You are on page 1of 29


1.1 In tro d u c tio n

1.2 A g ric u ltu re : B a cl< b o n e o f In d ia n E c o n o m y

1.3 U tilisa tio n o f L a n d a n d C r o p p in g P a tte rn

1.4 A g ric u ltu ra l C re d it

1.5 A g e n c ie s S u p p ly in g A g ric u ltu ra l C re d it

1.6 C re d it C o -o p e ra tiv e s in Free M a rk e t E cononny

1.7 C o - o p e r a tiv e S e c to r a n d N e w E c o n o m ic P o licy

1.8 C h a lle n g e s b e fo re C o - o p e r a tiv e Banks

1.9 O b je c tiv e s o f th e s tu d y

1 .1 0 H yp o th e sis

1.11 M e th o d o lo g y

1 .1 2 S e le c tio n o f th e B ra n c h e s o f PDCC B ank

1 .13 S e le c tio n o f PACS in P une D is tric t

1 .14 S e le c tio n o f th e B e n e fic ia rie s

1 .15 P eriod o f th e S tu d y

1 .16 A re a u n d e r S tu d y

1.17 L im ita tio n s o f th e S tu d y

1 .1 8 R e s e a rc h Plan
Chapter I


1.1 Introduction

India occupies a strategic position in Asia, looking across the seas to

Arabia and Africa on the west and to Burma, Malaysia and the Indonesian,

Archipelago onthe east. Geographically the Himalayan ranges keep India apart

from the rest of Asia.

India is so vast that the climatic conditions are much varied. India has

mainly 3 seasons a year. Rainy, Winter and Summer. The rainy season sets in

with the south west monsoon over Kerala, usually on June 1. It progresses

northward and covers the whole nation by end of July. The eastern coastal belts

- coast of Andhra Pradesh and Tamil Nadu, experience North-East monsoon

during October and November when it is winter in North India. Along the East-

Coast, this period is also marked by cyclones, which cause wide spread

destruction of crops, lives and property. It develops due to severe atmosphere

depression in the Bay of Bengal and Indian Ocean and mores towards the

mainland often hitting at high speed. Rarely does the West-Coast experience

such cyclonic effects.

India, with a population of around 1050 million, the second largest after

China, is the eleventh largest economy in the world, and its gross national income

was close to 500 billion dollars in 2002. But at 460 - 470 dollars per capita.

India ranks (162) was below most nations, given the population size and

relatively lower rate of economic growth until the start of the 1980s. From a

three percent average, the economy started growing at 5 to 6 percent in the

1980s and the momentun was not only sustained but also enhanced during the

1990s, through overthe last five years, there has been a slow down.

India is no longer an agrarian economy as at the time of Independence

but with basic food and other raw materials needed for a growing population.
agriculture continues to be the critical base. Food self sufficiency and industrial

diversification have been the major gains of the development era since 1950,

India’s spectacular advances in science and technology, especially nuclear and

space, in the earlier decades have now been complemented by rapid progress

in Information Technology with the country emerging as a software superpower

This has transformed the outlook for the future and has emboldened planners

to envision India as a developed nation by 2020. China, the fastest growing

economy, with its gross national income estimated at 1200 billion dollars in

2002 ranking sixth in the world, hopes to become a “well of society” by that

date. Unless India breaks the growth barrierof 7 to 8 percent on average in the

Tenth Plan period, it would become difficult to attain developed status within

the next two decades.

Without poverty reduction and universalisation of literacy and provision

of basic infrastructure like connectivity, water, health and power, the goal would

become unrealistic.

India’s economic liberalisation structural reform and globalisation since

1991 has no doubt boosted GDP growth through the years, though over the

latter period (1997-2003), the overall growth performance has been below

potential. It has averaged below 6 percent significantly less than 7 percent

average of the mid 1990s. This is attribute mainly to the monsoon-related

fluctuations in agricultural output, particularly foodgrains and oilseeds, and a

slowdown in industrial growth for most of the years since the latter half of 1990s.

Both agriculture and industry have recorded growth rates well below the

targets set in the Ninth Five Year Plan (1997-2002) and the more ambitious

Tenth Plan, launched on April 1,2002 has also had a setback in the first year,

with the latest official estimate of gross domestic product being not more than

43 percent in 2002-2003. The Tenth Plan (2002-2007) aims at a n n u a l g r o w t h

target of 8 percent with agriculture and industry recording output growths of not

less than 4 and 10 percent respectively as against the average of 2.3 and 5
p e r c e n t respectively in th e N inth P l a n .

The deceleration in the growth process was further accentuated by the

severe drought in 2002 which led to a sharp decline in food grain production to

182 million tonnes in 2002-03 from the previous years 212 million tonnes and

the agricultural growth was negative by over 3 percent. Industry has been staging

some recovery since the latter half of 2002-03 and ended the year with a 5.8

percent rise as compared to 2.8 percent the previous year. The service sector,

which now accounts for more than 50 percent of GDP remains dynamic with

sustained annual growth of around 7 percent and helps to offset the decline in

the primary and secondary sectors of the economy.

Yet the fact remains that, despite all the industry diversification and

modernisation and the rapid growth of the Information Technology sector which

boosts services, the Indian Economy, as prosperity is linked with the expansion

and crop diversification in agriculture on which two-thirds of the population

depend for their incomes. A major share of the country’s employment is in

agriculture. Sustained growth of rural sector is thus essential for generating

incomes and reducing poverty.

A griculture :

While seasonal factors influence crop pattern and outcome, India has

not quite succeeded in drought proffing through watershed development and

rain harvesting so as to minimize losses from monsoon failure and improve

ground water levels which in many states have gone down alarmingly. Optimum

utilisation of abundant water resources in the country has been bedeviled by

inter-state disputes over sharing of river waters, especially peninsular rivers.

There has of late been considerable emphasis on shift from cereals to other

crops which are not waterintensive, taking note of changes in food habits of the

people, but the basic problem is agriculture is one of poor investment, especially

public investment in canal irrigation, technology, rural infrastructure with roads

and provision of storage and marketing facilities on a large scale.

Indian is currently self-sufficient in food but there are pockets of chronic

scarcity and famine conditions, which have to be taken care of through more

effective public distribution system and utilization of food stocks on productive

rural works. Agriculture will continue to occupy the centre-stage especially in

the context of the ongoing multilateral trade negotiations to liberalise trade in

agricultural products, freed from heavy subsidisation by richer countries and

tariff barriers. India’s limited success in grain exports in recent years can be

built upon with a wider coverage of processed food, especially fruits and

vegetables in which India is the second largest producer in the world.

Food grain production (cereals and pulses) crossed the 200 million

tonnes mark in 1998-99 and touched the highest so far, 212 million tonnes in

2001-02. It was a record year for rice with 93 million tonnes while wheat

production was 72 million tonnes. Of the major commercial crops, oilseeds

production has been at an average of 20-21 million tonnes a year but India

needs to make some imports to meet domestic consumption requirements as

edible oil is a sensitive commodity in the price index. Sugarcane, cotton, jute

and tobacco, coffee and tea are the other crops.

Indian Agriculture ; Major Initiatives -

Some major initiatives started from the beginning of planned

development in 1950-51 are the followings :

First, step was taken to improve our capability in science and technology

as applied to agriculture. Several, new research institutes as for example those

dealing with rice and potato were setup. The first agricultural university was

established at Pant Nagar in 1958. Several All India Co-ordinated Research

Projects (AlCRP) were initiated by the Indian Council of Agricultural Research.

Second steps were taken to produce and supply inputs like seeds and fertilizers

and to expand the area under irrigation. Large multipurpose projects like the

Bhakra Nangal project were initiated. Credit and extensive services were

improved. Finally, several public policy measure like land reforms, including
the imposition of ceilings on land holdings and the redistribution of celling surplus

land, and the promotion of cooperative and Panchayati Raj institutions were

initiated. Finally an Intensive Agricultural District Programme (lADP)was initiated

in the early sixties in order to maximise production and productivity in irrigated

areas by providing a package of inputs like seeds, fertilizer and pesticide.

Thanks to advances in preventive and curative medicine, population also

started growing at a fast rate since 1950. Advances in food production and not

keep pace with the grov\/th in food requirements caused by both increased

population and higher purchasing power. The result was increasing dependence

on food imports particularly under PL480 programme of the United States.

Several leading foreign experts concluded in the early nineteen sixties that India

was a hopeless case from the point of view of achieving a proper balance

between the rates of growth in population and food production. It was under

such an atmosphere of gloom and doom that Indira Gandhi released a special

stamp titled “The Wheat Revolution" in July 1968.

1.2 Agriculture : Backbone of Indian Economy -

Agriculture forms the backbone of Indian Economy despite the concerned

industrialistion during the plan period, agriculture still occupies a pride of place.

The importance of agriculture arises from the following basic facts.

Agriculture is important sector of Indian economy. Contribution of

agriculture and allied activities was 56.5 percent of gross domestic product of

the country in 1950-51; out of the gross domestic product of Rs.42,871 in 1950

state the constant price of 1980-81 agriculture’s contribution was about

Rs.24204 crores or about 56.5 percent. Percentage share of agriculture and

allied activities in Gross Domestic Product gradually declined during the planning

period. The Percentage share of agriculture and allied activities in Gross

Domestic Product gradually declined to 28.7 percent in 1997-98. Though the

agriculture has been the main stay of the Indian economy, yet the most

depressing fact is that share of agriculture in national income has been declining
steadily as shown in the table given below.
Table 1.1 : C ontribution o f Agriculture in Gross Domestic Product at
1980-81 Prices (Rs.Crores)

Years GDP at Agricultural and Percentage share of Agri.

factor cost allied activies and allied activities in GDP
1950-51 42871 24207 56.5

1960-61 62904 32793 52.0

1970-71 90426 41385 45.7

1980-81 122427 48538 9.6

1990-91 212253 69860 32.9

1997-98 1049191 310436 28.6

(Source : Economic Survey: 1998-99)

As against Indian agricultural contribution to national income, the

proportion in U.K. is only 3.1, in USA it is 3.2, in Canada it is 5, in France 6

percent , in Japan 8.7 percent and in Australia 7.6 percent. The obvious
conclusion is that more developed a country, the smaller is the contribution of
agriculture to national product.
Second, agriculture dominates the country’s economy to such an extent
that 72.05 percent, of working population is dependent on agriculture, where
as, in developed countries this ratio is very small being only 5 percent in U.K.,4
percent in U.S.A. and 16 percent in Australia, and it being high like Indian in the
developing countries, i.e, 58 percent in Brazil, 64 percent in Malaysia and 65
percent in United Arab Republic. This high proportion in agriculture is due to
the fact that alternative non-agricultural activities have not been developed to
absorb the rapidly growing population in the country. This is an indication of the
fact that a high proportion of working population is engaged in Agriculture only
in underdeveloped and developing countries.
Third, agriculture has been the source of raw material to Indias leading
industries, cotton and jute textiles, sugar, tobacco, edible and non-edible oils,
leather, plantation industries - all these depend on agriculture directly. Besides
many others, processing and preservation of fruits and vegetable, dal-milling,
rice husking, gur making, oil crushing, and handloom weaving also draw on
aghculture for their raw material.
Fourth, agriculture employing about 70 percent of the total population
provides a large part of the market for industrial goods. To the extent that modern
agricultural practices are adopted, the demand for inputs like seeds, fertilizers,
pesticides, implements, machinery, pumps and consumer goods goes up
sustains a larger industrial tempo. It is worth nothing that the development of
Japanese and Russian industrial economies was made possible by the surplus
of agriculture that could be siphoned off to the industrial sector. There is no
reason, why this could not be done in our own case.
Fifth, agriculture is main support for railways and roadways which
transport bulk of agricultural produce from farm to the mandies and factories.
Internal trade is mostly in agricultural products. Besides the finance of the
Government also depends to a large extent upon the prosperity of agriculture.
Sixth, agriculture provides a large proportion of India’s export. Agricultural
commodities accounted for 49 percent of total value of export in 1938-39.
Partition reduced the agricultural resources of the country and affected the export
of jute, cotton and hides. However, even with reduced resources agriculture
contributed percent of total export in planning period.
The chief of exports being tea, coffee, cashewnut, spices, tobacco,
rawhides and skins, raw jute, raw cotton, sugar, jute and cotton textiles, leather
goods, oilseeds, vegetable oils, nuts and kernels, lac, gum and resin etc.
The following table shows the share of traditional agricultural export to

total exports.

Table 1.2 : Agricultural Exports __ ( Rs. Crores )

Year Total Exports Export of Agri. and Percentage of agri, exports
allied activies in total exports
1960-61 642.0 284.0 44,23

1970-71 1535.0 487.0 31,72

1980-81 6711.0 2057,0 30.65

1990-91 32535.0 6317.0 19,40

1997-98 126290.0 23690,0 18,80

(Source : E conom ic S u rv e y : 1 9 9 8 -9 9 )
The above table shows that percentage share of agricultural exports

was about 44 percent of the total exports in 1960-61. It gradually declined and

percentage share of non-traditional exports increased. Value of agricultural

exports was 18.8 percent of the total exports in 1997-98.

Seventh, agriculture also provides fodder for livestock. Cattle and

buffaloes provide protective food in the form of milk, eggs and meat and they

also provide drought power for farm operations and of commercial products

like wool and hides.

Thus, it may be said that agriculture is the backbone of Indian economy

and prosperity of agriculture can also largely be responsible for the prosperity

of the entire Indian economy.

1.3 Utilisation of land and cropping pattern

Land Resources

Land resources from the most important nature wealth of the country

and their proper utilization is a matter of utmost concern to its people. The

utilization of the land according to its use capability ensures that this resources

is utilised to the best advantage. Its improper use leads to wastage and can

lead to progressive deterioration and loss of productivity of this vital resources.

Table 1.3 : Topographically usable area in India ( In m illion hactares )

Zone Total land U n u s u a b le U s a b le

area area area

North India 29.4 5.8 23.6

East India 67.8 25.1 42.7

South India 43.5 12.5 31.0

Central India 74.9 22.3 52.7

West India 38,7 12.7 26.0

North West India 49.6 23.6 26.0

Total India 328.9 124.7 204.2
(Ind. J&K)

(Source ; Agricultural Statistics at a glance and Ninth Five Year Plan )

One of the most significant features of land use in India is the large proportion
of area is suitable for agriculture that already has been brought under cultivation.
About 11 percent of the surface area is made up of mountain land over 7000 ft.
in elevation almost all of which too steep or too cold to agriculture. Another 18
percent of the surface is hill land been 1000 and 7000 ft. above sea level, there
quarters of which is too steep to farm. Plateaus of relatively low relief between
1000 and 3000 ft. from 28 percent of all land in India, all but a quarter of which
is topographically usable. In the lowlands, less than 1000 ft. in elevation, which
make up 43 percent of the total area in India, only one acre in 20 is unusable
because of roughness of topography.

Cultivated Area :

Cultivation in India is mostly confined to Tamil Nadu, Gujarat, Maharashtra,

West Bengal, Uttar Pradesh, Punjab, Bihar, Orissa, Madhya Pradesh, Haryana
and Kerala. About 14.3 percent of the total cropped area of the country is in
Uttar Pradesh. The second highest percentage of agriculture area is in
Maharashtra (12.3 percent) followed by Madhya Pradesh (11.9 percent),
Rajasthan (9.6 percent), Andhra Pradesh (8.3 percent), Bihar (7.2 percent),
Karnataka (6.9 percent), Punjab (6.5 percent) and Haryana (6.5 percent),
Gujarat( 5.3 percent), Tamil Nadu (4.7 percent). West Bengal (4.2 percent) and
Assam (1.8 percent). The percentage of sown a r e a to total land area varies
between different parts of the country and is mainly determined by physical

condition of topography, soil and climate.

Table 1.4 : Cultivated area (in m illion hectares)

Year Net S w o n Gross Sow n D o u b le d C r o p p e d C r o p p in g
area area area intensity

1950-51 118.7 131.9 13.2 111.1

1960-61 133.2 152.8 19.6 114.7

1970-71 140.8 165.8 25.0 117.8

1980-81 142.3 175.1 32.8 123.4

1996-97 142.0 190.5 48.5 134.1

2001-02 142.0 203.0 61.0 143.0

(Source : Agricultural Statistics at a glance and Ninth Five Year Plan
Fallow Land :
Such land account for about 23.6 million hectares, comprising 14.1
million hectares of ‘current fallows’ and the remaining 9.5 million hectares of
‘fallows other than current fallows.’ Current fallows are those lands which are
not cultivated for one year and are given rest so that fertility could be restored.
Other fallow lands include those lands which are left fallow for 1 to 5 years due
to inadequate water supply, unfavourable climate, poverty of the cultivator.
Rajasthan and Tamil Nadu have over 10 percent of land under this category. It
is between 4 to 10 percent in states like A.P., Karnataka, Bihar, M.P.,
Maharashtra, Gujarat, Uttar Pradesh, West Bengal, Orissa, Assam, Haryana,
Kerala and H.P. In other it is less than 4 percent.
Fallow lands may be reduced with the introduction of new crops,
intelligent crop rotations, technical improvement of land and use of fertilizers
and supply of irrigation facilities.
Cropping Pattern ;
'Crop pattern’ means the proportion of area under different crops at a
particulars period oftime. Achange in cropping pattern means a change in the
proportion under different crops.
Table 1.5 : Cropping pattern in India (Area in Million hectares )
Crops 1950-51 1960-61 1970-71 1982-83 1988-89
Total Cereals 80.6 91.9 101.9 102.5 104.5

Total Pulses 20.5 23,7 23.2 22.8 22.4

Total Foodgrains 101.1 115.8 124.9 125.3 126.9

Total Fruits 0.6 1.1 1.5 2.0 2.4

Total Vegetables 1.5 1.6 2.2 3.0 3,7

Total Oilseeds 10.9 12.8 14.7 17.1 21.3

Total Fibres 6.7 8.7 9.1 9.0 8,7

Sugarcane 1.8 2.4 2.6 3.5 3,5

Condiments and Spices 1.2 1.6 1.9 2.2 ' 2,4

Potatoes 0.2 0.4 0.5 0.7 0.9

Onions 0.1 0.1 0.2 0.2 0,3

Tobacco 0.4 0.4 0.4 0.5 0,4

Other Crops 7.4 8.6 8.4 10.0 10,7

Total Cropped Area 131.9 152.7 165.8 172.5 180,1

Net sown are more 13.1 19.6 25.0 30.8 38,4

than once

Net area sown 118.8 133.1 140.8 141.7 141.7

(Source : Agricultural Statistics at a glance and Ninth Five Year Plan )

1 .4 Agricultural C r e d i t :

Like all other producers, the farmers also require credit. Agriculturist

can not carry on his business without outside finance is a fact proved by history

and evidenced by the poverty and indebtedness of the persons engaged in the

business of agriculture. The demand for capital in agriculture is a composite

demand made up to demands for different types of capital good which vary

greatly in the degree of their performance. Agriculture requires the following

capital goods :

i) Land and its improvements

ii) Agricultural implements, machines and livestock.

iii) Requisite inputs such as seed, irrigation, fertilizers, oil, cement


iv) Stocks of food and clothing to maintain the farmer and his family

during the period of production.

In other words credit in agriculture is needed both for productive and

non-productive business needs of cultivators.

Agriculture credit may be classified on the basis of -

A) According to purpose :

Following the Reserve Bank’s classification of agricultural credit by

purpose, we may say that such credit is required to purchase land to effect

permanent improvements on it.

i) For Agricultural Purposes : Such credit is needed for the purchase of

seed, manure and fodder, payment of rent, wages, revenue, cess and

other charges, irrigation of crops, hire charges of pumps and purchase

of water, purchase of livestock and effecting other land improvements,

repairs of agricultural implements, machinery, transport equipments, farm

houses, cattle, seeds, repairs of wells and other irrigation services, laying

of orchards for reclaimation of lands and construction of irrigation wells,

tanks and embarkments and other capital expenditure on agriculture.

jj) [ or Non-Farms Business Purpose: Such credit is needed for repair of

production and transport equipment, current expenditure in non-farm

business, purchase, construction and repair of building, purchase of farm

equipment and other capital expenditure on non-farm business.

ni) For Meeting Family Expenditure: Such credit is needed for purchase of

domestic utensils and clothings, paying for medical, educational and

other family expenses, purchase, construction and repair of residential

houses, and expenses relations to death and marriage and other

ceremonies and litigation expenses.

B) According to the length of the loan period :

From the point of view of the length of the loan period, agricultural credit
may fall into three categories :

i) Short Term Credit - which is needed normally for short period of less
than 12 months to meet current expenses of cultivation.
ii) Medium Term Loans - which are required for medium period ranging
between 12 months and 5 years for the purpose of making some
improvements on land, buying cattle, agricultural implements etc.
iii) Long Term Loans - which the farmers need for purchase of buying
additional land, construction of farm house, cattle and machine sheds,
horticulture, tractors etc. These loans are for long periods of more than 5

years ranging from 15 to 20 years.

C) According to Security :
On the basis of the security offered, agricultural credit can be classified

into the following categories:

i) Farm mortgage credit - which is secured against land by means of a

mortgage of land.
ii) Collateral credit - the farmer is given on the security of the farmers

livestock, crops or warehouse receipts.

iii) Personal credit - which is advanced on the personal notes of the farmers

with or without another’s security or guarantee.

1.5 Agencies Supplying Agricultural Credit

Credit requirement of the farmers are met through loans borrowed from

non-instltutional and institutional agencies. Non-institutional agencies include

landlord, money lenders, traders and commercial agents where as institutional

agencies include Government, Commercial Banks, Regional Rural Banks and


1.5.1 Non-lnstitutional Sources :

Non-institutional source of rural credit is very important in the composition

of total rural credit. Even today, it is the most important source of rural credit.

Rural traders, owners of large holdings, rural money lenders and commercial

agents are the main component of non-institutional credit.

Table 1.6 : Sources of Agricultural Credit (Percentage)

Agnecies 1951-52 1961-62 1974-75 1989-90

Non-institutional 92.7 69.8 55.0 52,0

Government 3.3 3.9 3.2 3.0

Commercial Banks 0.9 0.5 1.8 5.0

Co-operative 3.1 25.8 40.0 40.0

Total 100.0 100.0 100.0 100.0

(Source : Currency and Fianance - 1988-89)

1.5.2 Institutional Financing

Agricultural credit is disbursed through a multi agency network consisting

of commercial banks, regional rural banks and co-operatives. There has been

gradual increase in the flow of agricultural credit from institutional sources. It

has been a policy of government to promote the sources of institutional credit.

Total amount of institutional credit from various sources increased from Rs,

885.5 crores in 1970-71 to Rs. 51467 crores in 2000-01. At present commercial

banks are the most important sources of agricultural credit. The table given

b e l o w s h o w s th e trend a n d a m o u n t of th e flow o f agricultural credit.

T a b le 1 .7 : F l o w of Institutional Credit ( R s . C ro re s)

Agency 1996-97 1999-2000 2000-01

Co-operative B a n k s 11944 18429 22 706

Short Term 9328 14648 17598

Medium/Long Term 2616 3781 5108

R e g io n a l Rural B a n k s 1684 3329 4061

Short Term 1121 2517 2412

Medium/Long Term 563 812 1649

C om m e rcial Banks 12783 22854 24693

Short Term 6549 11697 10973

Medium/Long Term 6234 11157 13720

To ta l 26411 44612 13720

(Source : E c o n o m i c S u r v e y 2 0 0 0 - 0 1 )

1) Co-operative Credit Societies ;

The rural credit societies were started to carry on the business of the

rural banking and replace the money lenders, yet they have not made any

appreciable progress. The record of the performance of the co-operative credit

has been very uneven as between different states. Even in the states, which

have registered considerable progress, there are pockets where the

performance of co-operatives has been very poor and weak.

2) Land Development Banks :

These banks supply long term credit to the cultivators. The need for the

these banks arise because : i) the primary co-operative societies cannot

possibly give loans to the cultivators for long periods as they themselves draw

their funds from central co-operative banks for short and medium terms; ii)The

work of making loans period loans on the basis of landed properly requires

expert assistance for valuation title deed, which the primary co-operative

societies do not posses.

These banks have a two tier structure with central land development

banks at the state level and primary land development banks at the district


3) Government -

The government both at the centre and in the states, provides finance

indirectly as well as directly.

Indirect credit is provided through the co-operative societies. The

government has also been financing farmers directly. Agricultural credit from

the government is called taccavi and has a long history in India.

4) Commercial Banks :

The commercial banks did not form an important source of agriculture

credit before nationalisation of 14 commercial banks. These banks mainly cater

to the needs of the urban centres at the cost of credit hungry agricultural sectors.

The share of banks in the total borrowings of agriculturists was hardly one percent

in 1951-52. After the nationalisation of commercial banks aggregate bank credit

in agriculture is increasing. It increased to about 8.9 percent in 1977-78 and 16

percent in 1984-85.

5) State Bank of India :

The SB! grant extends assistance under the scheme for agricultural

development through its special branches opened for the purpose in construction

with the concerned states and theARDC. Atthe end of Dec. 1976, there were

256 Agricultural Development Branches and the total credit provided by these

branches to over 6 lakhs farmers stood at Rs. 130.5 crores.

The SBI branch expansion programme is co-ordinated with the

development of credit facilities. The SBl’s offices increase from 462 in rural

and 796 in semi-urban area in 1968-69 to 1869 and 1417 respectively in


6) Reserve Bank of India ;

In order to provide agricultural finance to the co-operatives, a separate

Agricultural Credit Department was created in the bank in 1935. The RBI is

providing short-term, medium term and long term credits to agriculture through

the co-operative societies. This is evidenced by the fact that both the amount of

advances and outstandings have increased considerably since 1951 -52. During

1976-77, credit limits sanctioned by the bank for financing agricultural operations

to the state co-operative banks increased to Rs. 696 crores from Rs. 612 crores

in 1975-76.

7) Agricultural Refinance and Development Corporation (ARDC)

ARDC was setup under the ARC Act, 1963 with a view to provide finance

for major agricultural development projects which cannot be satisfactorily

financed by the existing institutional agencies. ARDC has covered almost all

the aspects of agricultural development including allied activities such as dairy,

forestry, storage, marketing and fisheries. By the end of June 1982 since

inception the ARDC had sanctioned 19611 schemes and its refinance stood at

Rs. 2808 crores. The ARDC loans are for 15 years depending on the nature of


8) Regional Rural Banks :

At the end of June 1984, there were 162 RRBs, covering 286 districts in

21 states and 2 union territories, the RRBs among themselves have opened

8227 offices up to June 1984. The deposits and advances of 162 RBBs at the

end of June 1984 amounted to Rs. 774 crores and Rs. 860 crores respectively,

of the total advances of Rs. 860 crores about 96 percent were direct advances

to the weaker sections. Purposewise distnbution of these advances showed

that major portion of the advances are for agriculture. Out of the total advances

of Rs. 860 crores about 59 percent of Rs. 509.4 crores were for agricultural

purpose, 317.4 crores or about 37 percent for non-agricultural purpose and

Rs. 33.2 crores or 4 percent were indirect and consumption advance.

NABARD is an apex institution empowered with all matters concerning

policy, planning and operations in the field of credit for agriculture and rural

credit. NABARD provides refinance facilities to state level development banks, ^

state co-operatives banks, schedules commercial banks and regional rural

banks. Details of agencywise disbursement of refinance assistance by

NABARD is given in the following table :

Table 1.8 : Refinance Assistance by NABARD (Rs. Crores)

A g n e c ie s 1981-82 1993-94

State Land Development Banks 226 1113

Scheduled Commercial Banks 313 1029

Regional Rural Banks 38 358

State Co-operative Banks 23 245

Total 600 2745

(Source : Economic Survey, 1993-94 )

The above table shows that refinance assistance by NABARD has

increased during 1981 -82 to 1992-94 from Rs. 600/- crores to Rs. 2745/- crores.

1.6 Credit Co-operatives in Free IVIarket Economy

Right from the dawn of the 20’^ century, the co-operatives have been

playing a crucial role in the economic upliftment of the people, particularly of the

weaker sections in rural areas. Though the co-operative movement received a

major setback in the 30s due to great depression, the post independence period

has provided a breeding ground for strengthening the co-operatives. The growth

of the co-operative during the plan period was so spectacular that there is hardly

any sphere of economic activity which has not been covered by it. Towards the

end of August 1999, there were Rs. 5,62,327 million at co-operatives with more

than 2,11,807 million membership having Rs. 1582918 million as working

capital. The share of co-operatives in agricultural finance comes to around

62.5%. The credit co-operative have covered almost 100% of the villages

through its rural networking business.

The present federal structure of the co-operative provides a very wide

network to link up primary agricultural societies to the primary level of the

economy. The performance capability acquired by co-operative through their

adherence to financial values and efficient management will alone give them

the inherent strength to face new challenges in the context of market oriented


The national economic millieu is changing rapidly. The thrust is now

towards a free and competitive market oriented economy. The recent data on

the performance of credit co-operatives in the country is any indication, it is

critical for the credit co-operatives in this millieu to adopt themselves to the

postulates of a growing competitive economy. If they are unable to hold their

own in changing market scenario, their very survival will be at stake. The context,

therefore, calls for serious and objective introspection by the co-operatives,

particularly credit co-operatives with a view to strengthening their capabilities

and correcting their functional systems to secure fullest efficiency.

1.7 Co-operative Sector and New Economic Policy :

In 1991, the economy was in deep crises due to balance of payments

problem, shortage of foreign exchange, disrupted industrial production,

budgetary deficits combined with accelerated inflationary trends. These

problems are mainly due to the macro economic policies adopted during the

post independence period. In the beginning of the planning era, the government

adopted the concept of mixed economy. Co-operative sector was considered

to be an intermediary between private and public sectors to check the

exploitative tendencies of both the sectors.

Co-operative sector in India is part of the institutional framework

developed to usher in growth with social justice largely under government

agencies. At present, though co-operatives are provided with the state

assistance in the form of participation in share capital, subsidy and loans at

concessional rate of interest from NABARD, they no longer enjoy the pride

place of assigned to them in the past in the economic reconstruction of the

country. The total absence of any references to the co-operatives in the approach

paper to the Eighth Five Year Plan is a pointer to this.

Narsimhan committee has made a numberof recommendations to make

the financial system vibrant and competitive. Surprisingly the committee has

not taken note if the co-operative banking sector that has emerged as very

significant component of the nations financial system. It is well known that the

co-operative banking system compromising state co-operative banks, central

co-operative banks, land development banks and primary agricultural co­

operative societies has made its presence felt even in the remotest village in

the country. In urban areas also the co-operatives banks and credit societies

are the shining examples of self reliant financial institutions. The co-operatives

banking sector has also been demanding for more than two decades that it

should be allowed to function without any restruction and unnecessary control

from RBI, Government and NABARD. The co-operative banking sector has

been demanding the establishment of National Co-operative Bank so as to

bridge the systematic gap.

Co-operatives in India do not enjoy any monopoly They are exposed to

market forces and stuff competition. Credit sector which accounts for a lion’s

share of the operations of the co-operative sector encountered severe

competition from commercial banks in their rural credit operations since 1969

and also from regional rural banks since 1975. These have no doubt resulted in

decline in their market share in rural credit but their performance is not lagging

behind its competitors. To illustrate during 1989-90, the percentage of recoveries

to demand of short-term and medium term credit of co-operatives is the highest

at 51.25 percent as against 36.8 percent in the case of public sector banks

and 45.8 and 33.9 percent in the case of private sectors banks and regional

rural banks respectively.

The urban co-operative banking sector which is relatively free from state

interference has done remarkably well with their recoveries forming 91 percent

of the demand during the same year.

With the implementation of new economic policy, the national economy

would be more market oriented and globalised in its nature and functioning.

The co-opertive therefore, have to reorient and readont their functioning to face

the competition with private sector and to meet challenges of new economic


In the long run, the new economic policy undoubtedly in greater economic

liberalisation. Co-operatives need not be desperate of loss of state assistance.

Co-operatives are not lacking in success stories. They can benefit out of mutual

experience. This goes a long way in the market economy in the long run,

1.8 Challenges before co-operative Banks :

The new economic policy is the most intellectual concept of the decade.

Change is the important factor that transforms the entire operation of any

business organisation and co-operatives are not an exception in this

phenomena. These changes are essential to ensure economic growth as well

as to solve economic problems and evils of the society and the environment.

Liberalisation of economy is a drastic change in the economic systems

of the world. The place where co-operative movement emerged as potential

unit of the downtrodden and the papers in the open street, has now given birth

for the concept of privatisation.

Despite its far-flung growth, the co-operative movement has to face a

stiff challenge from the private traders in the name of privatisation. Now at this

moment, the co-operatives and the co-operators need not focus their attention

on the omission of the comprehensive. Instead of greater attention may be

paid to co-operative policy and to find, formulate strategies and actions plans

which will bring about commercial outlook to the co-opreatives.

In India, a number of reforms were set in motion since July, 1991 and

were named as New Economic Policy. The new economic policy envisages

two sub systems named as stabilisation programme and structural adjustment


Stabilisation programme

Stabilisation focuses on the maintaining of balance on fiscal side as

well as external payments. In India, the fiscal deficit which was 8.4 percent of

the GDP in 1990-91, declines to 6.0 percent in 1991-92, 5.7 percent in 1992-

93 and again increased to 7.3 percent in 1993-94. The growing fiscal imbalance

arises due to the growing deficit budgeting. The inadequate finance is the

causative factor for inflation. Once inflation goes up automatically it leads to

rise in price. The shoot up of price makes the products costlies as well as non

competitive in international market and further it affects the fixed income group.

The stabilisation programme can be achieved with the help of control over the

budgetary deficit and devaluation and partial convertibility of Indian rupee.

A cut in the expenditure will be advisable to attain control over deficit

budgeting. Actually the axe falls on social expenditure like education, health

and food subsides.

Structural Adjustm ent Programme :

The next phase, structural adjustment programme comprise of the

regulation and privatisation of domestic economic activities and globalisation

of Indian Economy.

All over the world, “Privatisation” is gaining momentum and occupies

the front seat. From the experiences of western countries, it could be understood

that there is link between privatisation and the economic growth. Privatisation

is the transfer of ownership of state owned enterprises to the public through the

floatation of shares.

Practically the co-operatives have not established themselves to

compare successfully in the new growth sectors of the global economy. They

have neither the infrastructural nor the finance for foreign investment. They do

not have the full ledged industrial base to enter new markets oftheirown. The

co-operatives are handicapped in responding to market signals at two levels.

They find entry into the market very difficult and secondly when they enter the

market they cannot obtain their fair returns due to high establishment and

transactions etc.

In this juncture a question may arise as to what will happen to a voluntary

organisation which emerged against the private trader with 3.50 lakh co­

operative societies of different kinds, a membership of 16 crores and working

capital investment of nearly 70,000 crores.

The principle of survival of the fittest is the order of the day in this new

environment, co-operatives are having more number of sick units. The capital

is blocked and in future even the co-operative banking structure may be affected.

These sick units should either be closed or merged with the societies which

are working on profit. European countries have already experienced with this

idea and have merged sick units and profit making ones for their viability. A co­

operative data base should be established in India and with the help of it the

sick units should be identified, analysed and merged. This coordinated effort

and unified strength can help to arrest the domination of private traders.

The co-operatives can be implement social reforms by establishing and

supporting efficient systems to protect the new poor of the society. To attain

these objectives action is need on several fronts.

It is important for co-operation to allow growth, ^listjc^an^r^mocracy.

'I $[^

These three factors are closely interdependent, “without st^a^cTsustainable

growth, justice cannot prevail, without justice, the socio-political stability is

necessary for democracy can not be assured; and without socio-political stability

the co-operatives could never succeed for sustainable growth.”

1.9 Objectives of the Study

Main objective of research is to take review of the credit polices and

procedures followed by District Central Co-operative Bank in Pune district in

order to assess the role played by various agencies in providing long term and

short term loan to the farmers. On the basis of in depth study, researcher try to

suggest remedies to improve the effectiveness and efficiency of credit lending


The statistical data collected from primary sources and secondary

sources may be useful to suggest concrete remedies to solve the problems of

agricultural sector and particularly the standard of living of the beneficiaries of

agricultural credit.

The main objectives of the study are as follows :

1) To study the purposes and utilization of the loans granted by the Pune

District Central Co-operative Bank.

2) To study the polices and procedures of granting loans

3) To ascertain the requirements of the agriculturist in respect of credit

and the role that Pune District Central Co-operative Bank can play

in meeting them.

4) To ascertain the difficulties faced by the borrower in getting the loans

and repayment thereof.

5) To ascertain the difficulties faced by the Pune Distrct Co-operative

Bank and PACs in this connection.

6) To locate the causes of overdues of loans and suggest some

measures in that respect.

7) To make suggestions and recommendations for improvement, so

that needs of the agriculturists will meet properly.

8) To recommend the changes in the policies of agricultural credit for

improving the efficiency of Pune District Central Co-operative Bank.

1.10 Hypothesis

Agricultural production plays very important role in providing raw material to the

agro based industries as well as food to the population of the country.

Agricultural credit is provided by Land Development Bank, NABARD

and other agencies on long term basis, short term and medium term credit is

provided by the District Central Co-operative Banks. There is no co-ordination

between these agencies regarding providing credit to the agricultural sector.

The credit facility provided by the District Central Co-operative Bank is

not sufficient. Therefore, agricultural production is affected due to non-availability

of sufficient funds in the form of crop loan and other seasonal loans. Hence

District Central Co-operative Banks should adopt adequate credit policies and

recovery schemes in order to increase the agricultural product and standard of

living of the farmers.

1.11 Methodology

For collection of information from branches of Pune District Central Co-operative

Bank, the PACS and farmers or beneficiaries, interview technique have been

used. For the interviews three types of questionnaires were set;

i) Questionnaire for Branch Inspectors

ii) Questionnaire for secretaries of the PACS

iii) Questionnaire for the Beneficiaries

The researcher personally discussed with some top officials, head of

the loan sanctions and directors of the banks.

The study also relied upon

i) Published and unpublished data

ii) Use of library method

1.12 Selection o f the Branches of Pune D istrict Central Co-operative:


For the study, researcher has selected 54 braches of PDCC bank, out

of 237 branches in the Pune district on the basis of random sample from 13

divisions. (Annexure 1)

1.13 Selection o f the PACS

There are 1254 PACS in Pune district. For the purpose of study 105

PACS are selected on the basis of random sample. (Annexure 2)

1.14 Selection o f the Beneficiaries

For the purpose of this study, researcher interviewed 315 beneficiaries

Graph 1 : Selection o f Branches, PACS and Beneficiaries o f P IX C for the study
Map 1 : Selection of Sample Branches of PDCC Bank

Thane District P u n e D is tr ic t


Ahmendnagar district

Satara District U
in 13 divisions of Pune district. The random sannpling method was adopted

while selecting beneficiaries from each taluka and each unit along with land

holding irrigated, non-irrigated land etc.

Oral discussion were arranged with the experts in the concern field and

the information received from them has been incorporated in this thesis.

The secondary data was collected from published documents, bulletins

and relevant books and journals from various libraries such as Vainkunth Mehta,

National Institute of Co-operative Management, Pune and Gokhale Institute of

Politics and Economics, Pune.

1.15 Period o f study

Period of present study, extends over 8 years i.e. from 1996-97 to 2003-

04. The working of branches of the PDCC Bank and PACS in Pune distrct

during this period has been considered.

1.16 Area under Study

The activities of the PDCC banks are spread overthe entire Pune district

including Pune city and Pimpri -Chinchwad area. But for the purpose of this

study the area is restricted only 13 divisions except Pune city and Pimpri-

Chinchwad divisions in Pune district.

1.17 Lim itations o f the study

The study is related only to the Pune district and particularly with 13

divisions of the district, hence generalisation of findings would be limited mostly

to this area.

The present study has following limitations :

1) The findings are depending on the ability of respondents.

2) Due to limited span of time the selection of sample has been done on

random basis.

3) The focus of the study is limited only to the working and agricultural credit

policy of the PDCC Bank and PACS in Pune district.

Though the study relates to only 13 divisions of Pune district, the study is

useful to draw some conclusions and make recommendations. On the basis of

findings and recommendations, appropriate policies for district central co­

operative banks and their development can be made by the concerned


1.18 Research Plan

The present study has been divided into eight chapters.

The first chapter introduces the importance of agriculture in Indian

economy, nature of agricultural credit, agencies supplying agricultural credit,
credit co-operative in free market economy, co-operative sector and n e w
economic policy and challenges before co-operatives.
Also this chapter deals with the scope of the study, objectives and
hypothesis of the study. It also gives the sample design, the method followed
for data collection, the limitations and research plan of the study.
The second chapter deals with the agricultural credit and structure of
agricultural co-operative credit.
The third chapter gives the history of co-operative movement with
reference to agricultural credit in India.
The fourth chapter deals with the growth of agricultural co-operative
movement since independence. It also deals with the growth of DCC Banks in
The fifth chapter deals with the growth of co-operative movement in
Maharashtra and Pune district as well as the growth of DCC Banks in
The sixth chapter deals with review of agricultural credit policy and overall
performance of Pune District Central Co-operative Bank during 1996-97 to
The seventh chapter deals with findings of the working and performance
of the sample branches of PDCC Bank and PACS in Pune district.

The eighth chapter gives the major conclusions and recommendations.