7— AN ANALYSIS OF COOPERATIVE , A AGRICULTURAL CREDIT lNSTkTUTIONS IN lemA CASE STUDY OF - f A THE PRIMARY CREDIT SOC‘ETEES j , lfi RNASTHAN Thesis for the Degree of Ph. D. MICHIGAN STATE fiNWERSlTY. CHAEN SERGE BARLA 19-73 flliilillillllllliillflWilli 1293 00087 6262 This is to certify that the thesis entitled An Analysis of Cooperative Agricultural Credit Institutions in India: A Case Study of the Primary Credit Societies in Rajasthan presented by Chain 8. Barla has been accepted towards fulfillment of the requirements for Ph.D . degree in Agricultural Economics 04M flf «we? Major professor Date LU] 0-7639 am '_ HUM; & SUNS' 800K BiHDERY INC. LIBRARY amazns ” gut-mgr. Ileana; E- ii i ABSTRACT AN ANALYSIS OF COOPERATIVE AGRICULTURAL CREDIT INSTITUTIONS IN INDIA: A CASE STUDY OF THE PRIMARY CREDIT SOCIETIES IN RAJASTHAN BY Chain Singh Barla This study had four objectives: First, to explain the concept of adequacy of agricultural credit; second, to review and evaluate the recent progress and financial health of cooperative agricultural credit institutions serving Indian agriculture; third, to examine the adequacy of credit for different categories of farmers, stratified according to size of holdings; and finally, to suggest certain modification in the existing c00perative agricultural credit policy in India. In addition to the amount of loan, three other criteria were developed to measure the adequacy of credit in a farm situation: rate of interest, terms and conditions of loans and timing of loan disbursement and recovery. All policies relating to the supply of agricultural credit need to consider these criteria. Since 1951 government has spent over Rs. 2,000 million for the development of cooperative agricultural credit insti- tutions in India. In addition, generous loans have been provided by the Reserve Bank of India to cooperative credit institutions. As a result, the supply of short term and medium term.c00perative credit increased from Rs. 220 million in 1951-52 to Rs. 5,780 million in 1970-71. By the end of the Fourth Five-Year Plan (1973-74) and the Fifth Five-Year Plan (1978-79) c00perative agricultural institutions are expected to raise the levels of their credit to Rs. 7,500 million and Rs. 12,500 million, respectively. However, no serious thoughts have been given during the past two decades to improving the terms and conditions of cooperative short and medium term credit and to improving the efficiency of cooperative personnel. Due to a mounting number and amount of overdue loans, cooperative agricultural credit institutions are generally facing a financial crisis throughout the country. The situation seems more critical in a few states such as Rajasthan, Assam, West Bengal and Bihar. An intensive analysis of the financial health and operational behavior of the primary credit societies showed that most societies in Rajasthan are in a deplorable financial condition. Overdue loans of these agencies have absorbed not only their share of capital but have also eroded a sizeable part of the capital borrowed from the district central cooperative banks. In order to measure the adequacy of cooperative agricul- tural credit at the farm level, a random sample survey of 161 farm households was conducted in the district of Jhalawar in Rajasthan. It was empirically shown that the marginal value product (MVP) of purchased inputs was very much higher than that of the farm grown inputs. Conversely, the MVP of labor was close to zero or negative. Cross section analysis revealed that unless technological bmprovements are introduced, an increased supply of credit may imply a wasteful use of capital on small farms (having less than 2.5 hectares). On the other hand, under the existing state of technology, availability of more credit will help medium farmers (having 2.51 to 6.00 hectares) optimize the use of capital. Thus, technology is a constraint on small farms, whereas credit is relatively more, critical on medium size farms. In view of the inter-regional and inter-farm variations in climate, soil and other factors prevailing in India, a case for regional credit policy was developed in this study. If cooperatives are preferred to other agencies for supplying additional credit to farmers, they need to provide credit at the terms and conditions which are suitable to farmers as well as to their own health. The present magnitude of overdue cOOperative loans has plunged cooperatives into a financial crisis. Setting targets for the supply of agricul- tural credit through cooperatives requires simultaneous steps to reduce the incidence of overdues. Suitable measures are also required to strengthen the capital base of cOOperative agricultural credit institutions and to improve the efficiency of cooperative personnel. AN ANALYSIS OF COOPERATIVE AGRICULTURAL CREDIT INSTITUTIONS IN INDIA: A CASE STUDY OF THE PRIMARY CREDIT SOCIETIES IN RAJASTHAN BY Chain Singh Barla A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Agricultural Economics 1973 O “A i (i ‘ ACKNOWLEDGMENTS (331 I am deeply indebted to Dr. L. V. Manderscheid for the creative guidance and help he gave throughout my graduate ;program.at Michigan State University. Special thanks are due to Drs. R. D. Stevens and J. R, Brake for their valuable cements on the earlier drafts of my thesis. I also wish to express my thanks to Dr. Milton H. Steinmueller for serving on my guidance and thesis committees. I cannot forget the help and inspiration given to me by Dr. Rajkrishna (Chairman of the Department of Economics, University of Rajasthan and currently Senior Economist at the WOrld Bank) and Dr. Herbert Karp, Associate Professor of Sociology at Michigan State. I also wish to thank Dr. G. L. Johnson and Dr. H. Riley for financial assistance provided for my graduate studies. At the same time I express my gratefulness to the U.S. Educational Foundation in India for financing my first visit to the United States. I am highly thankful to my friends, Loukas Ananikas, .Anwarul Hoque, Cristos Kaminidis and others who made my stay at Michigan State pleasant and enjoyable--despite the agony of living away from home. ii I would like to thank Lois Robertson for typing the first.draft of this thesis. I also acknowledge the spirit with which Nita Campbell typed this thesis at a short notice. Above all, I wish to thank my wife, Shanta and children, .Anju, Pankaj and Atul (Bunti) for their sacrifice and patience. iii TABLE OF CONTENTS Chapter Page I 0 INTRODUCTION . O O O O O O O O O I C O C O I O O 1 Present Sources of Short Term Agricultural Credit in India . . . . . . . . . . . . . . . 2 The Problem . . . . . . . . . . . . . . . . . 6 Objectives of the Present Study . . . . . . . 6 The Program of This Study . . . . . . . . . . 8 Scope of This Study . . . . . . . . . . . 10 Sources of Data and Methodology . . . . . . . 11 References . . . . . . . . . . . . . . . . . 13 II. ESTIMATES OF THE DEMAND FOR CREDIT IN INDIAN AGRICULTURE AND EVALUATION OF ALTERNATIVE MEASURES OF ADEQUACY . . . . . . . . . . . . . . 14 Estimates of Credit Needs in India . . . . . . lS Earlier Estimates: Study Group of the National Credit Council . . . . 17 Working Group of the Agricultural Production Board 0 O O 0 O O O O O O O I O O O O O 19 Estimates of Agricultural Credit Needs in 1973- 74 O O O 0 O O O O O O O O I 0 O O O 23 All India Rural Credit Review Committee's Estimates . . . . . . 23 Working Group on Agricultural Credit . . . 28 P. C. Bansil' 5 Estimates . . . . . . . . . 29 Some Further Observations on the Estimates of Credit Needs . . . . . . . . . . . . . . 33 Adequacy of Agricultural Credit . . . . . . . 34 The Amount of Credit . . . . . . . . . . . . 36 Tests Of mequacy O O O 0 0 O O O O I I O O 38 Financial Budget . . . . . . . . . . . . 38 The Linear Programming Model . . . . . . . 41 Profit Maximization Approach . . . . . . . 42 iv Chapter III. Rate of Interest . . . . . . . . . . . . . Terms of Credit . . . . . . . . . . . . . Conclusions . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . SUPPLY OF COOPERATIVE AGRICULTURAL CREDIT AND REVIEW OF THE COOPERATIVE CREDIT MOVEMENT IN IND IA 0 O O O O O I O O O O O I O I O O O O 0 Report of the All India Rural Credit Survey Committee, 1954 . . . . . . . . . . . . . . The Committee on Cooperative Credit . . . . The All India Rural Debt and Investment Survey Agency-wise Borrowings in 1961-62 . . . . Introduction of Crop Loan System . . . Report of the All India Rural Credit Review Committee . . . . . . . . . . . . . . . . Other Committees on C00perative Agricultural Credit 0 O I I O O O I O O O O O O O O O O O Mirdha Committee on Cooperation . . . . . Study Team on Cooperative Agricultural Credit Institutions . . . . . . . . ... . The National Council of Applied Economic Research Study . . . . . . . . . . . . . . Report on the Utilization of Cooperative Loans 0 0 O O O O I I O O O O I O O O O 0 Review of the Cooperative Agricultural Credit Movmnent in India 0 O O O I O O I O O O O 0 Number of Active Societies . Number of Borrowing Members Loan Per Member . . . . . . Problem of Overdue Loans . . Cost of Overdues . . . . . . . . . . . . Poor Linkage Between Credit, Input Supply and Marketing . . . . . . . . . . . . . Poor Financial Base . . . . . . . Poor and Inefficient Management . Faulty Operational Policies . . . General Paucity of Leadership . . O O O I I Adequacy of the Short Term Cooperative Agricultural Credit in India . . . . . . . . Conclusions . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . V Page 45 53 54 SS 58 59 63 63 67 69 73 77 78 78 80 81 97 100 101 103 104 105 106 108 Chapter IV. REVIEW OF COOPERATIVE AGRICULTURAL CREDIT IN RAJASTHAN . . . . . . . Review of Quantitative Progress of COOperative Credit Institutions . . . . . Weaknesses of the Present C00perative Credit Structure in Rajasthan . Estimates of Demand for Short Term Credit in Rajasthan . . . . . . Agarwal' 5 Estimates . Alternative Estimation in Rajasthan . . . . . of Credit Needs Estimates Based on RCRC Scales . . . . Estimation of Cash Costs and Credit Needs by Regions . . Conclusions . . . . . . References . . . . . . . V. EFFECTIVENESS AND ADEQUACY STATIONARY FARM SITUATION: OF CAPITAL USE IN A MICRO STUDY OF JHALAWAR DISTRICT IN RAJASTHAN . . . . . . . The Jhalawar District Central COOperative Bank The Salri Primary Credit Other Lending Agencies The Sample Design . . . Characteristics of the The Sample Households Society . . . . . in the Area . . . Sample Units . . The Production Functions and Regression r Analysis . . . . . . . . Assumptions . . . . . Results of the Sample Survey . . . . . . . Identification of Significant Variables Family Labor . . . . Cash Costs . . . . . Bullock Feed . . . . Regression Analyses for the Sample Households Borrowings and Adequacy of Credit . . . . Conclusions . . . . . . References . . . . . . . vi Page 110 111 116 126 126 129 129 131 137 138 140 141 142 147 148 149 150 152 153 154 157 157 158 159 164 167 169 f’:' 1"" Chapter VI. SUGGESTED MODIFICATIONS IN THE COOPERATIVE AGRICULTURAL CREDIT POLICY IN INDIA . . . . . . Objectives of the Agricultural Credit Policy. Increasing Agricultural Production Through Increased Supply of Credit . . . . Providing Agricultural Credit at Subsidized Interest Rates . . . . . . . . . . . . . . Helping the Small Farmers . . . . . . . . . Conflict and Trade-Offs Among Objectives . Suggested Modifications in the Cooperative Agricultural Credit Policy . . . . . . . . Summary of Recommendations Areas of Further Research . Conclusions . . . . . . . . References . . . . . . . . Reorganization of Cooperative Credit Institutions . . . . . . . . . . . . . . . Reducing the Incidence of Overdues . . . . Strengthening the Capital Base of the Cooperative Agricultural Credit Societies . Members' Shareholding . . . . . . . . . . Government Contribution . . . . . . . . . Providing Incentives to the Cooperative Personnel . . . . . . . . . . . . . . . . . BIBLImRAPHY O O O O O O O O O O O O O O O 0 O O O O O 0 APPENDIX . vii 9.6129. 170 172 172 173 175 176 179 180 182 187 187 189 191 194 196 198 200 202 207 Table 2.1 LIST OF TABLES National Credit Council Estimates for Credit Requirements and Availability of Institutional credit in 1967-68. a a a e e a o o a o o e o 0 Short Term Agricultural Credit Requirements for 1970-71 (Projected by the Working Group of Agricultural Production Board). . . . . . . Estimates of Short Term Agricultural Credit Needs in India in 1973-74 . . . . . . . . . . Value of Important Inputs for the Fourth Plan and Credit (Short Term) Needs in 1973-74 (Amount in Million Rupees) . . . . . . . . . . Average Borrowing From Different Credit AgenCieS in India, 1951-52 0 I o a e o e e e 0 Average Borrowing by Cultivators from Different Agencies in India, 1961-62 . . . . . Proportion of Farm Households Diverting Cooperative Credit According to the Level of Literacy, Size of Holdings and the Length of MelnberShip' 1960-620 0 e o o e o o e e o o o 0 Progress of State Cooperative Banks in India, 1961-71 0 o o o o e o e o o o e e o o 0 Progress of Central Cooperative Banks in India, 1961-71. 0 e o e o o a o e o o o e 0 Progress of Primary COOperative Credit Societies in India, 1961-71. . . . . . . . . . Progress of Long Term Cooperative Agricultural credit in Indi‘, 1961-71 a e o o a o o o I e 0 Estimated Loss of Interest Income to Primary Cooperative Societies in India Due to Overdue mans in 1969-70 and 1970-71 s e o o o o o o 0 viii 20 21 25 31 60 68 83 87 89 90 96 .Ot Table 3.9 4.8 5.1 5.2 5.3 5.4 5.5 5.6 Growth of Primary CoOperative Credit Societies in India After the Introduction of Crop Loan SYBtem (1966—67, 1969-71) 0 o o u o o e o e o 0 Trend of Progress: Rajasthan State (Apex) CooPerative Bank, 1955-56 and 1961-71. . . . . Trend of Progress: District Central Cooperative Banks in Rajasthan (1955-1971) . Trend of Progress: Primary Agricultural COOperative Credit Societies in Rajasthan (1955-1971) e o o e o o o o o o e o e e e o o a Cooperative Loan Per Member in Rajasthan, 1971-72. 0 C I O O O O O I I O O O O O O O I 0 Cropwise Distribution of Short-Term Loans in RajaSthan' 1971-72 s o o o o o o o o o o o o 0 Estimated Loss of Interest Income to Primary CooPerative Societies in Rajasthan as a Result of Overdue Loans, 1970-71 . . . . . . . . . . Estimates of Short Term Credit Needs for Farm Operations in Rajasthan, 1970-71 . . . . . . . Estimated Demand for Agricultural (Short Term) Credit Requirements in Different Areas Of Rajasthan, 1970-71. a o a e e o e e a o o a working of Primary Cooperative Societies in Jhalawar District and Their Position at the End Of June 1972 O O O O O C O O O O O O I O 0 Position of the Salri Primary Credit Society on June 30' 1972 O 0 O O 0 I O O O O O O O O 0 Occupational and Income Distribution of Sample HOUSBhOIdS ' 1971-72 0 o e e o e o o e e o a a o Bullock Feed and Value of Crops Produced on the Sample Farms . . . . . . . . . . . . . . . Regression Coefficients of Independent Variables Used in Linear and Long-Linear Production Functions (Household Groups). . . . Cash.rheds, Receipts and Credit Gap Per Household. . . . . . . . . . . . . . . . . . . ix 99 112 114 115 118 120 123 130 135 143 144 151 160 162 165 Table AJ. A.2 A.3 A.4 A.5 AI6 A.7 A.8 A.9 A.10 Anll A.12 5.13 A.14 Page State-wise Estimates of Credit Requirements in 1970-71'I I I I I I I I I I I I I I I I I I I 207 Estimates of Interest Rates that Lenders Would Have to Charge to Compensate for Defaults . . . 208 Estimates of Short Term Credit Needs in India in 1970-710 0 o o e o o o e e e e o e o o o o o 209 Distribution of Assets in Indian Agriculture (1962) I I I e o o o o o o a o a e e o e e o o s 210 Capital Expenditure on Farm in India and Rajasthan During the Year 1961-62 . . . . . . . 211 Proportion and Amount of Cash Loans Borrowed From the Primary Credit Societies in Different States I ' I I I I I I I I I I I I I I I I I I I I 21 2 State-wise Position of Primary C00perative Credit Societies in India on June 30, 1971. . . 213 State-wise Alternative Interest Rates to Compensate for Defaults in Cooperative Loans, 1970-71 0 e e e o e o a e e o e o o e o o o a o 218 Reserve Bank of India's Credit to COOperatives 19 1969-70 and 1971-72 a o o o o o o a o e o o o o 2 District-wise Financial Position of Primary Agricultural CooPerative Credit Societies in 220 Rajasthan (as on June 30, 1972) . . . . . . . . District-wise Distribution of Agricultural Credit Societies According to Share Capital 221 as on June 30, 1972 . . . . . . . . . . . . . . Comparison Between the Cooperative Credit Societies in Rajasthan and Some All-India 222 Averages, 1955-56 and 1970-71 s o e o o o o o 0 working Capital owned Funds and Overdue Loans Of the District Central COOperative Banks in 223 Rajasthan. June 30, 1971. . . . . . . . . . . . District-wise Owned Funds, Overdues and Excess Of Overdues Over Owned Funds at the Primary 224 Level in Rajasthan, June 30, 1972 . . . . . . . Table A.15 AJfi AJJ AJE A.l9 A. 20 A.21 Page Cash Expenses on Different Inputs According to Size-Levels of Holdings in HVP Areas in RajaSthan, 1968-69. 0 o o o e e e a o o e o o o 225 Trend of Progress: The Jhalawar District Central Cooperative Bank Limited, 1961-71 . . . . . . . 226 Scales of Finance for the Kind (b) Component Recommended by the Jhalawar District Central COOperative Bank, 1971-72 . . . . . . . . . . . 228 Distribution of Owned Land Among the Members of Salri Primary Cooperative Society, 1971-72 . 229 Distribution of Farm Households According to Asset Groups, June 1972. . . . . . . . . . . 230 Financing of Different Cash Expenses by Sample 1 Households. . . . . . . . . . . . . . . . . . . 23 Cash Receipts, Needs and Borrowings of Sample 232 HOUSGhOldS in 1971-72 0 o o o o o 0 a o o e o 0 xi LIST OF FIGURES Figure Page 2.1 Financial Budget of a Farm Household (Synthesized). . . . . . . . . . . . . . . . . 40 2.2 Optimum Use of Capital on a Farm . . . . . . . 43 2.3 Derived Demand for Credit. . . . . . . . . . . 48 3.1 Cooperative Credit Structure in India. . . . . 64 3.2 Operations of Primary Credit Societies in India I I I I I I I I I I I I I I I I I I I I 65 xii 2' CHAPTER I INTRODUCTION During the past two decades Indian agriculture has experienced considerable change. The cropped area and availability of irrigation have both registered a 20 percent increase in this period. Programs for soil conservation and land improvement are underway. New agricultural legis- lation in different states appears to have provided ownership rights and improved security of tenure for large numbers of farm households. The most significant change that appears to have affected the psychology of tradition-bound Indian farmers is the seed-fertilizer revolution, and the resultant increase in the demand for new, high yield varieties (HYV) of seeds and for chemical fertilizers. Within five years after 1966-67 the area under HYV of seeds increased from less than 2 million hectares to 14 million hectares.1 Whereas under a traditional system farmers generally use farm 91‘0"“ 399‘“ ”id manures, technological change induces them to use more purchased inputs. Besides, due to 10 percent change in the gross cropped area between 1964-65 and 1970-71, the demand for traditional inputs appears to have increased as cultural credit "11- For these reasons, the demand for agri has risen greatly in recent years. No precise estimates are available about the demand for short-term agricultural credit in India. Rough estimates, however, indicate that the annual borrowings of Indian farmers increased from Rs. 12,350 million in 1960-61 to Rs. 24,000 million in 1970-71.2 It is conceivable that with the completion of on-going major and minor irrigation schemes, and with a better under- standing of the new inputs among the millions of small and medium size farmers, the seed-fertilizer revolution will further expand over the next few years. This will, in turn, greatly increase the capital absorptive capacity and demand for credit among Indian farmers. Present Sources of Short Term Agricu ura re 1 1n In 1a Traditionally moneylenders have been a major source of agricultural credit in India. Until 1961-62 they provided about 50 percent of the total (short term) agricultural credit.3 In recent years, however, moneylenders have begun to lose their supremacy in the agricultural credit markets. In the first place, agricultural legislation in several states Of India prevents them from occupying the land owned by defaulting borrowers, particularly when the latter are small farmers. Secondly, the same legislation directs moneylenders ‘10 Obtain a license from the government, and rOQ‘Jires them t0 file periodic returns to the government. At the same time. moneylenders are also obliged to PrOV-ide receipts to their Clients after the loans are repaid- Finally, maximum .u “‘ m” .u "'. - n: .'.‘ ‘- a .na-IFI. . .su-‘"" a“ ‘ 13.: 3' ”I" “g 11 L15 5' 'I , 1“... xiv... "' llex - I‘ A g I 1') I A ‘ \. 'V‘QI .VV '0. . { CPI. I! II c I ‘1‘ I I ; C. 0' ‘ 'H .. u . is. us, rates of interest have been prescribed by the state governments. These legal provisions discourage cheating and imprOper adjustments in accounts which were common until recently. Moneylenders have become skeptical about the scope and prospects of their operations in the rural areas. In the face of growing demand for credit, however, even a slight decline in the number of moneylenders is likely to create an Mportant gap between the demand for farm credit and its supply. The pace of agricultural development in India will, in fact, be considerably influenced by the availability of credit--its amount and conditions of dis- bursement and recovery. Next to moneylenders, cooperatives are the second major source of agricultural credit in India. During 1970-71 cooperatives advanced Rs. 5,780 million as short and medium term credit to Indian farmers. A detailed description of the cooperative agricultural credit will be presented in a later section of this chapter. In addition to moneylenders and cooperatives another important source of credit is the Commercial banking system. Until recently, comerCial banks had remained indifferent to agricultural finance, but in the last five or six years they have come forward to meet a very ““1911 larger demand for short and medium term credit needs Of Indian farmers. During 1961-62, commerical banks advanced Rs. 50 million to farm households all over the country, but . . 4 by 1970-71 their loans to farmers increased to Rs. 853 million. However, as commercial banks have limited coverage of rural areas, they cannot be relied upon for the supply of agricul- tural credit to large areas of agriculture. Retail traders also constitute an important source of credit in rural areas. However, they are primarily concerned with financing the consumptive needs of rural households, and may not be able to meet the growing productive needs for credit. Government agencies such as the Agricultural Refinance Corporation, the Rural Electrification Corporation and the Departmetns of Agriculture of the state governments also provide loans to farm households. Their focus is, however, on big projects having long gestation periods. Generally, government agencies do not provide direct finance to the small and medium land owners. Further, due to bureaucratic formalities and complexities involved, regardless of low interest rates, farmers generally become skeptical about government finance. Under these conditions in India, cooperatives seem to be particularly suitable institutions to provide agricultural credit. It may be argued that both moneylenders and coopera- tives have unique opportunities to comprehend the detailed problems facing Indian farmers. In reality, cooperatives have two advantages over moneylenders. One advantage is that cooperatives are a part of a wider super-structure running from the Reserve Bank of India down to the village c00perative. As a result, they have access to larger amounts "! . u I of funds than moneylenders who Generally work on an individual basis. Second, there is an ideological difference in approach too which can favor coOperatives. While a moneylender works primarily for personal profit (which may involve monopolistic exploitation of borrowers), cooperatives are expected to work for the welfare of farmers. Cooperatives do follow basic rules of business enterprise, but their approach is based on the dictum of ”maximum welfare of the maximum number." Yet, over-emphasis on cooperative credit has a danger of, what may be called, c00perative chauvinism. Penny remarks that in recent years most governments in the develOping countries have designed their agricultural credit policies with a strong conviction that c00peratives are the most suitable institutions to supply agricultural credit. He also observes two additional hypotheses under which these governments seem to be molding their cooperative credit policies: (i) that the cooperative credit should be supplied at a subsidized interest rate and (ii) that credit to the small farmers is an effective method to provide a large expansion of capital use for those who have so far been denied adequate credit.5 Guided by such beliefs the Union (Federal) and state governments in India have spent over Rs. 1,800 million on development of cooperative credit institutions since 1951. Out of this amount Rs. 1,300 million was spent during 1961-71. At the same time, the short term Reserve Bank of India credit to cooperatives has been raised from Rs. 183 million in 1960-61 to Rs. 5,200 million in 1970-71.6 IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII:=======:--_ The Problem These massive programs of expanding agricultural credit through c00peratives have enlarged the geographical coverage of cooperative credit institutions, and have also increased the flow of short term c00perative loans from Rs. 1,828 million in 1960-61 to Rs. 5,200 million in 1970-71. COOperative credit appears still inadequate in relation to the overall demand for agricultural credit. However, the financial health of cooperative credit institutions has deteriorated in recent years. Lately, various conferneces of the registrars of cooperative societies have repeatedly shown their deep concern about the growing overdues of cooperatives at the district and village levels. The interest rate of 9 percent charged on short term cooperative loans, is much lower than the rate charged by other agencies. Further, in an inflationary situation such a low rate approximates a zero percent rate. Indian planners hope that by the end of the Fourth Five- Year Plan (1973-74), cooperatives will be able to provide Rs. 7,500 million in the form of short temr and medium term loans. A central question is how can the cooperative agricultural credit institutions achieve this goal while increasing their financial stability or at least without further weakafihg the cooperative agricultural credit system? Objectives of the Present Study This study has been undertaken with the following I In. objectives: (1) to define the concept adequacy of agricul- tural credit, especially the adequacy of cooperative agricul- tural credit in India, (2) to evaluate the recent progress and financial health of cooperative credit institutions in India, and particularly in Rajasthan, (3) to examine the availability of credit to different groups of farmers (stratified according to size) in the district of Jhalawar, Rajasthan, and (4) to recommend certain modifications in the existing cooperative agricultural credit policy. Numerous estimates of the demand for short term agri- cultural credit in India have been made in recent years. Economists and policy makers have developed the practice of comparing these estimates with the present availability of cooperative credit and in this way have indicated the inadequacy of institutional credit in India. It appears that the past estimates of demand are obsessed with subjective, personal biases and fail to provide a close approximation of the demand for agricultural credit in India. This study hypothesizes that supply of credit by some agency (cooperative or otherwise) provides just one criterion for ascertaining the adequacy of such credit. In addition to the amount of loan, rate of interest, terms and conditions of the loan the procedural formalities and the timing of loan disbursement and recovery also need examination ‘when determining the adequacy of agricultural credit. As noted above, the development of cooperative credit institutions has been one of the major objectives of Indian ———L. 'u planners. However, in the process of increasing the number and coverage of such institutions, and while channeling huge funds into the cooperative pipeline, they appear to have paid very little attention to the problems of cooperatives. In fact, the progress of cooperative credit institutions should be evaluated on the basis of their quantitative achievements (geographical coverage and increase in their loan Operations) as well as their financial health and efficiency. Recent studies and reports of the agro-economic research centers indicate that small farmers have been so far neglected by the cooperative credit institutions. It was hypothesized by Professor Schultz that investment in the traditional inputs is not likely to bring agricultural transformation in the developing countries.7 In other words, capital may not be a constraint in the traditional agricultural societies. It is however, possible that even within a traditional set up, availability of capital (including credit) becomes a constraint to a group of farmers, whereas the other group(s) may have a relatively easy access to capital. Such a situation warrants a redistribution of agricultural credit rather than an increase in its supply. The Program of This Study The present study is divided into six chapters. The present chapter presents, apart from the objectives listed above, a brief description of the scope and methodology followed in this study. — “pg? pun: sues . l l “as. an; ’.I .I“: '-:°'av T' -suoh I 0 52' E”. uosil" - a I‘- 1" an}. ‘M sud. I ‘z‘A- ; \~‘= ‘ an. \.I Chapter II examines the assumptions and methodology used in estimating the demand for credit by committees and individuals who have presented estimates in recent years. Chapter II also presents certain criteria for testing the adequacy of credit. A brief review of the progress made by cooperative credit institutions in India has been given in Chapter III. This chapter also reviews the reports of various committees on cOOperative agricultural credit, and analyses the extent to which their recommendations have influenced the cooperative credit policy in India. This chapter also examines recent trends in the financial health of c00perative credit institutions. A similar review with respect to the cooperative credit movement in Rajasthan has been presented in Chapter IV. Rajasthan has a relatively backward economy and the health of cooperatives in this state is poor in comparison with other states. This chapter also provides the author's own percep- tion of the problems facing cooperative credit institutions in Rajasthan, based on field trips and experience. Chapter V presents a micro study of a sample of 161 members of a cooperative agricultural credit society in the district of Jhalawar in Rajasthan. This survey was conducted with a view to (a) comparing the effectiveness of different inputs, especially of the owned or home produced inputs with the purchased inputs, (b) identifying the significant variables among the owned and purchased inputs for the a}. ‘ t u...‘ ...I N "at-«- .- .nin\ a. r.” M ‘NO‘ '1 O L215< “av-cu ‘ 'va u. I . .. ..P --v .¢, 3‘;l-4‘ A‘ fi~a5.w a. 2'" Nu ‘ 6 ~ 1“... y s A. 10 expansion of agricultural production, and (c) examining the extent to which credit is a constraint to different categories of farmers (stratified according to size) even under a traditional agricultural setting. The last chapter (Chapter VI) contains a brief summary and suggested modifications in the cooperative agricultural credit policy in India. The thrust of the arguments presented in this chapter is that improvement in the financial health of cooperatives and in the efficiency of cooperative personnel is at this time as important as the geographical and numerical expansion of c00perative credit institutions. Scope of This Study This study is limited to an analysis of short term agricultural credit.* However, reference to other forms of credit has been made where they are related to short term loans. While some of the analysis is related to the whole of India, primary focus will be on the state of Rajasthan. *According to the Crop Loan Manual issued by the Reserve Bank of India (1966) agricultural credit was divided into three categories: (a) short term credit or crop loans obtained principally to finance the current farm business, (b) medium term credit which is givne for the sinking of new or the repair of old well: 'purchase of bullocks, installation of pumping sets and purchase of small and low cost farm machinery. Such loans are repayable within 3 to 5 years, (c) long term credit provided for sinking of new wells, construction of tube wells permanent improvements on land and purchase of tractors. 11 The conclusions drawn from the field survey, are limited to the farm situation prevailing in the sample area only. Sources of Data and Methodology Data for Chapters II through IV were obtained from the various reports published periodically by the Reserve Bank of India and the Office of the Registrar of Cooperative Societies, Government of Rajasthan. Secondary data were also obtained from a few of the reports published by the Ministry of Agriculture, Government of India and other official agencies. For Chapter V a sample of 161 farm households was drawn from the Salri Primary Cooperative Credit Society in the District of Jhalawar in Rajasthan. Data on landholdings, amount and value of inputs used for different crops during 1971-72 and the amount of short term loans obtained from different sources (including cooperatives) were obtained through personal interviews of the sample households. As noted above, farm households were stratified accord- i-‘fit to size of holdings. Both the linear and the Cobb-Douglas (109 linear) models of a production function were fitted to evaluate the significance of different inputs for different CateSOries of farmers. One of the major objectives of regression analysis was to test the rationale for current policies on agricultural Credit in India. As explained in the following chapters, the focus of these policies has been on increasing the volume 12 of COOperative credit, particularly that part of such credit which goes to the small farmers. The present misgivings among economists and expert bodies on cooperative credit will also be examined in detail in the following chapters. REFERENCES CHAPTER I Times of India Year Book. Bombay: Times of India Publications, 1972. pp. 28-30. "Farm Finance--A Challenge for Commerical Banks," Indian Finance (editorial), May 25, 1968; and Grudev Singh. "Shortcomings in the Existing Credit System," Financing Agriculture, (October, 1971). Reserve Bank of India Bulletin, (December, 1965). Reserve Bank of India. Report on Currency and Finance. (1966-67 and 1971-72). Penny, D. H. ”Farm Credit Policy in the Early Stages of Agricultural Development," Australian Journal of Agricultural Economics (June, 1968). Reserve Bank of India. Report on Currency and Finance, 92, cit. Schultz, T. W. Transforming Traditional Agriculture. New Haven and London: Yale UniversityEPress, 1961. Chapters 4 and 5. CHAPTER II ESTIMATES OF THE DEMAND FOR CREDIT IN INDIAN AGRICULTURE AND EVALUATION OF ALTERNATIVE MEASURES OF ADEQUACY Normative judgement about an appr0priate policy for agricultural credit generally requires an estimate of the demand for credit in a given area. Such an approximation is based on an estimate of the capital requirements and savings of farm households in different categories. The need for farm capital largely depends on the soil and climatic conditions, the state of technoloqy, and the types of crops grown. In a region containing homogeneous soil and climatic conditions, the capital needs per hectare for a given crop will be uniform and determined by the past experience and traditions. The credit need reflects, in addition, savings in a given year which are the surplus of household income (from all sources) over the household consumption needs. Before setting targets for the supply of credit, policy makers should ascertain the quantity of credit needed in a stratum.of households, and/or for given crops in the region. Gross under or over estimation of credit needs or arbitrary target setting for, say, institutional credit, may leave 0‘; 'z': ,. nah- as. J ‘ ‘ . .a- O 'F .2“ I 5“ n. .4 9-44 'I .. “O".I .. . “I. O . p. .. va'u‘. u u. .1. .- “V -- 'iv“ I L“ 2"'m ‘° “so.“ 1 . -. . "“‘w 1 “New“ r0 .e '5. f. N". in (z..:' ~‘,‘.e u . "A...— 'e ."'-§oa s. I -r "‘ a I “'N . 15 large gaps in the availability 3f credit, or may, otherwise, result in a wasteful use of capital by the farm households not needing it. This chapter presents some previous estimates of credit needs and the criteria which can be used to judge the adequacy of farm credit in a region. Estimates of Credit Needs in India In view of the inter-regional variations in soil types, distribution of rainfall, irrigation systems, crOpping pattern and farming practices prevailing in India, good estimates of agricultural credit needs for the whole country appear difficult, if not impossible. Farm management studies in different states reveal that even within a region, per hectare expenses on various inputs have a wide range. Further, borrowings for household consumption are largely determined by noneconomic forces such as religion, caste and traditions of the community. For these reasons, credit needs per household or per hectare are not easy to estimate. Yet, attempts can be made to obtain a rough guess of SuCh needs under varying conditions, first at the micro level and then for a given region. The thrust of the arguments presented in this chapter is that no estimation of farm credit needs for the whole of India can avoid generalization and no-credit policy is likely to succeed unless it takes cognizance of inter-regional and inter-farm variations. Con- versely, micro level studies too would fail to provide any guideline for formulating a rational nation wide credit policy. 16 Earlier Estimates of Agricultural Borrowings The first estimates of all-India agricultural borrowings were made by the All India Rural Credit Survey Committee (RCS) in 1951-52. After a nation wide comprehensive survey, the RC5 Committee reported that 58.6 percent of all the culti- vating households in India borrowed in 1951-52 and that their total loans aggregated to Rs. 7,500 million. Ten years later, the All India Rural Debt and Investment Survey (AIRDIS) was conducted on a similar scale. This survey estimated agricul- tural borrowings (for 1961-62) at Rs. 10,341 million. During a decade, therefore, agricultural borrowings increased by almost 50 percent.* It must be mentioned in this context that as the use of high yielding varieties (HYV) had not yet begun, most of this increase in agricultural credit was due to the 16 percent increase in cropped area, the availability of more irrigation facilities and in part, increases in the prices of farm inputs and household consumer goods. With the introduction of HYV seeds and increased use of chemical fertilizers and pesticides during the past 6-7 years, *Purpose wise borrowings for 1951-52 and 1961-62 were estimated to be as follows: (Percent to Total Amounts Borrowed) Capflufl. (lament hifimdly ExgafliUne Expmflfitne qumdflxme Gaunse finxal onlkmm onfann I§5I352’ 31.5 ’IUTS‘ 46(9i 11.0 100.0 1961-62 22.1 13.5 46.6 17.8 100.0 amberzxmposusinghrheonzentamdcnmdUfl.engndiune:h1nom¨mmi- nemaandnfiscelhunnuslanmnses. 17 the demand for credit seems to have increased enormously. Various studies by the Program Evaluation Organization of the National Planning Commission, the Reserve Bank of India, and the regional Agro-Economic Research Centers indicate that the cash needs per hectare in an HYV seed area have increased 80 to 125 percent as compared with traditional farming areas.2 A larger number of the recent estimates of agricultural credit needs are, therefore, based on these studies. However, it appears wise to examine how the esti— mates of agricultural credit were made in order to evaluate their relative merits. Recent Estimates: Study Group of the National Credit Council In October, 1969, a Study Group submitted its report to the National Credit Council (Reserve Bank of India) and presented a rough and ready estimate for agricultural borrowings during 1967-68. The Group worked out three separate estimates and then took their arithmetic mean. The first preliminary estimate was based on the total borrowings for current farm business and three-fourths of those for household expenditure in 1961-62. It then related these loans to the national income from agriculture during that year. It was estimated that agricultural loans constituted about 7 percent of the total national income in 1961-62. Since the national income from agriculture during 1967-68 was estimated 18 at Rs. 155,920 million, credit requirements in that year were estimated at Rs. 11,150 million. The second preliminary estimate was also based on 1961-62 borrowings, but this time the Group worked out per acre borrow- ings (total loans for current farm buSiness and three-quarters of loans for household expenditure divided by the net cropped area). This estimate was inflated by 70 percent to allow for changes in price level. This estimate indicated that per acre borrowing in 1967-68 was Rs. 2,568, and total agricultural loans were put at Rs. 12,750 million. The third preliminary estimate was based on the Reserve Bank's surveys conducted in the Intensive Agricultural District Programs (IADP) areas where the HYV seeds and other complemen- tary inputs were introduced by the Government. The costs per acre reported in these surveys were adjusted for price rise, and the credit requirement per acre was put at Rs. 30 for 1967-68. On this basis, the overall borrowings were estimated at Rs. 10,600 million. However, these estimates included only production credit needs. The Study Group then took the average of the three pre- liminary estimates and concluded: "Based on these estimates, credit requirements for current farm expenses in 1967-68 can roughly be placed at Rs. 12,000 million."3 It was then argued that since cooperatives and commercial banks provided only Rs. 3,580 million and Rs. 440 million to the farm sector in 1967-68, there was a credit gap of Rs. 7,890 million \O #4 or 66.5 percent of the total needs which was met by money- lenders and individuals (Table 2.1). However, the Group drOpped household borrowings from their final estimate. Secondly, their estimates are largely based on the data obtained by AIRDIS in 1961-62. Marginal adjustments for HYV seeds and a blanket upward adjustment in the earlier scales of credit per acre raises questions about the reliability of these estimates. Finally, these estimates were made for the loans contracted 3572232! and hence they provide no policy guideline. Werking Group of the Agricultural Production Board4 Government of India's Agricultural Production Board appointed a Working Group in 1965 to project agricultural credit needs for 1970-71. The Working Group estimated total cash requirements separately for traditional farming areas and those areas in which improved inputs were expected to be used in 1970-71.* It was contended by the Group that the new inputs involve a relatively higher (per acre) cash expen- diture than the traditional ones and, therefore, the propor- tion of credit content in the former would be 70 percent as against 40 percent credit content in the traditional inputs (Table 2.2). Two important features in these estimates deserve careful attention. First, the working Group considered only production credit. Secondly, even among the production credit needs, only seasonal farm business needs (short term *Bowever, they based their estimates on the field surveys undertaken in different areas. Each sample unit had an average of 10 acres of holding. — ~. 0.“ .. .. era in“. 20 MB 2.l.--National Credit Council Estimates for Credit Requiranents axxi Availability of Institutional Credit in 1967-68 (Amt in Million Rupees) Agency Short-Term Median-Tenn long-Term Total credit Credit Credit 'lbtal Borrowings by Farmers 12,000 1,000 1,600 14,600 Availability Fran (i) Cooperatives 3,580 460 830 4,870 (29.8) (46.0) (51.9) (33.4) (ii) Cmuercial Banks 440 130 200 770 ( 3.7) (13.0) (12.0) ( 5.3) Total Institutional Credit 4,020 590 1,030 5,640 (33.5) (59.0) WAT (38.6) Credit Gap met by Money Leniers and Individuals 7,890 410 570 8,960 (66.5) (41.0) (35.6) (61.4) Note: Figures in parentheses show percentages to total arount. Source: Irriian Cooperative Review, Vol. Ix, No. 4, July 1972. . I‘all‘l 21 .mm .m .moma nonouoo .mwecH no xcsm o>ummem .xsofiom .uuomom "mouquEou 30H>mm afloouu Hmuam afiocn add 059 ”oouaom omo.aa oom.- .m + «v «duos venue osm.m onm.m m new Haves OHS as chm coaunsauuu uou moonsno huwowuuooam use mucuoaunsq .Aosm A>v own ov oom.H coaus>a9Hau consensus: HON muses :«unsq one dose mo uaou “be. com on own newscauaem Assay omo.m on o-.m uuouaaauuom “was can or com moauowum> 30z m0 modem Adv ousuasowumd oo>oumsH .m omo.m om~.va a non Hence cud ov com auocwsooz use augmsuHmsH «a hammer use couscousasz Aww>v ooa ov owm axooHHsm one nusmsUausH no euwm Afi>v on ov ova masauousz uosuo A>V oam.a ow oun.m Hannah «>w. coo ov ome.H mousse: Add“. cam ov om>.a endow Away oom.~ oe oom.o gonna nouns non nouns Add ousuaoowumd «ssoauwoeua .< Hunchma Henchea cw you pouuofloum vapouo mo mucosuuwsvem noouz useouo acauuoaoum ammo Houoa suns .neomsm sodaaaz s“ unsosdv Apnoea sawuosooum Heusuasowuma mo macho usaxuoz was an vuuoonoumv Hatched Mom mucosuuanvom vapouu aeusuasowuu¢ Buoaluuonmul.~.~ mum‘s OIL a 22 needs) were taken into account. The estimated national credit needs for 1970-71 were put at Rs. 11,060 million. These estimates suffer from the following weaknesses: (1) They were based on the data drawn from farms with an average size of 10 acres. However, in India more than 80 percent of the holdings are below this average. Farmers with less than 5 acres of holdings constitute over 70 percent of the cultivating households and various studies indicate that their dependence on hired labor is very low. Thus, there is an over estimation of the cash needs for hired labor. (2) Empirical evidence is also available to show that the cash needs for fodder are over estimated, as most of the farmers feed farm grown fodder to their cattle. (3) Assigning fixed proportions for credit needs for all farmers appears erroneous as it ignores inter-farm and inter-regional variations relating to size, farming practices and the nature of the crops grown. (4) Field surveys conducted by the Agra-Economic Research Centers and the Directorate of Economics and Statistics in the Ministry of Food and Agriculture have shown that until 1969-70 in most of the selected districts, the new HYV seeds and fertilizers were used largely by the well-to-do farmers who met 50 to 60 percent of the additional cash expenditure from their own funds.5 While the situation has changed in recent years, the Group's blanket proposal that 70 percent of the outlay on new inputs would be met through credit in 1970-71 seems to contain an upward bias. 23 Estimates of Agricultural Credit Needs in 1973-74 Three independent estimates have been recently released for agricultural credit needs at the end of the Fourth Five- Year Plan (1973-74). The first of these estimates was made by the All India Rural Credit Review Committee in its report submitted in December 1969. Second and third estimates are the results of exercises done by a Working Group of the Government of India (1970) and Mr. P. C. Bansil, the Joint Director of Agricultural Price Commission. All India Rural Credit Review Committee's Estimates6 The Rural Credit Review Committee (RCRC) appeared aware of the dangers of blanket prescriptions for credit in all areas and, therefore, made separate estimates of credit needs for HVP areas, non-HVP but irrigated areas and totally dry regions. Data about the use of inputs in 1967-69 (seeds, fertilizers and pesticides) were obtained from the Planning Commission.* Projected demands for fertilizers and pesticides and the expected acreage under HYV seeds and non-HYV irrigated reas in 1973-74 were obtained from the Draft Fourth Five- Year Plan. The Committee felt that by the end of Fourth Plan, fertilizers would be used extensively in non-HVP irrigated and *It was contended by the Rural Credit Review Committee that such data were drawn from large samples of farm house- holds for the three regions, and could be relied upon. HVP areas are those where the high yielding varieties of seeds are being used. , 24 unirrigated areas. This would, in turn, increase the demand for credit among all sections of the cultivating households. Similarly, demand for HYV seeds and pesticides was also assumed to show enormous increase during the Fourth Plan period. Further, it was assumed that use of improved seeds and fertilizers would also reflect in an increased demand for cash for the payment of wages, irrigation charges and other purposes.*2 The scales of finance (cash component) were carefully computed for each crop and the overall produc— tion (cash plus kind components) credit needs for the entire country were put at Rs. 20,000 million for 1973-74 (Table 2.3)**' It was assumed by the RCRC that the kind component is likely to constitute a major proportion of the credit needed in HYV areas. On the other hand, in the unirrigated areas the overall cash needs will be more important. The Committee claimed that (unlike in the past) for the fulfillment of the targets for HYV’programs, the "recommended critical inputs” nmst be fully utilized. These estimates do provide an insight into the probable production credit needs in the face of changing technology. *On the basis of National Sample Survey (17th Round) findings it was presumed that one-third of the total area was held by the households with over 20 acres of farm size and that these farmers would not require any credit. **See Appendix A.3 for similar estimates during 1970-71. It would appear that between 1970-71 and 1973-74, short-term credit needs would increase from Rs 15,881 million to Rs. 20,000 million. —__‘ 25 osmm cos cam ammo omega mmw Hen coma omH 0 case case new «as eouumauuaca coma omm o case seem as aw souooauua .m.>.mucoz omsq com oma seem chem on em x.m.>.me momma masseuse amen lllllllllll Ilansnnslmoommm‘cOMJHatslllllnnlllnullulu is E .3 5 E . E E 3 swoouu so so>flo om pen: on xh+m+me on messed 0» unseen menus «cassava munoo mquOMumom ammow mumuwamuuem mo osHm> cOHHHHS GOHHHHS Hence team send oousafiunu cost no onus thMbmH a“ saocH aw mucoauufisoom swoouu Heusuasowumd Enosluuonm monousawunmun.m.~ manta ooo.o~ oms.aa o.Hm~ one.» omm.m oemaa an «mono Haa ooa.e ova.~ o mas o.~¢ me among guano oem o.e on menu Hsmsm % oms.m oes.m oso.H m.ma cm mammumo umauo ohm.~ a.m~ cod puma: can moons imae ides load Ame immune .Haaz. x.mm aoaaaazv ..mm :oHHHaxV inane Haves as + m mmmcmaxm ammo mo m\me coea>oum Anemone. .Hoo momma sou seemuo no we on umxm ammo «use use assumes pseudo Hence wmmsouwsvom flgflflmh MO 0 _ 00M nome Hem sown ammo cussausoo .m.~ Manda 27 .moma Honswooa .sausH mo anon o>uonom rasheom .mouuwseou 30w>om ufiosuu annex swocH add one we unseen ”ouusom ooo.o~ oma.aa os~.m «as mm om m oaq.k ommsm oem.a new soummwuuwao om an em ooa.v ova.~ oea.a as noummauuu .m.>.mucoz ave we as °m¢.m ova.m omh.v on .m.>.m nnnnnn Inunoomsmlllnnnln luuluunlcowaaaz .mmllull .IILHmwme ex ammo e eawmwl House)? ammo _ ermm immune seesaw: when umm.oHeom Mwmeuo. cw send. some mo oomm uosuunnd noscaucoo .m.~ names 28 Yet, these estimates were an over generalization. The findings of field surveys conducted by Agro-Economic Research Centers and the Ministry of Food and Agriculture (noted above) reveal that the per acre expenditure for paddy varied between Rs. 104 in Raipur to Rs. 424 in Karnal; for high yielding coarse grains it varied between Rs. 182 and Rs. 244 and for irrigated wheat the range was Rs. 246 in Tikamgarh to Rs. 440 in Faizabad.7 In the first place, these expenses are far above the per acre scales of finance assumed by the RCRC. Secondly, the validity of such scales can be questioned on the basis of high inter-regional variations in the expenses actually incurred. Finally, the Review Committee confined its estimates to production-credits needs only, and altOgether ignored the credit that might be needed for household consumption. Werking Grogp on Agricultural Credit8 A WOrking Group (1970) recommended to the Government of India that for the attainment of viability each primary credit society in India should conduct a business of Rs. 200,000 per year. It further suggested that a society should work under the presumption that per hectare credit should be disbursed at the rate of Rs. 250 for irrigated and Rs. 125 for unirrigated areas. Based on these norms, the 1972 Conference of Registrars of COOperative Societies released national estimates of "credit potential,” of Rs. 21,179.6 . I a 29 million. (Appendix A.1) The Conference resolved that during the remaining period of the Fourth Plan and until the end of the Fifth Five-Year Plan (1978-79) cooperatives should be reorganized in the light of this credit potential. It was resolved by the Registrars that by 1973—74 36 percent, and by 1978*79 60 percent of such credit potential should be accomplished by the primary cooperative societies. In the first place, credit potential was confused with credit needs at this conference. Secondly, universal scales of Rs. 125 for unirrigated and Rs. 250 for irrigated areas are misleading, as they are not based on the credit needs under different conditions norbased on detailed empirical studies. If c00peratives in India provide credit at this level it is probable that some farmers would get more credit than they needed while others (especially the small farmers planning to use the new HYV seeds) would not get needed credit. Finally, irrigation is a necessary but certainly not a sufficient condition for increase in the demand for credit, and it is erroneous to assume that introduction of irrigation alone would increase the credit potential of a farmer from Rs. 125 per hectare to Rs. 250 per hectare. P.C. Bansil's Estimates Bansil9 has based his estimates on the value of inputs to be used during the Fourth Plan period. However, he ignored miscellaneous expenses like those of hired labor 30 and marketing finance and considered only important inputs such as fertilizers, pesticides and seeds (Table 2.4). Secondly, he also assumed that all seeds of traditional varieties will be purchased out of the cultivator's own funds. Finally, on the basis of the size distribution of land it was assumed that a large number of farm households (especially those who have over 20 acres of land) would be able to meet their capital needs out of their own funds and that only 50 percent of the total expenditure on seeds, fertilizers and pesticides would be met through borrowings.* Assuming that the total outlay on the three major inputs would be Rs. 14,252 million in 1973-74, the credit needs for them in that year were put at Rs. 7,126 million. Besides, Bansil considers the credit which might be taken for ”miscellaneous purposes" and specific crops such as horticulture, cashew nuts, cotton, and jute and puts such needs at Rs. 2,740 million. The gross short-run credit needs for farm business were therefore estimated at Rs. 9,867 million for 1973-74. After adjusting the farm credit needs for double counting, the net credit needs for farm business were estimated at Rs. 8,190 million (Table 2.4). Finally, *Bansil based his assumption on "A Study of High Yielding Varieties Program, Rabi 1967- 68 (Wheat) in Tikam Garh District, Madhya Pradesh. Agro-Economic Research Center, Jabalpur, 1968. It was discovered under this study that the cultivators even in the HVP areas were financing 100 percent of hired human and bullock labor from own funds. u.- .s.l‘.h A an. n .Idll‘ II: I. l.‘ 31 .Hhma Renamooosuooouoo .moweosoom Hmuauasowu mo accuses quanta ..vssmnma .csam cannon we» no sea on» us mucoseuwsvom awoouo sues anaem- .o .m .kucem "oousom .msw .mm u one can “mav.~ .mm u meme «omH.~ .mm a z "083 QOUQEHQC omen» How cmxmu ossou use museum o>fluoommou Hwenu one AoNxv uwnasuom was Amonv oaumnmmonm .sz moosmmouuwz ”mavcH as tons mum numuwaauuem no mama» sonny unopoz mmaln ~mm.wa mmn.ma «Haraa Hho.oa mn~.m Hmuoa now «Ho.a mmmra oHH.H Hem mmn maco mooom >M: .woomw men mmela mmmra Hmara mmm awn moowoflumom mmm.m an.HH HNH.HH mmo.m vmm.m osnrw muouwafluuwm “no mo unmoumm om lav wwmooz swoouu osam> Hmuoe mnumnma menanma thonma onumoaa enumnma souH immense coaaaaz as unsoeav vaumsafl as momoz AEHmB uuonmv ufiouHU one swam nunsom was How musmsH unsuuomEH no osHm>I|.v.N manna 32 the estimated borrowings for household consumption were put at Rs. 8,580 million. The overall credit needs in 1973-74 were, therefore, estimated at Rs. 16,770 million (at 1973-74 prices). Such estimates suffer from the following limitations: In the first place, they totally neglect the credit required for hired labor, irrigation charges, repairs and purchase of bullock feed. Secondly, estimates based on the total outlay appear to be all right for a rough and ready macro level analysis, but it would be a big mistake to tie down the credit requirements at a 50 percent level. A slight variation in this proportion would result in a substantial increase or decrease in the estimate.* Thirdly, Bansil estimates the credit needs for household consumption on the basis of AIRDIS data on per capita consumption expenditure in 1961-62 and then adjusts them for price and papulation to compute the credit needs in 1973-74.10 However, he obliviated the fact that the composition of consumer's basket might have changed during this period, thus calling for a significant change in the credit needs for consumption expenditure. Economists have been Comparing these estimates (Ex pgst as well as ex ante) with the availability of institutional *For instance, at 45 percent of the outlay, estimated credit needs would fall from Rs. 7,126 million to Rs. 6,410 million, whereas at 55 percent, they would rise to Rs. 7,839 million. 33 credit. For instance, it was argued in one paper that in 1967-68 only 33.5 percent of the "credit needs" were met 11 by cooperatives; whereas the Registrars of Cooperative Societies expressed their concern at their last conference12 over the poor record of c00peratives in supplying agricultural credit in 1970-71. Policies of the state governments and the Reserve Bank of India are being reshaped to pump more and more funds into agricultural sector in order to reduce the ”inadequacy" of institutional credit in India. More surprisingly, the magnitude of inadequacy continued to remain everyone's guess, because the estimation of credit need itself is too subjective and too general. Some Further Observations on the Estimates of Credit Needs The foregoing estimates of agricultural credit needs are related to the short-term credit needs of the entire country. However, they are highly subjective and generally neglect the diversified character of Indian agriculture. In most cases the basis of estimation has been the All India Rural Debt and Investment Survey conducted in 1961-62. Even where the basis was per acre expenditure in farming, no attempt was made to provide comparable data for HYV and non-HYV areas in different regions and for different size levels of holdings. Yet, it should be conceded, the data related to expenses incurred on fertilizers and pesticides are relatively more reliable than those on other inputs. L. \M .‘1‘ NH ,uh .q\ 34 In the present heterogeneous situation, regional esti- mation of the demand for credit appears to be more realistic than the national estimates. Depending on the nature of soil, type of crop, state of technology and the size of holding, different farm situations will show different levels of capital use. Further, an estimate of per hectare credit needs should also make allowance for the level of own funds to be used by farmers in different size groups of land holdings. As regional estimates generally represent the credit needs for different types of farming, they are likely to give a more realistic guideline in the formulation of agricultural credit policy. It should be noted that estimates by crop are generally not useful in Indian conditions, as the same crop shows a wide range of expenditure per hectare in different regions. Adequacy_of Agricultural Credit Since the estimation of agricultural credit needs in India has thus far been based on individual estimators' personal biases, (which have provided a wide range of such estimates) it would be wrong to assess the adequacy of credit under the prevailing situation. Unfortunately, a large number of economists and most of the committees concerned with farm credit have developed the practice of choosing the one estimate which appeals to them most, comparing the “i a, I 35 same with the credit actually given by cooperatives and commercial banks and then passing on the judgment that "institutional credit is too inadequate in Indian agriculture." Such statements are highly misleading and are frequently utilized for pursuing political aims. Instances have been seen where the political party in power channelized huge funds into cooperative farm credit institutions in order to reduce or eliminate such "inadequacy of institutional credit," without caring for the eligibility of those who get such loans.13 If agricultural credit is defined as the difference between the total anticipated expenditure of a household and the sum total of own resources, an approximation of credit need at the micro level can be obtained. This can facilitate the estimation of credit needs in a given region, provided adequate data about cropping pattern, distribution of cropped area,-distribution of income, level of living and extent of own resources are available. However, the question of the adequacy of institutional credit should be examined from three angles: (a) the amount of credit (b) the amount which credit agencies can provide at given rate(s) or interest, and (c) the terms and conditions of loans given. Nevertheless, such analysis should be made in view of the relative merits of different credit agencies as well. In other words, a rational agricultural credit policy would be expected to be based on a careful consideration of these criteria. -a a. VI 36 The Amount of Credit Much of the confusion about institutional credit and its inadequacy has arisen due to the fact that credit needs are not prOperly defined. For instance, there is no agreement on the inclusion of credit needs for household nonfarm expenditure. Unlike the developed countries, (where farm credit is generally obtained for the farm business) in the developing countries a large proportion of loans are taken for household consumption.* Starting from the All India Rural Credit Survey (1951-52).down to the Report of All India Rural Credit Review Committee (RCRC) numerous arguments have been given for including household consumption needs in the estimation of agricultural credit needs in countries like India. One such argument stems from the nature of Indian agriculture itself. It is claimed that as the subsistence farmers do not charge for their labor in their own farm business, they are entitled to consumption loans during the production cycle. In other words, consump- tzon needs in respect of small farmers should not be dis- tinguished from their production needs. The National Cooperative Union of India argued that small farmers in India need credit throughout the year. In order to meet their farm as well as nonfarm needs, they are compelled to borrow from moneylenders and other individuals at those times when loans from cOOperatives are generally not available.14 ISee page 16. tad HI". :01! w. ' rt 8 a mu .. I... 4. u an n...bC I D‘. I 1'. F -mo L we - v-g ‘ “:0 .1 -- 3 IC: a=‘ ‘e " :‘-‘ : '-...' s C..: I f (n . l 1 \A . 'V ',E‘ ~ I u 1‘. I“€.‘ \‘n ‘1 II‘~ ‘K 1 a 37 A group of experts appointed by the FAO strongly supported this view. It argued that in subsistence farming it would be unrealistic to expect that credit would be utilized for productive purposes when farmers in such situa- tions have equally or sometimes more, pressing need for consumptive credit. Further, it stated: "History shows that strong needs for consumptive needs are symptomatic of the early stages of socio-economic development," and that complete denial of institutional credit for such purposes would continue to support the cause of moneylenders.15 However, the Group admitted, in the later stages of develop- ment, it would be convenient to draw a line between pro- ductive and consumptive credit. The Group also supported the idea of including hired labor in the assessment of credit needs. Perhaps much of the controversy can be resolved if the ultimate goals are made clear by the policy-makers. How far do they want the institutional credit to meet the farmers' credit needs? What is the financial strength of the institutions involved? As of now, cooperatives and commercial banks in India do not seem to be strong enough to meet even the productive needs of farm households. What difference would it make if consumptive needs are also included in the estimation of credit requirements? u: a. ‘1 y A!“ 13‘ 38 Tests of Adequacy As explained above, the estimation of capital require- ments in a region is a difficult task. Equally difficult is the measurement of credit need, and its adequacy at the macro level. However, capital requirements, level of savings and credit needs may be estimated with relative convenience at the micro level. Homogeneous farm units can be grouped together and the financial inflows and outflows (55.3223) can be recorded in order to estimate the credit needs of a representative household in the given farm situation. Adequacy of credit is implicitly tested with an assumption that the entire gap between the anticipated cash income and cash expenditure is filled up by external borrowings. Financial Budget An ideal and fool-proof technique of measuring adequacy of credit would generally consider periodic (monthly or quarterly) inflows and outflows so as to determine the deficit or surplus for each period. Such a technique is generally known as the financial budget. A budget has two main advantages. First, it incorporates all cash expenses, including the anticipated expenditure on household consumption. As demonstrated below, the usual techniques of measuring the adequacy of credit generally consider cash expenses in the farm business only, and therefore, do not provide a precise estimation of total credit needs. 39 Secondly, a budget measures credit needs (when gx_§2£g_ expenditure exceeds the expected income) as well as the household's repayment capacity (when the anticipated income exceeds the expected outflows) for different periods. On the contrary, all other techniques generally provide no measurement of the repayment capacity. However, the use of financial budget as a technique to measure the magnitude of deficit or surplus involves two big problems in a developing country like India. In the first place, data on periodic flows of liquid funds are generally not available for individual farm households. A great deal of dexterous and comprehensive knowledge of local conditions, including the level and cost of living and the cost of purchased inputs is, therefore, needed in the preparation of such a budget. Secondly, in view of the cost and time involved, it is impossible to estimate the credit needs and repayment capacity of all households in a region or even in a stratum. It may require stratified sampling of different households in a given region, and preparation of a budget for a synthesized household representing each stratum. One such budget has been given below (Figure 2.1). It would be clear that the household borrows in the first and third quarters of the year when the total expenditure (in household consump- tion and farm business) exceeds the total income. However, it has an opportunity to repay its debt in the other two quarters. 4O .Amooosm no unsoanv AnonEmooo I mumsnmov Aoouwmonunhmv oHononsom Hush a mo usmosm asaonsnwmll.a.~ shaman .nouoawno noun» one mumnEoE uHsoo 03» men oaonmmson on» use» ooEsnmm onHm no uH .usn nonsono one Snowmen condone mmouo mnusnx moonmn3 .ooomnaa one omens wooden“ mmouo when .mmonu oflumnx mm Hams we when uom omum>wuano no sous ouwuno on» one onma ooummwuuans mo menus m was oaonmmson on» non» ooanmnm no uH “ouoz .huaommmo unashmmou mononmo moamnsm mafin3 ufiowuo uOm omen mononoo uwoauooe com + ommu oe+ oman o ma+v mndmunm no Ale snowmen .o moo oov oov cow mam.a m we dance oom own one omn oom museums» oaononsom “me o o c on om unconsaauomaz Awe o o 0 cm om sea onsq As. o oo o o o~ awesome .0. one oma om on own oceanousn soon goonnoo loo mo om o 0 mod oenenousm momma An. oom oo omm o oao noose souuso .so ousuwonomxm .m mom.a om ooo oNH mao.n a mo Hones mmm o o o mmm «Huang “macho no snow ADV .ohm 0 com o cam when “mmouo mo oasm Ano cam on oo~ oNH one Honda Bounso As. osoonH .4 A.omo u .uoo. A.umom n xasoo Awash u Hanano Assam: .anv unao . u an ousuwononxm >H no u u use HHH sausage HH umuusao H nounsso Hence \oaoonH sumo 41 However, in the absence of reliable data on periodic inflow and outflow of liquid funds other techniques such as the linear programming and the profit maximization approach may appear easier and more convenient, but less reliable, than the financial budget. It must be noted, however, that both the techniques tend to measure the gap between the optimum level of capital use and the household's past savings. Credit is considered adequate if the existing level of credit just equals this gap. It is also worth mentioning that all three techniques discussed here are neutral to the normative issues related to the choice of credit agency. The Linear Programming (L.P.) Model The L.P. model can be stated symbolically as follows: Maximize 3 3 n 2‘. c.x. (j=l, . . .n) Subject to n 22 j-l aijxj < bi (where bi > o, aij > o) where-aij's are input-output coefficients, cj are returns over variable costs, xj are real activities and bi are resource constraints, including capital. If different farm situations prevail in the region, one representive farm can be synthesized for each class 42 of farms for each situation, and credit needs can be estimated for each.* Such needs can then be compared to the actual availability of institutional (or noninstitutional together with the institutional) credit in order to ascertain the adequacy of credit in each situation and for each class of farmers. Profit Maximization Approach This approach also uses representative farms from different situations and classes. Adequacy is based on the premise that a farmer maximizes his profit with respect to the use of an input where the MVP of input is equal to its MFC.** It requies an empirical estimate of production func- tion in order to determine whether credit is used optimally. Since capital (in its liquidform) is considered to be an input, *For instance Sharma and Prasad classify farmers in the north-western region of Uttar Pradesh into six groups: (i) irrigated small farms, (ii) unirrigated small farms, (iii) irrigated medium farms, (iv) unirrigated medium farms, (v) irrigated large farms, and (vi) unirrigated large farms. Then he assumes the presence of four situations: (a) present tech- nology without borrowing, (b) present technology with borrow- ing, (c) improved technology without borrowing, and (d) improved technology with borrowing. 0n the basis of Optimum plans he computes credit needs for each situation. J. S. Sharma and B. Prasad in Indian Journal of Agricultural Economics, 92, g£5., pp. 503-508. **MVP a marginal value product of a factor. Consider a production function: Q 8 f (x,y), where x is labor, y is capital and Q represents the output, the marginal value product of y with given prices of 0, x and y would be P. %y . Here P 0 represents the price of output and %y represents the marginal Q product of capital. On the other hand, MFC represents the marginal factor cost which is assumed to be given. 43 the optimum level of capital will be where the MVP of capital = MFC. Assuming that the farm in question is operating in the second stage, the short fall or excess of capital as compared to the optimum level can be shown in the following diagram: Rupees \ P \x MFC | \ \ V l I | . l l I I | MVP 1* J 0 K1 K K2 Units of Capital Figure 2.2.--Optimum use of capital on a farm. In the above diagram, the horizontal axis measures the units of capital (cash) funds used on the given package of land and other inputs; the MVP and MFC of capital have been measured in rupees on the vertical axis. It should be noted here that in this analysis capital includes owned funds as well as credit obtained from different sources. The profit maximizing level of capital use is K* where MVP - MFC. Here the farmer may be assumed to have access to adequate capital. 44 On the other hand, if he Operates at K1 (where MVP > MFC) he is unable to maximize his gains from capital use due to inadequacy of credit.* Likewise, at K2 he is over using the available capital (either his own and/or borrowed funds). This last situation explains wasteful use of liquid funds. It appears that both the L.P. and the profit maximiza- tion techniques tend to establish the optimum level of capital use. However, the focus of L.P. is generally on identifying the restricting inputs including capital whereas the latter method definees the level of optimum capital use, while assuming (for convenience) that other inputs are already used optimally. It is unfortunate that agricultural economists in India have paid very little attention to determination of the degree of adequacy of credit at the micro level. There is an urgent need to undertake research to determine the need for credit in different regions for a cross section of farming population, and then examine the extent to which additional credit from COOperatives and commercial banks can increase farm output, savings and the level of living of farm households. There is an additional need to determine the extent to which institutional credit will supplement moneylender credit or be a substitute for it. *This is termed as inadequacy of credit because his own funds are supposedly given and supplemented by credit. 45 Rate(s) of Interest Once the shortages of credit are indicated, the policy makers may make plans for injecting additional funds through cooperatives or in other ways. Here comes an important question: at what rate of interest should such additional funds be made available to the farmers? Millard Long states that the intellectuals and policy makers of south and south-east Asian countries are guided by a belief that majority of the farmers in these countries borrow in the informal credit markets (from moneylenders), and are required to pay exhorbitant rates of interest. Horace Belshaw argues that farmers in developing countries are gnerally pobr and are often discriminated against in the national pricing and fiscal polic1es. Either way, such beliefs encourage policy makers to prescribe lower rates of cooperative or government credit than are generally charged by moneylenders.16 The cooperative agricultural policy in India is based on a somewhat similar premise. The Reserve Bank of India grants short-term accommodation to the state cooperative (apex) banks at an annual interest rate of 4 percent which is 2 percent below the bank rate. The primary cooperative credit societies are urged to charge 9 to 10 percent annual interest on the short term loans advanced to farmers. It must be noted in this context that the usual rate of interest on commercial bank credit to nonagriculturalists in India is 12 percent, 46 whereas the rate charged by moneylenders on short-term agri- cultural loans ranges between 18 and 24 percent per annum. In short, planners in India are guided by an "interest illusion” and appear to believe that subsidization of interest rate would provide sufficient relief to farmers. As has been noted above, such "interest illusion" for institutional lending in India has imposed heavy costs on society. Several arguments are generally given to explain the high rates of interest charged by moneylenders in the underdeveIOped countries. First, the element of risk in agricultural lending as compared to nonagricultural loans is very high. Agricultural production in such countries largely depends on the vagaries of nature. As against this state of risk and uncertainty, a typical farmer does not have sufficient collateral, and, in most cases, obtains loans on personal security. The moneylender would, therefore, add some pre- mium for risk while charging the cost of his credit.17 U Tun Wai18 believes that due to high risk and uncer- tainty a moneylender would add from 2.0 percent to 200 per- cent premium to the normal Iatc of interest, depending on his anticipated rate of default (Appendix A.1). Since the pro- portion of defaults is high in the underdeveloped countries,19 rates of interest would obviously be adjusted upward in order to make good the loss caused by defaults. Second, the cost of management of loans is higher in agriculture as compared to other sectors. Anthony Bottomley 47 argues that the number of loans advanced by the moneylender in a rural area is relatively small and also that the size of individual loan is small. As a result of these factors, and also due to the inclusion of monOpolistic position of the moneylender, he charges a high rate of interest.20 Third’farmers' demand for credit in the developing countries like India is more inelastic than the demand for agricultural credit in the developed countries. However, Pani analyzed the elasticity of demand for credit among different farmers in India (stratified according to size of holdings) and concluded that cultivators with substantial holdings have high marginal propensity to borrow as compared to those who are subsistence farmers. In other words, in his opinion, the elasticity of demand for credit among the large farmers is relatively lower than the one found among small farmers.21 Generally the demand for an input (say capital credit in this situation) is a derived demand and its elasticity depends on the following: or the elasticity of demand for the final products (agricultural products) (a) ny (b) no or the elasticity of supply of other inputs (c) a or the elasticity of substitution between capital and other inputs, and (d) R or the ration of the cost of (credit) to the total cost of production. Since demand for credit is derived from the demand for agricultural products, the lower the elasticity of demand 48 for the latter, the lower will be the elasticity of demand for credit. By the same token it can be argued that lower the elasticity of supply of other inputs (such as land, owned funds, family labor, bullock power, and implements) lower will be the elasticity of demand for credit. Assuming that the credit-output and credit-other input ratios are given, Figure 2.3 can explain the derivation of demand curve for credit. Rupees 3° W I \DK DK Quantity of Y, K and 0 Figure 2.3.--Derived demand for credit. In the above diagram, the horizontal axis measures the quantity of final product (Y) supply of inputs other than credit (0) and the units of credit obtained at different prices. The vertical axis shows the prices of final product, other inputs and cost of obtaining credit. D denotes the Y demand curve for final product whereas So represents the 49 supply curve of other inputs. Assuming that input-out ratios remain constant for all inputs, the demand curve for credit can be directly derived from D and So' The elasticity of Y demand for credit will change with a rotation of D or S0 or Y both. For instance, if the supply of other inputs becomes more elastic (8;), the derived demand curve for credit will rotate to D; showing a relative increase in the elasticity of demand for credit too. The degree of substitutability between credit and other inptus (including owned funds) would also determine the elasticity of demand. If elasticity of substitution (3) is very low, it will imply that even a substantial change in the price(s) of other input(s) would not bring a major change in the use of credit. Finally, a low ratio of the cost of credit to total cost would also mean a low coefficient of of its elasticity of demand. For instance, if cost of credit (rate of interest) constitutes only 2 percent of the total cost of production, even a major change in rate of interest would not induce a farmer to effect a proportionate change in the use of credit. Empirical evidence is lacking to substantiate all of what has been stated above. From the N.S.S. data and other studies, however, it appears that in India the demand for credit for the following purposes is relatively interest inelastic: (a) consumptive needs, espeically among the households having small holdings (b) payment of land-tax and 50 petty dues to the village-trader, (c) seeds, fertilizers and payment of hired labor, and (d) religious and social ceremonies.22 These studies also indicate that ny is less than unity and due to fixity of the above mentioned needs, elasticity of substitution (3) also appears to be fairly low. A study of four villages in Madras (Tamilnadu - India) shows that when innovations are proved to be particularly profitable, institutional credit is obtained for productive purposes even at high interest rates.23 In another case study, Ajeya Ray concludes that a good part of demand for agricultural credit in West Bengal is interest-inelastic. Singh and Jha took a sample fo three villages in Delhi and after estimating agricultural credit needs of farm households under different technological situations, concluded that the cost of credit is not the only factor influencing the use of borrowed funds. In all these studies the demand for agricultural credit was found to be very low (between-aOOG and -.028).24 Yet, there seems to have been no study to demonstrate that the low elasticity of demand for credit was a result of low elasticity of demand for the final product, and/or low elasticity of substitution, and/or low elasticity of supply of other inputs, and/or the low ratio of credit cost to total cost of production. ’0‘ I I I ’< ‘1 51 There seems little wisdom in the arguments given by those working under "interest-illusion." For the reasons listed above, even a substantial reduction in the rates of interest may not raise the demand for farm credit greatly. On the other hand, such low rates may prove suicidal for the lending institutions themselves and may impose heavy costs on the rest of the economy. In the first place, it may imply lower income to the lending agency which may be tempted to hire inefficient and untrained personnel to save administrative costs. Secondly, low rate of interest on loans implicitly lowers the rate of interest paid on deposits and this will be reflected in a weak financial base for the lending agency.* Thirdly;low rates of interest provide no cushion against defaults. As shown in the next chapter, the rate of default in the cooperative loans in India has been very high and rather than borrowers of cooperative credit paying the cost of default, there is a drain on the whole society when the Government decides to write off a part of loans receivable from cooperative institutions. Finally, in view of the current technological development in India, and the resultant shifts in the MVP of capital in several parts of the country, the prevalence of universally low interest rates on cooperative loans appears paradoxical. *Empirical evidence is available plentifully to support this view. (Please see Chapter III on the conditions of cooperative societies in India.) Baker wonders if small farmers could borrow at "exhorbitant" interest rates in the informal credit market (from moneylenders) why can they not borrow at an equivalent rate from a credit institution (cooperative)? Further, low rates of interest give an impression to borrowers that future is amply provided for, and will encourage consumption. 0n the other hand, a high rate of interest increases the reward for savings. Baker further argues that on the demand side the timliness of loan decision and simplicity of loan negotiations are more important than the rate of interest.25 Dale Adams26 explains that in an inflationary situation low rates of interest erode the real value of credit portfolios. In fact, in such a situation the effective rate of interest becomes negative.* In India in recent years the effective rate seems to have become negative.** It is, therefore, time that the policy makers and cooperatives in India review the wisdom of their "interest-illusion" and consider providing loans to farmers at the interest rates which are close to capital's opportunity cost. \ *It can be explained by the following formula: R = [(1 + r) (l + ?)]-l where R a nominal interest rate, r - effective rate of interest, and P = annual rate of inflation. **For instance, within a year after December, 1971, the general price level in India rose by 13.7 percent [P = .137]. If the rate of interest on cooperative loans is taken at 10 percent (R = .10), the effective rate of interest turns out to be negative. (For rate of inflation see Economic Survey 1972-73. New Delhi,Government of India, p. 36,) O Terms of Credit Even if an approximation of credit needs has been made and a pragmatic approach to interest rate has been taken as noted above, the terms of institutional vis-a-vis noninsti- tutional credit remain critical in determining the success of official credit policy. Empirical evidence suggests that noninstitutional credit is not bad per se. Even if cooperatives and other institutional agencies are adequately equipped with loanable funds, they would not gain popularity among the farming community until their terms of loans, i.e., lending procedure, timings and modes of disbursement and recovery compare favorably with those of moneylenders. The FAO Group remarks, "There are still too many cases in which the leaders of agricultural banks and cooperative credit organ- izations think exclusively in terms of rates of interest when they try to drive out the money- lender, . . .forgetting that in the opinion of the interested farmers it is usually much more important that loan procedures are simplified and loans disbursed without delay."27 It was discovered through field studies that coopera- tive credit is generally not made available to Indian farmers 28 when it is actually needed. Besides, the burden of admin- istrative formalities inherent in such loans have a dis- incentive effect on them to borrow from c00peratives even though their interest rates are lower than those of money- 29 lender. Tuck states that in the traditional agricultural societies moneylenders generally provide a number of services K" 54 beside credit (such as marketing farm products, supply of inputs,counselling etcetra) to farmers. If some preferred institutions (c00peratives) are being deveIOped to get credit functions currently discharged by moneylenders, then it is of crucial importance to grasp at the outset the whole extent and dimension of other functions as well. In short, increasing the amount of credit alone would not ensure that credit is adequate.30 Conclusions As will be shown in the subsequent chapter, not only are cooperative loans very meager in India, but cooperatives seem to have taken no initiative in supplying farm inputs, and have shown a poor performance in marketing agricultural products. For the success of institutional financing, as the FAO Group suggests, credit, marketing and input supply 1 However, extension, or should be considered as a trinity.3 more particularly, technical assistance and adequate super- vision over the use of loans could also be added as the addi- tional criteria for adequacy of institutional credit. 10. 11. 12. REFERENCES Chapter II Reserve Bank of India Bulletin, September and December, 1965. Saran, Ram. "High Yielding Varieties-~Some Economic Aspects," Agricultural Situation in India (August, 1972). Reserve Bank of India, Re ort of a Stud Grou of the National Credit Council (October, I933), pp. 33-35 and 8 78-810 , Report of the All India Rural Credit Review Committee (December, 1969), pp. 81484. Indian Journal of Agricultural Economics, Conference __fihmber (October-December, 1971) of particular interest are the papers by Mahendra Desai and Bharat Naik, P. C. Bansil and Prasanta Kumar Bhanja. Report of the Rural Credit Review Committee, 9p. cit., ppe 8—2-88. #7 Indian Journal of Agricultural Economics, 9p, cit., pp. 458-60. Government of India. Conference of the Registrars of Cooperative Societies: Proceedings and Agenda Notes. New Delhi: Ministry of Agriculture, Department of7 Cooperation (September, 1972). Bansil, P. C. "Short Term Credit Requirements at the End of the Fourth Plan, 1973-74," Indian Journal of Agricultural Economics. (October-December, 1971), pp. 467-173. Ibide ' pp. 472-73. Reserve Bank of India, Report of a Study Group, 9p, cit., p. 34. “" Government of India. Conference of the Registrars of Cooperative Societies: Proceeding and Agenda Notes, _p. cit. . 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. Food and Agriculture Organization. Agricultural Credit Through Cooperatives and Other Institutions, Rome (1965), p. 71. The National C00perative Union of India. "Revolving Credit Limits to the Farmers by Cooperatives," in D. N. Elhance and M. D. Sharma (eds.) Role of Coopera- tive Credit in Agricultural Development. Jodhpur: university of Jodhpur, 1968 (pp. 43-47.) Food and Agriculture Organization, pp. cit., pp. 46-48. Long, Millard. "Interest Rates and the Structure of Agricultural Credit Markets," Oxford Economic Papers, (July, 1968). Bottomley, Anthony. ”The Structure of Interest Rates in Underdeveloped Rural Areas,” Journal of Farm Economics, (May, 1964), International Conference of'Agricultural and Cooperative Credit. Farm Credit in Underdeveloped Areas: A Summary Report. Berkley: University of California, 1952, and Long, Millard. "Conditions for Success of Public Credit Programs for Small Farmers,” AID S rin Review of Small Farmer CreditzAnalytical Papers (Draft) February, 1973. wai, Tun U. "Interest Rates Outside the Organized Money Markets of Underdeveloped Countries," I.M.F. Staff Papers (1957-58): PP. 107-113. Long, Millard. "Interest Rates and the Structure of Agricultural Credit Markets,” pp, cit.. Bottomley, Anthony. (1) "The Cost of Administering Private Loans in Underdeveloped Rural Areas," Oxford Economic Papers (July, 1963) and (2) "Monopoly Profit as a Determinant of Interest Rates in Underdeveloped Rural Areas," Oxford Economic Papers (October, 1964). Pani, P. K. "Cultivators' Demand for Credit: A Cross Section Analysis,” International Economic Review (May 1966). Wei, U. Tun, pp, gi£,, pp. 108-109: Food and Agriculture Organization, pp, cit., pp. 49-52 and Charles Nisbet, "Interest Rates and—Imperfect Competition in the Informal Credit Market of Rural Chile,"Economic Development and Cultural Changg (October, I567). 23. 24. 25. 26. 27. 28. 29. 30. 31. 57 Arunachalany R. M. quoted in Lele, Uma J. "Role of Credit and Marketing in Agricultural Development." Paper presented at the International Economic Association Conference on Agriculture in the Deve10p— ment of Low Income Countries, August 26-September 4, 1972 (Mimeograph). Ray, Ajeya. "The Role of Institutional Finance in Agricultural Investments of the District of Burdwan in West Bengal," Indian Journal of Agricultural Economics(October-December,41971), pp._567-68. Baker, C. B. "Role of Credit in the Economic Development of Small Farmers," AID Spring Review‘pf Small Farmer Credit: Analytical Papers (Draft), February, 1973. Adams, Dale W. "Agricultural Credit in Latin America: A Critical Review of External Funding Policy." American Journal of Agricultural Economics (May, 1971). Food and Agriculture Organization, 2p, cit., p. 57. Muthia, C. "COOperative Credit and Agricultural Devel- opment: Cost and Overdues in a Less Developed Rice Region," Indian Journal of Agricultural Economics, (January-March, 1970). Program Evaluation Organization. Study of Utilization of Cooperative Loans. New Delhi: Planning Commission, 1965 , pp. TIL-2. Tuck, R. H. "A Reconstruction of the Theory of Agricul- tural Credit," Journal of Agricultural Economics, (June, 1956). Food and Agriculture Organization, pp, cit., pp. 78-82. CHAPTER III SUPPLY OF COOPERATIVE AGRICULTURAL CREDIT AND REVIEW OF THE COOPERATIVE CREDIT MOVEMENT IN INDIA Various difficulties in estimating the demand for agri— cultural credit were highlighted in the preceding chapter. It was stated that the numerous estimates of demand for agricul- tural credit in India suffer from over generalization and generally ignore the prevalent inter-regional differences in climatic conditions and soils. It was also argued in the last chapter that in addition to the amount of loan, the rate of interest, terms of credit and the timings of loan disburse- ment and recovery were also important in determining the adequacy of credit. A pragmatic approach to agricultural credit will, therefore, consider all these criteria of adequacy. If cooperatives are preferred (to other agencies) for raising the supply of agricultural credit their objective should be not only to supply credit at the competitive rate of interest, but they should also do so at the terms and conditions suitable to farmers as well as to their own health. This chapter will present a brief appraisal of the progress made by cooperative agricultural credit institutions 59 In India. It is also proposed to examine their loan procedures and present state of health. Finally, it is also proposed to see the extent to which c00perative credit is useful to Indian farmers. However, since the present state of cooperative agricultural institutions owes a great deal to the various committees and groups of experts, a brief review cf their reports seems to be in order. Report of the All India Rural Credit Surveyg(RCS)’CommIttee (1954)1 The RCS Committee was appointed in 1951 to review the progress of the Cooperative Movement in India since its inception in 1904. The Committee was severe on cooperative agricultural credit institutions for their failure to provide sufficient loans to Indian farmes. It estimated the total short-term needs of Indian farmers at Rs. 7,500 million in 1951-52, but revealed that 92.7 percent of this credit was provided by moneylenders and other individuals. On the other hand, cooperatives and government met only 3.1 percent and 3.3 percent of such needs (Table 3.1). Except in Bombay (now a part of Maharashtra), the overall performance of cooperative agricutlural credit institutions was reported to be extremely poor. Cooperatives were generally found to be in deplorable financial situation in most of the states. It was also reported by the RC8 Committee that soaperative loans were not only inadequate, but they were unsuitable to meet the farmer's 60 .Hmmma .umnfimooo_ saccH mo xcmm m>uommm .xmofiom .mmuuHEEou 30fi>mm vapouu amuse mHocH Had on» no uuommm .HmmmHH mflvcH «0 Aflfiv scum m>ummmm .mmnfiom .mwuufieeou mm>usw ufiomuo Heusm ecu mo uuomom Rev "moousom o.ooa a.ama o.ooa H.em o.ooa m.mo~ Hence m.a m.~ m.a m.a m.a m.m muoauo a.a m.a o.~ m.a a.o o.~ magma Hmaoumesoo H.s m.m a.m m.m m.m m.aa muamma coemmweeoo UCM MHOUMHH. m.mv H.0s o.mm a.m~ m.ea o.vm mumecmasoaoz HMCOHmmOHOh—m m.e~ s.am m.¢~ v.ea m.e~ H.~m mumeauasmcoz Heusuasowumé o.~ ~.m m.e ~.m m.a ~.m mononucuq v.4a o.m~ m.ma m.oa ~.ea m.a~ mo>aumaom m.~ e.v m.a o.a a.m m.o mo>aumumaooo H.m m.v m.H o.H m.m m.w unmadue>ou Amundsmv Ammmmsmv Ammomsmv usages Assess saasum ommucmoumm Hem unsoem mmmusooumm Hod us5054 mmmucmoumm new ucs084 Annoum>wuasocoz one nuoum>muasuv mmmafiemm HH4 muoum>mvasocoz muoum>wvHso oousom Havana mmcwsouuom .mmlamma .ofiocH ca mmwosmm4 papmuo usmummmwo Bosh mcwzouuom monum>cln.a.m wands 61 needs. By unsuitability the Committee meant untimeliness and unfavorable conditions of repayment. Even though money— lenders were charging 18 to 30 percent interest rates on their loans, they were easily accessible to farmers. They would generally give loans without compelling borrowers to disclose the purpose of loans and generally showed flexibility in their dealings. On the contrary, the secretary of a primary credit society has little sympathy with members and prefers to stick to the "rules and regulations" prescribed by the Central Cooperative Bank (CCB) and/or the state's Department of Cooperation.2 Yet, in the Committee's opinion, cooperatives could render better service to the Indian farmer in view of the ideals for which such institutions really stand. In order to strengthen their financial base and administrative efficiency, active participation of the government was urged at all levels. Besides, the RC3 Committee also stressed the need for an effective integration of credit, marketing and processing. The Union Government and Reserve Bank of India were called upon to set up the All-India Warehousing Corporation, and the National COOperative Development and Warehousing Board, the National Agricultural Credit (Long-Term Operations) Fund, and the National Agricultural Credit (Stabilization) Fund to make the "Integration Scheme" more effective. The Committee also recommended the nationalization of the largest commercial bank, i.e., ”The Imperial Bank of India" and 62 eight other State Banks so as to introduce banking facilities in the rural areas under the guidance of the government. The most pioneering recommendation of the RC8 Committee was related to the introduction of CrOp Loan System (CLS) under which short-term loans are based on the estimated outlays on different crOps. The important features of CLS as suggested by the RC5 will be described later in this chapter. The RCS Committee implicitly recommended the ouster of money lenders and wanted cooperatives to meet all the seasonal farm credit needs. It went so far as to suggest that moneylenders should be forbidden by law to extend farm credit, except in those cases where they deposit their funds with the cooperative 3 The Committee urged the state govern- society of their area. :ments to contribute liberally to the share capital of coop- erative credit institutions. In addition, the Reserve Bank of India was called upon to grant short-term loans to cooperatives at concessional rates of interest. All the recommendations (except the one related to the ban on moneylenders) of the RC5 Committee were accepted. A three- tier structure of c00perative credit institutions has been created in all the states to implement the Integrated Scheme of Agricultural Credit recommended by the RCSC. However, as ‘will be shown later, the CLS was introduced in different states only after the mid-sixties. The new cooperative credit structure and the various functions assigned to a primary (village) cooperative society have been depicted in 63 in Figure 3.1 and 3.2. As the farmer obtains credit only from the primary society, these charts may provide a useful background of its functions and organizational superstructure. The Committee on Cogperative Credit (1960) This Committee submitted its report in 1960 and unlike the RC8 Committee suggested that farm cooperative credit societies should be reorganized on the basis of village 4 The Committee's emphasis was community as the primary unit. mainly on the introduction of a crop loan system and the attainment of viability by c00perative credit societies. It also urged the Government to help c00peratives in building a large capital base and in improving their administrative efficiency. An annual subsidy of Rs. 900 to Rs. 1,200 to meet the cost of management was recommended for the initial five years. As a result of such recommendations, generous sub- scriptions were made by state governments to the share capital of cooperative institutions. Training of cooperative personnel and a management subsidy were also incorporated into govern- ment policy towards cooperatives. The All India Rural Debt and Investment Survey (1961-62) This survey was conducted in 1961-62 by the Reserve Bank of India. The primary focus of this survey was on the distribution of assets, pattern of capital and current expen- diture on farm, and on the measurement of indebtedness among 64 Reserve Bank of India (Agricultural Credit Dept.) T l State Government (Dept of Cooperation) / ./ / / / /' / /. / f / / L J . Central Land I Development Bank / Registrar of Cooperative Societies Dy. Registrar for Agricultural Credit 4_ “\ ‘\.‘\\ \\~ \\ ._;.____JL: _..4 State Cooperative Bank -.-. (Apex) 1\ / / K_._._._ ._ ._._. Assistant Registrar Central COOperative Bank (District CCB) .—.—.-.—.—.—._.1 \ Executive Officers Cooperative Inspectors Primary Land Development Banks ‘\ .. -- Shows contribution ° towards share capital [Reserve Bank lends to the State Government also to enable the latter to subscribe to the share capital of cooperatives in the State.) ----— Shows flow of credit fran one agency to another (or to a farmer) -————. Represents only adminis- trative hierarchy and control. Loan Inspectors Primary Credit Society Figure 3.l.--Cooperative credit structure in India (for each state). 65 .~.m magmas .STS Am . sad ago: 938808 0.3 B saunas naming Hgmauflm “856w .mcoflwpdmo on» So no flashed I. new pong mecca 53 Ease leg .3 use om on! magmas: 9.3%..” on... gene:— ucm cumulus 93 gem was» «.2» MOM gig 5qu N .93 25qu mm mum! mcofimuodo H050 use #330 no 20303.3 05. 472.3 5 season”? some Haw magnum! 32m song 5 mean "32 U at as 385 E 3 E 5 moose 10.35 Show macho 3: 8.60.3 35:qu macho mo 5 flfinao mo 83 mo m5 880 mo E E 333 no we use no 839.3: muflwuo mo “Show naafiwmg Immofloum gov—Ed: mug—3.0 839M356 IwoJuoum $302 How ura—3H A 8335 we 88$ 80 R5" 88 5 28H 28a 68 as 83 so _||_|I||L no 3:2 as 3: g do: no :3 lg 338 no sauna mo assume no 8: 88 nudge ugh—.2 season?” 3302 55w mason go mama Agnew _ _ _ U _ _|I4I)||._ J so: see Ems =38: Ems harm _ F _ 1'4 so: “Lo 203mg 550 £53m £qu «:5 5 83308 £86 angina mo 5mg 66 the Indian farmers. However, it also collected data on the cash loans from different agencies during the reference period for different states in India.5 The survey disclosed that the coefficient of concen- tration (Gini ratio) in the distribution of assets was .87 which explained that few farmers owned a large proportion of total farm wealth (Appendix A-4). It was also reported that 64.4 percent of the assets in rural India were in the form of land, while livestock and farm business equipment constituted 7.7 percent and 1.4 percent, respectively. The relative proportion of capital expenditure on farm equipment and machinery was also very low. However, nearly 50 percent of the capital expenditure was incurred for the purchase of livestock (Appen- dix A.5). Rajasthan showed over 67 percent of capital expen- diture going for this purpose which demonstrates the importance of cattle breeding in this state. Interestingly enough, it was revealed by this survey that the total outstanding loans of Indian farmers stood at Rs. 23 billion in April, 1962, as against the total value of their asset, Rs. 33 billion. Per household outstanding loan in the relatively poor states like Rajasthan, Uttar Pradesh and Assam was reported to be higher than in the relatively better off states such as the Punjab and Madras. Furthermore, loans outstanding to cooperatives had a heavy concentration among the rich farmers, having assets worth Rs. 20,000 or more, as compared to the poor cultivators who had assets 67 'worth Rs. 5,000 or less. The coefficients of concentration in the distribution of cooperative loans ranged between .74 and .80 in different states, which showed that few large farmers obtained a very large proportion of cooperative loans in India. Agency-wise Borrowing in 1961-62 The AIRDIS testified that within a decade following the RC8 (1951-52), the contribution of cooperatives to total agricultural credit increased from 3.1 percent (out of the total borrowings of Rs. 7,500 million) to 15.5 percent (out of the total borrowings of Rs. 10,341 million in 1961-62) (Table 3.2). However, this proportion was over 38.3 percent in Mysore, but was less than 6 percent in Rajasthan, Assam, Bihar and West Bengal (Appendix A.6). Thus, cooperatives made little headway in relatively backward states. It was also revealed by the AIRDIS that farmers with less than Rs. 2,500 worth of assets obtained only 10.7 per- cent of their total credit needs from the cooperative societies as against 28 percent for those who had assets worth Rs. 20,000 or more. Likewise, cooPeratives marketed only those crops which were grown by the rich farmers and failed to mobilize the marketable surplus of the relatively poorer farmers. Strangely enough, the all-India coefficients of concentration ratios for cooPerative credit and distribution of farm assets were almost equal, i.e., 0.86 and 0.87, respectively, which implied that those who owned a larger 68 TABLE 3.2.-Average Borrowings by Cultivators From Different Agencies in India, 1961-62 Credit Agency Amount Per Household Percent of Total (Rupees) Borrowing vaerntent 5.3 2.6 Cooperatives 31.9 15.5 Camercial Banks 1.2 0.6 Iandlords 1.2 0.6 Agricultural Wylenders 73. 9 36.0 Professional mieylenders 27.0 13.2 Traders and Carmission Agents 18.1 8.8 blatives 18.1 8.8 Others 28.6 13.9 W 205.4 100.0 Source: laserve Bank of India Bulletin, December 1965. 69 Part of the agricultural assets also appropriated,a large part of the c00perative agricultural credit. Thus, despite an improvement in their contribution to the overall supply of agricultural credit, c00peratives could not provide very much help to the small farmers and tenants. After the introduction of Crop Loan System in 1966, the government hoped that small farmers and tenants would be able to obtain c00perative loans on the basis of personal rather than their tangible security. Introduction of CrOp Loan System (CLS) It has been mentioned above that the RC8 Committee laid heavy emphasis on the CLS. In its view, the CLS should have the following important characteristics:6 (a) The amount of the loan should be so fixed as to be an adequate proportion of the cash outlay per acre of crops. In most cases, it would bear a reasonable (appro- ximately one-third) relation to the value of the cr0ps to be grown. (b) Wherever appropriate, the loans may be given in suitable installments instead of a lump sum at the start. (c) Loans should be in kind to the maximum extent possible. (d) Cooperatives may be allowed to have a "statutory charge on the crop for the seasonal finance given to buttress personal security."7 In other words, cooperatives should have the first charge on the borrowers' crops in the event of default. 70 In 1966, the Reserve Bank of India, which is a major source of capital for cooperative institutions, issued the Crop Loan Manual.* This manual prescribed detailed guide— lines for lending and recovery of cooperative loans, and the related procedures to be followed by cooperatives all over the country. The manual required each central cooperative bank (CCB) to prepare a scale Of finance for the district Of its Operation. Such scale Of finance would consist of: (a) a cash component for traditional cultivation which might not generally exceed one—third of the value of total gross pro- duce under such cultivation, (b) a kind component representing modern inputs such as fertilizers, pesticides and the new high-yeilding varieties of seeds, (c) an additional cash component up to 50 percent of what is drawn under (b). The scale of finance would have to be prepared at an annual conference of the field workers, consisting of the chairman Of a few cooperative societies, directors of the Central Cooperative Bank, the field staff of the Department of cooperation, the extension officers of the Department Of Agriculture. The conference was required to determine the probable expenditure for each crop under the three components. It was also stated in the manual that a cultivator's repaying capacity should be taken at half the anticipated gross output under the traditional system of cultivation. *Appendix A.9 shows the assistance provided by the Reserve Bank of India to COOperatives in 1971-72. 9". lbs. . . ease. Chan 7 ’uue' -1... s n ‘7 o- 'I ‘- ‘la '1 ‘5' C F'- U‘. ‘ 71 The CrOp Loan Manual requires each cooperative society affiliated with the district central cooperative bank to maintain a register Of every member's holding. This was important for the landowners as well as for the tenants. Once the scales of finance were ready, the secretary or the manager Of each society would check with each member about the crops the latter wants to grow during the following two seasons.* This would help in the preparation of the Credit Limit Statement for each society in the district. Such statement would not entitle the primary society to draw the entire amount contained in it. However, after a thorough scrutiny of the particulars given in the Credit Limit State- ment about each member, the central cooperative bank's inspector would give his recommendation about the amount under the society's command and the balance which had to be sanctioned by the bank. Under the limit so sanctioned, a society could draw funds as and when needed for meeting the agricultural credit needs. Moreover, timeliness Of credit was given tOp priority in the Crop Loan Manual. CrOp loans for the next crOp could be given only after the members have repaid their preceding debts. This implicitly *There are generally two crOpping seasons in India: Kharif and Rabi; Rabi crops are sowed in October-November and are harvested in April-May. Kharif (autumn) crops are sowed in July-August and are harvested in October-November. However, the new high yielding varieties have a shorter duration than the traditional varieties Of seeds. In some areas, therefore, three crops are grown in a year. 72 :meant.that only those members were entitled to fresh loans ‘whO kept their past recOrds clean by prompt repayments after the preceding harvest. An intermission Of two to three weeks was considered as "desirable" between the repayment Of past loans and the disbursement Of the fresh ones. As per the CrOp Loan Manual, once a society was permitted to draw certain amount for disbursing among the individual zmambers, its manager would have checks in their favor and the latter could present them at any branch Of the central COOper- ative bank. For loans in kind (component b) the society would issue either delivery orders to the loanees who could get the required amount of (new) inputs from the area's cooperative :marketing society, Or would try to make available such inputs on its own. The manual also provided for an additional loan Of 5 to 10 percent of the value of crops marketed by a member through the primary marketing society during the previous year. It was hoped that puch‘awprovision would foster a better integration between cooperative credit and marketing. Yet, the CLS idd not work effectively, largely because the loan procedures prescribed in the manual were not honestly followed by the central cooperative banks and/or the primary credit societies. COOperatives continued to increase their total volume Of agricultural credit, but somehow it occurred to the government Of India that their ”progress" in terms Of membership and the amount lent to farmers was illusory. The 73 .All India Rural Credit Review Committee (RCRC) was, therefore, appointed to reassess the whole situation related to agricul- tural credit in India and suggest means to improve it. The focus of this Committee was on the supply of agricultural credit in the context of India's Fourth Five-Year Plan (1969-74) in the light of increasing demand for improved varieties of seeds and fertilizers and other nontraditional inputs. As stated in the last chapten the RCRC presents an estimate of short, medium and long term credit needs for 1973-74. In fact,.the Committee's estimates were largely based on the data provided by the AIRDIS and a few field surveys conducted in the IADP* districts by the Agro-Economic Research Centers. Report of the All India Rural Credit Review Committee (RCRC) The RCRC noted that not withstanding the periodic failure of crops, agricutlural production in India has shown a substantial (50 percent) increase between 1949-50 and 1967-68. It hoped that unlike in the past, the prospects of a wide-spread use of the HYV seeds and fertilizers were bright over the next *IADP refers to Intensive Agricultural District Program. Since 1961 such programs have been introduced in some selected districts having adequate irrigation facilities or assured rainfall. A package of HYV seeds, fertilizers, pesticides and other necessary inputs is then made available to the participating cultivators. The program also includes proper soil and water management, extension education and provision of cooperative credit. 74 decade. The committee estimated that the area under such seeds would increase from around 10 million hectares to 24 million hectares and that use of fertilizers would rise five times during the fourth plan period. In the same manner, the use of pesticides and other non-conventional inputs was also likely to increase manifold during this period. The RCRC reviewed these facts in the light of production targets set forth for the Fourth Five-Year Plan, (1969-74) and projected the total short-term agricultural credit needs at Rs. 20,000 million for the year 1973-74. Out of this amount, it was estimated, Rs. 11,730 million would be needed as cash outlay and the rest in the form of improved seeds, fertilizers and pesticides (Table 2.3). Besides, the long term and medium term credit needs during the Fourth Plan period were put at Rs. 15,000 million and Rs. 5,000 million, respectively. The Committee implicitly referred to the big responsibility which cooperatives and other institutions had to share in the provision of agricultural credit during the Fourth Plan period. Yet, to the RCRC the performance of cooperatives did not appear completely acceptable. It charged that coopera- tives had discriminated against small farmers and tenants, and had shown a heavy bias toward the large landowners. Besides, the Committee also eXpressed its concern over the uneven progress recorded by cooperatives in different states. '0 ‘l 75 The RCRC was disturbed by the poor quality of cooperative personnel, particularly at the primary (village) level. In its opinion, most primary cooperative credit societies in India have a low paid and nonprofessional staff. The Committee observed that despite the introduction of Crop Loan System throughout the country, cooperatives determine the scales of finance and disburse crop loans according to their convenience rather than the production needs of farmers. It was also pointed out that cooperative credit in India was generally obsessed with numerous procedural formalities. The Committee expressed its deep concern about the mounting number and amount of overdue cooperative loans. It was amazing that in several cases (no data were provided) overdues resulted due to deliberate withholding of repayment by resourceful (large) farmers. The RCRC quoted a few empirical studies to support its plea that in different parts of the country (including the HVP districts) lending and recovery procedures of cooperatives were designed to suit the convenience of the large farmers only'whereas the small farmers failed to obtain the required amount of credit. Since large cultiva- tors were generally capable of meeting a larger proportion of their production outlays from their own resources, the Committee urged a conscious effort to increase the prOportion of loans going to the medium and small farmers. 76 The RCRC urged a better coordination between short, medium and long term loans. The Committee also stated that specialized agencies were required to help the small, but potentially viable farmers, as their problems were different from other groups of farmers. It was suggested by the RCRC that small farmer development agencies should be set up all over the country on a pilot basis. Each Small Farmer DevelOpment Agency (SFDA) would identify those farmers who are small but potentially capable of becoming surplus producers with improved techniques, irrigation and availability of agricultural inputs. It was also recommended that each pilot project serve nearly 50,000 such farmers. The Union (Federal) Government was urged to provide all the funds needed for developing SFDAs. Besides, the RCRC called upon cooperatives to provide the necessary short, medium and long term loans for the small farmers identified under such schemes. However, the loans so pro- vided would be earmarked for small farmers. The Government of India accepted these recommendations and decided to set up 46 SFDAs all over the country during 1970-74. The government decided to allocate Rs. 15 million for each SFDA over four years. Cooperatives have been assured of liberal loans from the Reserve Bank of India and periodic grants on defaults related to the loans advanced to small farmers. 77 Until the end of May, 1972, over 1.58 million small farmers had been identified by the SFDAs, of whom about 0.7 million were enrolled as members of cooperative credit societies. During 1970-72 production loans (short term) worth Rs. 185 million and investment (long and medium term) loans worth Rs. 123 million were advanced to these farmers.8 In addition to accepting the recommendations of the RCRC, the government also set up the Rural Electrification Corporation and reorganized the existing agencies for long term agricultural credit, i.e., the Agricultural Refinance Corporation and Land Deve10pment Banks. Other Committees on_Cooperative ”Agricultural Credit Besides the above mentioned committees, a few other committees and expert groups have also studied the system of cooperative agricultural credit prevailing in India. All these studies reveal that despite the introduction of Crop Loan System, cooperatives have not been able to provide useful services to farmers, especially the small and medium cultivators. However, three of such reports deserve a brief appraisal. The first report was submitted by the Mirdha Committee in 1964, and the second and third reports by a Study Group of the Reserve Bank of India and the National Council of Applied Economic Research (NCAER), respectively, in 1972. However, these committees did not analyze the working of cooperative credit agencies as comprehensively as was done by the RC8 Committee, AIRDIS and the RCRC. 78 Mirdha Committee on Cooperation9 It was reported by the Mirdha Committee that despite the tough policies pursued by the Reserve Bank of India in granting accommodation to COOperatives, the number of dormant societies was rapidly increasing. In 1963, for example, about a quarter of the farm credit COOperatives were inactive. The Committee also expressed its concern over the dwindling financial resources of cooperatives in India. Yet, it gave an endorsement to the cooperatives and argued; ". . .not withstanding individual lapses here and there, the cooperative movement as a whole is progressing in the right direction."10 Apart from describing the principles of cooperation and their relevance in the Indian context, the Committee suggested that moneylenders should not be permitted to join the cooperatives. The Mirdha Committee was skeptical about the competence of cooperatives to meet the increasing demand for credit on the crop loan basis. It recommended an overall assessment of short-term agricultural credit requirements in different parts of the country before launching a program of crop loans.ll Study geam on Cooperative Agricuigural redit Institutions (1972) This team was asked in 1971 to examine the working of agricultural cooperative credit institutions in West Bengal, but the team claims that similar conditions prevailed in several other states and, therefore, its conclusions and 79 recommendations were relevant to them too. After finding that the cooperative institutions in West Bengal were in a state of financial crisis, the team feared that this crisis could soon acquire new dimensions unless effective measures were taken to improve the situation. In its opinion, obser- vance of "financial discipline" by cooperatives is a sing-qua: non of their efficient working. The cooperative institutions in West Bengal were facing a grave problem of rising over dues too. The team estimated that the short term credit needs of West Bengal in 1970-71 were Rs. 785 million. However, its method of estimating the farm credit needs was erroneous, as the team took fixed averages of Rs. 250 per hectare for the irrigated land and Rs. 125 per hectare for unirrigated areas as the norms of credit needs throughout the state. Based on these estimates, the study team concluded that cooperatives were supplying less than 23 percent of the total credit needed. Even though COOperatives in west Bengal were generally found in a desperate situation, the team conceded, ”creation of altogether new institutions is impossible in view of the resources, organization and time it may involve."13 However, if a specific institution could not be improved, it should be replaced by, what the team 1abeled,a cooperative agricultural bank. The team report contains some high sounding recommenda- tions to improve the working of cooperative institutions in ”mg. - .viy s.. o,. I“ n p s g. ‘d 80 West Bengal. For instance, it suggests the "creation of a sense of responsibility among the cooperators,” because it would help timely recovery of loans. Further, the report recommends that ”a sense of devotion and altruism" should develop among those who lead the cooperative movement. But the team neither cared to examine the causes of present apathy and indifference among the cooperators and/or the leaders of cooperatives, nor did it suggest measures to correct such an attitude, albeit it does plead for a strict action against those who fail to repay their loans on due dates. The National Council of Applied Economic Research (NCAER) Study14 The NCAER conducted a study of 24 villages in three districts of Gujarat, Bihar and Mysore. But rather than discovering the effectiveness of cooperative loans in agricul- tural production,the reader finds a stereotyped analysis of overdue loans, the coverage of cooperatives among rural households and the financial condition of the primary coopera- tive societies in the selected villages. The focus of the study was, however, on the low coverage of cooperatives and their inability to provide "adequate” loans to their members. However, the NCAER Study commits the same mistake as the West Bengal Study Team in using the norms of Rs. 250 and Rs. 125 per hectare for irrigated and unirrigated areas for estimating the farm credit needs. h ...p A I I that” Dina. I w... I "‘sl. 'st‘ e.. A. II..- :1) 81 One interesting revelation of this study was the "tendency of deliberate and willful default" by rich farmers in paying off their loans.15 It also reported a significant coefficient of correlation between cooperative loans and the size of landholdings, implicitly showing the neglect of small farmers, who obtained the bulk of credit from the village moneylenders. It was also reported that lending procedures of cooperative societies were generally incomprehensible and time consuming, thus making it difficult for a vast majority of farmers (especially the small ones) to borrow from these agencies. It was stated that the permissiveness and ”let it go" policy of the secretaries and directors of cooperative societies also encouraged several members to withhold or delay the repayment of cooperative loans. Report on the Utilization of Cooperative Loan316 The Program Evaluation Organization's Study (PEG) of the Utilization of Cooperative Loans was released in 1965. The study was based on comprehensive nation-wide surveys of farm holdings and presented useful information on the utiliza- tion of cOOperative loans in different states. The PEO field surveys revealed that 40 percent of the recipients of short term cooperative loans diverted the use of such funds to nonproductive uses. The estimated proportion of the short term credit so diverted was 23.4 percent of the total amount. 'q to .u. bu '1n.’ «it. ‘Ia..‘ an... . I‘:. v.‘_ "ds. ”V “A '1} 82 For the medium term loans, the corresponding prOportion was 34.8 percent during 1960-62. The PEO study computed the total cash expenditure among different categories of farmers and estimated their credit needs. It argued that since Indian farmers generally fail to get adequate credit for meeting their needs, such diversion of cooperative loans for consumptive purposes is inevitable. It reported that in the relatively less advanced states, the proportion of diverted short term credit was much higher than in the economically advanced states such as Bombay, Madras and Punjab.* Further, those having some formal education reported a much lower proportion of diver- sion than the illiterate borrowers (Table 3.3). It was also discovered that small farmers diverted a larger proportion of their loans than the large landowners. Generally, half of the diversion was found to be the result of economic pressure (lack of money to buy consumer goods) but nearly 40 percent of it was a result of the borrowers' ignorance about the specific uses for which cooperative loans were meant. Surprisingly, the PEO study found no significant rela- tionship between supervision and the magnitude of diversion. However, it did report that most of the primary societies covered under the study were managed by part time or honorary secretaries or managers having very little or no training or practical experience in running a COOperative. *In the economically backward states such as Rajasthan and U. P. 60 to 72 percent of the short term cooperative loans were diverted to nonproductive purposes. If?! 83 TABLE 3.3.-Proportion of Farm Households Diverting Cooperative Credit Pooording to the level of Literacy, Size of Holdings and the Iaigth of barbership, 1960-62 (Percent of all Diverters) Factors Affecting the mgm‘tude amt-dens Median-Tenn of Diversion loans (S.T.) loans (M.T.) Energy: (1) Illiterate 64.7 54.8 (ii) 2-5 years of scl'noling 19.5 22.7 (iii) 6-8 years of schooling 13.3 18.6 (iv) High school and above 2.5 3.9 100.0 100.0 Size of Holdirg: (i) Below 5 Acres 45.3 ‘ 25.8 (ii) 5-10 Acres 18.7 22.5 (iii) 10-30 Acres 27.3 36.9 (iv) Above 30 Acres 8.7 14.8 100.0 100.0 length of barbership: (1) Below one year 6.9 2.8 (ii) l-2 years 10.1 7.4 (iii) 2-3 years 13.5 13.5 (iv) 3-4 years 7.0 6.0 (v) 4-5 years 13.5 9.5 (vi) Above 5 years 49.0 60.8 100.0 100.0 Source: Program Evaluation Organization, Study of Utilization of COOperative loans , New Delhi Plaming Mission, 1965. 84 It seems, however, that no serious thought has been given to the problem of diversion of cooperative loans. Some of the recent studies pointed out that 30 to 40 percent of COOperative loans are still not used for farm business.17 In the remaining part of this chapter a brief review of the past performance of COOperative agricultural credit insti- tutions and their present condition will be presented. Review of the Cooperative Agricultural Credit Movement in India The introduction of the Cooperative Credit Societies Act in 1904 marked the beginning of the Cooperative Movement in India. However, the movement gained momentum only after the inception of economic planning in 1951. It was realized by Indian planners that shortage of credit was a major bottle- neck in the development of Indian agriculture. They also held a belief that farmers in India were generally exploited by moneylenders and, therefore, there was an urgent need to provide them not only more credit, but to provide it at a concessional rate of interest. The publication of RCS Committee Report (1954) supported these beliefs. As a result, since 1955 the Government of India and state governments redesigned their policies so as to stimulate the availability of agricultural credit through cooperatives. The outlay on cooperative development schemes increased from Rs. 71 million during the First Five-Year Plan (1951-56) to Rs. 1,786 million during the Fourth Five-Year Plan 85 (1969-74). The Union and State Governments spent over Rs. 3,000 million on development of cooperatives between 1951 and 1972. A detailed breakdown of these outlays on agricul- tural and other forms of cooperation is not available, but on the basis of geographical coverage,.number of members and volume of business, it may be estimated that 60 percent of this amount or Rs. 1,800 million has so far been spent by the government for the development and maintenance of coopera- tive agricultural credit institutions.18 In addition to these generous allocations for plan outlays for the development of cooperative agricultural institutions, the Reserve Bank of India (RBI) has also been providing liberal loans to cooperatives subsidized rates of interest (Chapter II). The present organizational structure of COOperative agricultural credit (for each state) has been portrayed in Figure 3.1. A farmer borrows from the primary credit insti- tutions of his area, which themselves seek financial help from the central or apex level cooperatives. It is evident from Figure 3.1 that eventually a large part of cooperative agricultural credit is provided by the RBI. As a result of the above mentioned measures (taken by the government and the RBI), cooperative agricultural credit institutions have registered a phenomenal increase in their membership, share and working capital and the amount of credit advanced. Tables 3.4 and 3.5 explain the progress of the apex 86 and central cooperative banks between 1961 and 1971. It is evident that during this period their loan Operations have expanded 3 to 4 times. The progress of the primary credit societies has been shown in Table 3.6. It is clear that currently 9 out of 10 villages are covered by the primary credit societies. Further, 33 percent of the rural p0pulation and 45 percent of the cultivating households appeared to be in the cooperative fold in 1971. Table 3.6 also explains that during the decade following 1961, short and medium term coOperative loans have increased almost three times. It is hoped that the volume of cooperative credit (short and medium term) will increase from Rs. 5,779 million in 1970-71 to Rs. 7,500 million in 1973-74, and further to Rs. 12,500 million by 1978-79.19 But these data about the quantitative growth of cooper- atives are, in reality, misleading. As will be shown below, the primary societies and central COOperative banks are in the grip of financial crisis. This situation was described at length by all the committess and expert groups cited above, but it is getting worse year after year. The following aspects of their present health deserve particular consideration.* *Data for this analysis have generally been taken from the Statistical Statements Relating to the Cooperative Movement in India,‘gp,‘cit., (1972). E37 .umoa some uo econ zoom co ocwosm wash m>fiumummooo sou ou sunfish mmusowhm .Nnma nonfiouowm .mwocu mo xcmm 0>uomwm .xmoEom .=mflocH on uflomno m>euouodoou ou mcHuMHmm monumwusum oouooHom: “mousom mm.mm mm.s~ Ha.m~ «.mm s.mm m>onm float no use mauuo>o meson .an s.~vmm o.smom m.mwmq m.msom m.ooma oeoocuuuuso meson .oa m.msvs m.m-s o.mmoo m.msov s.omma use» may menses caucu>ou meson .m H.~mmo «.mmmo o.memm «.moae o.os- is+e+m+m sauces savanna essence .w m.m~m m.m~v «.mmm m.sm m.e¢ mmeazouuon nonuo inane o.oaa «.moa ~.~ss o.mo~ o.oo nemecuo>oo wunum on» eons Anne H.mnem ~.omq~ o.mv- s.vvso m.mvaa «menu mo xcmm 0>Hmmom on» Souk Adv m.evm~ N.MN0m v.vma~ «.mmmn ~.mm~a iamnoee mmenzouuom .s o.smsm a.mem~ m.emn~ H.mo¢H m.m~s Aamuos. monuoamo .m ~.om s.ms 0.05 m.nm m.n~ mw>ummom sonuo i>ne s.am~ o.m~m m.mma . . . . . ease acnnmunflsnsum unease inane m.om o.mm o.vm m.m~ 5.0H mm>nmmom anon can .not “.mnH m.mm m.mm m.mm w.mm um>uomwm huouououm Awe m.oom N.~mq m.ssm m.ama G.sm Aamuoae ua>uouoz .m s.mma s.sHH o.onn o.ma e.ve u>oos Ame no poo sodasowuusoo unsecuo>ou .v m.m~v o.mmm a.esm m.mm~ «.mma awesome as vane .m ans.» mmm.» mmm.m ~mo.m mmo.s massen>nocH An. mms.aa mom.HH HHF.~H mam.~a mam.- mc>nuosumooo Ase Auoosdzv maneuooeuz .N mm mm mm NN Hm mxcsm «0 nonssz .H Heme chad mean Goad Home saga uonsez assume “museum confine: an ucsoacc adamannomn .aaeeH as mxcom 0>Humuomooo ousum mo mnouooumlu.v.m manta 8E3 .Nsma umnsmndmm .mnocH no xamm m>uomom .xooeom :.mflocH as odowno m>wuouomooo Ou oceuoaom moauwwuoum omuowaom: "mouoom s.mm H.m~ m.e~ m.mH m.~n Ame on mason mooum>o mo umsucmouwm .oa o.vmam m.smms v.0nem ~.ssmv m.oo- inouoec masocmnnuso mason .m H.mvm m.~mm o.m~m m.~ov m.~o~ memos sumauesaeoz m.o~om m.omms m.noas s.evom «.mmom memos suweuuuonm m.mmem s.mvmm m.om~m m.aevm o.aom~ new» man manned omocm>o¢ memos .m H.vnmon ~.smsm «.msmm H.smnu «.mmnm ie+m+v+mc Hmuaomo mangoes .s e.mom H.~mm H.Hv~ H.a m.va muonuo inane m.¢a v.oa ~.vm H.9vs «.mq mxcsm ucmEcum>oo oumum sou scum Afiwv m.mmmm m.pHmm “.mHmw “.mmwm m.mmmH mxcmm ooou wumum sou Eoum Ase «.nmmm «.mnsm m.svmm m.mve~ s.navn loanees mmcnzowuom .m m.mmmv H.esmm «.momm m.mem~. ~.o~na “fiancee anemones .m «.mmn v.sm a.mm m.ms o.mm mm>uwmmm umnuo A>Hc H.am ~.mm o.ov . . . . ease coanmnnnnnoum unease inane o.mva o.m~a m.¢o~ ~.mo ~.v~ mm>ummmm unmo omm Anne n.wnn H.mmH H.mmH m.nHH m.mm mo>uommm huounusum va ~.asm m.~wv m.omm ~.om~ «.mna iflmuoae mo>uommm .q o.msm m.nmm m.mm~ s.~mn H.mos conusnauueoo uchCHm>oo ovaoz mo m.HH¢H ~.ma~a «.mmnn ~.mms ~.amm awesome as when .m www.ms moe.es mmm.~on omm.noa omm.mma mamsun>necH lean oo~.mmm mom.¢m~ omv.smm men.mmm Goa.mm~ uo>nnmumdooo inc iumnsszc "annmuwnsoz .N mas.m mmq.m vma.m mse.~ mvv.n mmonuwo «0 Honsaz Hem own Hem men can mxcmm no sunssz .H Hams case some gems lean souH nonesz Huauom Ammodsm coHHHHz cw unsOE¢v Helamma .mflocH ow mxcmm o>wumuoooou Houucso mo mmoumoumuu.m.m mqm<9 89 TABLE 3.6.--Progress of Primary Cooperative Credit Societies in India, 1961-1971 (Amount in Million Rupees) Serial Number Item 1961 1966 1969 1970 1971 1. Number of Societies (Total) 212,129 191,904 167.760 162,700 160,780 (a) of which Active Societies 171,124 168,224 146,699 143,709 140,546 (b) Number of societies lending funds 169,919 152,658 124,946 121,722 117,063 (c) Dormant Societies 41,005 23,680 21,061 18,991 20,234 2. Percentage of villages covered by (la) 66 82 86 85 86 3. Percentage of population covered by (1a) 24 33 33 33 33 4. Number of members ('000) 17,041 26,135 29,173 29,773 20,963 5. Percentage of borrowing members 53 42 38 39 36 6. Paid up capital (Total 577.5 1153.2 1673.1 1865.2 2057.4 Of which Government contribution 57.1 104.8 130.3 148.0 169.4 7. Reserves 178.0 335.9 478.5 523.3 595.7 8. Deposits 145.9 344.9 568.4 626.7 694.6 9. Borrowings from the Central Cooperative Banks 1837.8 3631.5 5402.2 6179.4 6751.9 10. Loans advanced by (1b) 2027.5 3419.8 5038.7 5401.1 5778.8 Short-Term loans . . . . . Medium-Term Loans 199.3 368.0 474.8 523.4 585.4 11. Loans recovered during the year 1626.4 2835.4 4209.7 4552.4 5046.5 (a) of which those recovered by the sale of members' produce . . . . . . 448.0 406.0 478.3 (b) Number of societies concerned . . . . . . 13,305 21,163 16,843 12. Loans outstanding (Total) 2180.0 4269.0 6187.5 7114.4 7844.8 Short-Term Loans N.A. . . 595678' . Medium-Term Loans N.A. 703.7 968.2 1157.6 1372.8 13. Percentage of Overdue Loans to Total Loan Outstanding 20.3 29.4 34.6 37.7 41.1 Source: “Selected Statistics Relating to Cooperative Credit in India,“ Bombay, Reserve Bank of India, September 1972. Note: N.A. - not available. sevOlvzesie— 04...... -~- 9 up... e.v .as e... ~e.u..-d -\.< In!)- OlV-OfsytaxVAipe .nhla'.~ux.3-.A,VV.~ ,h‘i I'IiI‘weNi .ahlr'l\ I. .yuhu§-§<.‘\ 9O .Mneaa no xemm o>ummom .mmnsom .inauosaa ecu Hmuoomae .ooeueoomm mmfl3umouo unease meadow cowHHfiE ca osHo> meooH ow pooEm>oz m>euouomoou sou ou mowuoaom nuooemueum Hoowuuausum «flohfiom n 0902 He.m ms.om conuoeooom soon now inc o~.mmn av.vm sausages: Mo espoused uom Any mm.nm mm.mn acoeu>ouoaH come now As. om.~moa H~.GHH issues. new» as» mousse oooso>o¢ mason .oa ov.emmn m.mos sum» as» manage oooan neuoucenoo .m s.esa e.m mosnnm>o .m om.msmo ma.eem manecuuuuao meson .m e.amnn mo.aa new» we» manage coucm>e< mason .m N~.~va oo.esq Housman manages .a s.~mqv Ho.ov~ oeeecmnmuso meson .s s.Hs «o.m nunuoooo .o o.oomm mm.am~ awesome mcnxnos .0 oo.am mH.HH no>uouom .m s.movv mm.nv~ mmcwzonuom .m ~m~s mm.om nousueonuo .v s.m~ sm.m mnemodmo .e em.mmv om.mv awesome «snow on ones .m m.mn¢ os.ma awesome manna .m «can qsm loco.. maoacn>neeH in. mmm «as iumnsezc mecca suusaua inc smmm ~.aoo nooo.c daemuoneuz .N unannounsus .~ mew mes umnssz .H as an nunsez .H Hams Head mxcmm nemsaoam>mo Heme Haas cease aeoeaono>ao coon anoEwum coda aeuucoo immense confides an encased .Hsmaunmad smmzuom swoon ca vapouu Honouaoowumc o>wusuomooo Eueanocoq mo snomeumsn.n.m wands are i: :.::ea: ‘ 1 2:...51 t ‘fle‘ua trains. Q H's, 'M“ F4 .‘u' (I I I.‘ . '9 he . 5 I I. "— ea“ a“~ k.\‘ .., l l' I! u ( 91 Number of Active Societies In 1955 about 20 percent of the primary credit societies were inactive but by the end of June 1971, their proportion increased to 27 percent (Table 3.6). In Assam and West Bengal less than a quarter of the primary credit societies conducted business during 1970-71. On the other hand, in Punjab, Madhya Pradesh, Gujarat, Haryana, Maharashtra and Bihar the proportion of inactive to total number of societies was 14 percent or less. It was observed by the RCRC that a large number of primary credit societies were too small to conduct sufficient volume of business and become viable units. Eventually, such societies become inactive, though they are still not considered as dormant societies. The RCRC, therefore suggested that the state governments take necessary (statutory) steps for the amalgamation of nonviable cooperatives so as to convert them into viable units. Until June, 1971 only eight states (Maharashtra, Rajasthan, Orissa, Andhra Pradesh, Uttar Pradesh, West Bengal, Kerala and Madhya Pradesh) had passed laws for compulsory amalgamation of the inactive, nonviable primary credit societies. The Annual Conference of the Registrars of Cooperative Societies observed in 1970 that there was a marked reluctance on the part of societies and the state governments to accept amalgamation as a necessary step for converting small and inactive societies into viable units.20 92 In short, the pace of reducing the number of dormant, inactive and nonviable credit societies has been very slow. In addition to this, the state governments are reluctant to take measures which are imperative to activise even those societies which may become viable with a little financial help. Number of Borrowing Members It is apparent from Table 3.6 that the proportion of borrowing members (and even their actual number) to total membership is declining year after year. It was mentioned earlier that 45 percent of the cultivators are associated with the primary credit societies in India. If the proportion of borrowing members is compared with the cooperative membership, only 17 percent of cultivators in fact benefitted from cooperative credit during 1970—71. In Assam, Bihar, Orissa, Uttar Pradesh and West Bengal more than 70 percent of the members did not obtain any loan from the primary credit societies in 1970-71. On the contrary, in Haryana, Punjab and Gujarat more than 50 percent of the members received cooperative credit during this year. These data suggest that more than one-third of the members are fully'dependent on noncooperative agencies to meet their credit needs for farm business and household consumption. Loan Per Member It can be argued that 45 percent of the cooperative short and medium term loans were advanced to those members in we .1 ‘9 93 1970-71 who held more than 4 hectares (10 acres) of land. It may be pointed out in this context that farmers with over 4 hectares of land constitute 16 percent of the cultivators in India, but command about 50 percent of the total agricul- tural land. In other words, there is a significant correla- tion between the distribution of land and the distribution of cooperative loans among farmers. This seems obvious in view of the fixed scales of per hectare cooperative finance prescribed under the Crop Loan System. It can also be observed that the cooperative loans in Bihar, Jammu and Kashmir, Orissa, Rajasthan and West Bengal had a much lower average (less than Rs. 300) in 1970-71, as compared to the corresponding average of Rs. 600 in Gujarat, Maharashtra, Punjab and Tamil Nadu. Thus, small loans, which presumably go to the small cultivators, show a concentration in those states where the level of agricultural development is generally low. Loans in the range of Rs. 1,000 and over per borrowing members show a heavy concentration either ini» those states where the HYV of seeds are used on a large scale (such as Punjab, Haryana, Gujarat Maharashtra and Andhra Pradesh) or where the feudalistic elements still command a large proportion of the crOpped area. Problem of Overdue Loans Overdue loans (commonly known as overdues) often result in the stagnation and poor financial health of cooperative 94 credit institutions. In India, the proportion of overdues to the outstanding cooperative loans at the end of June, 1971 were 41 percent at the primary level (Table 3.6), 34 percent at the CCB level (Table 3.5) and 36 percent at the apex bank level. It is apparent from Tables:3.4 to 3.6 that the problem of overdues has become serious during the past 10 years. At the end of June 1971, the proportion of overdues at the primary level was 60 percent or higher in Assam, Bihar, Jammu and Kashmir, Orissa and West Bengal (Appendix A.7). What is more striking is the fact that except in Gujarat, Himachal Pradesh and Kerala the amount of overdue loans exceeded the owned funds (paid up share capital and reserves) of the primary credit societies. This implies that in most of the states of India overdues have not only absorbed the owned funds of these agencies, but have even eroded a sizeable part of their borrowed capital (Appendix A.7).21 The RCRC examined the causes of overdues at length and put them into four broad categories: (1) natural calamities and failure of crops, (ii) lack of supervision over the utilization of loans (iii) permissiveness of the secretaries and directors of primary credit societies towards the willful defaulters, and (iv) poor linkage between agricultural credit and marketing. It was recognized by the RCRC that in the event of wide— spread crop failure in an area (resulting from natural calamities, such as severe droughts, floods and cyclones) farmers fail to repay their loans on due dates. For such 95 overdues, creation of special stabilization and relief funds at the primary level was recommended by the RCRC. Better supervision over the use of loans and better linkage between credit and marketing operations were suggested as effective measures to combat the problem of overdues. For the willful defaulters, the RCRC suggested that legal and coercive measures would be needed. It was suspected by the Registrars of Cooperative Societies at their conference in September 1972, that the proportion of overdues to outstanding loans had risen to 45 percent by the end of June 1972.22 Cost of Overdues Simple arithmetic calculations reveal that the primary societies lost Rs. 381 million in 1969-70 and Rs. 487 million in 1970-71 on account of overdue loans (Table 3.8). In other words, their interest income would have been higher by this amount if there were no overdues. Obviously, such losses are likely to rise further if no effective measures are taken to combat them. Another estimate shows that during 1970-71 alone the default rate on COOperative loans was 12.5 percent.* As per *In 1970—71 the primary credit societies advanced short term loans worth Rs. 5,778 million but could recover only Rs. 5,046 million. Thus the rate of default was 12.5 percent. However, the rate of default was much higher than this level in many states (Appendix A.8). 96 Table 3 . 8.-Estineted loss of Interest Insure to Primary COOperative Societies in India Due to Overdue loans in 1969-70 and 1970-71 . (Mt in Million Rupees). ..... ' Womadue Loss of Period for Assuned Mean June 30, June 50, ' Interest Inocmee Which loans Period in 1970' 1971 — Were Overdue Years (t) , 1 year or less 0.5 1343.3 1505.1 60.45 67.72 1 to 2 years 1.5 606.7 722.2 86.15 106.82 2 to 3 years 2.5 373.0 473.7 86.53 109.90 Over 3 years 3.0 359.4 492.6 147.73 202.44 Total 2642 .4 3223 . 6 380 .86 486 .88 @Following formula was used tocaupute the loss of interest insane: I-{P.(1+r)t-P} merelstotalinterest, imarelost, P=emomtoverdue, rarateof interest and 5 == period for which the loan was overdue. Since cooperative societies in India generally charge interest at the rate of 9 percent per annuu, the fomula can be written as: I = p (1.09% - p Source: Statistical Statemts, 'g. 9.1.3." No. 29. 97 U Tun Wai's calculations (mentioned in Chapter II), coopera— tives should have charged interest at the rate of 24.2 percent to compensate for such default. The COOperatives impose no penalty on the defaulters. Rather, their rate of interest on defaults was only 12 percent which was much lower than the interest rate charged by moneylenders on normal loans. The mounting number and amount of overdues generally have two implications: (i) first, if the amount of overdues exceeds the owned funds of COOperative societies (as is the case in most states in India), it would have an adverse effect on all those institutions from which such societies borrow especially the CCBs,and (ii) they adversely affect the financial health of a primary society and inhibit its growth. It was conceded by the Registrars of Cooperative Societies at their conference in 1970 that the ratio of overdues to outstanding loans at the CCB level ranged between 50 to 75 percent in Assam, Bihar and West Bengal. It should be recalled that in these states the incidence of overdues was high at the primary level too. It is probable that the critical financial conditions of CCBs in these states has been largely due to the heavy accumulation of overdues at the primary level. Poor Linkage Between Credit, Input Supply and Marketing It was stated in the preceding chapter that credit alone would not provide an answer to the problem of the low level of agricultural development in India. Referring to the 98 trinity of credit, input supply and marketing of craps, it was argued that an effective integration of the three will create conditions for the success of cooperative institu- tions. Earlier in this chapter it was contended that the CLS tends to emphasize loans in kind, and as far as possible, requires the recovery of loans through the sale of crops. Available statistics, however, clearly demonstrate that the trinity continues to remain a myth for the cooperative credit agencies in India. For instance, out of the total recoveries of Rs. 5,046.5 million, only 9 percent represented sales of crops grown by members. Further, except in Gujarat, and Maharashtra COOperatives in other states took no interest in encouraging the recovery of their loans through such sales in 1970-71 (Appendix A.9).* Moreover, the number of such societies engaged in recovery through marketing in 1970-71 was lower than in 1966-67 (Table 3.9). With respect to the supply of farm inputs also, their performance has not been encouraging. Out of the total value of farm requisites supplied in 1970-71, (Rs. 1,286 million) over 60 percent was supplied in Gujarat, Punjab and Maharashtra only. It is noteworthy that the respective proportions of fertilizers, pesticides and improved seeds in the total value of inputs supplied were 86.7 percent, 1.7 penslat and 6.4 percent in 1970-71. During 1970-71, the total amount of *Out of 117,063 societies involved in lending operations only 16,843 sold their members' crops. HhIannvaUHv !\IAUIIR.VPH~AU~% Inn-.etfllkru rhsruf,\.h fiafl\vlr\ II;\ V A 5st Uhu—Jduflehu: — ndn~nu Hale. (N 1...» q TILH n- n. 8.1..» a wisfihdnsu-.. (a m “usULLJ ns>fid Fwiflvfihcou \flquVEd.-HnH “H0 nflUSOOanUIII o m o M. 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Mg :8 9 .74 uh: :1 .n.‘ -\s a U a a as“ n no e I 4.. ni I n .1. uni e\.~ N.» 3.1,. ‘9 100 seasonal loans given by cooperatives was Rs. 4,697 million, out of which only 27.4 percent was given in the form of inputs. During the same year only Rs. 52.4 million were given as consumption loans. Poor Financial Base For a healthy cooperative credit structure it is important that the primary credit societies develop a sound capital base. Indian cooperatives are, however, moving in the opposite direction. If their record of capital base is analysed for the past five years when the CLS has been in vogue, the ratio of owned funds to working capital appears to have declined from 26 percent in 1966-67 to 23 percent in 1970-71 (Table 3.9). It should be made clear that the degree of their reliance on borrowed capital moves inversely with such ratio. Appendix A.7 indicates that in Assam, Bihar, Haryana, Jammu and Kashmir, Madhya Pradesh, Orissa, Punjab, Rajasthan and West Bengal, the primary societies' owned funds constituted 20 percent or less of their working capital. It is surprising that even in the relatively advanced states like Maharastra and Gujarat, the percentage of owned funds to total working capital was less than 28. What is more striking is the failure of COOperatives to build up an adequate capital base in Punjab and Haryana, where generally farmers are more prosperous, and cooperatives are showing better coverage than in other states. The situation seems to 101 be deteriorating further in View of the rising overdue loans across the country. Furthermore, the heavy reliance of primary institutions on borrowed funds induces a chain reaction on CCBs and the apex banks. In the ultimate analysis, as noted above, it is the Reserve Bank of India on whose help the entire cooperative credit structure depends (Appendix A.9).* Poor and Inefficient Management The skill, competence and aptitude of secretaries and managers largely determine the extent to which cooperative institutions can operate successfully. The Rural Credit Review Committee (RCRC) stated in its report that most primary credit societies and a large number of CCBs in India were managed by inefficient and inexperienced personnel. The Committee reported that the biggest need in the prevalent situation was the eXpansion of training facilities for the COOperative personnel at the primary level. The RCRC reported that as of April 1, 1966, the propor- tions of trained secretaries to their total number in some of *As per the Report on Currency and Finance (1971-72) the Reserve Bank of India advanced for seasonal agricultural operations only, Rs. 4,344 million in 1969-70 to State (Apex) Cooperative Banks at 2 percent below the bank rate. For 1971-72, the corresponding amount was Rs. 4,823 million. The outstanding loans on June 30, 1972 in this account was Rs. 1,539 million. Besides, outstanding medium term loans (total) on this data amounted to Rs. 457.8 million. All these loans were due from the Apex Banks, which accommodate the central coOperative banks and ultimately these funds help the primary credit societies. 102 the states were as follows: (percent)24 Andhra Pradesh (1), west Bengal (3), Assam (4), Tamil Nadu (5), Mysore (13) and Kerale.(30). The over all ratio of trained secretaries to the total number in these states was 5.5 percent. The government has so far made only modest efforts to provide professional training to the COOperative personnel working at the primary level. The V. M. National Institute of COOperative Management and the regional cooperative training colleges (numbering 13) offer training programs for the key personnel and junior officers working at the apex and district level cooperative institutions. In addition, there are 62 cooperative training centers to train the managers, supervisors and secretaries of the primary credit and marketing societies, irrigation societies, consumer stores and other types of cooperatives. In short, these programs offer no specialized training for the personnel working at the primary credit societies. In addition to lack of training, the poor management of the primary credit societies can be attributed to two additional but inter-related, factors: (a) low pay offered to the personnel, and (b) lack of incentives. It was recently acknowledged by the Registrars of COOperative societies that due to poor internal resources, most primary credit societies could not pay more than Rs. 100 per month to their secretaries.25 Further, out of the total number of 140,546 primary credit societies working at the end 103 of June, 1971, only 38 percent had full-time (paid) secretaries. Others had either part time or honorary secretaries.26 The RCRC also mentioned that primary credit societies in India generally offer no reward to the efficient secretaries who might have contributed greatly to increasing the volume of business and profits of their institutions. On the contrary, there is no provision to penalize the inefficient personnel. It was also observed that most secretaries do not enjoy security of their job. In short, a sense of insecurity and frustration among the cooperative personnel generally results in a low volume of business, low level of profits and an attitude of permissiveness towards those who do not repay their loans on due dates. Such an attitude increases the incidenc of overdues and eventually pushes the COOperatives into a financial crisis. Faulty Operational Policies It was noted earlier that the primary credit societies generally did not follow the guidelines prescribed in the Crop Loan Manual. Even though the Crop Loan System (CLS) requires that a COOperative advance short term loans on the basis of Operational holdings, yet, in practice the potential borrower has to offer his land as security. On the other hand, each tenant has to produce two sureties who own land. Thus, landed security continues to be a basis of cooperative loans. - a 9. C. 'v 104 Under the CLS cooperative loans are provided on the basis of scales of finance by crop and the production plans submitted by farmers. The RCRC observed that the scales of finance were generally fixed arbitrarily (without studying the per hectare cash expenditure in the region) and then were inflated year after year in the same fashion. The Committee further reported that the record of land holdings at the village level was either incomplete or out of date. For this reason,.there was a considerable room for arbitrariness in the determination of individual member's credit limit statement. The RCRC discovered that despite the introduction of CLS in 1966, the progress towards the adoption of seasonality in the disbursement and recovery of cooperative (short term) loans was very slow. In addition to this, the RCRC also reported that the procedural formalities in cooperative credit were lengthy and incomprehensible to the borrowers.27 General Paucity of Leadership The RCRC, the NCAER and the West Bengal Study team reported that cooperatives, from the primary level up to the apex institutions, generally lack a conscientious and devoted leadership. The RCRC was disturbed at the undue interference of the government in the operations of coopera- tive institutions, especially at the apex and CCB levels. It was abserved that in a large number of cases the . 9;? he ,',..a :1, I “a ‘94 105 members of managerial committees or boards of directors were illiterate, and were unable to play the role expected of them. The legal provisions limiting the number of years for which a member could hold such an office, were often violated by the resourceful farmers. In the foregoing pages a detailed description of the weaknesses of COOperative credit societies and the major causes of thier poor health have been presented. It was shown that cooperatives are financially weak and have generally failed to provide the noncredit services such as agricultural marketing, supply of inputs or even counselling which are rendered commonly by moneylenders. In the following section the adequacy of cooperative credit will be examined in the light of the criteria presented in the preceding chapter. Adequacy of the Short Term ngperative Agricultural Credit in ndia The first criteria to measure the adequacy of credit is the amount of loans. It may be recalled in this regard that the amount of coOperative agricultural credit (short and medium term) has shown a significant increase (from Rs. 220 million in 1951-52 to Rs. 5,779 million in 1970-71) during the past two decades. It is also possible that with a continued flow of (large) funds from the RBI, cooperative credit societies will be able to accomplish the Fourth Five- Year Plan target of Rs. 7,500 million by 1973-74. 106 However, tested on the basis of other criteria, cooperative agricultural credit does not seem to be adequate. The rate of interest on such credit is very much lower than the one charged by other lending agencies. However, as argued earlier, without government support and willingness to bear the incidence of interest-subsidization, cooperatives will not be able to provide such relief to their members. The timings of disbursement and recovery of cooperative agricultural credit generally do not suit the farm business needs of individual farmers. Finally, the fact that their emphasis is exclusively on credit, cooperative credit societies are not able to compete with moneylenders who generally provide a wide range of services to their clients. To sum up,except the amount of loans, cooperative agricultural credit in India does not meet the different tests of adequacy. Conclusions The quantitative growth of cooperative agricultural credit societies, described earlier in this chapter, needs to be evaluated in view of the facts discussed in the preceding sections. Though the amount of cooperative agricultural credit has risen 26 times (from Rs. 220 million to Rs, $780 million) during the past two decades, faulty operational policies and inefficient management have plunged the coOpera- tive societies into a deep financial crisis. It was observed that cooperatives are suffering heavy 107 losses due to mounting number and amount of overdues. The capital base of coOperatives at the primary level is not sufficient and forces them to rely heavily on the CCBs, which themselves have inadequate funds and must borrow from the apex banks. Unless effective measures are taken to mobilize additional resources and improve their recovery ratios, the primary credit societies will soon plunge into a still deeper financial crisis. As explained above, except for the amount of loans, COOperative agricultural credit does not meet the several criteria of adequacy. CoOperatives have not established the trinity, i.e., an effective integration between credit, marketing and input supply. Nor have the cooperatives timely credit, advice and other services to their members. As a result, they find themselves unable to compete effectively with moneylenders. The performance of cooperative societies in most states has been utterly disappointing. It would, indeed, require a ‘ Herculean effort to combat their present problems, especially those emanating from the heavy incidence of overdues, insufficient capital base and inefficient management. 10. 11. 12. 13. REFERENCES CHAPTER III Reserve Bank of India. All India Rural Credit Survey (RCS): General Report (Volume II), 1954. Ibid, pp. 171—78. Ibid, pp. 132-34. Government of India. Report of the Committee on Cooperative Credit. New Delhi: MiniStry of Food and Agriculture, 1960. Reserve Bank of India Bulletin. (September 1965 and December, 1965). All India Rural Credit Survey, 9p. cit., Chapter 37. Ibid., p. 453. Reserve Bank of India. Report on Currency and Finance (1971-72). 1972 pp. 25 and 113 and fiovernment 6? India. Conference of the Registrars of Cooperative Societies: Proceedings and Agenda Notes. New Delhi: Ministry of Agriculture (Department ofRCooperation) 1970. pp. 92-102. Government of India. Report of the Committee on Coopera- tion. New Delhi: Ministry of Food’andiAgricuIture, Ibid., p. 4. Ibide' pp. 46-47e Reserve Bank of India. Re ort of the Study Team on Cooperative AgriculturaI Credit Institutions in West Bengal. Eombay, 1972. Ibid., p. 38. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 109 National Council of Applied Economic Research. Effective— ness of Cooperative Credit for Agricultural Production. New Delhi, 1972. Ibid., p 61. Program Evaluation Organization. Study of Utilization of Cooperative Loans. New Delhi: Planning Commission, 1965. Bhalerao, M. M. and H. C. Pandey. "Utilization of Marketing Finance--A Sample Survey," The Maharashtra Cooperative Quarterl , (April 1972), Lavani, G. S. M. M. Bhalerao and Kali Charan. "Utilization of COOperative Credit--A Regression Study," Indian Cooperative Review, (April 1968), and Bhatt, M. L."Diversion 6f Long Term Agricultural Finance," Economic and Political Weekly, (October 9, 1971). Government of India. Draft Second, Third and Fourth Five-Year Plans. New Delhi: Planning commission , an 1969) and Conference of the Registrars of Cooperative Societies, 9p. cit., (1969, 1970 and 1971): Ibid., (1972) pp. 47—52. Ibide' (1970) ' ppe 49-50e Barla C. S. "The Mirage of Viability--A NOte on COOpera- tive Credit Societies," Economic and Political Weekly (August 6, 1969). Government of India. Conference of the Registrars of Cooperative Societies, _p, cit., (1972). Reserve Bank of India. Statistical Statements Relatin to the Cooperative Movement in India! Part I (1970-7%) CrediE Societies, 1971, pp. 5,9 and 93. Reserve Bank of India. Re ort of the All India Rural Credit Review Committee ifiecember 1969), pp. 955-56. Government of Inida. ‘Conference of'the Re istrars of Cooperative Societies, 9p, cit., (1972) Reserve Bank of India. ‘Statistical'Statements Relatin “t ‘the Cooperative Movement in India, Jp. cit., p. ' . Report of the All India Rural Credit Review “5m iEtee,o ppi'cit., Chapter 16. CHAPTER IV REVIEW OF COOPERATIVE AGRICULTURAL CREDIT IN RAJASTHAN* The past performance and present economic situation of cooperative credit institutions in India were discussed at length in the preceding Chapter. It was observed that these institutions generally have a weak financial base and do not appear capable of meeting the growing demand for agricul- tural credit. The structure of cooperative credit institu- tions is relatively weaker in Assam, Jammu and Kashmir, Madhya Pradesh, Uttar Pradesh, Bihar, West Bengal, Nagaland and Rajasthan, than in Maharashtra, Gujarat, Punjab and Haryana. The present chapter provides a detailed analysis of the @2922 Operandi, and the present economic situation of cooperative agricultural credit institutions in Rajasthan. *With a total area of 132,152 square miles, Rajasthan is the second largest state in India. Over 55 percent of this area constitutes arid and semi-arid zones. About 82 percent of the state's population lives in rural areas. Since this state is not industrially advanced, nearly three- fourths of the total labor force is engaged in agriculture. As compared to the all-India average of 20 percent, in Rajasthan only 12 percent of the cropped area is irrigated. Further, the state ranks very low in respect of per capita income, roads and railroads, availability of electric power and level of literacy. It is estimated that 50 percent of the urban and 61 percent of the rural people in Rajasthan live below the subsistence (poverty) line. It should be noted that the COOperative credti movement in Rajasthan made only a modest beginning until 1956. The primary cooperative societies covered less than 15 percent of the villages and 5 percent of the farm households by this time. By June 1972, however, they had covered about 98 percent of the villages and 35 percent of the farm households. They have also shown phenomenal growth in their working capital and the amount of short (as well as medium) term loans advanced. However, it appears that much of this quantitative growth has been accomplished without giving sufficient con- sideration to their qualitative performance. The following section will provide an appraisal of their quantitative progress and will review the state of their present financial health and working procedures. Since the scope of this study is limited to short-term agricultural credit, the focus of this chapter will be on the primary credit societies only. 111W 0 Cooperat ve Cre t Institu ons Tables 4.1 through 4.3 show the record of quantitative progress achieved by cooperative agricultural credit institu- tions in Rajasthan since 1955-56. The State Cooperative Bank (Apex Bank) has increased its owned funds 40 times during the 1955-71 period. The corresponding increase in the amount of loans advanced was nearly 390 times in the same period (Table 4.1). 112 .umsmsd was awumm cmozuon nsmwmn .moflumfioom o>wumummooo mo Hmuuuwmom an use» mum>0 ommmmamu mucmemumum “assummnmm ca mm>wumummooo mo mmoumoum “meadow 0.0 vm.¢wa Ho.mmHH vm.m>a mm.moa Hm.ma ~m.o~ kuonma v.m mv.mma Hm.H>H. Hm.ama mH.mHH mw.ba H>.ma onlmmma ¢.m Ho.omH mm.¢o~ m¢.oma hm.>oa om.¢H m~.ma mmnmmma n.~ mm.mn mm.mm em.am mm.mv wm.oa vo.ma mounmma ma mm.am nb.mm na.mm ow.Hm om.m H~.ma nwuomma oa ha.mm no.5o Hm.nm em.vm om.m om.¢a omnmmma Ha ~m.nn mh.v> vo.¢m om.om mm.~ mv.ma mmuvmma oa oH.Ho vm.>¢ mn.on om.n¢ mm.a H>.NH volmmma ma me.am mm.>v hm.am mn.av mm.a mN.NH nonwoma ma mo.mm bn.mv «m.mm mo.ov m~.H mm.aa mmuaoma m mv.mm mo.om «c.5m on.mv mm.o hm.m Hmuooma m Ho.m mn.m mm.¢ Hm.~ vo.o mm.o mmnmmma mcwccmumudo meson vmocm>n¢ Hmuwmmu on msnuw>o mcfiocmumudo mason mcaxuoz awash Hmuflmmu mo unmoumm mcmoq Hobos Hmuoa mmstOuuom m>ummmm oumnm use» “mommam cowaawzv ion mass museum sways as-osma\aouooaa can mmnmmma .xcmm m>aumummooo Axomae oumum cmnumMnmm “mmmumoum mo odouenu.a.v mqmda 113 Likewise, the district central cooperative banks (CCBs) have increased) their owned funds 20 times and working capital 18 times during these years. However, the increase in their loaneoperations have been marred in recent years by increasing overdue loans (Table 4.2). At the primary level too, cooperative credit institu- tions have exhibited steady growth during this period. Their membership increased from 132,000 to 12.9 million during 1955-72, whereas, the increase in share capital in this period was from Rs. 2.4 million to Rs. 75.0 million (Table 4.3). Similar spectacular growth has been accomplished in working capital and amount of short-term credit advanced. During 1955-71, the working capital of cooperative credit societies increased from Rs. 13.2 million to Rs. 385 million. The increase in short and medium term loans was from Rs. 8.55 million to Rs. 163.34 million in this period. However, as a result of heavy overdues, COOperatives were forced to reduce their short and medium term credit from Rs. 163.34 million in 1970-71 to Rs. 97.41 million in 1971-72. The decline in short-term loans was from Rs. 156 million to 90.66 million within one year after 1970-71. The number of primary societies showed a secular increase until 1967-68, but then declined due to the policy of the state government ot eliminate the defunct societies, or to force their merger with other societies. It must be made clear that merger is generally permitted only where 114 .360 mg 958mm new appease 0.32m 095.05 mg 8.3 2 mg E 5.53 QEHQHH mCMOH 829M oflovmflflflfi CH mm gnaw "OOH—"Om 3 max 3.2: «.8. mmdon $43 22% a; 8.8 mm H722 mm 3 . Em Hm . «S o . on em. . mR mm . SH «N . 8 Ne. . N. m... . S 3 onnmmfl mm .843 8.2: 0.8 362 3.9.: 2.5m ohm 2.3 mm $-33 2 25.2 8.2: 9% oz”: 2.2. 8.3 «mg. omém mm messes 8 2&3 3&3 mém $.me 21.8 3.8. 3... 2.3 mm $-33 mm 86: «5.23 0.8 3.3: «Tom 2.2. $5 .128 mm 8:33 me 21mm 2.? Tom 3.5 8.2. 3.3 34.. 3.8. mm 3493 3. 3.3 8.8 ER 852 3.8 8.2 mm.~ 3.2 R $-82 3 at? 3.3 TS 3&3 3.3 3.8 $.N 3.8 mm Sufism: mm 3 . 2 3.. . 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Yet, there should be no room for complacency. Judged by certain basic indicators of performance, it can be demon- strated that the cooperative credit structure in Rajasthan is generally weak. Weaknesses of the Present COOperative Credit Structure in Rajasthan COOperative credit institutions in Rajasthan generally suffer from the following weaknesses: (1) Insufficient capital base: The preceding paragraphs provided a description of the phenomenal increase in working capital, membership and the lending Operations of COOperative credit institutions of Rajasthan. However, it would be a mistake to assume that the overall health (financial condition) of these agencies has also improved during the past sixteen years. In reality, cooperatives have failed to mobilize suf- ficient owned funds (share capital and reserve). As a result, their dependence on borrowings has increased substan- tially since 1956. Table 4.1 to 4.3 explain that the ratio of owned funds to their working capital was less than 24 percent until 1971-72. Assuming that owned funds provide an important criterion of the health of cooperative institu- tions, it would appear from Tables 4.2 and 4.3 that many district central COOperative banks are presently in a more vulnerable financial condition than the primary credit societies. 117 District wise analyses of the primary credit agencies are presented in Appendices A.10 and A.11. It is evident that except in Alwar, Bharatpur, Kota, Ganganagar and Ajmer, the primary credit societies in Rajasthan generally do not possess adequate owned funds. Except in the districts mentioned above, the ratio of owned funds to working capital is less than 17 percent. Further, nearly one-third of these agencies had a share capital of less than Rs. 3,000 and only 7 percent of them (mostly in Kota and Bharatpur) had a paid up share capital of Rs. 20,000 or more (Appendix A.11). 2. Concentration of cooperative short-term credit in the more advanced districts: In Kota, Bharatpur and Tonk the proportion of borrowing to total members in 1971-72 was higher than 50 percent. On the contrary, in Banswara, Barmer, Dungarpur, Jaisalmer, Jhunjhunu and Pali, this ratio was less than 10 percent. It is important to note that the latter group of districts constitutes a part of the arid zone, whereas Kota, Bharatpur and Tonk possess fertile land as well as adequate irrigation facilities. This implies, therefore, that cooperative short-term credit has a heavy concentration in the relatively more fertile regions. A corollary of what has been described above can be found in Table 4.4. It shows that the average amount of cooperative loan is much higher in the more fertile districts than in the arid zone. Statistical statements released by the Registrar of cooperative societies also demonstrate that 118 Table 4.4.--Cooperative Loan (Short-Term and Medium Term) Per Member in Rajasthan (1971-72) (Amount in Rupees) District Loan Per Member Loan Per Borrowing Member Ajmer 104 300 Alwar 99 194 Banswara 6 100 Barmer 11 146 Bharatpur 118 193 Bhilwara 42 400 Bikaner 37 183 Bundi 180 531 Chittorgarh 91 231 Churu 18 94 Dungarpur 10 141 Ganganagar 163 471 Jaipur 37 157 Jaisalmer 0 0 Jalore 22 i 94 Jhalawar 42 195 Jhunjhunu 13 162 Jodhpur 97 324 Kota 300 336 Nagaur 14 79 Pali 5 426 Sawai Madhopur 51 121 Sikar 31 109 Sirohi 15 66 Tonk 98 141 Udaipur 63 214 Average for Rajasthan 73 220 Source: Same as Table 4.1, 1972. 119 nearly two-thirds of the loans advanced by the primary credit societies in 1971-72 were shared by only six districts (Kota, Bharatpur, Ganganagar, Alwar, Ajmer and Chittorgarh). These six districts had less than one-third of the total membership of primary credit societies in Rajasthan at the end of June, 1972. This implies that the primary agricultural societies in Rajasthan have made veryalittle progress in providing credit for the relatively more backward districts. 3. Concentration of Cooperative credit for certain 95225: Coarse foodgrains such as sorghum, bajra and ragi occupy over 50 percent of the state's cropped area. They also constitute the staple food grains for a majority of the state's population. Similarly pulses account for nearly 21 percent of the total cropped area and constitute the only protein source available to the vast majority of low income people in Rajasthan. However, COOperative credit seems to be given more liberally for wheat and groundnuts which are basically commercial crops in this state and constitute less than 10 percent of the cropped area (Table 4.5). 4. Small size of cooperative loans in Rajasthan: The size of cooperative loans in Rajasthan is generally smaller than in other states of India. For instance, the average amount of COOperative credit (short-term and medium- term combined) advanced per member in Rajasthan was Rs. 128 in 1970-71 as compared to the corresponding all-India average of Rs. 183.2 Similarly, the average size of loan per society was also small in Rajasthan (Appendix A.12). 120 has mo mocmmnm on» CH .mumum omega um>o caucuses: posqmawu mm: :kuumm mcwmmouo m.mumum was umnu possmms coon mun pa .muuomou ucoomu Azmmumomawzv AthH umsmsév mowuowoom o>fiumuwmooo .mmumuoon sodaawe m.va mm: ohlmoma :« sous pmmmouo deuce. humaflum "mumsmoum mo pawns .mmwumwoom m>wumuomooo mo usuumwmom Awflv .Amnma nonsense .mmnaomv mnma .Honfisz Hmscsc .oouoasou va ”moousom o.ooa m¢.om ooa Hmuoa m.vm Hm.o em.ov hm muonuo m no.0 ~H.m mN «swam Amuscpcsouuv om om.mm oo.mH m snowmafio m. mm.o mm.o H souuoo H m~.o hm.o Hm monasm N ~m.s mm.a m seems an v.o~ >~.mm m uses: Ammmmsmv osmuomm mom A.mm sofiaaazv oommouo msmoq mono Havoa .puocm>pm woosm>u< mmu< Hmuoa mono on» on» no unmouom smog mono mason mono swap «0 useoumn mo osmz .Nhlabma .cmcumMnmm cw mason AQOHUV Eumaluuosm mo soausnauumso mmasndouonn.m.v names 121 The average COOperative loan per borrowing member was Rs. 300.as against the corresponding all—India average of Rs. 516 in 1970-71. However, in six districts of Rajasthan, cooperative credit per borrowing member was less than Rs. 100 in 1970-71. Table 4.4 presents a similar picture of 1971-72. 5. Problem of default and risingyoverdues: Rajasthan is one of those states in which overdue loans have pushed cooperative credit institutions into an extremely critical situation. In fact, overdues are posing a serious threat even to the survival of the district central cooperative banks in Chittorgarh, Bikanr, Churu, Banswara, Barmer, Dungarpur, Ganganagar, Jaipur, Sirohi, Pali and Jalore (Appendix A.13). Latest reports indicate that the CCBs in the districts of Jhalawar, Bhilwara, Sikar, Nagaur and Udaipur have also moved into a critical financial situation (Appendix A.14). At the primary level, this problem is even more serious. Except in the districts of Bundi and Sawai Madhopur, overdues have absorbed not only the owned funds of the primary credit societies throughout Rajasthan, but have eroded a sizeable fraction of their borrowed capital too. What is still more shocking is the fact that in Banswara, Barmer, Bikaner, Dungarpur, Jalore, Jaisalmer and Sirohi, the ratio of bad and doubtful overdues to the owned funds ranges from 65 percent to 108 percent (Appendix A.14). It would be correct to conclude, therefore, that most primary cooperative societies in these districts are in a miserable, perhaps irrepairable condition. 122 The mounting number and amount of overdues in Rajasthan explains the inability of cooperative credit societies to recover their loans on due dates. As noted in the preceding chapter, overdues generally weaken the financial position of a cooperative credit society and substantially reduce the magnitude of its (lending) operations.* It was also discovered in the last chapter that cooPeratives in India are incurring heavy losses on account of overdue loans. At the end of June, 1971, about 47.3 percent of the outstanding cooperative loans in Rajasthan were due for more than one year. It is shown in Table 4.6 that the total loss of income due to overdues was Rs. 15.8 million in 1970-71. Cooperatives generally charge interest at the rate of 12 per— cent on overdues and list this interest as a part of their income. However, this is a fake and misleading device to inflate their income, and due to its uncertainty cooperatives cannot budget their expenditure on the basis of such "accrued but not received" income. 6. Poor linkage of cooperative agricultural credit with marketing and supply of inputs: It was observed in Chapters II and III that coOperative credit becomes more useful if it is linked with COOperative marketing and coopera- tive supply of inputs. At the same time, COOperative marketing *As was mentioned earlier, cooperatives in Rajasthan advanced short and medium term loans worth about Rs. 163 million in 1970-71, but because of the increased incidence of overdue loans they were forced to reduce their loans to Rs. 97 million in 1971-72. 123 TABLE 4.6.--Estimated Loss of Interest Income to Primary Cooperative Societies in Rajasthan as a Result of Overdue Loans, 1970-71 (Amount in Million Rupees) Period for Which Loans Were Mean Period in Years (t) Amount Due on June 30, 1971 Loss of Income to Overdue the Societies 1 Year or Less 0.5 48.68 2.19 l to 2 Years 1.5 24.24 3.44 2 to 3 Years 2.5 13.10 3.04 Over 3 Years 3.0 17.26 7.09 Total 103.28 15.76 Note: Computation of interest is based on the formula: Source: Statistical Statements Relating to the {13. (1 + r)t - p} Cooperative Movement in India,1970-7l. Reserve Bank of India, 1971 (No. 29). 124 of agricultural outputs generally helps in reducing the incidence of overdues. However, the primary credit societies in Rajasthan have made little progress towards integrating credit with marketing of agricultural inputs and outputs. During 1970-71 and 1971—72 approximately 75 percent of these societies did not supply any inputs to farmers. Even those which did so, generally confined their operations to fertilizers and pesticides. Further, in 1971-72, 62 percent of the inputs supplied (worth Rs. 30 million) by the primary credit societies were disbursed in Kota and Bharatpur districts.2 Figure 3.2 in the preceding chapter showed that a primary credit society in India is expected to provide short term loans for agricultural production, processing, marketing and purchase of small implements. However, the primary credit societies in Rajasthan have thus far shown no interest in financing agricultural processing and marketing. The Crop Loan System (CLS) emphasizes recovery of cooperative loans through selling the crops grown by their members. In 1970-71, out of the total recoveries of Rs. 138 million only Rs. 183,000 represented the sale of crops.3 It seems cooperatives in Rajasthan have failed to convince their members of the merits of cooperative marketing. 7. Inefficient management: The RCRC reported that cooperative credit institutions in Rajasthan had an "extremely n4 poor quality of personnel, It was observed by this author 125 that the secretaries of primary credit societies in Rajasthan generally lack the professional skill and aptitude needed to do their work efficiently. Informal talks with about 30 secretaries in Kota, Jhalawar, Jaipur and Bundi districts revealed the following facts: (a) (b) (c) (d) (e) that most of them did not have adequate experience in bookkeeping and maintenance of prOper accounts, that except 3 or 4 secretaries, none had adequate professional training, that the average monthly pay of a secretary was less than Rs. 100, that the boards of directors generally provide no reward to them for a good performance. The criteria of performance cited were: amount of loans advanced, enrollment of new members and ratio of recovery to outstanding loans, and that due to insecurity of jobs, most of them consider their present position as purely a temporary assignment. It was discovered that most secretaries supplemented their income with farming. In short, lack of trained and experienced personnel, low pay and lack of incentives generally breed asense of indifference or frustration among the COOpera— tive personnel in Rajasthan. This attitude, in turn, reflects in the accumulation of overdues and poor health of the primary credit societies. 126 Estimates of Demand for Short Term ‘Credit in Rajasthan The importance of such estimates has been mentioned in Chapter II. In fact, they provide a useful guideline in the formulation of agricultural credit policy for a state or for a region. No official estimates of the demand for short term credit in Rajasthan have so far been released. However, in a research paper Agarwal estimated that the total demand for short term agricultural credit in Rajasthan ranged between Rs. 1,600 million and Rs, 1,810 million for 1970—71.5 The following section examines the methodology used by Agarwal in estimating the agricultural credit needs in Rajasthan. At the same time, it also presents two alternative estimates of such demand. Agarwal's Estimates Agarwal tried to compute the demand for agricultural credit on the basis of three mutually exclusive methods, and then took a simple mean of the three estimates to pro- vide an estimate for 1970-71. First, he estimated the demand for short-term credit on the basis of norms prescribed in the Crap Loan Manual. Such norms suggested that the crop loans should have three components: component (a) which would normally be equal to, or less than one-third of the value of crops produced, component (b) would be in kind, and would be generally 50 percent ofthe expenditure to be incurred on improved seeds, 127 fertilizers, manuring and pesticides, and component (c) would be half the value of component (b). The manual suggested that components (a) and (c) be given in cash. This method gave a value of Rs. 1,810 million as the total demand for short-term credit in 1970-71. In the second method, he calculated the credit obtained per acre in 1961-62 for Rajasthan, and adjsuted the same for June, 1967 price level. This norm, multiplied by the antici— pated acreage under different crOps in 1970—71, provided the estimated agricultural borrowings in 1970-71. On the basis of this method, the demand for credit was put at Rs. 1,600 million. For his third method, Agarwal related agricultural borrowings in Rajasthan to the state's income originating in agriculture in 1961-62, and by applying this ratio to the state's anticipated income from agriculture in 1970-71, estimated the demand for credit at Rs, 1,800 million. The average of the three estimates was put at Rs. 1,740 million. Agarwal's estimates can be criticized in several ways. In the first place, use of 1961-62 as the base year for com- putation neglects the technological change which has taken place in recent years. Secondly, it was equally erroneous to assume a constant price level between the year of estima- tion (1967) and 1970-71. In fact, it did not. Thirdly, tying credit needs to the state's income originating in agriculture is to assume that the credit needs will show a proportionate 128 increase with agricultural production. Finally, like most of the estimates presented in Chapter II, these estimates ignore the prevalent inter-regional and inter-farm variations. It is a big mistake to assume that the credit requirements per acre are alike in the arid zone and the canal fed areas in the southeastern districts. Unfortunately, no (published) data are available to explain the inter-regional and/or inter-crop cost differentials in Rajasthan. Similarly, district wise estimates on farm income, household eXpenditure and savings are not available. Unless these gaps are filled, precise estimation of credit needs is likely to remain infeasible. In a subsistence agriculture, like the one prevailing in Rajasthan, it is difficult to separate the credit required for household consumption from the one needed for current farm business. In the absence of suitable data on household consumption and savings, credit needs in this chapter will be estimated only for farm operations. Two alternative estimates are given below. The first estimate is based on the scales of credit prescribed by the All India Rural Credit Review Committee (RCRC). As was noted in Chapter II, the RCRC estimates take cognizance of the cost differentails prevailing in HVP areas,* irrigated areas and *HVP area is defined as that area where high yielding varieties of seeds are being used. 129 the dry farming zones for different crops. The second esti— mate is based on the average cost of production of specific crops in four different regions of Rajasthan. The purpose of presenting these estimates is not to identify the existing gaps in the institutional credit, as has been done by most of the committees and groups of experts in the past, but is to suggest that the incorporation of inter-crop and inter-regional differences in the cost of production provides better estimation than the fixed averages. Alternative Estimation of Credit Needs in Rajasthan A--Estimates Based on RCRC Scales As reported earlier, the proportion of irrigated to total cropped area in Rajasthan is about 12 percent. In 1970-71, about 1.4 percent of the total area was under high yielding varieties of seeds. As per the RCRC estimates, credit (cash and kind) needs for such varieties of wheat and paddy grown in the irrigated areas. For the dry regions (unirrigated), the per hectare credit needs were estimated at 1/5 of those in the HVP areas. On the basis of the scales of credit provided by the RCRC, the short-term agricultural credit needs in Rajasthan were estimated at Rs. 628 million for 1970-71 (Table 4.7). However, in the absence of adequate data it was difficult to estimate the credit needs among different categories of farmers. 130 MB 4.7 .—Est.imates of Short-Tenn Credit Needs for Farm Operations in Rajasthan (1970-71) Category of Scale of Credit Total Credit Area Periectare j ' _ Area RISE—1 Ca§1 Total Cash Trot-ELI Hectares) H.V.P. 0.18 200 155 355 36.0 28 64 Non-H .V.P. Irrigated 1.68 72 76 148 121 128 249 uniniqated ___11.69 .12. 22 1:. 2_5_7_ 22. 912 Total 13.55 414 214 628 Sources: (i) Scales of credit per acre are taken fmn the Report of All India Rural Credit Review Oatmittee, (.1969) , p. 88. (ii) Data on crOpped area obtained fran the Directorate of Eoonanic and Statistics, Rajasthan, Jaipur. (iii) For area under HVP, see Ran Saran, "High Yielding Varieties Cultivation—Sane Eoormic Aspects," Agricultural Situation in India, August 1972. Note: H.V.P. refers to the area in which high yielding varieties of seeds are used. 131 As Table 4.8 explains, two-thirds of the credit was needed in kind during 1970-71. The estimated need for cash component was significant in irrigated areas not adOpting the HYV seeds. On the other hand, in unirrigated and HVP areas, a larger part of credit was needed in kind. It is interesting to note that the value of fertilizers consumed in Rajasthan in 1970-71 was approximately Rs. 400 million.6 If 60 percent of this is assumed to have been obtained on credit, Rs. 240 million worth of'credit in kind was required in this form. B--Estimation of Cash Costs and Credit Needs by Regions This estimate is based on the approximate costs of production of different (major) crops in Rajasthan. First of all, the entire cropped area was divided into four categories. Category I includes 85 to 90 percent of the cropped areas in the Western and Northwestern districts of Rajasthan. This area is known as arid zone and covers the districts of Barmer, Bikaner, Churu, Jaisalmer, Jalore, Jhunjhunu, Jodhpur, Nagaur and Sikar. The districts of Pali and Sirohi have large areas known as the semi—arid zone. Category II covers unirrigated areas throughout the state. But the districts where the proportion of unirrigated area is relatively very high include Ajmer, Jaipur and Jhalawar. Two factors distinguish this category from the arid and semi- arid zones. First, in the arid and semi-arid zones, the mean 132 aridity index (which measures the overall moisture deficit) is generally over 70 as compared to 55 in Category II. Secondly, as compared to the districts placed in Category II rainfall in the arid and semi-arid zones is highly uncertain and erratic.7 However, what is common in both the categories is the overall low proportion of the area under irrigation. Categories III and IV include the irrigated tracts spread across the state, but relatively cover a larger prOpor- tion of cropped area in the districts of Kota, Bundi, Bharatpur, Ganganagar, Udaipur,Alwar, Bhilwara and Chittorgarh. However, not all irrigated area has been brought under the HYV seeds. For obvious reasons, the cost of cultivation in the HVP areas is likely to be higher than the other areas and so should be the credit needs per hectare. The next step was to identify the major crops for each category of area. Since data on costs and returns are not available, it was assumed that under homoqenous conditions, the overall cash costs per hectare can best be approximated by the cash costs incurred per hectare in growing the major crop of the area. The following crops were chosen for the four categories of land mentioned above: (1) Bajra in Category I (2) Sorghum in Category II (3) Wheat in Category III, and (4) HYV wheat in Category IV. 133 It was assumed that the farmer tried to maximize the production of the crop chosen or of an alternative crop with greatest profit potential. For simplicity, the cost of production of alternative crops in question was assumed equal to the cost of production of the specified crop.* As data about costs per hectare for bajra and sorghum were not available for Rajasthan, the mean cash expense incurred per hectare in the neighboring states of Haryana and the Punjab (district Mohindergarh) was taken as an approx- imation of cash expenditure in Rajasthan. The mean cash expenditure on bajra and sorghum were estimated at Rs. 75 and 96 respectively.8 For irrigated (non-HYV) wheat, the average cash expenditure in Kota district was estimated at Rs. 207, as against the per hectare cash expenditure of Rs. 544 on HYV of wheat (based on variety 8.227) estimated by a study carried out recently.9 The following assumptions were taken for estimating the short-term agricultural credit needs in Rajasthan: (i) In the arid zone, semi-arid zone and unirrigated areas, 40 percent of the cash needs are met through borrowings.10 (ii) In the irrigated areas the proportion of borrowings to short-term cash needs is 45 percent. This seems to be a *For instance, in Category I, the crop competing with bajra could be kharif pulses or in Category III, the alterna- tive crOp could be barley, linseed or gram. 134 conservative estimate, as the use of fertilizers and other purchased inputs is generally higher in these areas. Like- wise, due to higher output per hectare, the expenditure on labor hired for harvesting and threshing Operations ought to be higher too. (iii) In the HYV areas, the proportion of credit to cash needs have been reported in the range of 50 to 70 percent (depending on the nature of input) by various studies conducted by the Agro-Economic Research Centers. For simplicity the prOportion of credit in these areas was taken to be 50 percent. According to this method, the short-term credit needs in Rajasthan during 1970-71 were estimated at Rs. 600 million. Thisincluded credit in the form of cash as well as in kind (Table 4.8). Sample Surveys for different classes of farmers may in each region provide better estimates of credit needs for small vis-a-vis large farmers. They may provide important guidelines to the policy makers to streamline cooperative credit institutions in the state. However, it is clear that cooperative societies provided about 26 percent of the short-term farm credit needs in 1970-71. Even if credit needs are held constant for 1971-72, the share of cooperative credit in the total farm borrowings (excluding loans taken for the household needs) declined to 15.0 percent.* *Even at these conservative estimates of agricultural credit needs, (for farm business) with the total short-term credit of Rs. 155.83 million in 1970-71 and Rs. 90.66 million .uao .mm .smcam .m can .m .m .acmamaz ..m .a .aoaamx .>a. pom ..ufio .mo ..o.o .mamsu was a. as seem saunsuum lease .sdumm sum “as. .uwo nmm ..o.m .uflcousm use .m.z .mnoon Aflv "mousom .uxou on» sum adamuoc sch ”ouoz m.mmm mm.ma deuce o.om o.~>m om «em ma.o amend m>m .q "1me 1mm me now 34 3:02 mend cmummwuuH .m mms< 5 m.maa «.mm as am so.m omummauuaao 1 umnuo .N osoN m.mma o.om ov me mm.m canolwsum one ownd .H Ase Ame Ame Ase Ame Am. Adv Assessmv A.mm sasaaazv whoever Ausmonmmv moss» Am x m .Houv Hem twosmmxm ammo ousuomm Hem Ammumuomm pouwsvom pmommz mo owumm m musuaocmmxm sowaaazv send «0 Henasz uasmuo Hence useouo an usumuo ammo «one suomoumo Hmaumm Hunchma .sunumsnmm mo amend usmuommwo ca mucmsonasomm savage .sumsuuuoame amuauasuauma sou census emumsaummuu.m.v mamas 136 Demand for farm credit will increase at a faster rate over the next decade than in the past, especially in view of the expected increase in the area under irrigation and further, in the area under improved and high-yielding varieties of seeds. A recent study by Mitrall revealed that until now, small farmers of Rajasthan (having less than 2 hectares of land) could not adopt the HYV seeds as much as they were willing to, largely because they could not obtain sufficient credit to purchase the nontraditional inputs (Appendix A.16). Even though the soil and climatic conditions in the sample areas were homogeneous (because the sample households were chosen from the HVP areas only), wide variations were discovered in the per acre cash expenditure among different categories of farmers.* It seems logical to anticipate that, in the future, these discrepancies would be minimzied, especially in the HVP areas. It may also be expected that the methods of cultivation and quality of inputs currently used in the vast, arid and semi-arid zone and other unirrigated areas, will show improve- ment over the next decade. This would also raise the demand for agricultural credit. in 1971-72 (Table 4.3), their share in the total loans was 26 percent in 1970-71, but declined to 15 percent in the follow- ing year. If demand for credit for the household needs is also considered, this ratio will be still less significant. *See Appendix A.14. 137 Conclusions Short-term agricultural credit needs in Rajasthan were estimated to lie between Rs. 600 million to Rs. 628 million for 1970-71. As compared to these needs, the short-term credit advanced by the primary credit societies in that year was Rs. 156 million (Table 4.3). Thus, cooperatives provided 25 to 26 percent of the total credit needs in 1970-71. In July, 1972, it was announced by the government of Rajasthan that by 1973-74 cooperatives would supply Rs. 300 million (including medium-term loans). The corresponding target for 1978-79 was put at Rs. 450 million.12 However, the present magnitude of overdues, the level of efficiency of the cooperative personnel, the existing level of (owned) capital base and other problems identified in this chapter suggest that it will be difficult for coopera— tive credit institutions of Rajasthan to achieve these targets. REFERENCES CHAPTER IV Government of Rajasthan. Approach to the Fifth Five-Year Plan, Jaipur (July, 1972). ’Chapter 1; and Samriddhi Prakashan. Year Book of Rajasthan. (1971). Registrar of COOperative Societies, Rajasthan. Trends and Progress of Cooperative Credit Institutions, Table A.3. Statistical Statements Relating to the Cooperative Movement in India. Bombay: Reserve Bank of India, 1972, p.—96. Reserve Bank of India. Report of the All-India Rural Credit Review Committee (December 1969), p. 281 Agarwal, R. B. L. "Some Estimates of Short-Term Credit Needs of Agriculture in Rajasthan in 1970-71," in D. N. Elhance and M. D. Sharma (eds.) Role of Coopera- tive Credit in Agricultural Development. Jodhpur: University of Jodhpur, 1968. Fertilizer Corporation of India. Fertilizer Statistics in India for 1970-71. Delhi, 1971. (Section on Consump- tion of Fertilizers by States). Jodha N. S. and S. D. Purohit. " Weather and CrOp Instability in the Dry Regions of Rajasthan," Indian Journal of Agricultural Economics. Conference Number (October-December,*197l) pp. 286l295. Kahlon, A. S., S. S. Miglani and H. Singh. "A Comparative Analysis of Dry and Irrigated Farming in Ferozepur District, Punjab," Indian Journal of A ricultural Economics. Conference Number (October-December, 1971) pp. 318126. Saran, Ram. "High Yielding Varieties-~Some Economic Aspects," Agricultural Situation in India. (August, 1972). {F FBI-1‘ Hutu...- '50-"..- .. 139 10. Reserve Bank of India. Report of the All India Rural Creditheview Committee, 22: cit?) p. 82. (For the proportion of credit to overall—cash needs in tradi- tional farming areas). ll. Mitra, Ashok. Agricultural Ipputs for Small Farmers. Bombay: Vora andECompany. (Commerce Pamphlet Numbers 54-55), 1972. 12. Government of India. Conference of the Registrars of Cooperative Societies: Proceedings and Agenda Notes. New Delhi: Ministry of Agriculture, Department of Cooperation. (1970 and 1972). CHAPTER V EFFECTIVENESS AND ADEQUACY OF CAPITAL USE IN A STATIONARY FARM SITUATION: A MICRO STUDY OF JHALAWAR DISTRICT IN RAJASTHAN This chapter presents an analysis of the cross section study undertaken in the southeastern district of Jhalawar in Rajasthan, during 1971-72. A random sample of 161 farm households, associated with the Salri Primary COOperative Credit Society, was taken to examine the effectiveness of different inputs in agricultural production, and to ascertain the adequacy of credit among different groups of farmers. Over 60 percent of cropped area in Jhalawar District is cultivated for coarse food grains such as sorghum, (jowar) maize and kharif pulses. This is largely due to the highly undependable weather conditions and general lack of irriga- tion in the district.* Farmers having irrigation generally grow wheat, paddy, gram and sugar cane. The crOpping intensity in the district was 1.09 in 1970-71 reflecting inadequate *According to the Statistical Abstract of Rajasthan (1970), only 8 percent of the cropped area is under irrigation. Further, during the five years following 1964, the annual rainfall showed a range of 14.4 to 48.8 inches. 141 irrigation facilities. Farming practices in the district are generally traditional. The new HYV seeds have not yet become commonplace in this area. The Jhalawar District Central Cooperative Bank (JCCB) The Salri Primary Credit Society is a member of the JCCB, and as such, is entitled to receive periodic financial help from the latter. The JCCB was set up in March, 1957, but started working effectively only after 1960. The record of its performance during 1961-72 has been given in Appendix A.16. t It is evident that the JCCB has made good progress in advancing farm credit,and also, in accumulating working capital, The paid up share capital and reserves (owned funds) have tended to increase during the same period, yet their combined prOportion to working capital in 1971-72 was lower than in 1960-61. On the contrary, borrowings from the State Cooperative Bank (Apex Bank) show an enormous increase in this period. The situation with respect to overdue loans appears to be quite critical. Over 57 percent of the Bank's working capital is presently blocked in overdue loans, and this state of financial stringency has been reflected in the sudden and sharp decline in its lending operations during 1971-72 (Col. 7, Appendix A.16). It was mentioned by the officials of the JCCB that as against the Bank's owned funds of Rs. 2.65 million, its overdue loans towards the Apex Bank stood at Rs. 3.8 million 142 in June, 1972. Unless immediate action is taken to improve this situation, the JCCB may soon go into liquidation. The position and working Of the primary credit societies associated to the JCCB have been depicted in Table 5.1. It appears that the average society in Jhalawar has a larger number of members than in Rajasthan (Appendices A.10 and A.1l) yet, its financial position is relatively worse. The average amount of loan advanced in 1971—72 was lower than the corres- ponding average for Rajasthan. Further, as compared to other districts, the proportion of borrowing members to total number of members in Jhalawar district is very low. The primary societies had an overdue balance of Rs.7.2 million among its members on June 30, 1972. It seems logical that their inability to recover loans results in the financial stringency confronting the JCCB. The Salri Primagy Credit Society The Salri Primary Cooperative Credit Society was established in September, 1964, but could not function actively until 1966. With the introduction of CLS in Rajasthan in 1966, the Salri Credit Society has become an active partici- pant in the farm credit market of this area. It has a total membership Of 242, spread over four villages. The position of this society at the end of June, 1972, and the details of its lending Operations during 1971—72 have been presented in Table 5.2. It is clear from Table 5.2 that this society has more 143 TABLE 5.l.--WOrking of Primary COOperative Societies in Jhalawar District and Their Position at the End of June 1972 Indicator Unit Amount/Number Number of Societies Number 217 Number of Active Societies Number 136 Number of Members (Number '000) 41.5 Borrowing Membersa (Number '000) 8.9 Share Capital (Rs. '000) 3,305 Deposits (Rs. '000) 673 Working Capital (Rs. '000) 15,658 Working Capital per Society (Rs.) 72,161 WOrking Capital per Member (Rs.) 377 Loans Outstanding (Total) (Rs. '000) 9,577 (a) Short-Term (Rs. '000) 8,383 (b) Medium-Term (Rs. '000) 1,194 Loans Overdue Short-Term (Rs. '000) 7,188 Loans Advanced (Rs. '000) 1,741 Loan Advanced per Member (Rs.) 42b Loan Advanced per Society (Rs.) 12,800 Ratio of Societies with More Than 100 Members Percent 92 aNumber and value related to the year 1971-72. bPer borrowing member the average is Rs. 195. Source: Annual Report of the Jhalawar District Central Cooperative Bank, 1971-72. 144 ME 5.2.—Position of the Salri Primary COOperative Credit Society on June 30, 1972 Serial Amount in Rupees/ Nmber Irdicator Unit Number 1. Ma'tbership mime]: 242 2. Share Capital Rupees 12,885 3. Reserves Rupees 179 4. Deposits nipees 37,048 5. Vbrking Capital Rupees 7,562 6. loans Advanced in 1971-72 Rupees 69,663 7. timber Of Borrowing Matters Nunber 184 8. loans Overdue (tbre than 2 Years) Rupees 31,605 9. Sale of Fertilizers in 1971- 1972 Ripees 4,750 10. Sale of other inputs mpees . . . 11. Recovery of loans Through Sale of CrOps Rupees . . . Source: DatatakenfranthereoordsoftheSalriPrimary Cooperative Credit Society (District Jhalawar-Rajasthan) . 145 resources and its advances more loans to its members than its counterparts in the district, or even in the state of Rajasthan. It was claimed by the Secretary of the Society that over the past two years, he has been showing one hundred percent recovery of short term loans.* The amount of overdues is, however, outstanding for over two years. Table 5.2 also explains the relatively weak capital base Of the Salri Cooperative Credit Society. Its owned funds constitute less than 14 percent Of the total working capital. It is also clear that the society's primary function is to lend to the members and that it makes no attempt to sell members' crops in the market or to supply farm inputs to them. The JCCB generally prescribes dates for the loan disbursement and recovery. The secretary of the society is required to campaign for recovery of the seasonal loans during the pre-harvest weeks. Personal Observations and investi- gation, however, reveal that the recovery campaign and disburse- ment of loans are a matter Of convenience for the secretary of a COOperative society. Several members reported Of considerable delay in the availability Of COOperative credit. As per the JCCB's notification of February 28, 1972, *It was however, reported (unofficially) that consider- able amount Of book-adjustment was in vogue in this district. Moneylenders and local traders help the secretaries of primary credit societies in showing "such recoveries" in their records. This practice enables the society to Obtain fresh loans from the CCB. 146 the scales of finance were decided in the following manner: Item General Per Hectare Scale Of Finance (Rs.) Rs. Onishowing 75 Additional cash percent or if fertilizers higher propor- are also used tion of recov- eries for Short term loans Single Cropping 75 100 25 Double Cropping 125 150 50 The scales of finance for loans in kind were also suggested in this notification. It is strange that the scales of finance for the loans in kind (component b) were raised arbitrarily in 1971-72 and the JCCB recommended that all member societies prepare their Credit Limit Statements on the basis Of new scales. As Appendix A.17 suggests, exept for maize, there was an across the board increase in the scales of finance for component b of cooperative loans. It is also strange that despite variations in rainfall, soil conditions and other factors, the scales of finance in Jhalawar are the same as in Kota, Jaipur, Bundi and a few other districts. This supports the RCRC's contention that scales Of finance in India are generally prescribed arbitrarily.1 It was Observed that contrary to what has been suggested in the Crop Loan Manual (Chapter III) the sample households had no production plans. At the society level, therefore, scales of finance were interpreted by the secretary in his 147 own fashion while preparing the credit limit statement. In short, the scales of finance practically bore no relationship with the cropwise costs and credit needs of an individual farm household. Also, while fixing these norms, no thought was given to the availability of loanable funds (for cash component) and fertilizers (component b) to the society. Other Lending Agencies in the Area Besides the Salri Primary Credit Societies, there are three other sources from which farm households in this area generally borrow. First is the group Of petty traders and cloth merchants who generally sell their merchandise to farm households on credit. Apparently these traders do not charge interest on their debit balances, but in reality, a mark up ranging from 20 percent to 100 percent is added to the price of a product on such credit sales.* The prOpor- tion of mark up added by the cloth merchants is lower, but they charge an interest of 12 percent on the outstanding debt. Then there are village moneylenders who frequently combine money lending with some retail trade. In fact, in most cases cloth mercants and petty traders act as moneylenders. Rates of interest charged by moneylenders generally vary between 12 to 15 percent, but due to monthly compounding, the *Such mark up varies inversely with the value and volume of a commodity. On small items such as salt, spices, food grains, kerosine and bidis (indigenous cigarettes) the mark up is generally larger than on soap, cosmetics and such other articles. 148 effective rate Of interest is much higher. Nevertheless, such rate never exceeds 24 percent even on the loans overdue for one year. Since moneylenders are indifferent towards the purpose of loans, most of the credit given by them is used for litigation, religious ceremonies, marriages and repayment of old debts. Finally, there is a branch Of the Central Bank of India. This has been recently opened in this area, and at the time of this study had lent only Rs. 9,000 to two farmers for the construction Of wells. Even though the Central Bank of India chargesthe same rate Of interest (i.e., 9 percent per annum), the former does not seem to have any interest in short term loans and prefers to advance only medium term loans. The Sample Design The Salri Primary Credit Society has a total membership of 242. Two-thirds Of the members (161) were randomly selected under this study. Since only 18 members could read and write, personal interviews were arranged in the Summer of 1972 in order to record their use Of inputs, output Of crOps and sales, income from nonfarming activities, household expenditure and borrowings. All the sample units were stratified on the basis of their holdings in order to analyse the effect of size on income, expenditure and credit needs. Schedules for the survey were prepared on the lines suggested in "Guide to Methods and Procedures of Rural Credit Surveys."2 149 Characteristics Of the Sample Units Due to general lack Of literacy among the members Of Salri COOperative Credit Society, no written records of their income, expenditure and borrowings were available. Considerable reliance had to be, therefore, placed on their ability to recall or recollect various items and amounts Of receipts and expenditure. It is interesting to know that in the absence of any written reocrd, farmers generally show a tendency to report their receipts and expenses in multiples of fifty or hundred. Usage Of most inputs (particularly the use of seeds, manure, and man or bullock days spent per hectare in different farm Operations) is generally governed by traditions. Among the sample units, no household had any pumpset, albeit eleven ot them had irrigation facilities. Likewise, none was in possession of a threshing machine, a harvester or a tractor. Farmers with irrigation facilities use charas.* Plowing is done generally by the traditional wooden plow, whereas harvesting and threshing are done manually. Despite the traditional character of farming in this area, however, 35 farm households reported the use of chemical fertilizers, mainly because fertilizers are available on credit.** *A charas is a leather bucket with a capacity Of about 20 gallons. It is tied with a rOpe and is pulled by a pair of bullocks. **Use Of fertilizer also enables a member to get addi- tional cash loans from the cooperative society (see below). 150 The Sample Households Out of 161 farm households studied under this project, 88 or about 55 percent depend exclusively on farming, whereas others work partly as agricultural workers, carpenters, blacksmiths, tanners and band players during the slack season. There are few households who have a retail business in the area. However, all the households reported farming as their major occupation, albeit the proportion of the Off-farm to total income is different in different groups (Table 5.3). It was observed that small farmers (having less than 2.5 hectares) rely heavily on the off-farm jobs such as custom labor. On the contrary, the proportion of Off-farm income is low for large landowners.* The distribution of land and assets among the sample households has been presented in Appendices A.18 and A.19. It is clear that land accounts for over 65 percent of the total value of assets held, and the respective proportions of livestock (including the milk animals) and equipment are about 9.4 percent and 1.1 percent of the total value of assets. This demonstrates the traditional character Of farming in the sample area. It was also discovered that 10 out of 23 small farmers had their own bullocks, while the *Though farming is the principal source Of income to all the sample households, the average income from Off-farm employment or business was higher for medium and large farmers than the small landowners. It is interesting to note that the proportion of upper medium and large farmers having off-farm jobs was lower in comparison to the small farm households (Table 5.3). 151 mm 5.3.-Oocupatimal am Inocme Distribution of Sample-fbuseholds, 1971-72 Serial Size of Ho ' s (Hectares) umber Iten Less Thin 2.51 - 4.01 - fibre 2.50 4.00 6.00 6.00 1. Total Nmber of misetolds 23 60 49 29 2. Households Depending on Fanning Only 1 27 34 26 3. Percentage of 2 to l 4.3 45.0 69.4 90.0 4. Average Insane Per Household (Rs.)a 2,141 3,275 5,207 7,758 5. Nmber of Housel’nlds Having Off-Farm Inocme 22 33 15b 3° 6. Average Off-Farm Inocme of Times Included in (5) 510 398 840 1,817 bbtes: aAverage insane includes incane frat: all sources. bPetty—traders also included. CIncluie 5 petty-traders arrl two school-teachers . Source: Data (nupiled frcm the field investigations of the mothers Of Salri Primary Cooperative Credit Society in Jhalawar District, 1972. 152 rest obtained bullocks on custom basis. On the other hand, in the other size groups, 80 to 100 percent of the farm households had bullocks. It is also apparent from Appendix A.18 that medium farmers (with 4 to 6 hectares) occupy most of the crOpped land in the sample area. The Production Functions and Regression Analyses The sample households were arranged in ascending order on the basis of size of holdings and then grouped into small (less than 2.5 hectares), medium (2.51 to 4.0 hectares), upper medium (4.01 to 6.0 hectares) and large (above 6 hectares) farmers. In order to evaluate the effectiveness of different inputs, and the economic rationale of credit use, two types of multiple regression models, given below, were fitted separately for all the sample households and for each group. For each type of model, various subsets of the independent variables were used. Multiple Linear Model Y = a + blx1 + b2x2 + . . . . + bllxll+ u Cobb Douglas Model b1 b2 bll Y = ax1 x2 . . . .Xll u where Y = Value of crops produced x1 = Value of productive equipment x = All costs of production, including imputed value of owned seeds and manure, family labor and imputed rent of owned land 153 x = Imputed value of family labor. x = Cash costs or cost of purchased inputs. x5 = Noncash costs. x6 = Cost of purchased bullock feed. This is in addition to the farm grown fodder used as bullock feed. x7 = Imputed rent. = All cash costs minus cost of purchased bullock feed. x9 = All costs except imputed rent. x10 = x9 per hectare cost of family labor, and x11 = Noncash costs of seeds and manure* u = Error term. [Note: All values represent Rupees per hectares.] Assumptions Both the linear and the Cobb Douglas production func- tions were fitted under the following assumptions: (1) that credit Obtained for purchased inputs is independent of the loans taken for household consumption, *In order to obtain a proxy for land, all values were compiled in rupees per hectare. Further, to avoid multi- collinearity in the production functions, the independent variable x was disaggregated in the following ways: (1) x2 = x4 + £5: (ii) x2 = x6 + x3 + x5; (iii) x2 = x3 + x7 + x11 + x4, but since x4 = x6 + x8; so, (iv) x2 = x + x + x1 + x + x Nonca3% costs Cash costs Imputed rent (x7) was included in the model to evaluate the effect Of differences in the quality Of land, and/or that or irrigation on the dependable variable, Y. (2) that xi are mathematically (not statistically) independent, and each bi under the multiple linear model measures the MVP of ith inputs, whereas under the Cobb Douglas model, bi is a measure of elasticity of the ith input, (3) that farm households make no distinction between the sources of credit while using the credit obtained from different sources, (4) that they generally try to optimize the use of purchased inputs because of the explicit costs involved. However, for the owned inputs, including the family labor, such assumption does not seem to be relevant. (5) that ui (or log ui for log linear model) are normally distributed with a zero mean and finite variance. Results Of the Sample Survey Regression coefficients for the independent variables were estimated by the least square techniques. For both the models, the following equations were Obtained using the entire sample of 161 farm households:* *Equation or individual parameter estimated is significantly different from zero at 5 percent probability level, unless otherwise mentioned. II. III. IV. 155 When Y = f(X1, X2) (a) Multiple Linear Model: Y = 468.74 + .24 x1 + 53 x2 R2 = .28 . “ .03 '149 (b) Cobb Douglas (Log-linear) MOde; Y = 34.89 x1 x2 R2 = .26 When Y = f(x1, x4, x5) (a) Multiple Linear Mode; 2 538.8 + 22 x1 + 1.537 x4 + .14 X5 R2 = .35 (b) Log Linear Model: Y 71.39 xl'014x4'27x5'18 R2 = .29 When Y = f(x1, x5, x8) (a) Linear Model: 2 = 682.73 + .45 x1 + .14 x5 + .62 x8 R2 = .23 (b) Log-Linear Model: Y = 146.6 x1°04 x5°24 x8°O4 R2 = .20 Note: In both models, b8 is statistically insignificant. When Y = f(xl, x3, x8, x11) (a) Linear Model: Y = 729.2 + .49 x1 - .43 x3 + .72 x8 + .27 x11 R2 = .24 . ‘ _ .04 .007 .08 .09 (b) Log Linear Model. Y - 338.8 x1 x3 x8 xll R2 = .20 A (a) Linear Model: Y = 443.46 — .30 x1 + .71 x3 + 5.54 X6 + .66 x8 + .86 x11 R5 = .55 156 (b) Log Linear Model: Y = 191.9 x1-'04 X3'025 x6‘124 (a) Linear Model: Y = 361.55 - .29 x1 + .65 x3 + 5.40 x6 + .47 x7 + .49 X8 + .78 x11 R2 : .554 .04 .018 .116 (b) Log Linear Model: Y = 66.6 x1- x3 X6 The following general observations can be made on the regression equations presented above: (1) Disaggregation Of all costs (x2) into cash and noncash costs (x4 and x5) improves the goodness of the fit (R2) for the linear as well as log-linear models. Further disaggregation Of x4 into x6 and x8 and that of x5 into x3, x7 and x11 yields still better fit in both the models. (2) Imputed rent (x7) does not affect the fit significantly (set VI). (3) Purchased inputs (x4) generally show significant regression coefficients as compared to the owned inputs (x5). However, the fit improves significantly with the inclusion Of bullock feed (x6) as an independent variable (set V). on the other hand, exclusion of x6 from the models (set III) shows a dampening effect on both R2 and the statistical significance Of the remaining variables. 157 (4) The Linear Model generally provides a better fit than the Cobb Douglas or Log Linear Model. Identification of Significant Variables Regression analysis suggests that productive equipment (x1), noncash costs (x5) and imputed rent (x7) per hectare are not significant in any of the models. On the other hand, the regression coefficients for family labor (x3), cash or purchased inputs (x4), purchased bullock feed (x6) purchased inputs other than bullock feed (x3) and cost incurred on seeds and manures (x11) appear to be relatively significant. Yet, few of them have certain special characteristics for which they deserve a detailed description. Family Labor (x3) Professor Schultz attempted to explain that in a tradi- tional society, there is no surplus farm labor.3 However, it was Observed in this study that b3 (regression coefficient for family labor) is generally negative or close to zero (in both the models) until bullock feed (x6) is included in the model. (Compare equation sets IV and V). Perhaps one explan- ation is the redundance of family labor in a traditional farming community. However, such redundance is largely concealted if family labor is lumped with other inputs, or if bullock feed is included in the model besides x . (Equation 3 sets III and VI). 158 Cash Costs (x4) Since this study proposes to examine the rationale of borrowings, expenditure on purchased inputs or cash costs (x4) seems to be the most critical variable. A farm household Optimizes the use of purchased inputs (x4) at that level where MVP x4 = MFC x4. In this analysis MVP x4 exceeds MFC, thus giving an impression that x4 is not being used optimally in the sample area. However, as shown below, in the case of farm households having less than 2.5 hectares of land, MVP x4 < 0, which implies an over use of purchased inputs in that stratum. If cash costs or outlay on the purchased inputs are disaggregated into bullock feed (x6) and other cash costs 2 (from .35 to (x8), there is a significant improvement in R .55) in case of Multiple Linear Model. Such disaggregation also demonstrates the relativ significance of x6 and x8. Bullock feed (x6) This study reveals that in a traditional farming community purchased bullock feed (x6) has a supremacy over other variables. Initially, the production functions were fitted without x6 under a pretest that in a traditional society, bullocks perform several functions on the farm and outside, and, as such, bullock feed should not have a significant relationship with output per hectare. Later x6 was introduced as a proxy for management. Surprisingly enough, introduction of x6 in the model not only significantly 159 improved the fit, but also affected the regression coefficients of other variables. (Equation sets IV and V) As indicated above, with x family labor shows a positive 6' regression coefficient. This seems to be a result of better utilization of family labor in bullock care, which in turn, results in a higher efficiency of bullock labor and higher production per hectare. Table 5.4 shows a significant correlation between the average value of crops per hectare and the cost of (purchased) bullock feed. It is evident that farm income is generally higher where better bullock feed, and implicitly, better bullock care are in effect. In a traditional society the usage of seed, manure and other inputs is generally at a uniform rate for all the households. Further, variations in the quality Of land (given by x7) generally show not effect on R2. For these reasons, cost of bullock feed (x6) may be accepted as a proxy for management, and, therefore, x6 may be assumed to provide an indication of the level of management. Regression Analyses for the Sample HouséhOld Groups Stratification of the sample households provides an insight into the inter-group differences in the behavior of different variables.* Regression coefficients in respect of *As noted above, the sample households were stratified into following groups on the basis of size-level of holdings: Stratum I (less than 2.5 hectares), Stratum II or medium farmers (2.51 to 4.0 hectares), Stratum III or upper medium farmers (4.01 to 6.00 hectares) and Stratum IV or large farmers (above 6 hectares). 160 .moma .uoauumwo umzoamsb cw huowoom awoouo o>wuouomoou mumfiwum fluamm mo oneness on» no mcoauomwumo>cw paowm ecu scum modemsoo sumo "mossom on on: 0&3 moose .mamon season so oxOOHHsn oosflmuoo madman: axooaasn .mxooHasn no name oco can» once on: m oawns .c3o Hams» mo mxooaaso on one ow museums oommouo mums mason cameos ocwclaucosa "ouoz mom mma.m~a mma Hmuoe men; 53.5 3 +3 Nao.a Hom.wh mo cm I an omm vaa.m~ em on I am one oam.m NH cm I an sum one a on can» moon Aoumuoom Aosmuoom Mom mooesmv mom moomsmv Awoomsmv mxooaasm couscous moouo ooosooum moouo msumm mo Hoossz no name use pooh sooaasm mo osam> coo: mo osam> H8909 oommsousm sou mousuaosoexm mason mamfimm as» so couscoum mmouo mo msam> 0cm comm xooHHsmII.v.m names 161 different groups of farm households have been given in Table 5.5. It is evident that R2 for Stratum I is higher than that of other strata. However, in the latter case too, it shows a significant improvement with the inclusion of bullock feed (x6) in the two models. Productive equipment (x1) seems to show significant coefficients for Stratum I and IV until x is introduced in 6 the production functions. Regression coefficients for x l are close to zero initially, but turn negative if bullock feed is combined with other inputs. However, this process would have just the Opposite effect on the coefficients related to family labor (x3). Exclusion of purchased bullock feed (x6) has a dampening effect on b3 among all the groups, but less so in respect of Stratum I. The explanation of this behavior apparently lies in the excessive use of cash costs (x4). As Table 5.5 reveals, the MVP x4 is negative on small farms. To the farmers in this stratum, noncash costs (x5) seem to be more critical than the cash costs. Further disaggregation of noncash costs reveals that expenditure on seeds and manure (x11) and family labor (x3) is significant in both the production functions related to the small farmers. On the contrary, disaggregation of cash costs (x4) into bullock feed (x6) and other cash costs (x8) reveals that x8 and the dependent variable (Y) are inversely related, whereas x6 emerges as a significant variable. .1632 TABLE 5.5.-ngression Coefficients Of Independent Variables Used in Linear arrl log-Linear Production Functions (Household Groups) We... Stratum Constant b1 b3 b4 b5 b6 b8 bll R2 Stratun I (less Then 2.5 Hectares) 1 m 1. 54.07 0.198 . . - .22 +1.59 . . . . . . .60 W 2. 313.50 0.25 +1.02 . . . . . . . . . +3.76 .64 3. 253.60 '0.17 +1.52 . . . . . +3.17 - .43 +3.52 .67 I log-Linear 1. 1.005 0.005 . . . - .005 I +1.082 . . . . . . . . . .50 mm ; 2. 50.79 0.02 + .22 . . ; . . . . . . .009 + .35 .53 3 3. 38.92 '0.17 + .22 . . . . . . + .27 + .07 + .34 .65 l l Stratum II (2.51 to 4.00 Hectares) 1 Linear 1. 671.59 -0.159 . . . +1.566 ‘ - .101 . . . . . . . . . .25 W 2. 733.10 0.37 - .80 . . . . o . . . + .63 + .67 .17 3. 525.0 '0.55 - .38 . . . +6.55 + .64 +1.07 .63 log-Linear 1. 167.5 +0.008 . . . + .216 + .09 . . . . . . . . .19 Auction 2. 429.4 0.025 ' .06 . . . . . . . . . + .04 + .14 .17 3. 202.2 '0.08 - .03 . . . . . . + .15 + .06 + .25 .37 Stratim III (4.01 to 6.00 Hectares) mm 1. 787.88 '0.008 . . . +1.912 _ .396 e . . a . . O . . .‘8 auction 2. 851.56 +0.22 - .26 . . . . . . . . . +1.44 " .76 .28 3. 578.74 -O.113 + .26 . . . . . . +4.48 +1.22 - .39 .63 M'm 1. 346.40 0.002 e . . .38 I - .16 . . . . o . . . . .50 mm 2. 612.20 0.017 - .02 . . . . . . o o o + .15 - .05 .23 3. 411.10 4.11.3 + .000 I I . . L . . . + .08 + .16 - .04 .44 Stratus IV (Above 6 Hectares) m 1. 648.12 +1.52 . . . +1.09 - .56 . . . . . . . . . .34 W 2. 863.26 +1.74 " .03 . . . . . . . . . - .88 '1.72 .36 3. 493.0 -0.” +1.17 . . . e . . +6.88 + .001 +0.10 .63 WM 1. 130.7 +0.12 . . . + .30 - .044 . . . . . . . . . .26 W 2. 882.0 +0.16 + .01 . . . . . . . . . - .08 " .10 .22 3. 615.8 -0.28 + .10 . . e . . . 30.24 + .08 + .04 .41 Scarce: Data catpilei frun tl'e field imestigations of the members of Salri Primary Cooperative (rdit Society in Jhalawar District, 1972. Note: 8.. tact fa definition. of variables and strata. 163 In short, small farmers are over using purchased inputs, excluding, possibly, bullock feed.* The coefficients of x4 are significnatly high in compar- ison with Strata II and III (in the Linear Model they are 1.57 and 1.91, respectively, thus revealing that purchased inputs [or cash costs] are critical for these households.)** Bullock feed (x6) universally exhibits a signficiant L1 coefficient for all the groups. At the same time, its introduction improves the goodness of the fit significantly. More specifically, for the reasons explained above, intro- . t '— -‘ duction of x6 considerably improves the MVP of labor in Strata II through IV. It is interesting to Observe that except for the small farmers, inclusions of x7 (imputed rent, i.e., proxy for the quality Of land) has very little effect on the goodness of the fit, albeit it does influence the regression coefficients of other variables. This implies that the quality of land is homogeneous in most cases. For the small farmers the following equations were obtained with x7: Linear Model: i = 36.21 - .20 x + 1.20 x + 2.93 x 1 3 6 @ + 1.31 X7 - .58 XB + 3.11 Xll R2 = .678 *This inference is tested later in this chapter (Tables 5.5 and 5.6). **Even if rate of interest is assumed at 15 percent, the MFC x a 1.15. In respect of Strata II and III, MVP4 > MFC x4. This means, purchased inputs are used less than Optimally. 164 ’ — @ Cobb Douglas Model: Y = 7.02 x1 '17 x3'19 x6'26 x7'40 .04 .32 x x 8 11 R2 = .652 ( @Significant at 10 percent) For the other three groups, b7 did not show any statistical significance. For the farmers with small holdings, however, improvement in the quality of land is likely to result in a significant increase in the value of output per hectare (Y). Borrowings and the Adequacy of Credit Table 5.6 shows that farm households in all the strata need credit for in each group the total cash expenditure including household consumption exceeds total cash receipts. However, need for credit has a positive correlation with size of holdings. Partly this is a result of the increased input usage on the large holdings, and partly due to relatively higher levels of living among the upper medium and large farmers (Appendix A.20). Sample households were asked to disclose their cash receipts from various sources, needs for the current expenditure in farm and household needs for money.* It was discovered that the per household deficit ranged between Rs. 373 and Rs. 1,252 depending on the size of holdings. Data were also obtained on their borrowings from different agencies. As Table 5.6 reveals, the small farmers obtained much *Data on capital (cash) needs were verified from various sources. To avoid over estimation in respect of doubtful cases, minimum of the per hectare norms was accepted for computing the need for capital per household. .H~.¢ xHUcommd "wounom 5 m mm . m-.H ~m~.a oom.~ ~ma.v +oo.o mma I mum ooa.a mmm.a mov.~ .oo.mlao.w em I man mam mmh mom.a oo.¢lam.m mma + mmm mum mom omo.a m.~ can» mmmq Ame Ame “so Ame Ame Adv A+V moamusm moousom Amnmv oaocomsom oaosmmsom Amoumuommv vapouo no ucmquMHo Eonm oaonmwsom mom mom mumwoomm mom mvmoz mmcwoaom Any mmo vapouo omcflmuno vapouu mommz vapouu sumo Hmuoa ammo Hmuoa mo onwm Ammmmsm as unsoemv oaonomsom mom moo uHooHo can mudflooom .moooz ammota.m.m mqmoumuomoou mo Hmuumwmmm on» no oocouomcou "oousow m.aea.a~ smm.om moe.moa ameuoueuums gowns mceosaoxmo mmumum Has sou Hmuoe m.omm mes.a Hao.v Homemm umme 9.29m fled 3:: e333 mafia o.mno.a nom.~ ~om.m semcaesme m.vam.a amo.~ smo.aa cmnummflmm c.5mm vmm.~ maH.H panned H.0mm nmo.a eso.m mmmeuo ¢.n NH mm oceammoz o.eav.a veH.H mmo.a macaw: o.mme.~ Hme.a Hmo.ea muuammumsms m.sev.~ Hmv.H ~ma.ea nmmemua «seems m.m~m m~v mee.a masses v.v~a mum hmv Hflanmmx one 585mm m.om ea ems amassed Hmnomsem m.mam mo¢.H o¢H.~ seamen: m.eem.a meH.H mam.m nonunso m.emm.a ae~.~ oaa.m umnwm e.aem new amo.a sumac e.emm.fl mma.m Hmm.m emoemnm mucosa lllllllll moumuoom(mesmsoaalllllluu Ave Aomm .mm x m .Hoo mud .mm x m .Hoov Hmsucmuom usemuo Amy some omummwuuH Ami mou< pouomfiuuflco Adv wumum wantonma ca mpcoEouwsoom ufloono mo mmumfiwumn omwzloumumln.a.¢ mqmda 208 TABLE A.2.--Est:imates Of Interest Rates that lenders Would Have tO Charge to Compensate for Defaults (Percent per Annum) Value of Defaults as Percentage Of Normal Interest Rates in Absence Of Defaults Total Loans 17* 2* 5 ’IO 15" 25 850 l 2.02 3.03 6.06 11.11 16.16 26.26 51.52 2 3.06 4.08 7.14 12.24 17.35 27.55 53.06 5 6.32 7.37 10.53 15.79 21.05 31.58 57.89 10 12.22 13.33 16.67 22.22 27.78 38.89 66.67 15 18.82 20.00 23.52 29.41 35.29 47.06 76.47 25 34.67 36.00 40.00 46.67 53.33 66.67 100.00 50 102.00 104.00 110.00 120.00 130.00 150.00 200.00 Source: U. TUn.Wai, Interest Rates Outside the Organized Money Markets Of UnderdevelOped Countries, I.M.F. Staff Papers (1957—58) . p. 110. 209 TABLE A.3.--Fstimates of Short-Term Credit Needs in India in 1970-71 Type Of Area Million Scale Of Credit Per Acre IIlotal Credit Needed Acres ‘ (Million Rupees) in 1970- Kind Cash Total 1971 Rs. Rs. Rs. Kind CaSh Total High Yielding Varieties 35.0 79 62 141 2765 2170 4935 Non-High Yielding: Irrigated 53.5 29 31 60 1551 1658 3209 [11111. rigated ‘ x1 ith? Area 309.5 5 20 25 1547 6190 7737 g; Total 398.0 5863 10018 15881 Sources: (i) For acreage under different categories: 'me Times Of India Directory(l972) , Banbay, Times of India Publications. p. 29. (ii) For scales of credit per acre: All India Credit Miew Carmittee IBport (1969). p. 88. Am ucoeoumumv mama ocso .cauoaasm mwocH MO xcmm m>uomom u OOHSOW 210 w to In o.ooa w.wv H.hm v.mH m.vH m.NN o.m~ v.m~ H.h H.N ooo.oa O>OQ¢ ooo.oa I doom ooom I HomN comm I Hooa coca I How com can» mama Ame oocso mumnmd mo ommucooumm o>aumasezo Ave oaocomsom mo ommucoouom o>flumaseso Amy osam>nummm< Hmuoe mo mooucmonom Amy unaccomsom Had no oomucoouom “Hy Amoomzmv muommd mo 03Hm> .ANmmH .mfldbv 0H5¥HDUflHD¢ CMHUGH Gfl mummmd MO GOflHfiQHHHWHQII.v.¢ NQQQB 211 TABLE A.5.--Capital Expenditure on Farm in India and Rajasthan During the Year 1961-62* (Percentages) Item India Rajasthan Purchase of Land 18.8 7.6 Reclamation Of Land 2.9 0.4 Bunding and Other Land Improvements 8.9 1.8 Construction Of Wells 7.1 6.2 Agricultural Implements, Machinery and Transport Equipment 11.4 11.9 Purchase Of Livestock 44.4 67.1 Farm Houses 2.9 1.0 Others 3.6 4.0 Total 100.0 100.0 Source: Report of the All India Rural Credit Review Committee, Bombay, Reserve Bank Of India (December, 1969) *Total capital expenditure incurred by culti- vators during 1961-1962 was Rs. 6,260 million. 212 TABLE A.6.-—Proportion and Amount of Cash loans Borrowed Fran the Primary Credit Societies in Different States, 1961-62 State Average Amount Percentage Of Aggregate Amount Of Cash loan COOperative Of loans Frau Borrowed Fran loans to Total Cooperatives COOperatives Cash loans From (Million Rupees) Per Household All Agencies (Rupees) Arrihra Pradesh 35.1 12.7 143.7 Assam 0.6 1.7 0.90 Bihar 2.7 2.6 16.10 Gujarat 95.2 25.7 182.3 Jam: and Kashmir 17.5 11.4 8.5 Kerala 24.3 11.9 49.0 Madhya Pradesh 29.4 17.4 130.1 Mziras 49.1 16.5 168.1 Maharashtra 84.5 38.3 318.1 Mysore 66.7 20.6 165.0 missa 9.1 16.6 2107 Punjab 38.5 10.5 62.6 Rajasthan 14.9 3.8 40.6 Uttar Pradesh 27.9 16.6 269.6 West Bengal 8.4 5.9 27.8 All Irrlia 31.9 15.5 1605.3 Average Source: Reserve Bank Of India Bulletin, December, 1965. 213 TABLE A.7.--State-Wise Position of Primary Cooperative Credit Societies in India on June 30, Million Rupees) 1971 (Amount in Name Of State/ Union Territory (UT) (1) Total Number Of Primary Credit Societies (2) Societies Which Advanced Loans During the Year (3) Andhra Pradesh Assam Bihar Gujarat Haryana Himachal Pradesh Jammu and Kashmir Kerala Madhya Pradesh Maharashtra Mysore Nagaland Orissa Punjab Rajasthan Tamil Nadu West Bengal Andaman and Nicobar Goa, Daman and Diu Pondichery Delhi Uttar Pradesh Total 15,040 2,968 17,171 8,438 6,166 2,547 1,104 2,134 9,884 20,014 8,675 16 3,759 10,274 7,808 6,058 11,329 44 168 73 283 25,922 160,780 7,288 556 16,174 7,160 6,019 2,391 655 1,466 9,402 18,421 4,842 8 2,245 9,518 3,676 4,187 3,098 30 102 58 274 19,252 117,063 Note: Difference in the total represents figures for very small union territories. 214 TABLE A.7. Continued Membership Percent Of Percent Of Percent Of Share ('000) Borrowing Rural POpu- Villages Capital Members lation Covered Covered by Cooperatives (4) (5) (6) (7) (8) 2,260 40 82 92 105.7 388 14 82 78 11.1 2,750 33 96 96 50.0 1,330 62 95 95 252.8 598 53 100 100 38.5 438 50 - 100 100 24.5 280 38 78 85 4.9 1,695 40 100 100 94.3 2,081 46 93 100 161.8 3,136 42 73 98 523.1 1,787 41 94 96 140.2 neg. 0 15 34 neg. 1,410 22 100 100 53.5 1,438 75 100 100 109.8 1,271 44 86 94 69.5 3,280 19 100 100 152.5 1,034 26 71 80 36.7 2 50 35 44 0.3 61 11 100 100 1.7 14 43 100 100 1.3 33 88 52 98 3.5 5,527 32 120 129 219.3 30,963 36 91 95 2057.4 215 TABLE A.7. Continued Reserves Total Of Deposits WOrking Percent Of Loans Owned Capital Owned Funds Outstand— Funds (W.K.) to W.K. ing (9) (10) (ll) (12) (13) (14) 39.2 144.9 34.8 605.2 24 380.9 1.1 12.2 5.2 84.5 14 63.0 7.8 57.8 29.8 308.6 19 199.2 92.3 345.1 51.2 1326.5 26 957.4 2.4 40.9 8.0 250.0 16 185.0 4.3 28.8 43.5 112.7 25 77.3 1.4 6.3 0.8 87.1 7 30.9 30.8 125.1 93.8 650.4 19 361.1 60.0 221.8 43.4 1147.3 20 838.6 104.6 627.7 40.5 2266.7 28 1648.3 53.8 194.0 35.4 774.6 25 499.2 nil neg. neg. neg. 0 0 21.0 74.5 14.9 367.2 20 210.7 19.8 129.6 177.4 764.3 17 506.4 3.3 72.8 13.0 380.1 17 236.7 82.8 235.3 42.0 859.5 27 588.1 9.8 46.5 7.0 245.9 19 176.3 neg. 0.3 neg. 0.6 50 0.5 0.6 2.3 0.2 5.0 46 2.0 0.6 1.9 neg. 9.4 20 6.3 0.9 4.4 2.3 18.2 24 10.5 57.9 277.2 50.3 1249.1 22 855.6 595.7 2653.1 694.6 11534.0 23 7844.8 216 TABLE A.7. Continued Loans Overdue Overdues Loans Loans Recovered Overdue Loans as as Percent Advanced Through Sale Of Percent Of Of Owned During Members' Loans Out- Funds 1970-71 standing (15) (16) (17) (18) (19) 171.0 45 118 287.5 0.3 49.8 80 409 20.8 0.1 124.8 63 216 124.6 nil 206.8 28 60 893.4 118.0 87.0 47 212 156.6 nil 16.7 22 58 49.2 nil 18.6 60 295 18.2 13.3 107.1 30 85 300.9 17.2 358.1 43 161 514.1 62.9 618.4 38 98 1149.3 224.6 215.3 43 111 380.9 17.0 0 0 0 neg. 0 138.4 65 186 87.4 0.5 205.7 41 151 571.0 0 103.3 44 142 163.3 0.2 217.8 37 93 473.7 9.4 124.3 70 268 55.9 0.1 0.2 40 70 0.4 nil 1.2 60 52 1.4 nil 2.4 38 126 5.7 nil 2.1 20 48 4.1 nil 499.2 52 123. 513.4 14.5 3223.6 41 121 5778.1 478.3 217 TABLE A.7. Continued Number of Societies Societies With T Sale Of Seeds, Recovering Loans Full Time I Fertilizers, Through Sale of Crops Secretaries Pesticides (Number) and Implements (20) (21) (22) 2,297 585 22.5 56 864 neg. 0 2,250 32.1 971 5,038 275.4 0 762 35.8 0 749 4.2 721 722 9.3 456 1,564 58.3 3,207 8,413 91.8 6,642 12,633 243.4 629 4,833 112.3 0 3 0 9 2,778 11.1 0 2,609 262.2 336 2,706 10.6 201 3,588 90.7 45 106 4.5 0 0 0 0 97 1.4 0 45 4.1 0 81 0.7 1,273 2,910 14.8 16,843 53,429 1286.2 Source: Statistical Statements Relating to the Coop- erative Movement in India, (1970-71), Part I (computations own). Reserve Bank of India 2153 . . .vm .Oz ucoEououm H puma Aaeuoemav ucoEo>oz o>eumuodooo one on mceumaom mucoeoumum amusemeumum noon90m .mcoOH osouo>o one uo>ooou Ou cmaooeoo usouoma> ou ooo mo3 macs .oooco>oo named one con» mucsoeo nosed: oouo>ooou oon oomfiuo oco Hwficmox oco dEEoo Away Am xflocoommn mwumu UmQHOUCH Adv "mQUOZ ~.vm m.NH m.mvom H.mnhm Houoe s.mm NH v.av a.mm smegma 6mm: o.o~ oa H.mov «.mam smoooum uouuo m.~a v o.vmv n.m>¢ soocaweoa m.o~ ea «.mma m.moa cmnummnmm m.oa N o.aom a.osm ounces . . . v.nm m.>m ommfiuo m.mm SH o.mHm m.omm ou0m>z w.mm om v.m~m m.mvHH ouunmouocoz «.04 am o.mos H.Vam nmmemua mucous m.aw mm ~.mmm m.oom odouox . . . 0.0m ~.mH noenmomac usenmnx a cease m.mv em m.hm «.mv :moooum Honooeam o.ma a m.mva 5.8ma menses: m.am as 0.5me «.mam umumnso m.va m m.mHH o.v~a nonam o.ooa mu o.~a h.o~ Bound m.a~ Ha n.mm~ m.hmm smoooum ounoc< Isnnucoouomaa uuuuuu mooosm cOHHHHSIII Aouoeflxoummdv muasomoo Mom ouomcomeoo Ou ouom vasomoa mo oouo>ooom oooco>o¢ umououcH omoucoouom mcooq mcooq o>fiuocuouae ouoEaxoummd no ucsoem ououm mo ucooe< annonma .mcooa o>auonomooo cw muaoomoo now ouowcomeou on mouom umououcH o>euocuoua< omwzououmil.m.< Manda 2119 TABLE A.9.--Reserve Bank of India's Credit to Cooperatives (1969-70 and 1971—72) (Amount in Million Rupees) Serial 1969-70 1 1971-72 Number Purpose Amount Amount 1 Amount Amount Loaned Outstand- ‘ Loaned Outstand- During ing on 5 During ing on the Year June 30 5 the Year June 30 1970 I 1972 L T A. Loans to State Cooperative Banks i Al Short Term Loans: E (1) Seasonal AgriEultural Operations : (at 2% below bank rate) 4344 2161 I 4823 1539 (ii) Production and Marketing Of Handloom ; Products (at 1.1/2% below bank rate) 100 50 i 143 59 (iii) Purchase and Sale of Yarn (at bank I rate) 1 0 ' 1 0 (iv) General Banking Purpose (at bank rate) 235 2 162 neg. (v) Purchase and Distribution Of . Fertilizers at (2% below bank rate) 262 24 184 39 (vi) Conversion Loans (at bank rate) 17 2 E 71 54 (vii) Loans for financing the working Capital Needs Of Sugar Factories: 0 0 . 26 0 (28 above the bank rate) I r A2 Medium Term Loans: 3 (i) AgriculturaIIPurposes: (1.1/2% ; below bank rate) 115 204 f 59 201 (ii) Financing Farmers for Purchasing Shares of Coop Sugar (at bank rate) 0 1 3 6 (iii) Conversion Of Short-Term Loans Into Medium Term Loans into Medium-Term . Loans in Drought Areas (at 1.1/2% l below bank rate) 30 44 I 241 257 B. Loans to State Governments for 1 Contribution to Share Capital of Cooperative Credit Institutions 72 343 1 156 531 C. Investment in Debentures ! (a) Rural Debentures 9 96 1 106 (b) Ordinary Debentures 43 312 1 40 383 Source: Report on Currency and Finance (1971-72), Bombay, Reserve Bank of India (Table 13). 222C) TABLE A.10.--District-wise Financial Position Of Primary Agricultural Cooperative Credit Societies in Rajasthan (as on June 30, 1972) Name of Number of Number Share ! Reserves Deposits Total Working Working the Societies of Capital Working Capital Capital District Members ' Capital Per Per 1 Society Member . (000) ------------- ('000 Rupees) (Rupees)---- Ajmer i 322 59.1 3,744 , 497 783 20,414 66,800 347 Alwar ' 455 86.6 5,449 56 1,219 32,558 71,550 376 Banswara , 209 35.2 983 I 11 209 5,782 27,665 164 Barmer ‘ 249 49.3 1,683 394 295 9,766 35,205 198 Bharatpur 559 117.0 10,567 166 2,641 57,121 102,188 488 Bhilwara , 270 49.0 2,639 67 372 12,390 45,889 253 Bikaner 120 21.5 704 0 206 3,891 32,425 181 Bundi 139 24.6 2,110 . 10 231 9,969 71,720 405 Chittorgarh 314 55.7 3,285 19 879 17,078 54,390 306 Churu 208 32.1 996 0 87 4,870 23,414 152 Dungarpur 181 32.3 783 20 177 4,705 26,000 145 Ganganagar 371 60.7 4,306 3 418 22,196 60,000 366 Jaipur 632 104.0 4,259 13 959 22,966 36,323 221 Jaisalmer 102 4.5 118 0 141 1,008 10,000 224 Jalore 218 26.2 1,132 0 152 5,380 24,680 207 Jhalawar 217 41.5 3,305 105 673 15,658 72,157 377 Jhunjhunu 248 30.4 960 0 111 3,463 13,562 114 Jodhpur 266 45.3 2,727 20 302 13,127 49,350 289 lots 332 69.0 9,863 669 2,046 44,812 I 135,000 649 Nagaur 373 53.0 2,522 6 263 12,812 I 34,617 242 Pali 329 55.7 2,525 19 410 14,875 45,213 267 Sawai Madhopur 427 71.4 3,086 16 484 14,540 34,052 204 Sikar 296 40.5 1,266 19 227 6,070 20,500 149 Sirohi 134 14.3 742 10 62 4,433 33,084 310 Tonk 212 37.9 1,943 4 402 9,740 46,000 256 Udaipur 544 71.7 3,393 63 594 15,558 28,600 217 Total 7,727 1288.5 75,080 1,775 14,344 385,172 1 50,000 300 Source: Registrar of Cooperative Societies Rajasthan: Trend of Progress of Cooperative Societies in Rajasthan, 1972. 221 TABLE A.11.—District—Wise Distribution Of Agricultural Credit Societies According to Share Capital (Inchriing Govermmt (kmtribution) as on June 30, 1972 Nana of the Paid up Share Cafital in mines Societies with District 05 r501- 1001— 2001- 3001- I 4001- 7 5001- I 10,WW Paid up Share to 1000 2000 3000 4000 1 5000 ‘ 10,000 20,000 Nurber Capital of as. 500 I of 20,000 or more I Societies 3r Ajmer 1 3 58 28 19 I 70 I 33 77 33 322 21 Alwar 5 8 3o 35 175 95 l 64 64 21 455 21 Bazaars 4 14 38 37 33 23 38 21 1 209 N11 Banter 4 16 43 21 22 19 72 48 4 249 4 fluratpur 35 15 23 16 34 29 108 109 190 559 121 Bhilwara 6 12 30 30 24 10 31 102 25 270 Nil 8m Nil 10 16 18 12 11 37 13 3 120 1 m1 6 1 8 9 7 11 17 43 37 139 30 outmuh 3 4 32 31 25 24 I 63 93 39 314 26 Gun: 3 14 22 40 I 34 30 43 22 Nil 208 Nil I organza: l 12 32 32 38 30 6 18 9 4 181 Nil Ganganagar I 3 22 15 16 17 28 109 107 54 371 30 Jaipur I 48 33 60 57 55 152 I 110 78 39 632 11 Jaisaluer ; 28 27 35 7 5 . Nil 2 Nil Nil Nil 102 Nil Jalore . 19 27 37 25 28 4 12 I 41 23 6 218 1 Jhnlw I Nil . 1 2 5 7 3 28 44 67 63 217 63 Jhmjhmu 2 ' 36 69 50 23 i 20 31 15 2 248 Nil W 4 3 17 28 63 g 23 76 43 9 266 28 Rota 1 Nil 6 11 2 i 19 I 33 89 171 332 160 ”new 3 46 125 90 20 I 36 40 11 2 373 Nil Pali Nil 12 50 48 90 I 38 l 50 31 10 329 10 Susi mm: 28 31 64 45 54 I 40 l 89 49 27 427 23 Sikar 10 43 57 46 38 I 25 I 58 16 3 296 1 51mm 6 9 18 21 15 10 I 33 18 4 134 4 max 9 10 12 17 21 16 60 41 26 212 Nil 1113.1er 40 _6_6 1; _6_3_ g I i I 79 85 32 544 _4 Total 280 495 980 832 901 I 725 J 1,377 1,232 805 7,727 559 Source: Registrar of Cooperative Societies, Rajasthan: Trend Of Progress of Cooperative Societies in Rajasthan, 1972. 222 .Amhma can hmmav mwccH mo xcwm 0>Hmmmm aw ucoew>oz AHhIOFmH flaw wmlmmmav meGH m>wumummooo may on mcfiumaum mucmemumum Hmowumaumum "muuoom mod «ma hm om aumwoom umm anmumneuz mmoum>< mud mma we moa “mafia: Hmm Anv omm.o~ mvm.mm 66H.H mmm.m muofloom Hum 26o A.mmv vmonm>n¢ coon mmmum>¢ mom mum ooa mom umnEQz Ham Anv onw.a «Hm.6 6AA H66 aumfioom 006 “my A.mmv muamommo mmmum>¢ mm no we mm Hosea: Mom Anv ~om.m th.~fl mom H-.~ mumfloom 006 .mo A.mmv Hmuwmmo mumnm monum>< annumMnmm convmmnmm Mom mmmuw>¢ Mom mmmuw>< mmmum>< mmvnm Had mmmum>¢ mwmmm Had aBIOFmH mmnmmma conflummsoo mo mammm .thObmH van mmlmmmfl .mmmmuo>¢ mwvaHladfl 050m can annumMnmm :« mowumwoom uwcmuo o>fiumummoou map coozumm aomfiummfiooll.ma.4 fiance 223 TABLE A.13.—Vbrking Capital, Owned Funds and Overdue loans of the District Central Cooperative Banks in Rajasthan, J1me 30, 1971 District C. C. B. Working Owned Overdue 5 as a Ratio Excess of 4 Capital Funds loans of 3 Over Column 3 (1) (2) (3) (4) (5) (6) --'I‘Y1ouSand Rupees--- ------Percent Ajmer 14,107 2,590 4,492 31.8 73 Alwar 24,238 5,776 5,117 21.1 N.A. Banswara 4,976 899 4,012 80.7 346 Banner 8,215 1,805 3,573 43.5 98 Bharatpur 41,226 8,254 7,843 19.0 N.A. Bhilmra 12,611 2,506 4,498 35.7 79 Bikaner 3,276 695 1,552 47.4 123 Bundi 8,823 1,840 3,490 39.6 90 Chittorgarh 14 ,383 2 ,636 6 ,450 44 . 8 144 Churn 3,925 1,003 2,166 55.2 110 Ganga Nagar 18,073 3,208 7,799 43.2 143 Dlmgarpur 3,822 801 2,102 55.0 162 Jaipur 18 ,716 4 , 029 8 , 543 45 . 6 112 Jalore 4,728 921 2,642 55.9 187 Jhalawar 14,559 2,606 3,143 21.6 20 .31ij 5 , 503 1 , 126 1 ,418 28 . 0 26 Jodhpur 13 , 081 2 ,724 4 ,134 31 . 6 52 Kota 33,136 5,954 9,817 29.6 65 Nagaur 14,125 2,538 4,730 33.5 86 Pali 10 ,607 2 , 513 8 , 752 82 . 5 248 Sawai M11093: 9,523 2,313 3,546 37.2 53 Sikar 5,051 1,131 2,465 48.7 118 Sirohi 3,414 577 1,743 51.1 202 'Imk 9,740 1,957 3,068 31.5 57 Udaipur 9 ,477 2 ,119 4 , 204 44 . 3 98 Note: 'Ihere is no separate C.C.B. in the District of Jaisahner. N.A. = Not Available. Source: Registrar of COOperative Societies Rajasthan: Trend of Progress of Cooperative Societies in Rajasthan, 1972. 224 TABLE A.14.--District-Wise Owned Funds, Overdues and Excess of Overdues Over Owned Funds at the Primary Level in Rajasthan (June 30, 1972) (Thousand Rupees) District Owned Amount of Excess of Funds Overdues Bad and Overdues Doubtful Over Owned Debts Funds ----- T ousand Rupees-—~----- -Percent-- Ajmer 4,241 5,770 1,363 31 Alwar 5,505 13,041 716 137 Banswara 994 1,863 616 88 Barmer 2,077 2,619 2,035 26 Bharatpur 10,733 21,114 1,334 97 Bhilwara 2,706 4,088 392 51 Bikaner 704 994 667 41 Bundi 2,120 1,767 601 . . Chittorgarh 3,304 4,488 827 36 Churu 996 1,869 611 88 Dungarpur 803 1,064 792 32 Ganga Nagar 4,309 7,735 381 80 Jaipur 4,272 5,918 946 39 Jalore 1,132 973 1,074 . . Jaisalmer 118 272 181 130 Jhunjhunu 960 997 225 4 Jodhpur 2,747 2,744 679 . . Kota 10,532 16,272 1,639 55 Nagaur 2,528 5,176 1,246 105 Jhalawar 3,410 7,188 864 111 Pali 2,544 4,975 946 95 Sawai Madhopur 3,102 2,935 525 . . Sikar 1,286 2,873 685 124 Sirohi 752 1,123 767 49 Tank 1,947 3,191 107 64 Udaipur 3,456 3,284 1,288 . . Source: Registrar of COOperative Societies, Rajasthan: Trend of Progress of Cooperative Societies in Rajasthan, 1972. .HmhmHH ..oo 4 muo> .wmnsom .mmuwm .oz .umacmfimm moumEEou :mumEHmm Hamfim How musmcH Housuazoaum<= .ouuflz xonmfl .msouo 0:» GH =sowummH0fluummloc= Ham mmuocmo .m.z "mousow "muoz as mmcsoaom S H.m m.Hoa m.¢ m.o o m.hoa H.mm mound om um>o 2 2 o.v m.mm H.m o.m m.mm H.~m m.~n o.om I H.o~ o o H.m o m.ma m.om ~.Hm o.o~ 1 H.0H o o H.m o o H.mH v.mm o.oH 1 a.m .m.z .m.z .m.z .m.z .m.z .m.z .m.z o.m . Hm.~ .m.z .m.z .m.z .m.z .m.z .m.z .m.z m.N 30....mm mumnuo Honda cofiummwuuH cofiuowuoum mmuzcmz mHmNHHHuHmm womww Ammuodv woman macaw muwm Ammmmsm ca musuwccwmxm «Hod Homo mmlmmma .cmnummflmm cw mound m>m no mambmqamuwm ou mcwouoooa muamcH ucmHmMMfia co momcmmxm cmmoul.ma.< mum¢e 226 mH~.m mmv.m mmo.v mum HN¢4~ mom mnuahma oo~.m moa.m hom.m omm ohm.~ mom antebma mm>.v ovm.o mna.m nmm >m~.~ «on obumoma sao.m Hs~.b mos.” mos soo.~ msw mmnmuma mvm.m nmm.v mmm.m mma vuo.a mmm manhood mom.v mmm.w hou.m mma Nam.a own nonmoma mv>.m mmm.v v>¢.m mmH mm¢.H Hmv omummma mom.w nom.m >v52m mm mum mmw mmlvmma nmo.v mmo.~ Hmn.a om moo mae volmmma mmo.m 5mm.a mmm.a ma mmv mmm mmlmmma om~.~ mom.a wmo.a ma omm Hem NmIHmmH «mm omv mum ma mmm Hoe Holomma xcmm x094 mmwumflOOm ooocm>o< on» Scum Hmuflmmo Hones: mcmoq mmcflzouuom muflmomoa mm>ummmm mumnm mo Amnesz snow .omussuq scum 0>sumu0mooo Hmuucmu possumfla um3~mnn one Ammomam vammsoza Ga unnofimv Amhldhmalamlommav «ammumoum mo ocwualn.ma.¢ mamaa .mhma .smcpmsnmm cw mmwvowoom m>ausuomooo 227 mo mmmumoum mo sauna "cmzumwnmm .mowuufloom 0>wumu0mooo mo unnumsmum “mousom hm mm «mm m.nH mm os~.oa Hm mm HNH m.na mN maa.~a be 4m omw o.o~ mm Hos.oa mm mm ova m.na 4m >m~.oa mw mm mas m.o~ hm omo.s Hm so and m.mH as mmm.m Hm m4 HHH 0.0m mm cma.o m mm mm «.4H ma mmm.v ma m4 mm m.vH ha Hmm.m an em «ma m.ma oN mea.m mm Hm oma «.ma Hm o4m.a ma Ha mm m.ma on 5mm Hmufimmu Houwmmo mocsm mcflxuo3 mason mcwxuoz omc3o mo mo unmoumm msoum>o msflocmum m0 UCGOHmm meH HO ucmuumm mm mm mmvcfih HO #fimOHmm lug mm monouo>o uwmoum monouw>o 00:30 nown3 mo «smog coacwucoo .ma.¢ mqmda 7.28 TABLE A.17.--Sca1es of Finance for the Kind (b) Component Recommended by the Jhalawar District Central Cooperative Bank, 1971-72 (Amount in Rupees Per Hectare) Name of the Crop Scale of Finance Scale of Finance For 1970-71 For 1971-72 Wheat (Irrigated) 122.5 500 Wheat (Unirrigated) 75 125 Barley 107.5 125 Gram 45 125 Linseed 57.5 125 Potatoes 110 500 Corriender 85 125 Peas 0 250 Chillies 162.5 250 Maize 150 125 Bajra 67.5 125 Jowar (Sorghum) 97.5 125 Paddy 137.5 500 Groundnuts 70 125 Opium 177.5 250 Sugar cane 337.5 375 Source: The Jhalawar Central COOperative Bank Ltd. Notification, Serial Number JKSB/Credit/71-72/ 10341, dated February 28, 1972. 229 TABLE A.18.--Distribution of Owned Land Among the Members of Salri Primary Cooperative Society (District Mm) (1971-72) Size Group Nuuber of Net Cromed Per I-buse- Percent Percent of (Hectares) lbuseholds (Hectares) hold Mean of Total Total Area Holding timber in the (Hectares) in the Group Grmp less than 2.5 23 40.62 1.75 14 5.5 2.51 to 4.00 60 186.66 3.11 38 27.5 4.01 to 6.00 49 235.26 4.80 30 35.0 6.00 + __2_9_ 213.44 7.36 _1_8_ 32.0 'Ibtal 161 675 . 98 4 . 20 100 100 . 0 Source: Data ccmpiled fran the field investigations of the matters of Salri Primary COOperative credit Society in Jhalawar District, 1972. 230 .Nnma .uowuumwo umamamcb cw aumwoom ufiomuu m>aumummoou muoefium fluamm mo mnmoews on» no msowusmwumm>sw oaowm on» Scum acawmsoo sumo ”mouDOm .n.m moanmusn oaocmmsom «5.0 muumuuxooaasm .usmsmwaom mmmcflmsm sham «n.h xooumm>wq «m.ma monouosuum can nonwoawam Hmwusmowmmm «w.vo pang A09Hm> Hobos cu uswoummv ”m3oHHom ms mama cucumsnom you muommm mo maH0m usmummmwo mo msowuuomoum .mHamH< «oIHmmH40u mswouoood "muoz ~.H H.H «.m. 5.H~ m.mo Hod Hmuoa m.o o.H H.m H.m~ m.mo mm +oooma m.a v.H o.oa N.o~ m.oo av oooma 1 Hooma m.a m.H m.HH o.ma N.»@ we ooowa 1 Hoom o.H ¢.H m.~a o.>H o.mo 5H ooom 1 Hoom o.a .mmz o.m. m.m~ m.mo on ooom 1 Moon . . .. o.m o.mm o.om m ooom can» mood monouosuum moanouoo unmemflsom was oaocmmsom one mwmcflmsm xUOUmm>wq mmcficawam coma moaonmmoom Ammwmsmv mason 00 am EMNMI, HMfluswmwmmm mo Honesz macho sH muwmmm Hmuoe mo mmmusmoumm Hmuoa pound .Nwma .wcob .mmsouuuummmd ou mcwouooum moHocmmaom Bush mo cofiusnwuumfioua.ma.< mummy ’231 TABLE A.20.-—Financing of Different Cash Expenses by Sample Households. Item Source of Finance Cooperative Money Petty Owned_ Total Credit Lenders Traders Funds Stratum I (Less than 2.5 Hectares) Current Expenditure on Farm 2,700 2,750 . . . 1,139 6,589 Capital Expenditure on Farm . . . . . . . . . . . . . . . Household Expenditure . . . 3,000 3,850 10,400 17,250 Sub-total 2,700 5,750 3,850 11,539 23,839 Stratum II (2.51 to 4.00 Hectares) Current Expenditure on Farm 13,892 8,500 . . . 9,886 32,278 Capital Expenditure on Farm 800 . . . . . . . . . 800 Household Expenditure . . . 9,450 10,500 43,450 63,400 Sub—total 14,692 17,950 10,500 53,336 96,478 Stratum III (4.01 to 6.00 Hectares) Current Expenditure on Farm 17,037 3,500 . . . 27,738 48,275 Capital Expenditure on Farm 2,400 . . . . . . . . . 2,400 Household Expenditure . . . 6,000 18,752 42,428 67,180 Sub-total 19,437 9,500 18,752 70,166 117,855 Stratum IV (Above 6 Hectares) Current Expenditure on Farm 18,775 2,000 . . . 21,034 41,809 Capital Expenditure on Farm . . . . . . . . . 9,000' 9,000. Household Expenditure . . . 1,200 4,500 63,900 69,600 Sub-total 18,775 3,200 4,500 93,934 120,409 Grand total 55,604 36,400 37,602 228,957 358,581 Source: Data compiled from the field investigations of the members of Salri Primary Cooperative Credit Society in Jhalawar District, 1972. *Loaned by Central Bank of India. 232 .NRH .uofluumao gang 5 .3308 $8.6 053882180 Eggs 38.6. no 988.8. 05 no 83880.85 36E 05 sea 39.8 53 "858 .38» 05 man fimfim was nabs» mo gflgumo Mom .v .MHEH mo :53 .3550 m5 Eu 8383 ooo.m .nm 8335 A8 .m .moflcoEwHwo «do $035: now 9:383” 5039280 30:83: now $33 3&0.qu A8 .~ .H 0.43.."ng mmofimsn Snow now 2.33 30059 3. 8.302 31mm 8N; 89m 83. 08:” 88.03 08.8 80.8 8va 80.8 8.4:". 88.3 08.8 mm +8.8 88.8 086 8m.m «3.8 84.8 8mg: 81$ 8: EH8 88.8 03.3 845 88.2 8 8618.4 813 8: 988 08.3 «8.3 84.8 08.8 28 88.8 3i: 80$ .68.: mREN 8 8.7Hm.N 08.2 085 Bars. 88$ 8fim 88.8 0%.: dz $3.8 $8.3 8%: 088 omm mm m.~ :93 one.” mmmcflmom $3 9.3» EHmm EHNm mg 5.01.88 Long :0 mud» 5 who» éouuom w>flum momwz 30: new; Lung 68.3005 H38. L088 898. 030m H388 ”E0150 85391 1.8m moooz ammo mo 02m 1888 d 0595 ~35 5 mEBmmso: 283 m0 688088 as 3002 5&qu fimolémi a "IIIIIIIIIIIIIIIIIIIIIII