NABARD turns over a new leaf……Yoginder K. Alagh
Rural finance should mean more than loan melas
Rural finance should mean more than loan melas
Indian institutional finance was developed by men with alternative visions. For rural areas, it was Dada Saheb Karve and D.R. Gadgil who planned the first rural debt and investment survey and financial structures. Then there was S. Talwar, the SBI chief, R.N. Malhotra and later, people like P.D. Ojha, N.A. Mazumdar and Venugopal Reddy. They have shown great sensitivity to agricultural and rural finance and the need for unorthodox approaches to it. Notice they were all RBI men.
The system has been built with care and could withstand attacks, including those from reformers (follow the Basel Convention even if it violates the agricultural crop cycle in India), or worse still, loan melas. More recently, Y.P. Thorat and U.C. Sarangi belonged to that larger tradition, with their heart in agriculture. Now NABARD moves on to the government.
The hope would be that the great tradition would continue.
A serious exercise by NABARD to reposition itself in refinancing agricultural and rural lending and giving a much-needed boost to private agricultural capital formation went almost unnoticed. Private agricultural capital formation as a percentage of agricultural GDP, according to the new series of CSO estimates at 2004-05 prices fell from 12.41 per cent in 2005-06 to 11.58 per cent in 2006-07, which is sad, but preliminary estimates show an increase to 17.55 per cent in 2008-09, which is healthy although the numbers may get revised later. The mid-term appraisal of the Eleventh Plan is correctly happy at investment trends in agriculture and wants them sustained. Whichever way we look at it, shoring up private investment in agriculture is an important priority. A point U.C. Sarangi, the NABARD chief has been making, is that in less developed areas where agriculture has been growing, investment is not showing the necessary revival.
In the late 80s, Rajiv Gandhi pushed me to build the first agro-climatic plan, by going to each of the 18 regions. In Nashik, to save the drought-prone region wasting water on sugarcane, a young collector had built a watershed development programme, followed up with a horticulture and tree crop plan. Grapes, pomegranates, mousambis, sitaphal, onions he had thought through the tree cycle, the seeds, the collateral for the tree-cycle loans, ridge sowing and the markets. It used to take ten hours to go from Pune to Nashik those days, and there was not much apart from cane and jowar. Fights over water had begun. And now, you buy fruit from the roads, see drips servicing tree crops in lines, and prosperity to counterbalance the suicide belt in Vidharba and the Naxals. That young collector was U.C. Sarangi.
In 1990, NABARD wrote its annual report on financing agro-climatic plans, but the V.P. Singh and Narasimha Rao governments were out to scuttle anything Rajiv thought of and the entire system was dismantled. Later a G.K. Chaddha Committee tried to salvage it, but it was too late. The Eleventh Plan is in that mould and its blue ribbon agricultural schemes say that funding will come only if you work out the balance resources needed if your priorities are worked out in the local agro-climatic paradigm. By now a district agricultural plan exists for each district.
The earlier NABARD report was in the old style, funding each programme. NABARDs new thinking is state of the art in the rural development game. It sees its role as developing refinancing for financial products to suit each regions agricultural priorities, leaving the state funding to the Plan. This can really go far. The difficulty when a farmer or a group of farmers (producer companies and co-ops) get together to implement the new profit-making ideas emerging from the demands of a fast growing economy, is that the funds are generally not available from the largely public-sector banking system. Very few private and no foreign banks, apart from the Dutch co-op Rabo, enter this terrain. Some states have worked it out: Maharashtra has an easy scheme to finance watershed development, ridge furrows, seeds for tree crops, even expensive ones as in Bt, drips and for the tree growing cycle for horticulture. But thats an exception. The usual examples are to the contrary. In many states, producer groups incorporated in the Companies Act do not get working capital since the rules are there only for co-ops. If you are a government department you get money, if you are a company or a co-op you get money, but if you are a new organisation, you get compliments but no cash. If NABARD breaks that cycle, it would have reinvented itself for 2020.
Going to the government should not mean loan melas. But a strategic position on agricultural and rural finance is at the heart of the great rural-urban transition India is going through.
The writer, a former Union minister, is chairman, Institute of Rural Management, Anand express@expressindia.com
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