CHAPTER -1

INTRODUCTION AND DESIGN

OF THE STUDY
 CHAPTER - I

INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION

Agriculture, around the world, though treated and studied as

science in colleges and universities, is practiced as an art of
indescribable proposition and numerous nuances. This is in fact, the
only occupation that defies and challenges even the impeccably
calculated methodologies that have been researched, practiced and
perfected in laboratories and lands in a steadied time phase. What
makes a sure possibility in to an unforeseeable improbability in this
profession is its reliance on weather and water as well as sun and soil.
After overcoming all these hurdles if the practitioners of this art excel
with a bumper harvest, ‘market’ with its ever oscillating prices, throws
a hammer on them by quoting the least price by blaming it on poor
demand. Hence time immemorial the fortunes of the peasants have
been witnessing many ebbs and flows. When the flows are more they
get washed away in the debts that get collected over a period of time.
When the scenario world over is as such, Indian farmers are no
exception to this. So, when the country boasts of its rich heritage of
two hundred plus languages and innumerable cultural practices
co-existing in a sync it also has to eat the humble pie that more than 70
percentage of its agrarian population who live in its length and breadth

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of rural India speak in one language-the language of poverty. In a land
where agriculture is taken as a profession by birth, where agriculture is
considered as an occupation of undeniable vanity bestowed on them by
The Goddess Mother Earth, where agriculture is carried out
consistently, irrespective of the huge loss that one incurs due to the
calamitous nature and unreliable monsoons, it is a pity to note that, its
agricultural polices are formed, promoted and governed by self serving
bureaucrats and politically eminent personalities with the highest
degree in education but with no ground experience or association with
the people who toil permanently and sweat profusely in the land. It is
those children of the soil, who in reality, protect the age old wisdom
that gets passed from one generation to the other as legacy, which is
indifferently and indignantly neglected by the educated agriculture
officers and ministers concerned who rule this land that has a
predominant agriculture background.

Hence the policies that have been evolved to meet the credit
requirements of the poor farmers right from the First Five Year plan to
till date have not served the purpose, due to the discrepancies found in
them. Moreover, the presence of red tapism has never allowed the
needy to receive the loans at the required time. Now, the country pats
its own back for its GDP growth due to the economic boom in
industries because of Foreign Direct Investment and Information
Technology and Enabled Services and not because of the contribution
of agriculture which has declined almost 50 per cent. But the time has

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come to realize that our constant neglect of farming populace may lead
us again to rely on other countries, even if we need not extend a
begging bowl as it happened before fifty years, to feed its millions.
This is as clear as the writing on the wall.

Prior to independence, the agriculturists depended on

unorganized sector for borrowing mostly. Only a bare minimum of 4
percent of the required need of credit was met by the then British
government in the form of Taccavi loans, which were distributed
through revenue departments. The concept of organized institutional
credits started getting prominence right from the launching of first five
year plan1 in 1951 in the post independent India. From then on the
nomenclature of agricultural credit has changed many times but basic
issues remain static. Almost six decades have slipped into posterity
after independence. Commissions after commissions were set up to
frame and review policies of credit disbursement, and to ease out the
organizational, procedural and executional difficulties the rustic
peasants face while seeking monetary assistance. Yet the gap between
the well dressed officers behind the polished desk and glass separators
in the government financial institutions and the naive peasant with
weather wrought body and soiled clothes is yet to be gauged. The
emerging data of farmer suicides (1,49,244 suicides from 1997-2005)

‘Surjit Singh, Vidya Sagar, “State of the indian Farmer: A Millennium Study”, Agriculture
credit in India, Department of Agriculture and co-operation, Government of India, New
Delhi, 2004, p. 63.

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due to the quick sand debts collected2 under the feet of ignorant

farmers stand a testimony to the fact that all those farmer-centric

agricultural credit policies have turned out to be barren in nature and
the peasantry of India is still manacled with unmanageable crisis of
unpayable debts.

In general, farmers require loans for all agricultural related

activities like digging well, construction of bunds, land improvement,
purchase of cattles, agricultural implements let alone raising crops. But
only crop loans constitute a major portion of disbursements for
agriculture from the distribution side. Despite the great resilience of
Indian farmers to the vagaries of weather, a bad monsoon definitely
affects agriculture and in turn the crop loans are influenced negatively.
Besides, due to the existence of a number of private financial
institutions extending crop loans and their varied ways of purveying
the same, the subject of crop loan has become very complex. Above all
farmers need adequate and timely credit in a cost effective and flexible
manner to raise a crop as well as to meet household requirements like
spending for marriage or death which are to be met from the credit
they avail from the banking system for raising a crop.

Taking the above said problems of agriculturists into

consideration the Reserve Bank of India has set up a one man high
level committee headed by shri R.V. Gupta in December 1997 to

2 Various issues of Accidental Deaths and Suicides in India, NCRB, Ministry of Home
Affairs, Government of India.

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suggest measures for improving the delivery systems as well as
simplification of procedures for agriculture credit. The committee was
to identify the constraints faced by the commercial banks in increasing
the flow of credit, introducing new products and services and
simplifying procedures and methods of working with a view to enable
rural borrowers to access adequate and timely credit from them. The
committee has submitted its report in April 1998. To implement the
committee’s recommendation, Reserve Bank of India introduced the
Kisan Credit Card scheme followed by the announcement made by the
then Honorable Finance Minister Yashwant Sinha, in his budget
speech for the year 1998-99. It sought to address many of the issues
concerning short term credit needs of farmers. It aimed at providing
timely and adequate credit to the farmers in a cost effective and
flexible manner. In addition to credit for crop production the scheme
provides credit for ancillary activities related to crop production,
working capital needs for non-farm activities and allied activities with
some provision for consumption needs.

So, now, as per the recommendations, the agricultural credit is

being disbursed through a multi agency network consisting of
Commercial Banks, Regional Rural Banks and Co-operative Banks.
During the tenth five year plan period upto December 31, 2006, total
flow of bank credit for agriculture and allied activities was Rs.
611,678.60 crore. Over the period of 5 years (2002-03 to 2006-07) the

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share of commercial banks in total credit flow to agriculture and allied
activities has increased especially with a remarkable rise from 2004-05
onwards3. This is appreciably quite an impressive number.

Therefore, as expected it should show a rising mark in the chart

of progress among agricultural communities throughout the nation. But
what happened is just the opposite of what is expected. As the officers
concerned worry their heads over the disbursement but not proper
utilization of the same and the benefited farmers did not know how to
manipulate the system for their betterment, the massive credit flow has
turned out to be the showers on the sea resulting in lack lustre
improvement of farmers in general that has led the state and centre for
a massive waiving of agricultural loans to the tune of 6866 crores and
60000 crores respectively4. Instead of visualizing a better utilization of
this credit facility in the place, what one could see is a dismal
performance. So, “where lies the lacuna?” is a question to be answered
in this study.

Setting up of commissions one after the other to revise the

earlier schemes hints at the failure of the system so it will be fruitful to
study the causes of failures of those well meaning policies. If one
could find out the factors that change the genuine policies into plain
statements of black and white, it will serve the humanity at large and
the aggrieved agrarians of India in particular. Hence the study.
3Economic Survey, 2007-2008
4http://www.organiser.org/dynamic/modules.php?name=Content&pa

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1.2 SIGNIFICANCE OF THE STUDY

With around 2/3 of the rural population directly or indirectly

dependant on agriculture for livelihood, this oldest profession on earth
continues to play a dominant role in Indian economy. Even though the
contribution of agriculture to Gross Domestic Product (GDP) has
declined from 44.5 per cent in 1970-71 to 22.2 per cent in 2003-04, the
performance of Indian economy continues to be affected by the growth
rate of Indian agriculture. A decline in the agriculture growth rate has
its reflection on the overall economy of the country. For instance, the
negative growth of 4.4 per cent in the year 2002-03 had direct fallout
on the Indian economy, which declined from 5.6 per cent during 2001-
02 to around 3.7 per cent in 2002-03. The Tenth Plan (2002-07) has set
an ambitious average GDP growth of 8 per cent per annum. An annual
average growth of 7.0 per cent from agriculture sector alone in the next
five years is crucial for achieving the GDP target5. To achieve this, it is

important to revitalize the agriculture sector, which necessitates

investment flow in to various agri-based industrial sectors. In order to
assess the ways and means of increasing the investment flow, an effort
has been made to understand how agriculture credit has grown over the
years and the emerging trends in the rural space. Agricultural credit
extended by the institutions such as banks and co-operatives before the
introduction of Kisan Credit Card, were posing a number of problems
in providing the credits and renewal of the same. Now the Kisan Credit

5http://www.indiatogether.org/2004/apr/eco-ruralbank.htm

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Card is very popular among the farming community because of its
spontaneity; yet it has resulted in little prosperity. Had it been a
success, the government definitely would not have been in a position
to go in for the biggest loan waiver of the post independent India
(Rs.60,000 crore)6 for Kisan Credit Card holders alone. That grand
gesture of munificence alone will not bring light into the life of the
sagging peasantry. Hence a study on the utilization pattern of Kisan
Credit Card and satisfaction level becomes a prerequisite. The findings
of the study will help the governments and the banks to iron out the
wrinkles in the fabric of procedures for sure, and enable the farmers
come out of the trap of abject poverty and release them from
acrimonious informal finance sector.

1.3 STATEMENT OF THE PROBLEM

In India, while some crops are ready for the yield within 90
days, the cash crops mostly require 12 months as gestation period. So,
farm activities in all, irrespective of the type of crops, require men and
money for their smooth and timely activities. To meet the recurring
expenditure farmers are not assured of any permanent income as of the
salaried class or business people. They get their income either through
direct agricultural activities or its subsidiary activities. When there is a
failure in one of the above they end up in total disaster.

6http://www. financialexpress.com/news/Ki san-Credit-Card-borrowers-to-come-under-loan-

waiver/285945/

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 Their financial requirements can not be met from their own
source, even in ordinary times. They have three sources of finance
such as,
a) Private money lenders-informal sector
b) Institutional credit-Formal sector
c) Government assisted packages.

Of the three, the government assisted packages are the most

sought after because they get subsidy and in some cases complete
waiving. After a lot of deliberations and discussions and considering
the prevailing inconsistencies, The Government of India launched this
Kisan Credit Card scheme, a decade ago. Naturally much was expected
from this scheme as it was hailed as hassle free and easy to asses loan
scheme at the time of introduction in 1998. Ten years period is a time
enough to find out the effects and success of any scheme. Reports of
farmer suicides crop up in dailies and weeklies predominantly even
now pointing out the failure of the scheme in addressing the problems
and the pitiable plight of farmers throughout India. Hence a study
becomes a pressing need to find out how far Kisan Credit Card scheme
served its purpose through the provision of loans. In addition to that,
Namakkal is partly fertile and partly semi arid district that truly
represents India with its maximum population involving in agriculture
and agriculture allied activities depending more on the sky and the soil,
rather than any permanent water sources for irrigation. Their hands are
to be strengthened through supporting government schemes. But till

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date, there is no visual change in the agricultural backdrop of this
district. Hence through this study the researcher endeavours to find out
the weak links in the scheme and provide measures to strengthen them
for optimum utilization

1.4 OBJECTIVES OF THE STUDY

1. To study the origin, growth and functioning of Kisan Credit

Cards.
2. To study the issues connected with the operations of the Kisan
Credit Cards scheme by the banks.
3. To identify the factors that influence the farmers in utilizing the
Kisan Credit Cards.
4. To study the level of satisfaction of the farmers in utilizing the
Kisan Credit Cards.
5. To study the problems faced by the farmers in utilizing the
Kisan Credit Cards and by the banks in issuing the Kisan Credit
Cards.
6. To recapitulate the major findings and to offer constructive
suggestions and conclusion.

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1.5 RESEARCH METHODOLOGY

While going through the substantial collection of data from the

secondary sources and from the research survey, it has been found that
descriptive and analytical research was the most appropriate method
for the study. The schedule and the questionnaire were all framed
accordingly.

1.5.1 Sampling Design

Survey was conducted among 350 Kisan Credit Card holders

and 100 bank branches in Namakkal District. For Kisan Credit Card
holders, Stratified random sampling technique was chosen. For the
banks, convenience sampling was adopted as some of the bank
branches were reluctant to share their data.

1.5.2 Data Collection

1.5.2.1 Primary Data

Questionnaire and Interview schedules were used as the main

tools to collect the first hand information from the selected sample
Kisan Credit Card holders and banks. For this purpose the researcher
has consulted the subject experts, agriculture department officials of
various banks, and the office bearers of farmers’ association to have
first hand information about Kisan Credit Card scheme. After
consultation with all the above mentioned personalities a well defined
and structured questionnaire was prepared for farmers. A schedule was

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prepared for banks. The researcher used close-ended and open-ended
questions in the questionnaire to collect primary data. The selection of
sample respondents is shown in table no. 1.1 and 1.2.

TABLE NO. 1.1

TALUKWISE DISTRIBUTION OF SAMPLE

RESPONDENTS (FARMERS)

S. No Taluks No. of sample respondents

1 Namakkal 100
2 Rasipuram 100
3 Paramathi 50
4 Tiruchengode 100
Total 350

TABLE NO. 1.2

TALUKWISE DISTRIBUTION OF SAMPLE

RESPONDENTS (BANKS)

Commercial Co-operative
S. No Total
Taluks Banks Banks
1 Namakkal 10 15 25
2 Rasipuram 10 15 25
3 Paramathi 10 15 25
4 Tiruchengode 10 15 25
Total 40 60 100

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1.5.2.2 Secondary Data

The secondary data were collected from the reports of RBI,

NABARD, commercial banks and co-operative banks, various national
journals, projects of IIM, books and Government Reports. The latest
information was gathered from well equipped libraries in IIM
Bangalore, IFMR Chennai and from Internet web resources. Published
data from Namakkal collectorate were of a major support for this

study.

1.5.3 Construction of Schedule and Questionnaire

The key aspect of the present research was identified through

preliminary interviews (Pilot study) with some selected Kisan Credit
Card holders and Bank respondents. The schedule and questionnaire so
drafted were circulated among research experts and research scholars
for a critical review with regard to wording, format, sequence and the
like. Then, those were re-drafted in the light of their comments.

1.5.4 Pre-Test

The schedule and questionnaire meant for the respondents were

pre-tested with 35 sample respondent. After pre-testing, necessary
modifications were made in them to fit in to the framework of the
present study.

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1.6 TOOLS OF ANALYSIS

The collected data were put to statistical analyses by using

percentage, average, range, and standard deviation, scale scoring and
ranking methods. Chi-square test and Analysis of Variance were used
to study the association between demographic variables and utilization
of Kisan Credit Cards. In addition to these, other tools of research like
Factor Analysis, Trend Analysis, Summary of Statistics, Multi
Discriminate Function analysis, Weighted Average method, Garret
Ranking Technique, Simple Correlation and Multiple regression
analysis were also used.

1.6.1 Chi-square Test

In order to identify the factors influencing the extent of
utilization of Kisan Credit Cards by the selected respondents the chi-
square (x2) test was used and the formula is given below:

Chi-square test {£) = y^ {O-Ef

E

Degrees of freedom = (R-l) (C-l)

Where, O = observed frequency

E = expected frequency

R = number of rows

C = number of columns

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1.6.2 Garret Ranking Technique

This technique was used to rank the utilization of the loans

through Kisan Credit Card, problems faced by Kisan Credit Card
holders and Cards issuing banks in the study area. In this method the
respondents were asked to rank the purpose of utilization of the loans
of Kisan Credit Card and problems according to the magnitude. The
order of merit given by the respondents was converted into ranks by
using the following formula.

100(^.-0.5)
Percentage Position

Where,
Ry = Rank given for ith factor by jth individual
Nj = Number of factors ranked by jth individual

The percentage position of each rank thus obtained is converted

into scores by referring to the table given by Henry Garret. Then for
each factor the scores of individual respondents were added together
and divided by the total number of respondents for whom the scores
were added. These mean scores for all the factors were arranged in the
descending order and the ranks were given to identify the most
important problem.

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1.7 PERIOD OF THE STUDY

The study covers the years from 1998-99 to 2007-2008. The

empirical data on primary sources were collected for a period of one
year (2007-2008) in the study area covering Kisan Credit Card holders
and the Banks.

1.8 SCOPE OF THE STUDY

The study highlights the origin and evolution of Kisan Credit

Card, its functioning, problems faced while carrying out
implementation by the banks in the study area, the factors influencing
farmers’ utilization of Kisan Credit Card, opinion profile, problems of
farmers while using the Kisan Credit Card and banks while issuing the
same and the satisfaction level of the farmers.

1.9 LIMITATIONS OF THE STUDY

1. The data provided by the farmers were not authentically

supported since they gave the facts out of their memory.
2. Banks were reluctant in disclosing their data regarding
outstanding loans.
3. Some of the farmers do not have clear idea about the Kisan
Credit Card.
4. The findings of the study and the observations made in the study
are confined only to Namakkal district of Tamilnadu State.

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1.10 CHAPTER SCHEME

The present study is organized into seven chapters.

The First Chapter covers the introduction and design of the

study.
The Second Chapter deals with the review of related literature.
The Third Chapter traces the evolution of Kisan Credit Card
scheme and its special features.
The Fourth Chapter highlights the profile of the study area.
The Fifth Chapter deals with the issuance of Kisan Credit
Cards by banks.
The Sixth Chapter deals with the factors influencing the
utilization of Kisan Credit Card holders.
The Last Chapter recapitulates the major findings, and based
on the findings offers relevant suggestions and conclusion.

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