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Hyderabad Seminar PDF
Hyderabad Seminar PDF
National Bank for Agriculture and Rural Development organized a ‘National Seminar on
Agricultural Credit’ on the occasion of its Silver Jubilee Celebrations on 3 and 4 July 2007 at
Center for Social Economic Studies, Ameerpet, Hyderabad. The National Seminar was
inaugurated by Dr. Y S Rajasekhara Reddy, Hon’ble Chief Minister of Andhra Pradesh on 3
July 2007. The plenary sessions held on 3 and 4 July 2007 focussed on (1) Indian Agriculture -
Production, Productivity and Technology related issues (2) Marketing and Extension related
issues (3) Risk Management and (4) Rural Livelihoods and Employment Generation - Micro
Finance and Non Farm Sector. The plenary sessions were chaired by eminent personalities
such as Prof. C H Hanumantha Rao, Chairman, CESS, Shri Abhijit Sen, Member, Planning
Commission, Prof. S Mahendra Dev, Director, CESS and Ms. Shashi Rekha Rajgopalan,
member, Board of Directors of RBI and NABARD.
In the back drop of the massive credit requirements projected for development of agriculture
sector in the Eleventh Five Year Plan by Government of India, the seminar also focused on the
challenges facing NABARD in meeting the national goals. The themes planned under this
area were - (1) Foundations and Resources of NABARD (2) NABARD in next 25 years and
(3)NABARD - Future Challenges and Road Map. The plenary sessions were chaired by
Shri M. Ramakrishnayya, founder Chairman of NABARD, Shri P Kotaiah and Shri Y C Nanda
former Chairmen of NABARD. Dr. Y S P Thorat, Chairman, NABARD and Dr. K G
Karmakar, Managing Director guided the deliberations of the seminar. Some of the major
observations made during the seminar by the eminent panelists are given below:
Resources of NABARD
y There is a national need to create a National Rural Credit (Short Term Operations)
fund with Rs.15000 crore corpus to bring down the cost of credit to the farmers.
Secondly, the share capital of NABARD needs to be increased to Rs.10,000 crore to
make interventions meaningful. NABARD may be taken as a partner in all the rural
development projects by the Central Government. NABARD may be placed on the
board of commercial banks to add value to both banks and NABARD.
y NABARD is the only institution which is mobilizing urban surpluses and investing in
rural areas. As such, the resource mobilization efforts of NABARD should be
supported with fiscal concessions.
Role of NABARD
General aspects
) NABARD should not resort to passive funding. NABARD has to make things happen
by organizing people and providing knowledge.
Credit planning
) NABARD should actively engage in developing a long term credit policy for rural
finance clearly laying role of various agencies in our multi agency approach to bring
a role clarity for all the agencies.
) With the stress on decentralised planning at PRI level, there is a need to strengthen
the institution of DDMs and PLP instrument by NABARD.
Credit functions
) Refinance has lost its teeth and moreover no organization can borrow at higher rates
and lend at lower rates. NABARD should become an important player in retail
markets.
Producer companies
Educating of farmers
) NABARD may conduct short duration training programmes for farmers on the basic
skills and application of new technology.
) Hon’ble Chief Minister of Andhra Pradesh urged that Differential Rate of interest
may be extended to the entire rural credit and priority sector lending. In case RBI,
NABARD and banks have difficulty in reducing the interest rates to 4%, GoI should
come forward to give support to this move.
Formation of subsidiaries
NABARD may create more organizations to fill the critical gaps by forming
subsidiaries and see to it that they are supported and nurtured in a manner that they
become effective.
Human resources
) NABARD should have a strong technical wing with competent people in various
disciplines such as commercial agriculture, agro processing, marketing, risk
mitigation. The Technical officers should be exposed to the field for constant
upgradation of their technical skills. This team may act as ‘brain trust’ for the
nation for deciding what is to be done and what is not to be done.
NABARD should facilitate common standards, book keeping system and self
regulatory mechanism for the SHG members.
) To build robust NFS so that benefits flow to a large number of rural population, we
need to build new institutions such as Producer Organizations or to begin with
Farmer Organizations in agro processing sector.
) NABARD must take up a study of couple of villages where regular credit flow has
taken place in the past five years to a large number of families and document the
effect of the credit on the non farm sector.
NABARD was created in response to the aspirations of the people and Government of India
to create a strong public policy institution in rural credit for building a strong rural India.
The creation of NABARD was an exercise of decentralization of the central banking functions
to provide undivided attention and pointed focus for bringing about rural prosperity. Over
the years, the expectations from NABARD have been largely fulfilled. NABARD has
transformed itself beyond an organization disbursing refinance to an institution pursuing a
vision for the future of rural India.
y NABARD has played a catalyzing role in flow of production and investment credit
enabling the farmers to sustain the package of farm inputs, technology and
significantly contributed to private capital formation. NABARD has ensured quality
lending to rural sector with emphasis on orderly exploitation of resources and inbuilt
concern for environment. The Cofinancing of investment finance along with banks
by sharing the risk is picking up gradually.
y Recognizing that 40% of the rural households are non-cultivator households,
NABARD has supported the non farm sector with promotional and development
support. The initiatives such as District Rural Industries Programme, cluster
development, entrepreneurship development programmes have addressed the issue
of promoting rural employment.
y NABARD’s major contribution can be seen in its ability to experiment, innovate and
mainstream development banking models such as participatory watershed
development and integrated development models like ‘wadi’ which have been
acclaimed by Government as also international partners. These models have
addressed the critical issues relating to rainfed farming and tribal economies.
y The piloting and mainstreaming of micro finance taken up by NABARD has evolved
as the largest micro finance in the world giving access to financial services to 29.23
lakh groups and 4.1 crore poor families contributing significantly to women
empowerment. NABARD has also decided to take up a new pilot venture of
establishing NABARD Financial Services (NABFINS) with an authorized capital of
Rs.100 crore and an issued capital of Rs.20 crore. Banks have desired to team up with
NABARD in this venture.
y Through the Rural Infrastructure Fund, NABARD has made a commitment of over
Rs.61000 crore to State Governments for creation of physical and social infrastructure.
y The institutional development initiatives have helped in turning around of Regional
Rural Banks. With the implementation of the recommendations of Prof.
Vaidyanathan Committee , the cooperative credit structure will be empowered to
play a more responsive role in the rural credit scenario.
y The District Development Managers of NABARD and the Potential Linked Credit
Plans have now established themselves as effective tools in development through
credit at the grassroots level.
y NABARD has been a major contributor to policy formulation in areas relating to
agriculture and rural development. It has also helped NABARD in channeling
several subsidy linked credit programmes efficiently.
Despite the creditable performance of NABARD, the destination is still far away. Persisting
poverty, unemployment, rural distress and regional disparities are some of the challenges
faced by rural India in general and NABARD in particular. We are operating in a ‘booming
economy with an ailing agriculture’. Slower growth in agriculture is at the root of distress
among farmers. Agriculture is no longer sufficiently profitable. There are concerns regarding
the food security, technology fatigue, yield gaps, degradation of resources, increasing
budgetary subsidies and its adverse impact on public investment, unfavorable terms of trade
and farm price volatility. In the recently concluded NDC meeting, there was virtual
consensus that the way forward comprises four major areas (a) Get technology moving and
ensure access of farmers (b) Increase investment, efficiency and system support, rationalize
subsidies (c) Diversification is crucial for income growth without compromising on food
security and (d)Better access of land, credit and skills to the poor.
In the above broad matrix, NABARD has to continue to play the role of a thought leader in
rural sector through innovation and mainstreaming in translating rural credit growth into
real sector impact. NABARD has to be development oriented in heart and market oriented in
mind. NABARD has to play a proactive role in ensuring 4% agricultural growth by ensuring
that credit growth translates into real sector impact. Firstly, NABARD has to deploy both
credit and credit plus approaches in contributing to improved productivity in terms of trade
and risk management at the farm-hold level. Secondly, NABARD has to facilitate sustainable
and equitable growth of agriculture both across regions and social groups. There is a need for
robust policy for sustainable natural resource management based on livelihood enhancement
policy. NABARD has already developed a NRM policy and guiding principles for its
assistance to NRM projects and has designed a package for distress districts covering
appropriate farming systems. Thirdly, NABARD has to play a leadership role ensuring a
vibrant and responsive rural financial system which supports financial inclusion through a
mode of relationship banking. NABARD has to build not only capacity among rural banks
but also pioneer other initiatives such as business facilitator/correspondent banking models
and adoption of information technology such as biometrics cards in rural banking.
NABARD has to reposition itself in terms of networking resources, building of capabilities
and partnering institutions in public, private and voluntary sectors which will empower the
institution to deliver development across rural India effectively. While concluding his speech,
he reminded the words of Mahatma Gandhi that ‘ the second independence of India is yet to
be got - the freedom from poverty for millions of Indians’. All the NABARDians will march
towards realizing the vision of second independence of India in their silver jubilee year.
Shri Y.S. Rajashekara Reddy, Hon’ble Chief Minister of Andhra Pradesh in his inaugural
address congratulated NABARD for its service towards the Nation and particularly farmers
during the last 25 years of its existence. Highlighting the plight of farmers, he mentioned that
63% of the farming population is contributing to 20% of GDP coupled with 2% growth rate.
This situation is driving farmers to distress and suicides. He stated if we had taken note of the
signals of the agriculture distress ten years back, the damage could have been reduced.
Though the measures taken by GoI such as doubling of agriculture credit, reduction of
interest rate to 7% and waiver of interest are commendable but not enough. Unless irrigation
is provided to large chunks of land, production and productivity will not improve.
Government of Andhra Pradesh has taken up a massive irrigation programme in the State,
“Jalayagnam”, to cover 1 crore acres of new ayacut under irrigation with investment of Rs. 1
lakh crore. In the past three years, the Government has spent around Rs.45,000 crore on
irrigation and spending the balance in the next 3 years is not a problem. The Special Package
announced by Prime Minister for 31 distress districts in the country will also help in easing
the distress situation substantially. Commending the role played by NABARD in
implementation of SHG-Bank linkage programme, he mentioned that credit flow to SHGs has
increased tremendously due to the support extended by the banks in the state. The
Government has tried to inculcate repayment ethics among SHGs and has also reduced the
interest rates for SHGs to 3%. Substantial part of SHG loans is going towards agriculture.
Hon’ble Chief Minister urged that Differential Rate of interest may be extended to the entire
rural credit and priority sector lending. In case RBI, NABARD and banks have difficulty in
reducing the interest rates to 4%, GoI should come forward to give support to this move. In
Andhra Pradesh, banks have come forward to adopt two villages for bringing in total
financial inclusion which will bring down the interest rates to the farmers to 3% as against
36% charged by the money lender. He also stressed that subsidies on agriculture should go
up phenomenally. The developed countries such as Europe, US, Japan, plough back 30% to
40% of GDP coming from agriculture to the agriculture sector itself. In India, it is only a
fraction of this figure. He urged the NABARD and banks to work in tandem with the State
Government to bring a bright future to the farmers.
Vote of thanks
Sri Mahender Dev, Director, CESS while proposing vote of thanks congratulated NABARD
for completing 25 years. He expressed thanks to the Honb’le Chief Minister of Andhra
Pradesh for inaugurating the programme. On behalf of NABARD he thanked all the
dignitaries, government officials, bank officials and print media for attending the programme.
In his closing remarks he indicated that for achieving high growth in agriculture sector, credit
is important. For achieving inclusive growth, credit plus measures such as investments in
agriculture, improvements in technology, marketing, fertilizers, etc. are required to be taken.
The credit mechanism should take risk element in agriculture as there is more focus on dry
land agriculture as compared to the green revolution.
I. Foundations and Resources of NABARD
Chairman
Prof. C H Hanumantha Rao, Chairman, Center for Economic and Social Studies
Panel Members
Starting the session, Prof. C.H. Hanumantha Rao requested Shri Ramakrishnayya, first
Chairman of NABRD and Dy. Governor of RBI, to express his views on this occasion.
Shri M Ramkrishnayya
Shri Ramakrishnayya recounted the historical facts that laid the foundation of NABARD
based on his association firstly as a member of the Committee to Review Institutional Credit
Arrangements for Rural Development (CRAFICARD), the High Level Committee that
recommended it, secondly as Dy. Governor in-charge of Agricultural Credit in the Reserve
Bank of India and lastly as its first Chairman. CRAFICARD had recommended establishment
of NABARD as “an exercise in decentralization” of the functions of Central Bank and “as a
logical step in the organizational evolution of the RBI itself”. RBI was assigned the role of
‘spawning, fostering and nurturing the new bank’ He indicated that CRAFICARD has
proposed establishment of NABARD on nine foundations:
1. RBI and GoI will be share holders & will hold 50% each of the share capital of
NABARD.
2. A Dy. Governor of RBI should head NABARD as Chairman, ex-officio. This
linkage has also been snapped.
3. The Board of NABARD should, in addition to others, consist another Dy.
Governor, RBI and some Directors of the RBI Board.
4. RBI should continue to contribute sums annually out of its surplus to the
National Rural Long Term Operations Fund and National Rural Stabilization Fund,
maintained by NABARD. It is unfortunate that no contributions are being made.
Only Rs.1 crore token contribution is being maintained by RBI.
5. The RBI should extend a General Line of Credit to NABARD for meeting the
demands of short-term credit for seasonal agricultural operations. This is entirely in
accordance with the statutory duty laid down in the RBI Act and in fulfillment of the
refinancing functions of the Central Bank of an agriculturally oriented country. This
particular aspect has undergone a change.
6. NABARD will be authorized by the RBI to oversee and carry out periodical
inspections of the Cooperative Credit Structure on its behalf and keep the RBI
informed from time to time so as to ensure compliance with the disciplines of
monetory policy.
7. The RBI and ARDC shall transfer with adequate safeguards all of their staff and
physical assets deployed hitherto in the business of agricultural credit.
8. Everything should be done to present the NABARD as an integral part of the RBI
so that the undoubted prestige and authority of the country’s Central Bank could be
rubbed off on the operations of the NABARD.
9. The ninth foundation was the concept of Vikas Volunteer Vahini to spread
awareness among rural folk about the five principles of Development Through Credit
and in particular, the repayment ethic. Though this was not envisaged by the
CRAFICARD but was initiated by him as the first Chairman in 1982. The volunteers
were expected to run clubs of farmers in their villages with financial assistance from
NABARD, with a view to propagate the message of Development Through Credit by
example, discussion and exhortation. .
He mentioned that six out of nine foundations have been eroded. Government of India has
recently decided to buy the shares of RBI to avoid conflict of interest of regulator being a part
owner. It is ironic that RBI which had opposed formation of an apex bank for agriculture
outside ‘RBI’ in the eighties, has decided to sell its stake to GoI. The most serious erosion that
has taken place is stoppage of General Line of Credit to NABARD for meeting the production
credit needs of the farmers with effect from February 2007. He said that the rationale behind
the stoppage of GLC is not understood. A facility in vogue since 1942 has suddenly become
inappropriate from the standpoint of prudent monetory policy. One wonders why the
stoppage has happened just when the cooperatives duly rehabilitated in accordance with the
Vaidyanathan Committee, are likely to hike demand for the production credit refinance. The
Eleventh Plan has estimated refinance of Rs.32000 crore for crop production loan purposes.
He expressed anxiety as to how NABARD would be able to mobilize such huge resources. It
is impossible to raise funds of such magnitude from the Corporate Bond Market. The cost of
funds to NABARD would reach an unsustainable level, even after assuming the continuance
of the current interest subvention of 2% by the Central Government. It is to be noted that
from 2005-06, NABARD has been denied access to low cost resources like Tax free Bonds,
Capital Gains Bonds and Priority Sector Bonds. Whether central government is going to
provide funds out of budgetary resources to NABARD for this purpose ?
The annual contribution by the RBI out of its profits has become a trickle, in the manner of
tokenism since 1992-93. The contribution of NABARD to the NRC funds on its own has
proved detrimental to larger interests by giving the impression that it was running on
commercial lines and thus it did not deserve any longer exemption from income tax.
NABARD was brought under income tax by the Finance Minister in his 2001-02 budget as ‘
NABARD was working on commercial lines’ like National Housing Bank and Small
Industries Development Bank. The perception that NABARD is like any other bank should
go. He questioned as to when the agricultural refinancing has become commercial, free from
the vagaries of weather. He emphasized that NABARD was intended to function on
‘business principles’ and not ‘commercial principles’. “Profit Maximization' is not the goal of
NABARD but it has to function on ‘business principles’ making reasonable profit for making
the institution stable and continuing.
As regards the VVV programme, he expressed happiness that the programme is being given
focus by the banks. It appears that all the stakeholders have since found them useful, as field
studies have shown an increase in deposits and loan operations as well as repayments
wherever the Farmers’ Clubs were active.
Concluding his presentation, Shri Ramakrishnayya indicated that the recent policy changes
have had the cumulative effect of weakening the foundations of NABARD and “curtailing the
capacity of NABARD”. A public debate is, therefore, necessary as part of the Silver Jubilee
Celebration and the preparations for the 11th Plan. The question is whether NABARD as an
apex institution for Agriculture and Rural Development can meet the challenges thrown up
by the ongoing agrarian crisis and the downturn of the rural economy. He indicated that the
discussions in the seminar will produce some kind of conclusions which can be considered by
the higher authorities for reconsideration of the decision already taken by Reserve Bank by
India and Government of India. We have to think how to find more resources and direct
these resources.
y NABARD should build a strong and vibrant technical and economic teams to
gauge the environment in rural economy to provide policy inputs. This team may
act as ‘brain trust’ for the nation for deciding what is to be done and what is not to
be done.
Dr.R. Balakrishnan
Dr. R. Balakrishnan, ED, NABARD, opined that the two core foundations of NABARD is that
it should represent the farmers and weaker sections of the rural population and achieve
integrated rural development. He presented his vision of NABARD with the following
observations :
y ‘Development’ is ‘business’ of NABARD and it should always strive for growth and
stand high at all times.
y Potential is in the mind of people and is not always a function of trees, water and
physical resources. NABARD should ignite fire in the minds of people and strive for
‘urban rural continuum’. It should create choices and opportunities for rural people
by adopting ‘Super Market approach model of development’.
y NABARD should not resort to passive funding. NABARD has to make things happen
by organizing people and providing knowledge.
y Refinance has lost its teeth and moreover no organization can borrow at higher rates
and lend at lower rates. NABARD should become an important player in retail
markets.
y NABARD should take up ‘management role’ in Regional Rural Banks by taking 50%
share holding to reach village people effectively. It can enhance the value of RRBs by
bringing in transparency, supply chain credit and insurance.
y NABARD should be allowed to raise resources from anywhere in the world and such
global resources could be deployed in rural credit. He also cited the example of
‘Sahara’, which is mobilizing resources at lower rates by providing door delivery
services.
y NABARD should be a learning organization. It has a strong human resources. Its
junior officers should develop 'specialization' and seniors ‘strong perspective'.
y Policy makers should realize that NABARD can not subsidize credit. Any subsidy
which is entitlement of the rural people should be given directly. It should not touch
the balance sheet of any organization.
He concluded by saying that NABARD should make a world class rural banking a possibility
in this country.
II. NABARD in next 25 years
Chairman
Dr. P Kotaiah, Former Chairman, NABARD
Panel Members
(a) Shri M V S Chalapathi Rao, Former Managing Director, NABARD
(b) Shri S K Mitra, Executive Director, NABARD
Dr. P.Kotaiah, Former Chairman, NABARD in his opening remarks indicated that agriculture
is under stress, NABARD is under stress due to resource problems, ground level credit
institutions are also under stress. Though there has been no serious criticism of NABARD in
the past twenty five years, its achievements have never been praised. Challenges remain as
critical as they were 25 years ago inspite of substantial growth and innovations in the past.
Sri M V S Chalapathi Rao in his address detailed his views on what NABARD should do in
the next 25 years :
y NABARD should take up co-finance or direct finance on a large scale. There are
certain sectors and regions which suffer for want of funds because the banks are not
interested in those areas. In the next 25 years NABARD should take up these
activities in an aggressive way.
y Rural infrastructure is very important for development of rural areas. NABARD has
developed expertise in funding rural infrastructure. It should use this expertise and
float a separate subsidiary for taking up funding of private and public sector
infrastructure development. The subsidiary should be given the responsibility of
mobilizing funds, if required, from overseas.
y NABCONS should prepare on its own area development or individual projects and
market them to individuals or the corporates. NABACONS should not only involve
itself in formulation and appraisal of projects but also should arrange funding
support, help in implementation and monitoring of the projects.
y NABARD should work in improving its visibility and image in rural areas. For this
purpose it can use the existing network of RRBs. RRBs should be seen as an extended
arm of NABARD. NABARD can consider sponsoring programmes such as weather
bulletin, farmer education programmes on Television and All India Radio to
publicize the name of NABARD in remote rural areas.
Dr. Kotaiah observed that direct financing is talked in NABARD during the last 10 to 20
years. Role of NABARD in RRBs has also been in float since the financial sector reforms
started in the country. There was internal opposition as well as from cooperatives to this idea.
Citing achievements of NABARD, the business had increased from Rs.1,000 crores in 1982 to
Rs.80,000 crores in 2006-07. During 12 years from 1995-96, the RIDF sanctions was Rs.61,000
crores to different states. It has facilitated employment, livelihood and environment related
issues through Non Farm Sector, Natural Resource Management initiatives. NABARD has
useful presence in 392 out of 600 districts through DDM offices. He observed that NABARD
was consistently profit making organization with zero level NPA. It is one of the founder
promoters of SFAC, NCDEX, MCX, AICI etc.,. It has established its credibility in working
with Government departments, State Governments, NGOs, foreign funding agencies such as
Kfw, Gtz, SDC etc., besides the banks. He indicated that NABARD is the appropriate agency
to anchor a ‘National Calamity Fund’ for farmers. GoI may create a “Venture Capital Fund”
of sufficient magnitude for incentivising the farmers to opt for various diversified sectors and
this may be housed with NABARD in view of its experience in managing similar funds
effectively. He indicated that in the next 25 years, NABARD may place the following
priorities before it:
y Work with more and diverse partners such as Farmers Organizations, Village
Development Boards, KVKs, AUs, Corporates, etc.
y Tilt its thrust from production finance to post harvest finance
y Tilt from investment credit refinance to co-finance/critical direct finance
y Give greater emphasis on dry land areas
y Involve voluntary sector and PRIs more aggressively
y Take up “Financial Inclusion” in a more broad based manner
y Float “NABARD Bank” for doing banking with special emphasis on critical areas/
critical segment financing
y Mobilize innovatively rural deposits and firm up institutional arrangements for its
resources
y Facilitate merchant banking/funds management needs of listed RRBs ! and
consolidated cooperative banks !
y Facilitate holistic rural infrastructure development to improve Human Development
Index of states
y Strengthen rural credit delivery system and increase its outreach and depth through
business correspondents, business facilitators and spread of IT
y Become a leader in NRM interventions through participatory approach
y Promote NABFINS, micro-insurance subsidiary, NRM foundation/ Trust, etc.
y Progressively deploy profits for development interventions/ incentivising
development efforts
y Undergo change in ownership from RBI and GoI to entirely owned by GoI to a listed
entity owned by people
y Reach out to villages of India through Village Adoption Programme, Rural Business
Hubs, Clusters Development, etc. with presence in every district
y Move from a Development Finance Institution (D f I) to become a Development
Facilitating and Financing Institution (D F f I) in Rural Sector
Chairman
Shri Y C Nanda, Former Chairman, NABARD
Panel Members
(a) Dr. K.G. Karmakar, Managing Director, NABARD
Shri Y C Nanda in his opening observations indicated that there were expectations from
NABARD due to the mandate given to it and its past achievements. There are expectations
from the agriculture sector and from its founders, i.e. Government of India and RBI. Though
the achievements of NABARD in the past 25 years has been remarkable it faces various
challenges and needs to draw a road map to face these challenges.
Dr. K G Karmakar
Dr.K.G.Karmakar, MD, NABARD, indicated that during the past 15 years, the staff strength
has remained constant inspite of additional tasks that have been taken up by NABARD.
NABARD faces the challenge of positioning the human resources to face the future challenges
by improving the quality of its staff through training and enhancing their ability to respond
swiftly to various challenges. He indicated that the following ‘farmer centric’ steps are
required:
y There is a need to train the farmers through short duration training programmes.
NABARD has been assisting in training of farmers by supporting the Farmer
Training Centres set up by Punjab National Bank and UCO Bank. NABARD is willing
to associate with farmers training by supporting the initiatives of other banks.
y More emphasis on bio-technology is necessary for improving productivity and
production. NABARD is partnering with Department of Biotechnology for improving
the yield of Jatropha.
y We need to improve the levels of productivity and margin of the farmers. Various
policy issues are involved in this area. Emphasis on agro Processing is one way out.
y Access to credit is very important to farmers. Though agricultural credit has
increased, the number of accounts has come down over the last few years giving rise
to fear that small farmers are being left out of the banking system. Only big farmers
are getting loans from the banks. Achieving financial inclusion of farmers is a great
challenge before NABARD.
y There is need for a much more number of Farmers’ Clubs on the ground for
technological upgradation. Banks would be involved in the Farmers’ Club
programme.
y Farmers’ Associations are extremely important as they can take up trading positions
in the commodity exchanges on behalf of the farmers.
y There is no safety net for the farmers. Micro insurance needs to be marketed.
1Dr. Karmakar detailed the various initiatives that NABARD would like to take up with
various institutions and the support that NABARD expects from them.
y NABARD would like to develop more institutional linkage with Panchayat Raj
Institutions. Presently NABARD has only one linkage with Panchayats in financing
of rural haats. There is a need for more rural malls, rural shandies in rural areas.
NABARD would like to involve Panchayats in Rural Infrastructure development in
bigger way.
y Networking with ICAR, Agriculture Universities is needed for research and
development in bio technology areas.
y The capacity of NGOs needs to be built up to increase their outreach in tribal areas,
remote areas. A few Resource NGOs may be created for training smaller NGOs and
building their capabilities.
y There is a need for perspective development plans over next five years .
y There is a national need to create a National Rural Credit (Short Term Operations)
fund with Rs.15000 crore corpus to bring down the cost to the farmers. Secondly, the
share capital of NABARD needs to be increased to Rs.10,000 crore to make
interventions meaningful. NABARD may be taken as a partner in all the rural
development projects by the Central Government. NABARD may be placed on the
board of commercial banks to add value to both banks and NABARD.
y NABARD would take up more projects under coofinancing in sunrise sectors where
banks are not comfortable to finance on their own.
y NABARD would take up moving of SHGs into micro enterprises for poverty
alleviation with hand holding for quality improvement, marketing, production.
Dr. Karmakar gave a road map that NABARD would like to do in the near future :
y Mobilising of low cost resources
y More innovative Projects
y Achieving 100% financial inclusion
y Bringing more computerised processes in NABARD to release the staff for
developmental works.
y Strengthening of DDM net work
y Creation of a National Rural Disaster Mitigation Fund for addressing the distress of
farmers due to natural calamities.
Concluding his presentation, he welcomed ideas from everybody for taking NABARD
forward.
y NABARD has to be financially viable to serve the people. Whenever challenge has
come, NABARD has found a credit product or a promotional product which has
given it business. He expressed the hope that Government is going to help NABARD
in view of withdrawal of support from RBI.
y NABARD has to increase its operational efficiency. Internally, it has to look at its
processes, procedures, policies, etc. to see whether they are serving the country.
Future depends on its core competency and comparative advantages. It has to set its
own bench mark.
He ended his presentation quoting from the Planning Commission document - “Our future
depends not on what will happen to us but on what we decide to become and on the will to
create”. He also quoted the words of Sadhu Waswani ; “ If you want to achieve success you
must fix a goal every day and draw at least one step closer to it. every day”
Closing remarks of the Chairman of the session
Shri Y C Nanda, Chairman of the plenary session in his closing remarks gave his view on
what NABARD should do in the coming years :
(a) NABARD should actively engage, with the help of RBI and Government, in
developing a long term credit policy for rural finance clearly laying role of various
agencies in our multi agency approach to bring a role clarity for all the agencies.
(b) NABARD should have a strong technical wing with competent people in various
disciplines such as commercial agriculture, agro processing, marketing, risk
mitigation. The Technical officers should be exposed to the field for constant
upgradation of their technical skills.
(c) NABARD should become a learning organisation in the real sense. We have to
build a system through which information about the grass root level developments
reach the top management.
(d) NABARD needs to focus on the quality of Self Help Groups behind the large
numbers. It needs to be asked as to whether the programme is going in right
direction. Is it enhancing livelihoods effectively, be able to make best use of the large
scale mobilisation. Unless NABARD engages actively in creation of larger structures
such as federations, we will miss a great opportunity.
(e) NABARD needs to ask as to whether its image is correct. Are we able to respond
to the challenges of future ? It is felt that NABARD is like a huge ship which is useful
but it can not change its direction very quickly. We have to take steps to become a
different organisation.
(f) We need to create more organisations in the form of subsidiaries and see to it that
they are supported and nurtured in a manner that they become effective.
(g) There is a need to create a specialisation not only at junior level but also at senior
level.
(h) Risk mitigation measures such as insurance is very important especially when the
farmers are shifting to commercial agriculture from the traditional and subsistence
level agriculture. Without proper insurance, we are moving farmers to a situation of
distress due to the higher risk in commercial agriculture. We need to promote more
number of new insurance products such as weather based insurance products for
each group of villages. Unless credit and insurance are integrate, farmers are exposed
to very serious problems.
(i) We have to focus on qualitative improvement and effectiveness while looking at
financial inclusion through products such as Kisan Credit Card, micro finance.
One of the participants Sri Sreenivas Reddy pointed the problems of sugar industry such as
high rates of interest, policy of the government in banning sugar exports, fluctuating sugar
prices. He wanted to know whether it is possible to provide credit directly to the sugar
factories and addressing their problems. Dr. Karmakar responding to the question indicated
that sugar is a dicey area and a committee is looking into the problems of sugar industries. He
hoped that sugar factories would be able get benefit from recommendations of this
committee.
Sri K M Rao, GM Krishna DCCB suggested that NABARD should keep its focus on
cooperatives through a deliberate policy on the co-operatives as they still meet one third of
the rural credit. Shri P.V.A. Rama rao suggested that credit should reach right people at
right time. How much credit is needed ? Whether 3 to 4 doses of crop credit should help a
farmer to attain financial sustainability to meet the subsequent cost. A rationalist policy for
Rate of interest should be evolved through discussions in public domain. He also suggested
that proactive extension and not reactive extension is the need of the hour.
IV. Indian Agriculture - Production, Productivity and Technology Related issues
Chairman
Prof. Abhijeet Sen, Member, Planning Commission
Panel Members
(a) Prof. Y.K. Alagh, IRMA, Anand
(b) Prof. S Mahendra Dev, Director, Center for Economic and Social Studies
(c) Dr. Nachiket Mor, Deputy Managing Director, ICICI Bank Ltd.
Talking on the action that needs to be taken for addressing the problems of agriculture sector,
he indicated the following aspects are required to be focussed :
y The growth in agriculture sector has to emerge from technology, non land inputs and
diversification and has to be operationalized at the level of India’s agro-climatic resource
regions.
y Net sown area can not rise. India is urbanising very fast and pressure on land is
going to remain. A lot has to be done for canal and surface irrigation. We have to
effectively use the canal system. We have to reverse the bad land use and water use
as our future depends upon it.
y Farmer must be given right to land so that he can strategise and leverage his assets
for entering into contracts. Farmer groups, producer companies need to be
encouraged.
y Biotechnology revolution has side-stepped India and needs major focus.
Infrastructure should be there to cover the last mile of the supply chain. We have to
encourage public - private partnership in technology and new way of doing things.
We have to build up your own capabilities in the seed sector. We have to have
creative destruction. If something is not working kill it. Modern technology,
otherwise, does not spread.
y Networking is very important. ICAR wants a separate genome institute. It does not
want to collaborate with Genome institute in which Department of Science and
Technology has put in Rs.20 crore. NABARD has got good networking capabilities
and NABARD should use it.
y The problems are complex. You need specified groups at the level of talukas,
districts, states with clear responsibilities. NABARD can not do this. We need
identified agencies, agencification of the system. For developing and implementing
new technology and diversification strategies the Agencification approach is
recommended. Separate agencies could be set up for various development
programmes. NABARD is good in net working and this could be used in the system.
y NABARD has to provide more grant-in-aid for research projects in agriculture
technology. NABARD has to cover the last mile by funding the gaps where private
sector is not coming forward.
y NABARD can promote the producer companies. It has to educate our farmers on
economic climate.
He concluded his presentation emphasising that agriculture planning has to be with new
mindset.
y The growth rate in agriculture sector is less that than 2 per cent in the last decade.
There are some signs of increase in the last three years. Non viability of agriculture,
decline in surface irrigation, land degradation, soil erosion, water logging, decline in
ground water have been the major areas of concern. Disparities in productivity
across the regions and crops persisted. Planning Commission data has indicated that
the decline has occurred in the dry land areas
y The major challenges faced by agriculture are - (i) Infrastructure (2) Land and water
management (3) Research and Extension (4) Credit (5) Marketing and diversification
and (6) Land issues.
y Commenting on the debate on subsidies, he indicated that economists feel that
increase in subsidy brings down the investments in agriculture. Subsidies also have
an impact on the natural resources. The subsidies are also not reaching the small and
marginal farmers.
y Technology and research are important. A Good water management system is
required for the benefit of farmers.
y Distributive aspects of credit are important. Whether small and marginal farmers are
getting the credit ?
y Though reforms have been suggested by the Vaidyanathan Committee in cooperative
credit structure, the major issue is whether autonomy will be given to the co-
operatives by the politicians.
y We have to see how far it is possible to provide fertiliser subsidy directly to the
farmers. The imbalance in NPK proportion has to be corrected as it has impact on soil
fertility.
y Viability of small farmers is an important issue. Whether it is possible to have
Cooperative farming ? The farmers can come together for purchasing inputs in bulk
and marketing of their produce.
In his concluding observations, Prof. Mahendra Dev indicated that we can ignore agriculture
at our own peril . The development of agriculture sector is important for bringing in
inclusive growth and removal of poverty.
y ICICI Bank has built a business of Rs.20,000 crore in agriculture in the last four years.
Initially the bank started crop finance to the farmers with corporate partnership in
the belief that the enlightened corporates would help in yield enhancement with their
support services. The actual experience was disastrous. Large group of farmers
complained about bad advice. It is only in the sugar cane sector that the corporate
partnership proved to be a wini-win model. It was decided that ICICI is not
competent to address basic issues of agriculture such as yield enhancement. The
bank has since withdrawn itself from the partnership led yield enhancement crop
lending business.
y ICICI has been assuming a role in building a sustainable viable infrastructure around
which the overall farming business can grow. For example whole area of
warehousing logistic and supply chain has been a big focus. We have financed 3000
warehouses and would like to reach a target of 10000 warehouses this year. We want
to build a strong partnership with good people who can build these warehouses and
provide high quality of storage and retrieval and credit facilities on demand.
Infrastructure that the supply chain needs can be built in a very high quality manner.
As a country we want to move towards warehouse receipt trading. However, a lot of
basic things are required to make a warehouse receipt tradable. Understanding of
storage, quality control issues on which fair amount of work is needed to be done.
y We see a woeful inadequacy of financial infrastructure all around. There are no
currency chests. How can we bring access of finance to the pockets deep inside rural
India. The concept of business correspondents, the work that NABARD is doing with
co-operatives may improve the situation.
y Risk management products to farmers is an important area we are investing a fair
amount of money and where we see value for ourselves and the farmers.
y We do not have credit infrastructure in our country. Pakistan has issued 190 million
biometrics identity cards and Nigeria has issued 60 million cards. However, in India
we have not even agreed on a common numbering system.
y We are concentrating on lending for second hand tractors and leasing of tractors. You
can make a small farmer work with the same technological capability like a big
farmer except some indivisibles like tractor, threshers. Many of the inputs are
actually divisible and that is what we have to facilitate.
y ICICI is setting up at Hyderabad ICICI centre for the advancement of agricultural
practices. It is not a research centre but a research assembly centre. It will compile all
the research that is going around and digest it and go to the farmer with a clear idea
with a risk sharing partnership.
y Core approach of the bank will remain partnership - partnership with NGOs, NBFCs,
Corporates, Banking correspondents. We would like to partner with cooperative
banks but most of the state cooperative laws do not allow such partnerships. There
are over 1 lakh PACS in the country, many of which are of high quality. There are a
good number of DCCBs in the country which are working well. ICICI would like to
partner with them.
y We should stop distorting price signals at the farmer level. If you suppress price
signals for 15 years and suddenly let it go, it will find a natural level far too quickly
for the economy to adjust. It happened in cotton. After years of price control,
suddenly the social security cover was taken out. Continuous distortion of price
signals is leading to lack of diversification.
Prof. Abhijit Sen in his closing remarks made the following observations :
y There are huge problems on the demand side and supply side. We can not look at
agriculture as having a single solution as in the green revolution time. We need a
great deal of decentralised planning.
y We need an agency at the district and below district level to ensure natural resource
planning. PRI institutions are the most suited for this purpose but they lack
knowledge and capacity. There are many agencies in the field at loggerheads.
NABARD can bring order. There is a need to create some agency which takes existing
expertise and offers it to the institutions which are not aware of the need of
knowledge.
y NABARD as primary rural lender has to be worried about subsidies. Grants from
govt. are the biggest threat for NABARD. Any one who is in the loan business,
grants which masquerade for what could have been loans, are the biggest threat,
more so if the grants to that organisation are going to come down. We are at a point
where we could go towards full competition. We dont know who will survive. Take
the case of NDDB which has decided to consolidate in only 300 districts and allow
others to develop the remaining districts.
Ending his remarks, he indicated that we need plans and knowledge in plans and all the
institutions, including credit institution, have to keep this agenda in mind.
4 JULY 2007
Chairman
Dr. K.G. Karmakar, Managing Director, NABARD
Panel Members
(a) Shri Arindom Datta, Director, RABO India Finance Ltd.
(b) Ms. Sashi Rekha Rajagopalan, Director, Reserve Bank of India and NABARD
(c) Shri S.S. Acharya, Executive Director
Dr.K.G. Karmakar, introduced the subject of marketing and extension by highlighting its
importance and made the following remarks:
y Agriculture growth rate in 1986 was 3.2% which increased to 4.8% in 1992 but came
down to 1.8% in 2006. Though there are indications that it may go up, the concern
remains.
y Food grain production though increased initially has stagnated and strategies are
required to be put in place to overcome plateau effect
y Imports have been constantly increasing as India is not self sufficient in production of
edible oil and pulses resulting in increased imports over the years. Major export
products were rice, cotton and the recent entrant was sugar.
y Its time to review our strategy and decide whether to concentrate more on production
of core strengths like rice, cotton and cut down production of wheat, pulses etc. where
we do not have core strength.
y Extension is another area which needs to regain its lost glory gained during first green
revolution. It needs to be revived if another green revolution is to take place. Practices
in vogue in 1960s cannot be sustained in the changed circumstances like changing
climate, market etc. Changes are required in the production practices which are
possible only with quality extension services made available to farmers. Here
biotechnology could play an important role by helping provide quality seeds.
y NABARD is promoting Farmers’ Clubs which would definitely help in bringing best
practices to the land and with the support of banks more number of such clubs could
be promoted. Government initiative in setting up cold storage, 15 state of art
agriculture markets like ‘Safal’ set up by NDDB at Bangalore with Rs. 120 crore
investment, initiatives by NHB, Fisheries Development Board in the direction of agro
processing are really welcome but a lot still needs to be done.
Shri Arindam Datta, informed the forum that RABO India Finance Pvt. Ltd. is a cooperative
bank with International presence and with food and agriculture sector as the core sectors.
Based on their studied research he deliberated on Indian Agriculture, Marketing and
Extension related issues and submitted the following views to the forum:
Shri Datta concluded that to improve the overall performance of agriculture sector greater
investments in infrastructure would be required which would reduce the huge wastages and
provide direct access to markets by the framers at the same time fasten the pace of legal
reforms. This needs to be followed by a liquid market which would provide transparent price
discovery, a true price for the produce and price risk management. Risk management is being
covered by the commodity exchanges like NCDX and MCX who are also setting up spot
markets. The spot market set up by MCX in collaboration with NDDB at Bangalore is a good
beginning. Thus intermediation has to happen with strong market intelligence among specific
product and region along with good extension services to facilitate increased production and
productivity of good quality produce.
Shri S.S. Acharya, ED, NABARD, said that he would be focusing his discussion on the
extension services in agriculture and put forth the following view:
Ms. Shashirekha Rajagopalan mentioned that she wanted to discuss a topic which might not
get covered at all during the two day seminar and therefore would not be speaking on
extension or on markets which the earlier two speakers have already covered. She would be
concentrating on issues which she believed have not been addressed so far in the country in
relation to farmers and market. This is about the impact that a good cooperative law can have
on farmers and markets. Some of the major issues highlighted by her were:
y Businesses collapse when the fruits of the risks taken, investments made and
the effort put in do not flow to the owner of the business. In case of farmers, while
nature does contribute to losses, there are other reasons too for its failure.
y Farmers will produce more if quality inputs including credit were available
at reasonable rates and on time, if the produce could get a reasonable return in the
market and thus the fruits of production went to them. We need not sell technology
and other services if there is good return as then they themselves would seek
technology and other services.
y General perception is that the poor needs to be helped to access the market
but the small producers are already in the market place. However, they bring in small
quantities of produce, and the market transfers the high cost of small transactions to
the farmer as it cannot deal with so many small producers.
y The challenge is to help the small producer make the market respond to them
and that is possible only if large numbers of small producers pool their produce and
enter the market jointly with sizeable quantities of produce.
y Long term businesses require a body corporate status, made of several
persons and have the right to enter into contracts, to sue and be sued, to hold
properties, for perpetual succession. This could be in the form of a society, trade
union, a company or a cooperative. Society or trade union does not envisage profit
for the owner/member. Company expects the sharing of profit to be on the basis of
investment – not on produce brought in. While cooperative form of business works
for member profit on the basis of produce sold through the cooperative.
y However, cooperatives may not be suitable to every situation, for every
service. It offers no advantage to producers when they are near markets with large
numbers of consumers, the producers are in small numbers; or, scattered or, when
each producer has a large quantity of produce to sell.
y Forming Cooperatives is advantageous when producers are in large
numbers, and/or are spread over large, distant, yet contiguous tracts, and/or have
small quantities of produce for sale every day, and/or cannot individually store the
produce. This is because the cost of handling large numbers of repeated transaction
with producers is very expensive for a third party. The success of SHGs is also
because of the real cost of servicing individual borrowers have been picked up
locally. External agencies cannot afford the cost of collection, quality checks, and
record maintenance for payments and would find it easier to buy in bulk from
nearest points of sale.
y Producer owned organizations begin by paying wages and other costs at
local rates – at rates current in a subdued, suppressed or battered economy but they
graduate to paying fairly good wages, as business increases. The challenge is not to
help small producers access markets but to help them influence and lead markets.
That’s what good commodity, and savings and credit cooperatives have done.
y Market share of cooperatives need to have presence in the market by being
‘single’ ‘largest’ player but they do not need to be the only or the major player.
y In a liberal economy cooperative laws continue to be ‘illiberal’ except in 9
states where it is liberal. The argument is that law may not contribute much to good
business. However, in states like Gujarat where best cooperative laws were enacted
cooperatives thrived. However, the same has since been reviewed and regressive
provisions have been incorporated.
y Andhra Pradesh has a 12 year history of a good cooperative law and on
comparison between the two laws it is observed that the performance of cooperatives
under MACS Act was way ahead of the cooperatives registered under law enacted in
1964. The procurement of milk by the old cooperatives was very poor. Price to
farmers from the independent unions was around Rs 14 per litre while the federation
and other societies paid Rs 12 per litre. Further, six of eight independent unions have
steadily increased business.
Concluding the presentation, she suggested that our aim should be to ensure that the small
producer is not prevented from entering the market jointly, from influencing it, from leading
it. When the fruits of production go to the farmer, they will want to invest more in agriculture
and increase production. For that a good cooperative law would be required which would
respect the autonomy of cooperative business and the right of the farmer to get on with their
business, along with peers.
Dr. K.G. Karmakar concluded by saying that Ms. Shashirekha Rajagopalan concentrated on
the access to market and the need for good coop law to enable the small farmers to contribute
to the market. Coupled with this proper extension services and infrastructure for processing
and marketing would ensure better price realization for the farmer. There is a need for
building brand image of Indian agriculture produces and increase the market intelligence.
Shri Y K Alagh emphasized that one model may not work for India and that even rainfed
regions bifocal approach has been suggested to the Planning commission where in areas
needing more attention watershed method has been suggested but in other areas with high
productivity potential various alternative models need to be tried including that of
cooperatives and their tie up with corporate. More hand holding may be required in
backward regions. He opined that relationship of Rainfed Development agency, recently
formed, with PRI, producing agency and marketing agency and cooperatives would be
different for different products No one group can facilitate better coordination among all
these agencies. He felt that NABARD with its vast experience could do it and facilitate the
lead committees to decide on what can be done and what should be done.
Ms Shashirekha agreed that many models should be encouraged but felt that we need to
facilitate the farmers to come together and face the market as market is hard to small
individual players due to increased transaction cost If they come together they would be able
transact better. Thus their right to enter the market needs to be upheld and facilitate them to
aggregate their produce
Dr. Karmakar mentioned that National Development Council has endorsed what Prof.Alagh
had mentioned. He informed the forum that NABARD has been preparing District level
credit plan in which a new a chapter on extension services has already been included from
this year. He said that NABARD in the next two three years would include specific
agriculture plan in the document which would be part of its planning process.
VI. Risk Management in Agriculture
Chairman
Prof. S Mahendra Dev, Director, Center for Economic and Social Studies, Hyderabad
Panel Members
(a) Shri Vijay Mahajan, CEO, BASIX, Hyderabad
(b) Shri M Prashad, MD, AICI
(c) Shri Ravi Kumar, MD, NCDEX, Mumbai
Before we move to handling risk either through insurance or price risk mechanisms,
we need to first substantially derisk Indian Agriculture. Yield risk is too high for the
Indian agriculture to be truly insurable. However, it continues to be insured with
major national subsidies. The NAIS still covers less than 20% of the farmers, it does
not cover all the crops, it does not cover all the agro climatic zones. It does it with a
substantial cost to the exchequer, roughly Rs.1000 crore every year. So the question to
be asked is whether insurance is the right answer considering the intrinsic risk in
Indian agriculture?
It was supposed that in five years time, NAIS will move to actuarial premiums. That
has not happened. A recent World bank technical study shows that if actuarial
premiums were to be charged the average premium in Indian agriculture would be
12%. Thus the intrinsic variability is too high. We heed to derisk agriculture by
physical means by increasing investments in soil and water conservation in rainfed
regions, watershed development, irrigation management through participatory
management. There is need advice on varietal selection, use of drought resistant
seeds, better agronomic practices, region specific advice, economic advice based
meteorological data. We have to derisk Indian agriculture and bring down its
variability to a point where the actuarial premium is not more than 7 or 8 per cent.
Then only we can consider a national insurance scheme. We are using a using a
wrong instrument for solving the problem.
NAIS has not been satisfactory to farmers as the crop cutting experiments take 12 to
16 months. There is a need to use weather index, rain fall index to have a quick
payout. However, there have been problems in rainfall data as well as certified rain
gauge. Data from IMD stations is not available on a regular basis. NCDEX has
established a few private weather stations but it is capital intensive and takes several
years to amortise the cost.
We should have a two track strategy - (1) Delay in NAIS needs to be reduced with
automation of crop cutting experiments by using satellite imagery or backward
analysis of data for 20 to 30 years. (2) NAIS has to move to weather based insurance.
An interim solution would be a hybrid product with two payouts - first trigger based
on rain fall index to be paid by the middle of August and second trigger could be
based on the traditional crop cutting experiments. This will give some respite to the
farmers in case there is sowing season/monsoon failure.
We have to move NAIS towards weather based index. We should use the funds
allocated by Finance Minister for this purpose otherwise funds may not come in the
next budget.
There is a disconnect between what is happening in future markets and spot markets.
Plain speculators without knowledge of the commodities are involved in this
markets. There is lot of unhappiness among the farmers about these markets. The
production of guar gum is Rs.1200 crore a year whereas the volume of trading of this
commodity in the future markets is much more than this figure. We need to put
some curbs on the trading volumes and find some technical ways so that these
exchanges help the farmers in real price discovery.
These exchanges do nothing to the Indian farmers today. Whereas the average size of
the production of farmers is half a ton, the average deal size in the exchanges is 20
tons. What is missing is an aggregating mechanism. What we need is a producers
organisation which aggregate the production and bring benefit of the futures market
to the farmers. The other alternative, we do not have the energy to build hundreds of
co-operatives, warehouses can become the effective aggregators. It is the aggregators
who trade in US markets and not the farmers.
Concluding his presentation, he again stressed that the intrinsic risk is too high to be handled
through financial means in Indian agriculture and the only solution is long term investment
in agriculture.
Shri M Prashad
Shri M. Prashad, MD, AICI congratulated NABARD and indicated that today we can not
think of agriculture minus NABARD. He made the following observations on role of crop
insurance in managing risk in Indian agriculture :
Insurance is not the solution to all the problems in agriculture sector. Insurance is a
financial instrument and it has to work with its own limitations and it cannot solve all
the problems. Agriculture has to be first derisked. Proper extension services is more
important. However, the importance of insurance can not be undermined in the
present circumstances.
Agriculture risk management products assume critical importance in view of the fact
that large farm holdings are owned by small and marginal farmers with less than two
hectares and significant number of them are living below poverty line. Most of the
farms in the country are rainfed. Yield insurance has been practised in the last 30
years and weather insurance is a new concept in our country.
Providing the main features of National Agriculture Insurance Scheme (NAIS) he
indicated that it adopts area yield approach and covers all the major food crops. It
has provided crop insurance to 170 lakh farmers covering an amount of Rs.20,200
crore with a premium of Rs.590 crore. It is compulsory for the loanee farmers and
optional for non-loanee farmers and the rates vary for different crops. The scheme
has been managed within administrative cost of 2%. AICI is suffering losses due to
the caps placed on the insurance premia and they are borne by the Central
Government and State Governments.
Still there is a long way to cover all the farmers under insurance as even now 85% of
the farmers remain to be covered. Market based approach relying on sound actuarial
regime may help the Government to reduce its fiscal exposure and develop more cost
effective agriculture subsidy programmes by targeting it to catastrophic areas. It
would also make the insurance company more accountable and help in expanding
outreach among farmers. It would also help the farmer to make timely payments.
With the scheme as it exists now it is difficult to get reinsurance in the international
markets.
Some of the modifications that have been suggested in the crop insurance scheme are
- altering the yield estimates to a longer time series, reducing the insurance unit to
village panchayat for major crops, instilling actuarial principles into premium rate
methodologies, covering sowing and planting failures and prepayment on weather
index based system.
Weather Insurance is more objective, cost effective and transparent way of insurance.
However it requires a network of secure weather stations. The weather insurance is
highly technical and more research is required to be done. It is still on a pilot stage in
countries like Mexico, Africa and Central & South America and India. AICI has made
a humble beginning in 2004 by launching Varsha Bima and at present covers 125
locations across 10 States and is available for all major crops. It has not been
extended to the entire country as the premium rates are too high under weather
insurance and it has been difficult to convince the farmers.
Intermediaries in the agriculture market can not be substituted unless somebody else
does the same functions with the same efficiency. A farmer can go to the unorganised
sector and get loan across the table. Can a farmer get bank loan for consumption,
hospitalisation and social expenditure ? The banks should provide loans to the
farmers holistically covering his consumption, production, investment and insurance
needs. He has to get a bundled product. Post production farmer has to be given
choice to sell spot or sell future.
In case a farmer is able to get proper advice on the future price at the time of sowing,
he can decide his cropping pattern depending on the future intended price
realisation.
Unlike commodity exchanges world over, NCDEX has gone into building
infrastructure such as warehousing and setting up of weather stations and
procurement of farmers produce. It has introduced exchange traded weather indices
for spreading the risk.
Options should be allowed in the exchanges. Options give the farmers a choice of
protecting himself against lower price and retaining the benefit of higher price.
Commenting on the disconnect issue raised by Shri Vijay Mahajan, he indicated that
NCDEX rigorously monitors the volume of business and ensures that the balance is a
fraction of physical availability of the commodity. Actual user participation as a
share of open interest was 40% in wheat and 20% for sugar. Further, physical delivery
of 40,000 to 50000 tons takes place every month.
Minimum tradable lot is fixed based on the volume of a truck load which is 9 tons at
present. Commodities traded is one truck load which is 9 tons. Minimum tradable lot
can be brought down, provided lower capacity trucks are produced in the country.
The other solution is encouraging aggregators such as co-operatives, associations, etc.
While ending his presentation, he indicated that most people do not know what is meant by
agri business. If agriculture really becomes business, then people would end up paying more
price for food than are paying today.
In his concluding observations, Prof. Mahendra Dev indicated that Risk prevention is
important in agriculture. Investment in watershed management, technology and district
planning, etc. are important for derisking agriculture. He congratulated NABARD on the
occasion of its silver jubilee. He hoped that in the next 25 years, NABARD will get more
appreciation for its role.
Dr. K.G. Karmakar, Managing Director suggested that the members of the panel may
collectively bring out a Paper on "Coping Mechanism for Indian Farmers" for which
NABARD would be willing to extend necessary assistance.
VII. Rural Livelihoods and Employment Generation - Micro Finance and Non Farm Sector
Chairman
Ms. Shashi Rekha Rajgopalan, Member of the Board of Directors of RBI and NABARD
Panel Members
(a) Shri Vijaya Kumar, IAS, CEO, Society for Elimination of Rural Poverty, GoAP
(b) Shri C S Reddy, CEO, Andhra Pradesh Mahila Abhivrudhi Samiti, Hyderabad
(c) Shri K Narasimha Murthy, Member, Board of Supervision, NABARD
(d) Shri Vijay Mahajan, CEO, BASIX
Shri C S Reddy, CEO APMAS, Hyderabad started his presentation by giving the major
milestones in development of SHG movement in the country such as promotion of SHGs by
NGOs for overall development of the community, piloting of SHG-Bank linkage movement
by NABARD, proactive role of state governments, evolution of SHG Federations for
sustaining the SHG movement. He made the following major observations during the course
of his presentation:
y Mentioning the findings of the study conducted by APMAS, he indicated that the
amount of bank loan has increased from Rs.26000 in the first linkage to Rs 112000/ in
the firth linkage. Repayment of loans to banks were taken seriously by the SHGs as
against loans taken from their own savings. More number of SHGs with weaker
sections like SC/ST are getting loans. More than 80% of the SHGs in the state are
accessing repeat loans.
y In order to ensure sustainability of the programme, the following issues are required
to be focussed :
) Building capacity of SHG members through training and creation of mentors
/ animators for SHGs
) Much greater focus on Book keeping at SHG level to ensure transparency
) SHG level repayments of internal loans (from their savings) needed attention
) SHG Federations to take responsibility for SHG quality and to provide value
add services
) SHGs & SHG federations to pay attention to social issues, particularly gender
related
He suggested that NABARD may consider taking the following initiatives:
NABARD should evolve a national strategy for sustainable SHG movement
in India through a consultative process.
NABARD should facilitate to replicate the AP success story on SHG Bank
Linkage in other States.
It should Commission a country-wide study on SHG Federations to
understand their present role and future potentials.
Fund National and State Level Capacity building agencies to build capacities
of SHPIs.
Facilitate common standards, book keeping system and self regulatory
mechanism for the SHG members.
y The traditional Rural Non Farm sector consisting of agro processing, rural
manufacturing, services, handloom, etc. has almost vanished. Its share in rural
employment has become minuscule. This is primarily due to the reason that
economies of scale have stepped into all these products and substitutes are available
at a cheaper rate which can not be manufactured in rural areas. Shift from handloom
to Powerloom is an example how technology has shifted production from rural areas
to urban areas. It is not possible to run powerlooms in rural areas due to power
problems and infrastructure inadequacy. Thus, due to shift in consumer demand to
the products which are made by modern industry in urban sector and due to
economies of scale and infrastructure disabilities in rural areas, manufacturing part of
Rural Non Farm Sector has almost vanished.
y Agro processing is becoming larger and larger. The old style cotton ginning mills are
replaced by modern mills. In virtually every commodity, we do not have possibility
of old style village industry. It will be romantic to say that we should promote rural
industry. We should see writing on the wall and give up this once for all. India needs
a dynamic agro processing sector but at aggregation points. The soyabean grown in 2
million hectares of the eastern Rajasthan is processed in an around 20 kms from Kota.
Processing can not be done in the 2000 villages of Rajasthan where it is grown as they
do not have the basic infrastructure such as electricity, solvent extraction plants, next
door railway tankers.
y But in the mean time RNFS, in terms of employment and income share is increasing.
From where it is increasing ? Primarily, the services sector. 2/3 of rural income came
from services sector even earlier. Transport, repairs and trade related services are
generating large RNFS employment.
y Instead of fighting this trend, how should it be capitalised. There are large part of the
country where it is not possible to promote robust non farm sector in small towns
Hinter land does not produce enough of surplus for it to be processed locally. He
therefore suggested that focus should be on agriculture before focus is bestowed on
NFS. Promotion of farm sector in backward areas, improving yield, irrigation,
marketing, enhancing productivity, etc. is to be ensured before non farm sector. It is
the surplus in agriculture that will lead to robust non farm sector.
y This investment can not be done by the magic bullet called micro finance. Micro
Finance is a trivial solution for the kind of transformation needed in rural india. Long
term public investment are needed in land, water, degraded land, water bodies,
common properties in public investments. The studies by NABARD indicate that the
IRR in watershed projects is 24% plus over a time span of seven to nine years.
However, the benefits do not flow to a right entity, called enterprise. Benefits have
externalities. You invest in the ridge the benefit goes to valley. You invest in a village
upstream the benefit goes to three villages downstream. This kind of social and
worthy investment belongs to Public finance.
y The greatest comparative advantage of NABARD is decontamination of the effect of
subsidy by making public spending more efficient. RIDF is a very good example
wherein Rs.60,000 crore has been spent with the same irrigation department and
PWD but in a more cost effective manner with better efficiency. What NABARD has
done in RIDF, needs to be done in a very very big way in natural resource
regeneration which may require investments over Rs.1 lakh crore. But this money
should not be spent through the government channels. They need to be spent
through specialized tightly focussed institutions such as SERP which can
decontaminate subsidies by involving Mandal Samakhyas.
y While subsidies are needed for rural India, it also need public investments for rural
India. However, institutional framework needs to decontaminate the effect of
subsidies.
y Demographic divide of young human capital will become a demographic curse
unless we make investments in them. Over 200 million young people are joining the
employment market but today are unemployable. By spending as little as Rs.5000
per head, they can be made useful members in modern sector. For this purpose new
generation institutions are required.
y To build robust NFS so that benefits flow to a large number of rural population, new
institutions such as Producer Organizations or to begin with Farmer Organizations
in agro processing sector are required. These organizations can capture the surplus
that is generated in the rest of value chain than sell the produce at the first point.
Potatoes grown by Jharkhand farmers is sold at Rs.7 a kg to the Pepsi which sells
them at Rs.300 per kg in the form of Fritto chips. Why should it not be captured by
Jharkhand Potato Growers Association. It is not going to happen automatically.
Investment in social capital is required, dedicated organizations are required. That is
an investment in Social capital
Summarizing his thoughts on the subject, he indicated that good Non Farm Sector will
develop if financial capital, natural capital in terms regeneration, physical capital in terms of
localized infrastructure, human capital in terms of vocational skills and employability and
social capital in terms of producer organizations are generated. If it is done, it would be
possible to move around 100 million people out of agriculture to rural non farm sector.
Questions
(i) What role is played by the SHG federations for girl children
Responding to the questions, Shri Vijay Kumar and Shri C S Reddy indicated that SHGs and
SHG federations being the organizations of women are taking special interest in health and
education of their children. Under IKP project, nutrition centres are being run for rural
women. SHGs may not go the way cooperatives due to the certain ingrained systems such as
regular meeting, democratic nature, transparency in accounts, small size of the group and
capacity building by the SHPIs.
Shri Mahajan expressed that NABARD should move out of agriculture credit and start Rural
Livelihood Finance. NABARD should be a managing agency of Government of India for
public investments in rural India. It should be the chief overseer, grand planner for public
investment and ensure that each rupee spent in rural India generates a net positive return for
rural India. It is a folly for NABARD to become a Commercial Bank. It is the only institution
which can handle public finance better than the government.
Summing up, Ms. Shashi Rajgopalan indicated that she is impressed by the level of credit that
has reached SHGs in Andhra Pradesh. She made the following observations in her
concluding remarks :
y NABARD must take up a study of couple of villages where regular credit flow has
taken place in the past five years to a large number of families and document the
effect of the credit on the non farm sector.
y NABARD should stop reporting cumulative figures. It should only report the
outstanding loans during the previous year, loan issued during the year and the loan
outstanding at the end of the year.
y NABARD should also start collecting the data on the amount of savings of the SHGs
in the banks. Whether the savings collected by the SHG women is only being used for
re-lending to them by the banks ? This will help in taking policy decisions.
y SHG women are withdrawing 40% of their savings as no interest is paid by the SHGs
on the individual savings. It should start the practice of adding interest to the saving
of SHGs.
y SHGs will be in the danger of going PACS route if treated like PACS. SHGs should
not be expected to be the solution for every problem.
She ended her remarks by appreciating the role played by NABARD, SERP and APMAS in
the SHG movement in the state and the country.
VIII. Reminiscences and Expectations from NABARD
Shri M Ramakrishnayya
Shri M Ramakrishnayya, Former Chairman, NABARD delved into the history of NABARD
by sharing some of his experiences as the first Chairman of NABARD. NABARD of today is
an entirely different entity than that was envisaged. NABARD alone can not do the entire
development work in agriculture but NABARD has to coordinate with other agencies to
bring about rural development. NABARD should not exaggerate its role. NABARD should
play a catalyst role in developmental arena and focus on the principles of development
through credit. It should strengthen its technical expertise and be professional in its
approach. He suggested that a study has to be taken up by NABARD for derisking
agriculture and for this a holistic view has to be taken.
Shri Y C Nanda
Shri Y C Nanda expressed that NABARD officers should be the ‘best informed officers’ in the
matters of agriculture and rural development. NABARD will be respected only if they are
fully informed about the developments taking place in rural India. He mentioned that no
other Institution has such great technical expertise as NABARD has and they should try to be
a learning Institution and update their skills as per the changing scenario. Lastly, he
mentioned that All the efforts of NABARD should lead to increase in income of rural people.
It is essential that vigorous efforts are required in livelihood area.
Shri P Kotaiah
Shri P Kotaiah recounted his experiences in NABARD. He indicated that the NABARD Act
has the flexibility which allows it to venture into diverse areas. He gave the background
regarding the introduction of RIDF, formation of ADFCs. NABARD should promote rural
infrastructure for development of agriculture. NABARD should explore the feasibility of
opening more subsidiaries within the core frame work of rural economy.
Dr. Y S P Thorat
Dr. Y S P Thorat, Chairman, NABARD in his address spoke on the challenges before
NABARD and made the following major observations :
The performance of NABARD will be judged based on the integrity with which
NABARD moves forward the cooperative reforms. This requires vision, leadership,
guts and commitment. The cooperative credit institutions are impaired through bad
governance financial impairment, politicization and bureaucratization & regulatory
impasse. NABARD has to ensure that capitalization takes place only after adequate
safeguards of governance, legal framework, managerial reforms are on ground.
NABARD has to build resources as the subvention may not last long. What is the
best way to build resources has to be debated. We have to take a serious assessment
of our long term asset portfolio.
Prime Minister has mentioned that NABARD is a public good institution and a
national institution. All the actions of the bank will be judged on the touchstone of
“how good”, “how much national interest”. NABARD has to tender independent
impartial advice for which Government will respect it.
NABARD has a great human potential with technical and managerial skill and
domain skill. So long NABARD moves with one common objective, NABARD will
serve its destiny.
Vote of thanks
The meeting ended with vote of thanks by Shri S R Aluru.
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