Tuesday, August 11, 2015

ORGANIZATION OF RURAL CREDIT IN INDIA

ORGANIZATION OF RURAL CREDIT IN INDIA
Need for credit for Indian Farmers for the purposes of:
(a) Cultivation or for meeting domestic expenses such as to buy seeds, fertilizers, fodder for cattle, etc. (short period loan less than 15 months).
(b) Making some improvement on land, buying cattle, agricultural implements, etc. (medium period loan ranging between 15 months to 5 years).
(c) Buying additional land, to make permanent improvements on land, to pay off old debt and to purchase costly agricultural machinery. (Long period loan for more than 5 years).
Sources of Rural Credit:
Two sources –
1. Institutional Sources – loans provided by co-operative societies and co-operative banks, and commercial banks including Regional Rural Banks (RRBs).
2. Non-Institutional or Private Sources – loans provided by money-lenders, traders and commission agents, relatives and landlords.
Need for Institutional Finance:
» It is not exploitative and the basic motive is always to help the farmer to raise his productivity and maximize his income.
» The rate of interest is relatively low.
» They make a clear distinction between short-term credit and long-term credit requirements and give loans accordingly.
» It is fully integrated with other needs of agriculturists.
Multi-agency Approach:
It consists of co-operatives, commercial bands and regional rural banks – known as institutional credit – have been adopted to provide cheaper and adequate credit to farmers. The basic objectives of this policy are:
(a) To ensure timely and adequate flow of credit to the farming sector;
(b) To reduce the money-lenders from the rural scene;
(c) To reduce regional imbalances in the flow of credit facilities.
Faced with the serious problem of deteriorating agricultural production and the harmful money-lenders, the Government set up co-operative credit societies and land mortgage banks. The All-India Rural Credit Survey Committee (1969) stated: “Co-operation has failed, but co-operation must succeed”. It also recommended the adoption of “multi-agency approach to finance the rural sector.
Structure of Cooperative Credit Institutions in India


The organization of the co-operative credit for short period:

Primary Agricultural Credit Society (PACS) –
» A co-operative credit society may be started with ten or more persons, normally belonging to village.
» Share value is nominal so as to enable even the poorest farmer to become a member.
» Deal directly with farmer-borrowers, grant short term and medium term loans and also undertake distribution and marketing functions.
» Profits are not distributed as dividend to shareholders but are used for the welfare of the village, in the construction of a well, or maintenance of the village school and so on.
State Co-operative Banks (StCBs) –
» They form the apex of the co-operative credit structure in each State.
» It finances and controls the working of the District central co-operative banks in the State.
» It serves as a link between NABARD from which it borrows and the co-operative central banks and village primary societies.
Long Term Rural Credit:
Cooperative Agriculture and Rural Development Banks (CARDBs) –
» Provide credit for a variety of purposes such as redemption of old debts, improvement of land, purchase of costly agricultural equipment, construction of wells and erection of pumps and so on.
» They have contributed in large measure to agricultural development large measure to agricultural development by lending specially for minor irrigation and for productive purposes benefiting mostly the small farm holders.
» But it has not really contributed much to the improvement of the financial position of the farmers.
» But in some states the CARDBs have made a beginning in diversifying the loans which have enabled a large number of farmers and weaker sections to take loans for several activities like dairy farming, poultry farming, inland and marine fisheries, sheep rearing, sericulture, gobar gas plants and bullock carts.
Some of the weaknesses of the Rural Co-operative movement in India –
According to many critics, the movement has done nothing to abolish poverty of the rural masses. Nor it has contributed to increase agricultural production, to establish better marketing conditions, better living, etc. The following are some of the weaknesses of the movement:
(i) Lack of spontaneity – the movement was not voluntary, and the people did not come forward to organize societies to satisfy their needs.
(ii) Lack of funds – one of the basic weaknesses of the movement.
(iii) Loans for productive purposes only – for other personal requirements farmers depended upon money-lenders.
(iv) Provision of credit only – it failed to appreciate the organic connection between credit, marketing and processing.
(v) Competition from private agencies
(vi) Lack of co-operation on the part of the people – they are largely illiterate, ignorant and extremely conservative.
(vii) Defective management and leadership
(viii) The attitude of the Government – the Government did not take adequate interest in improving the financial strength of the societies, particularly the village primary credit societies.
(ix) The nature of Indian rural society – rural society is riddled with caste spirit, religious feelings and other conditions which hamper the growth of the co-operative spirit and of the cooperative movement.

References:
1. Datt&Sundharam INDIAN ECONOMY
2. Ramesh Singh INDIAN ECONOMY

Name : Abinaya Sakthivel


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