categories of farmers Small/Marginal (SF/MF) and others are included.
Produce marketing loan scheme
The Bank extends financial assistance to help farmers store produce on
their own to avoid distress sale. The repayment period of the produce
marketing loan (PML) does not exceed 6 months. Further, this facilitates
immediate renewal of crop loans for next crop.
Eligiblity-All categories of farmers - Small/Marginal (SF/MF) and others - are
eligible.
The Bank verifies the following aspects before granting the
loan: 1) Service Area Approach.
51
2) Stocks at the borrowers' residence/godown.

3) Stock statement for valuation.
Loan Amount
Upto Rs.25,000
Security to be furnished
DPN, DPN take delivery letter Hypothecation of
stocks.
Above Rs.25,000
Hypothecation of stocks.Mortgage of properties.
Kisan credit card scheme

The SBI offers the Kisan Credit Card for farmers under short-term credit
introduced as per RBI/NABARD guidelines, providing a running account facility
tofarmers to meet their production credit need and contingency needs.
Eligibility-All agricultural clients having good track record for the last two
years are eligible for the Kisan Credit Card. Minimum credit limit: Rs.3000/New borrowers requiring crop loans can also avail this product.
Credit limit is based on operational land holding, cropping pattern and scale of
finance. Withdrawals can be made using easy and convenient withdrawal slips.
The Kisan Credit Card is valid for 3 years, subject to annual review.
Agriculture term loans

SBI gives agricultural term loans in the form of direct finance to cultivators to
create assets facilitating crop production/income generation. Repayments span not
less than 3 years and not exceeding 15 years. Activities broadly covered are land
development, minor irrigation, farm mechanization, plantation and horticulture,
dairying, poultry, sericulture, dry land, waste land development schemes, etc.
Eligibility-All categories of farmers-small/medium-and agricultural labourers

are eligible for agricultural term loans, provided they have necessary
experience in the activity and the required land area.
Land Development Schemes
52
The SBI gives credit solutions for land development programmes in the
form of direct finance to cultivators aimed at better productivity. Loans under
this head cover various activities like land clearance (removal bushes, trees,
etc.), land leveling and shaping, contour/graded bunding, bench terracing for
hilly areas, contour stone walls, staggered contour trenches, disposal drains,
reclamation of saline/alkaline soils and fencing.
Eligibility:Loans cover various activities like digging of new wells (open/bore
wells), deepening of existing wells (traditional/inwell bore), energisation of
wells (oil engine/electrical pump set), laying of pipe lines, installing
drip/sprinkler irrigation system and lift irrigation system.
Minor Irrigation Schemes
SBI provides credit for creating new source of irrigation by exploiting
underground water, energisation of wells, conveyance of water, judicious use
of available water, etc.
Loans cover various activities like digging of new wells (open/bore wells),
deepening of existing wells (traditional/inwell bore), energisation of wells (oil
engine/electrical pump set), laying of pipe lines, installing drip/sprinkler
irrigation system and lift irrigation system.
Farm Mechanisation Schemes

SBI provides credit for purchase of farm equipment and machinery
for agricultural operations.
This mode of finance covers activities ranging from: Purchase of tractors,
trailers, cultivators, cage wheels, power tillers, combine harvesters, power
sprayers, dusters, etc.
53
Eligibility- is ascertained on the basis of minimum area requirements: Tractors 8 acres of irrigated area Power tiller - 5 -6 acres Combine harvester - 20 acres
Financing of Combine Harvesters:

A farmer should own minimum 8 acres of irrigated land.
o Non-farmer entrepreneurs capable of utilizing combine harvester for

custom hiring work are also eligible.
o Combine harvester should be utilised for a minimum of 1000
hours of productive work in a year.
Unit cost will include cost of combine harvester and accessories, if any.
Kisan Gold Card Scheme:

Eligibility-Farmers with excellent repayment record for at least past 5
years. New farmers are not eligible for the product.
Purpose-Investment credit for which term loans are ordinarily
sanctioned. The scheme also includes major family expenditures like
marriages and education of children.
Land Purchase Scheme:
Eligibility-Small/marginal farmers, tenants, share-croppers owning less than 5
acres of unirrigated / 2.5 acres irrigated land in their own name and landless
agricultural labourers are eligible to avail loan under the scheme, provided they are
our existing borrowers with record of prompt repayment of loans. Own land before
and after purchase should not exceed 5 acres irrigated / 2.5 acres irrigated.
Security-Land to be purchased with Bank finance will be mortgaged as

security. No other security will be insisted upon.
Repayment-Entire loan will be repayable in 10 years in half-yearly
instalments. Adequate gestation period will be allowed for development of
land for cultivation.
54
Self Help Groups (SHGs)

SHGs are self managed homogeneous groups of economically backward people
that promote savings among themselves and pool the savings. These pooled
resources are supplemented by external resources i.e. bank credit when these
groups gain experience. The Self Help Groups Linkage Programme of SBI is
under implementation since 1992. At the end of March 2001, the Bank has
financed 25,000 self-help groups with aggregate credit limit of Rs 46 crore.
10.3 Various Finance Scheme Offered From Government:

Maharashtra Rural Credit Project (MRCP) - India - Out line of the project
features and Impact
General: Access to credit has long been considered a major poverty alleviation strategy in
India. A variety of credit-linked programmes supplemented by subsidies have been
implemented. The Integrated Rural Development Programme (IRDP) operating since
1978-79 has been a major national rural poverty alleviation programme with a large credit
component. Under this programme, nearly 53 million families below poverty line were
assisted with bank credit of Rs.31 billion and subsidy of Rs. 10.5 billion upto 31st March
1998, but its impact had not matched the resources spent. This was due to reasons like
provision of supply rather than demand-led credit, loans not tailored to meet needs of
individual enterprises, lack of aftercare support, weak linkages lack of supervision over
loan utilisation etc. Further, there was no effective involvement of the people at any stage
of implementation of the programme. As a result, the incidence of high overdues and high
transaction cost for the banks in financing the rural poor became a matter of concern for
the policy-makers.
Maharashtra Rural Credit Project (MRCP)

Against this backdrop the MRCP supported by IFAD was evolved as an innovative
approach to poverty reduction with peoples participation. The strategy for
implementation of this project has been devised in such a manner that the rural poor
assume centre-stage and their participation ensured at all stages of the project viz.
55
planning, implementation and monitoring. The experience gained shows that

once the peoples participation is invoked at the planning stage itself a strong
sense of ownership of the project develops among the people which
stimulates them to actively involve in the subsequent phases of the project.
The MRCP being implemented with an outlay of US$ 48.35 million is financed
by an IFAD loan of US$ 29.2 million supplemented by a contribution of US$
14.97 million from Government of India/Government of Maharashtra and US$
1.65 million from participating banks. The Project which is implemented by a
number of banking institutions, Government agencies and Non Governmental
Organisation (NGOs) since 1994-95 was designed with the principal goal .
Credit-Cum-Subsidy Scheme for Rural Housing.

Introduction:- The Credit-Cum-Subsidy Scheme for Rural Housing has been
conceived for rural households having annual income upto Rs.32,000/-.
Objective- To enable/facilitate construction of houses for all rural households
who have some repayment capacity.
Target Group- The target group under the scheme will be the rural
households having an annual income of Rs. 32000/- only. However preference
will be given to rural households who are below poverty line.
Salient Features:
Subsidy upto Rs.10,000/- per eligible household in plain areas and

Rs.11,000/-in hilly/difficult areas.
Loan upto Rs."2"0,000/- per household.
Sanitary latrine and smokeless chulha are integral part of the house.
Achievement
The scheme has been launched with effect from 1 April, 1999 and is in the
process of implementation.
56
Funding Pattern
Funds are shared by the Centre and State in the ratio of 75:25.
Implementing Agency
The Implementing Agency for the Credit Cum Subsidy Scheme for Rural Housing
may be the State Housing Board,State Housing Corporation, specified Scheduled
Commercial Bank, Housing Finance Institution or the DRDA/ZP.
Council for Advancement of Peoples Action & Rural Technology (CAPART)

Recognising the need for an organisation that would coordinate and
catalyse the development work of voluntary agencies in the country, particularly to
ensure smooth flow of benefits to the underprivileged and socio-economically
weaker sections of society, Government of India, in September, 1986 set up the
Council for Advancement of Peoples Action and Rural Technology (CAPART), a
registered society under the aegis of the Department of Rural Development, by
merging two autonomous bodies, namely, Peoples Action for Development of
India (PADI) and Council for Advancement of Rural Technology (CAPART).
The main objectives of the CAPART are :To
encourage,
promote
and
assist
voluntary
action
for
the
implementation of projects intending enhancement of rural prosperity.
To Strengthen and promote voluntary efforts in rural development with

focus on injecting new technological inputs;
To act as a catalyst for the development of technology appropriate for

rural areas.
To
promote,
plan,
undertake,
develop,
maintain
and
support
projects/schemes aimed at all-round development, creation of employment

opportunities,
promotion
of
self-reliance,
generation
of
awareness,
organisation and improvement in the quality of life of the people in rural areas
through voluntary action.
57
Agriculture and its associated activities are found constituting the economic
base and the main source of livelihood and employment for the people in the state.
However, unprecedented growth of population on one hand and decreasing rate of
available agriculture land along with degradation of supporting natural resources as
required for sustaining crop productivity on the other have been seriously forcing the
problems of sustaining livelihood for farming communities. It is becoming difficult to do
the farming activity without external or internal sources. In this context the significance
of extending non-farm sector becomes only alternative but it also required finance
assistance for its development.
58
Means a lot of hard work & government awareness is required to flow

the finance assistance in Rural Economy. But various scheme which are
provided by the various banks & government should be specific in its eligibility
criteria to stop the misuse of these funds by large farmers and to ensure that
the credit reaches the farmers who is in need of finance.
As per the above evaluation of the major problems and issues relating to the
rural financial system I can submit the following observations & recommendations:
Interest rates: Interest rates must be different for different categories. First
it should be concessional rate exclusively for small and marginal farmers at
1.5% to 11.5% & Secondly, there should be a higher rate of interest
applicable to the rest of the agricultural borrowers upper limit for it is15.5%
Infrastructure Development: tempo of agricultural lending has been low in the
eastern regional states like Bihar, Orissa and West Bengal & in the North Eastern
States. So Agricultural and Rural Infrastructure Development Corporation should
be setup in these area which will concentrate on building up necessary backward
and forward linkages and supporting services as well as
59
formulate location specific schemes for accelerating the transformation of

agriculture and to arrange for funding of the schemes.
Insurance scheme: Crop insurance scheme which was introduced in India from
Kharif 1985 covering major cereal crops, oilseeds and pulses. The sum insured
was limited to Rs.10,000 per farmer irrespective of quantum of crop loan and the
total sum insured would be limited to 100 percent of the crop loan disbursed.
Proper research should be done by statutory crop insurance corporation.
Recovery of dues: Recovery is important for survival of the banks, it is important
that a common legal framework covering cooperatives and commercial banks
for recovery of dues for the country as a whole should be formulated. & The
government should setup State level tribunals for adjudication.
Rationalisation: In present scenario each village is allotted to a commercial bank
branch under the Service Area approach. As per the analysis each block should be
allotted to a bank which has the largest presence in the block through its branches.
Which will reduce the cost of supervision, improve quality of monitoring and be
beneficial to the customers.
Bibliography
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RURAL FINANCE OF INDIAN ECONOMY

I, Prof. , officially state that Mr / Ms. Noel Herald Karkada studying in

Men ought to know that in the theatre of human affairs,

I convey my sincere thanks with the deepest gratitude to my respected

Assigned project task is completed by going through various books,

To revise the financial capability of the lending agencies in rural ares to

The rural credit system should be strengthen

To study the role of rural finance in Indian Economy.

MEANING OF UNDER DEVELOPED ECONOMY

BASIC CHARACTERISTICS OF INDIAN ECONOMY

GROSS DOMESTIC INVESTMENTS AND SAVING

HISTORY OF RURAL ECONOMIC STRUCTURE OF INDIA

INDIAN ECONOMY IN PRE BRITISH PERIOD

INDUSTRIES AND HANDICRAFT IN PRE BRITISH INDIA

DECLINE OF INDIAN HANDICRAFTS AND PROGESSIVE

STATETICS OF INDIAN POPULATION

NATURAL RESOURCE IN PROCESS OF ECONOMIC

MICRO FINANCE IN AN INDIAN CONTEXT

MICRO FINANCE AND POVERTY ALLEVATION

WEAKNESS OF EXISTING MICRO FINANCE MODELS

RURAL MARKETS CONTRIBUTION IN TOTAL INDIAN

STATISTICAL PROFILE OF RURAL BUSINESS IN INDIA

AGRICULTURAL IMPACT ON NATIONAL ECONOMY

FOOD GRAINS PRODUCTION

AGRICULTURAL PRODUCTION OF MAJOR CROPS WITH

AGRICULTURAL ROLE IN INDIAN ECONOMY

AGRICULTURE IN ECONOMIC PLANNING

CAPITAL FORMATION IN AGRICULTURE WITH

CHANGING SCENERIO OF RURAL CREDIT

STRUCTURE OF RURAL CREDIT IN INDIA

NATIIONAL POLICY AND ITS AIM

NEED OF CREDIT OF FARMERS

SOURCE OF RURAL CREDIT

PRIVATE AGENCY SOURCE

INSTITUTIONAL SOURCE OF CREDIT

PROBLEMS IN INSTITUTIONAL SOURCE

COOPERATTIVES CREDIT SOCIETY

PROBLEMS OVERDUES TO COOPERATIVE CREDIT

LAND DEVELOPMENT BANKS

RESERVE BANK OF INDIA

SCHEMES AND FACILITIES FROM THE VARIOUS BANKS

NABARD [RURAL NON FARM SECTOR FINANCE

1.0 Meaning of an Underdeveloped Economy:

Rural Finance In Indian Economy

1. Distribution of World Population & World GNP among various

1. Low Income Economies

Rural Finance In Indian Economy

1.1 Basic Characteristics Of The Indian Economy As An Underdeveloped

Low per capita income:- Underdeveloped economies are marked by the

Rural Finance In Indian Economy

4. Prevalence of chronic unemployment and underemployment: In India labour is

Rural Finance In Indian Economy

2.0 History Of The Rural Economic Structure Of India

Rural Finance In Indian Economy

Communication were highly underdeveloped and so the size of the market

2.2 Industries & handicrafts in Pre-British India:

Rural Finance In Indian Economy

2.2.1 Decline Of Indian Handicrafts And Progressive Ruralisation Of The

Competition of machine-made goods: The large-scale production that grew as a

c. The development of new forms and patterns of demand as a result of foreign

Rural Finance In Indian Economy

keen to imitate western dress, manners, fashions and customs so as to

2.3.1 Statistics Of Population