Problem Definition:
Background to the problem
Agriculture in India has always been an issue that has been given priority. Given the living conditions that the farmers in India find themselves in, the government has tried to give a lot of impetus to agricultural loans. This article surveys the varied and voluminous literature that has appeared from the years 1995 through 2008. Literature is broadly defined to include not just published books and journal articles, websites but also conference events and surveys.
While doing the review of the existing literature on the project, the group came across several facts and facets some of which have been mentioned below-
As on 30 March 2007, the exposure of commercial banks to the agriculture sector was Rs2.3 trillion. The total value of agricultural loans could be to the tune of Rs3.62 trillion, including loans of cooperative banks and regional rural banks (RRBs).
Currently, farmers get small loans up to Rs2 lakh at a concessional rate of 7% but government offers 2% subsidy on such loans to banks through RBI.
By law, Indian banks are required to allocate to agriculture 18% of the amount they give out as loans. Those banks that fail to meet this target have the option of investing the shortfall in the Rural Infrastructure Development Fund (RIDF), managed by Nabard. In 2004-05, India’s finance minister P. Chidambaram exhorted banks to increase agricultural loans and asked them to double the quantum of such loans in three years. Over the past two years, till 2006-07, the number of agricultural loans rose by 36.4% and the amount loaned by close to 80%.
However, these measures have proved insufficient and the indebtedness of farmers has grown on account of rising input costs and low returns. Between 2001 and 2005, 86,922 farmers committed suicide; of this number, 54% were from four states—Andhra Pradesh, Karnataka, Kerala and Maharashtra. The suicide rate among male farmers rose from 12.3 per 100,000 in 1996 to 18.2 in 2005. And incidence of farmers’ suicides in these four states between 2001 and 2005 were far higher than the national average of 17.5.
ROOT OF THE PROBLEM
Between 1961 and 2003, the number of landholdings in India doubled from 51 million to 101 million but the area under cultivation declined from 133 million hectares to 108 million hectares. Not all land is irrigated. With 16% of world’s population, India has only 4% of the world’s total available fresh water and rain-fed areas account for only 60% of cultivable land. The income from agriculture has been going down and small and marginal farmers are the worst affected. And while diversification to high-value commercial crops has increased yields and incomes of farmers, it has also exposed them to the risks associated with such crops, largely on account of volatile global prices. This has promoted farmers to borrow more from non-institutional sources, such as local moneylenders, at higher rates of interest. And because rain-fed areas are prone to droughts, crop failures have driven farmers to distress and even suicides.
LEVEL OF INDEBTEDNESS
According to the latest All India Debt and Investment Survey (AIDIS) and the Situation Assessment Survey of Farmers (SAS), conducted by National Sample Survey Organization (NSSO) in January-December 2003, 43.42 million, or 48.6%, of 89.33 million farmer households were indebted and the average outstanding debt per household was Rs12,585. A state-wise analysis shows that in 2003, incidence of indebtedness was higher in states with high input intensive or diversified agriculture such as Andhra Pradesh, Tamil Nadu, Punjab, Kerala, Karnataka and Haryana. Moneylenders, the source of 70% of loans in 1951, accounted for 26.8% in 2002.
COST OF CREDIT AND SOURCES
Short-term loans account for much of farm credit although their share has gone down from 70.3% of overall credit in 1975-76 to 58.1% in 2005-06. Short-term crop loans are used for buying inputs and long-term loans for building assets such as irrigation pump sets, tube wells, even buying land.
The share of cooperative banks in agricultural credit in this period has gone down from 69.5% to 21.8% and that of commercial banks has risen from 24.2% to 69.5%.
However, cooperative credit societies have more than double the number of rural outlets and four times more accounts than commercial banks and regional rural banks (RRB) put together. In March 2003, commercial banks had 16.04 million accounts with an average loan size of Rs31,585 and cooperative societies had 63.09 million accounts with an average borrowing of Rs6,637.
There are 31 state cooperative banks, 366 district central cooperative banks and 105,000 primary agriculture credit societies that disburse farm loans. 196 RRBs with 14,000 branches covering 516 districts have a customer base of 62 million.
Overall, non-institutional sources for credit could be around 30-35%, but farmers in Andhra Pradesh, Rajasthan, Assam, Bihar and Punjab depend more on non-institutional sources than the rest of India. In all these states, except Bihar, the share of moneylenders in farmers’ outstanding debt is higher than that of commercial banks with Andhra Pradesh topping the list at 53%.
As on June 2002, the cost of about 85% of outstanding farm loan from institutional sources was in the range of 12-20%. On the other hand, 36% of outstanding debt from non-institutional sources such as moneylenders carried an interest burden of 20-25% and another 38%, 30% and above.
REGIONAL DISPARITIES
There are regional disparities when it comes to disbursement of loans. For instance, the southern region accounts for one-third of farm credit even though it accounts for less than one-fifth of farm households. The eastern region’s share is far less compared with its exposure to agriculture and Bihar’s share in farm credit is 2.4% while it accounts for 8% of farm households in the country.
When banks fail to disburse the required 18% of their loans to farm sector, they have the option of investing the shortfall in RIDF, managed by Nabard. Set up in 1995, RIDF has, through 13 tranches, built a corpus of Rs80,000 crore. Up to March 2005, RIDF had sanctioned close to Rs43, 00 crore but disbursed Rs25,348 crore. Here also, one sees regional disparities.
For instance, the southern region accounts for 30% of funds distributed while central, eastern and northern regions that account for about 58% of farm households have received only 38% of sanctions and 35.4% of funds till March 2006.
OVERDUE LOANS
Overdue loans are those where payment is due but the borrower is in no position to pay. After some time, an overdue loan becomes a non-performing asset. The bulk of crop loans are short-term in nature. The loans for summer crop (known as kharif) are disbursed between May and August every year and are due for repayment after 31 March of the following year. If it is not paid by that time, it becomes “overdue”.
NON-PERFORMING ASSETS
Farmers are always given two crop seasons to return the money. An overdue loan becomes an NPA when it is not paid for two years for single-crop areas and one year for multi-crop areas. So, a loan whose repayment is due on 31 March 2008 will remain a standard asset till 31 March 2010
if the farmer cultivates only one crop. In case he cultivates two crops a year, it will remain a standard asset till 31 March 2009. If he does not pay by that time, banks need to provide for such a loan. A loan that remains an NPA for 12 months is a “substandard” asset; beyond 12 months it is a “doubtful” asset and when banks have no hope of recovering a loan, it turns into a “loss” asset.
PROVISIONING
Banks need to provide for 10% of their outstanding substandard assets. For doubtful loans, they need to provide 20% for first year, 30% for second and third year and 100% beyond that. Banks need to either write off loss assets or provide 100% for them. Banks are also required to provide 0.25% for standard agricultural loans.
Statement of the problem:
India is a very vast country and farming community constitutes the major chunk of population. This ascertains the facts are a solution task.
The collection of data of such a scattered and wide spread population is a gigantic task and requires efforts and funds
The desire to improve farmers lot needs thorough investigation, comprehensive and analysis of the data to be collected relating to the agricultural map of the country.
Approach to the problem:
Objective:
To know the working and living condition of the farmer,
To obtain up-to-date information about the rural finance
To understand the effect of the schemes of landing/financial assistance to the farmer
To make suggestions in the light of the findings for schematic lending to the farmer
Research Hypothesis:
It is presumed that the research on the subject can help device & design a strategy / scheme to bring about the improvement in lending to the farmers. This conventional statement needs verification
H=Agricultural finance has led a significant impact on the farmers
Primary Data:
To conduct the social survey of atleast 10 villages in more than one state.
To meet at least 10 farmers from each village, to have their views.
To contact chief functioning authority and eminent social activists in that area.
Secondary Data:
To pursue important books, magazines, news papers, articles, research works, reports and other printed documents, published and authentic material on this subject
Agricultural finance options available to the farmers
The study will be conducted in the light of the guidelines of our course coordinator- Dr. Neena sondhi and available in the books of:
Pat Crayer – the research student’s guide to success
Joseph Gibaldi – MLA handbook for writer of research paper
C R Kothari- research methodology – methods & techniques
Reviewing the existing literature:
The literature available on the subject will be taken into account and reviews of the eminent people will be carefully analyzed.
Research Design:
Type of Research
The study is conclusive & descriptive type in nature and it describes the characteristics of the group & situation.
Sample design:
Target Population – Element – Farmers
Sample unit – village, extension – state
Time – 15 days
Sample size – 60 farmers
Sample size selected for conducting the study is:
5 villages in more than 1 state
10 farmers in more than one state
10 farmers from each village to have their views
Sample frame – local addresses (data bank)
Sample technique – Frequency analaysis & Cross tabulation (chi square test)
Methods of data collection:
The researcher has used both primary & secondary sources of collecting data from the respondents.
Primary source:
Under primary source the researcher has used well structured questionnaire method for collecting the data from the respondents.
Under structured questionnaire method the researcher has used both open and closed ended questions for eliciting the data from the respondents.
Open ended question:
Under open ended questions the researcher has used completely unstructured question type.
Closed ended question:
Under this, questions type like dichotomous and multiple choices was used by the researcher.
Scaling type:
The researcher has used nominal scale & ordinal to find out the importance given by the respondents towards the significance of agricultural finance in ameliorating the conditions of the toiling farmer.
Secondary data:
Data relating to the agricultural finance and its success in upliftment of financial & social conditions of the farmers are collected through the secondary sources such as internet, RBI report, business & economy newspapers.
Method of analysis:
The analysis was carried out by following the steps below:
Coding the questionnaire
Questionnaire development
Coding the questionnaire
Feeding the respondents results in the SPSS data sheet.
Statistical tool used – Frequency analysis & chi square cross tabulation.
Data Analysis:
As part of the analysis for our topic – how far the agricultural finance has succeeded in ameliorating the conditions of the toiling farmers, two methods were adopted:
1. Frequency analysis
2. Cross tabulation
Target Population – Element – Farmers
Sample unit – village, extension – state
Time – 15 days
Sample size N = 60 farmers
Sample size selected for conducting the study is :
5 villages in more than 1 state
10 farmers in more than one state
10 farmers from each village to have their views
Frequency Analysis:
As part of this exercise, we have tried to answer the following questions:
a. What is the percentage of expenditure in the different areas namely seeds, fertilizers, marriage b. function & others from the loan amount taken.
c. Frequency of farmers going for agricultural finance state wise
d. The amount of land possessed by the respondents
The answers to the above questions can be determined by examining the frequency distribution, where one variable is considered at a time. The objective is to count the number of responses associated with the different values of the variable. A frequency distribution for a variable produces a table of frequency counts, percentages, and cumulative percentages for all values associated with that variable. A frequency distribution also helps determine the extent of item non responses and also indicated the extent of illegitimate responses. Hence the frequency analysis was carried.
Cross Tabulation:
All though answers to questions related to a single variable can be processed through frequency analysis, it often raises questions about how to link the variables to other variables. A cross tabulation helps is to understand how one variable relates to another variable. We tried to answer the following questions through cross tabulation:
To understand the effect of the schemes of landing/financial assistance to the farmer
a. Medical Expenses increased
b. Children going to school
c. Monthly household increased
Chi- Square:
The Chi-square statistic is used to test the statistical significance of the observed association in a cross tabulation. It assists us in determining whether a systematic association exists between the two variables. In our analysis of Chi – Square we have taken the following variables as independent and dependent, and then cross tabbed to analyze our research results.
The agricultural fiancé taken by the farmer – Independent variable
Economic Condition Improved:
Monthly household Expenses
Children Going to School
Medical Expenses
After analysis we went for concluding the research hypothesis Agricultural finance has led a significant impact on the farmers.
Results:
Crosstabs
taken any agri loan * monthly household expenses
Analysis: The computed value of Pearson Chi Square is 6.362 is significant and so the research hypothesis that the Agricultural Finance has impact on the monthly household expenses is true & accepted.
taken any agri loan * children going to school
Analysis: The computed value of Pearson Chi Square is 9.586 is significant and so the research hypothesis that the Agricultural Finance has impact on the children of farmers going to school is true & accepted.
taken any agri loan * medical expenses
Analysis: The computed value of Pearson Chi Square is 0.1444 which is insignificant and so the research hypothesis that the Agricultural Finance has impact on the medical expenses being increased is not accepted. The medical expenses doesn’t relate here with the agricultural finance taken by the farmer.
But still think that with the agricultural finance to the farmers, their economic condition has improved and they are now able to foot the better medical treatments.
Frequencies Analysis:
Frequency Table
State wise:
Loan Sources:
Loan Expenditure Area:
Schemes :
Pie Chart ( State wise illustration):
Pie Chart – Loan Sources:
Pie Chart - Loan Spent items:
Pie Chart – Schemes:
From the above frequency analysis we can interpret & conclude the following results :
- State wise farmer participation is from the state of Haryana
- Bank has been most instrumental in providing the financial assistance to the farmers.
- The loan amount has been spent mostly on the fertilizers followed by seeds.
- Of the schemes if offered to the farmers, the scheme which would be most attracting is Produce Market Loan (exhibit – Loan schemes attached) followed by the Krishi Plus scheme.
Limitations & Caveats:
While carrying the research project the researcher felt & came across some limitations mentioned below:
1. The collection of the data of such a scattered and wide spread population was a gigantic task and required a lot of efforts & funnels
2. Some people are not cooperative during the survey
3. There have been some non response errors during the survey, as some farmers abstain from responding.
4. There was a limitation with time also, as going to each village, mapping with the farmers and making them to respond to the questions posed.
Conclusions & Recommendations:
Conclusion:
Through our research analysis we come to the conclusion that the agricultural assistance to the farmers has improved their economic condition and this is reflected in the following areas:
a. Monthly household expenses increased
b. Children going to school increased
Indian Banks has done a lot for the upliftment of the agricultural sector, they have made the farmers rid of the local lenders & this fact is ascertained in our observations. The green revolution launched in the Mid 1960s enabled the country to meet the objective of national food security as it insured sufficient food production to meet the market demands.
Recommendations:
As per the research found in our project the better effect of the agriculture finance is more predominant in the state of Haryana & UP but less in Bihar. The banking sector, State Government and the Centre, has to specially look into the undeveloped and underprivileged states like Bihar. We also find the following recommendations to be suggested.
1. There is a need for an agriculture credit policy in both credit & insurance literacy in villages. Drought prone areas should have a 4-5 repayment cycle for crop loans, taking into account the management of risk. NABARD should function as the national bank of farmers.
2. Prime farm land must be conserved for agriculture and should not be diverted for non agriculture purposes.
3. Live sock Feed and Fodder Corporation, national live stock development council and national biotechnology and regulatory authority may be established with farmer’s representative. User friendly banking & insurance instruments covering production, post harvest operation and markets risk be introduced.
4. The policy & legal framework governing the cooperatives may be reviewed. The minimum support price (MSC) of crop should be linked to the input cost. The government should procure the staple the grains needed for the public distribution system (PDS) at the prices that private traders are willing to pay the farmers.
5. The national commission on farmers (Chairman, Professor MS Swaminathan) has recommended various measures to revive the agriculture sector in India. The national development council in the 53rd meeting held on May 29th , 2007 adopted a resolution to reorient agriculture development strategy to meet the need of the farmers and called upon the central and the state government , banking sector to evolve a strategy to rejuvenate agriculture.
Bibliography:
Books Referred
Author Book Edition
Naresh K Malhotra Marketing Research 5th
RBI – Annual Report 2006-07, Reserve Bank of India 2006-07
Newspapers
Economic & Financial Newspaper – MINT – 6th Feb 2008
Websites:
