Rural Finance in An Indian Economy

Rural Finance In Indian Economy
o To revise the financial capability of the lending agencies in rural
ares to analysis the drawbacks & advantage of flow of credit in

rural areas.
o The rural credit system should be strengthen
o To study the role of rural finance in Indian Economy.
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.
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1.0 Meaning of an Underdeveloped
Economy:
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.
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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.
Distribution of World Population & World GNP among various

groups of Countries in 1989
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 years—the annual rate of growth of per capita
income of the rich countries was higher during 1965-89 as compared
with the poor countries.
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GNP Total GNP

(Billion Population Per
US $) (million) Capita
(US $)
1. Low Income 981 2,948 330
Economies (4.7) (56.6)
2. Middle Income 2,253 1,105 2,040
Economies (10.9) (21.2)
3. High Income 15,230 831 (16.0) 18,330
Economies (73,4)
4. Other ___ 323 (6.2) ___
Economies
World 20,736 5,206 3,980
(100.0) (100)
India 283 832 (15.9) 340
(1.4)
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.
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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
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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 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
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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— 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.
7
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 26 26 23 23
Germany 23 22 23 27
U.S.A. 12 15 12 13
U.K. 13 21 12 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
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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 self-sustaining villages on the one hand, and towns, which were
the seats of administration, pilgrimage, commerce and handicrafts, on
the other. Means transport & 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
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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.
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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 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”.
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
Indian’s foreign trade. Tremendous expansion of productive capacity
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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 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
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Indians not only from Indian culture but also diverted in its
favour their form and pattern of demand for goods.
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.
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:-
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Land utilization pattern, 1986-87 (million hectares)
Particulars Area Percent

1. Total geographical area 329 --
2. Total reporting area 305 100
3. Barren land not available for 41 13

cultivation
4. Area under forests 67 22
5. Permanent pastures and grazing land 12 4
6. Culturable waste lands, etc. 19 6
7. Fallow lands 26 9
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
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states (95%); a small portion is under the ownership of

corporate bodies and private individuals.
3. Water Resources: India is one of the wettest countries in the

world, with average annual rainfall of 1100 m.m. India’s 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-
15
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 are an essential pre-
condition for increasing agricultural & industrial production in a rural
area.
Types of Infrastructural facilities—often
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
16
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. Regions may
have abundant agricultural, forest and mineral resources but
17
they cannot be developed if they continue to be remote and

inaccessible.
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 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
18
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.
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
19
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 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.
Weaknesses of Existing Microfinance
Models
20
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 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
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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 :-
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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
Occupation Percentage of
Households
Cultivators 72
Agricultural labourers 15
Other non-cultivators 11
Artisans 2
All house holds 100
However this group of cultivators contain both prosperous and well as

marginal cultivators within itself. This is rural India’s 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.
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6. Artisans and others, which include the unemployed also.
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.
Foodgrains Production
24
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 1998-99 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 1997-98, 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.
Agricultural Exports and Imports
Agricultural Exports
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$
25
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
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:
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
26
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:
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
27
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:
28
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 1996-97 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
29
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
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 adage—“they are born in debt, they live in debt &
die in debt” was the usual description of their plight.
To this effect nationalization of 14 major Indian commercial

banks in July 1969 can be described as a major landmark in the
30
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 Co-operative Society—Co-operation has
failed, but co-operation must succeed.”
31
--All-India Rural Credit Survey
National Policy & Its’s Aim:
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 things—to 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
32
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.
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.
33
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
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.
8.0 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
34
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
35
are appropriated. What is worse, this source of finance is

becoming more important—from 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:-
36
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 improvements—and
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 money-lenders. 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, over-financing 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.
37
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.
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:
38
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
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 PAC’s.:
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 co-
operatives development. Steps were taken to reorganize viable
PACs and for amalgamation of non-viable societies with farmer’s
service societies or large sized multipurpose societies. These efforts
39
are being intensified by providing larger funds to weak societies to

write off their losses, bad debts and overdues.
PAC’s 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
40
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 NABARDhas formulated a scheme for
the rehabilitation of weak central co-operative 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 co-operative 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 co-
operatives, 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
41
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 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
42
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
43
viable units. The financial discipline imposed on the banks in the

matter of eligibility to undertake fresh lending based on recovery
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 co-
44
operative 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 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
45
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
46
farmers and work out economically viable schemes of agricultural

development. Commercial banks have to group them 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-à-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
47
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 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
48
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 latter’s
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.
 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
49
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

man’s 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.
50
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.
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
51
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 Overview-
 NABARD 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.
 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
52
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.
10.0 Schemes & Facilities from the various
banks
10.1 NABARD:-
RURAL NON-FARM SECTOR FINANCE

SCHEME
Rural Non Farm Sector (RNFS) holds the key to

faster economic development of the country. It
53
has potential and 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.
54
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 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)
55
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.
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.
56
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 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.
57
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
58
scheme in consultation with the Government of India, RBI and

NABARD.
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
59
(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]:
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)
60
 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.
2) Stocks at the borrowers' residence/godown.
3) Stock statement for valuation.
Loan Amount Security to be furnished

Upto Rs.25,000 DPN, DPN take delivery letter
Hypothecation of stocks.
61
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.
62
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
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.
63
 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.
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:
o 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.
o 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.
64
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.
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.
65
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 people’s
participation. The strategy for implementation of this project has been
devised in such a manner that the rural poor assume centre-stage
66
and their participation ensured at all stages of the project viz.

planning, implementation and monitoring. The experience gained
shows that once the people’s 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 .
Conclusion
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.
67
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.
Recommendations
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
68
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 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.
69
Bibliography
Sr.No. Name Author

1. Indian Economy Ruddar Datt.
K.P.M. Sundharam.
2. State Bank of India
journals
3. Agricultural Financing S.N.Ghosal
In India
4. Economic Survey, Monthly Review of the Indian
1998-99.
Economy, CMIE, March-April
1999
5. Rural Marketing Romeo S. Mascarenhas
70
Webliography
www.nabard.org
www.rbi.gov
www.sbi.co.in
71
72
73
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Rural Finance In Indian Economy

o To revise the financial capability of the lending agencies in rural

ares to analysis the drawbacks & advantage of flow of credit in

Assigned project task is completed by going through various

The project is based on various references taken from book &

1.0 Meaning of an Underdeveloped

There is a big difference between underdeveloped and

Distribution of World Population & World GNP among various

Three observation made here regarding the U.N. classification of

GNP Total GNP

More recently, the growth rate among low-income countries has

1.1 Basic Characteristics Of The Indian

Economy As An Underdeveloped Economy:

capita income of an India is lowest in the world. The per capita

2. Occupational pattern:- Primary producing. One of the basic

characteristics of an underdeveloped economy is that it is

3. Heavy Population pressure:- The main problem in India is the

high level of birth rates coupled with a falling level of death

4. Prevalence of chronic unemployment and underemployment: In

India labour is an abundant factor and, consequently, it is very

5. Low rate of capital formation: Another basic characteristic of the

Indian economy is the existence of capital deficiency which is

Gross Domestic Investment and Saving (As

per cent of Gross Domestic Product)

Gross Domestic Gross

As per Colin Clark to maintain the same level of living a country

1981-91), about 8 percent investment is needed to offset the

2.0 History Of The Rural Economic

2.1 Indian Economy in the Pre-British

village was consumed by the village population itself. The raw

b. Classes of Village India: There were three distinct classes in

2.2 Industries & handicrafts in Pre-British

Decline Of Indian Handicrafts And

Progressive Ruralisation Of The Indian

of manufactures resulted in increased demand of raw materials for

only possible due to patronage of nawabs, princes, rajas &

result of foreign influence: With the spread of education, a new

3.0 Natural Resources In Process Of

Economic Development In Rural India:

Land utilization pattern, 1986-87 (million hectares)

Particulars Area Percent

2. Total reporting area 305 100

3. Barren land not available for 41 13

5. Permanent pastures and grazing land 12 4

6. Culturable waste lands, etc. 19 6

8. Net area sown 140 46

10. Total cropped area (8+9) 177 58

2. Forest Resources: Forest are an important natural resource of

states (95%); a small portion is under the ownership of

3. Water Resources: India is one of the wettest countries in the

4. Fisheries: Broadly speaking, fishery resources of India are either

99, the export of marine products came down to US$ 1,038

3.1 Infrastructure In Process Of Economic

Development In Rural India:

Types of Infrastructural facilities—often

referred towards economic and social

development of rural India:

development inevitably demands increasing higher levels of

2. Power: Electric power, which is one form of energy, is an

3. Transport: If agriculture and industry are regarded as the body

they cannot be developed if they continue to be remote and

4.0 Microfinance In An Indian