Page 166 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes Productive and Unproductive Loans
We can further classify the credit requirements of farmers into two types—productive and
unproductive loans. The former include loans (a) to buy seeds, fertilisers, implements, etc. (b) to pay
taxes to the Government and (c) to make permanent improvements on land, such as digging and
deepening of wells, fencing of land, etc. All these forms of credit help the farmers in their agricultural
operations or in improving their land.
The Indian farmers often borrow for unproductive purposes too, such as for celebration of marriages,
births and deaths, for litigation etc. Unproductive loans raised at exorbitant rates of interest are highly
improper and unjustified.
Sources of Rural Credit
Broadly, there are two sources of credit available to the farmers—institutional and private. Institutional
credit refers to loans provided to farmers by co-operative societies and co-operative banks, and
commercial banks including regional rural banks (RRBs). Non-institutional or private sources include
money-lenders, traders and commission agents, relatives and landlords.
Non-institutional sources — money- lenders land-lords, traders etc. accounted for 93 per cent of the
total credit requirements in 1951-52 and institutional sources including the Government accounted
for only 7 per cent of the total credit needs in that year. The All India Debt and Investment Survey
(1981), estimated that the share of non-institutional sources had slumped to about 37 per cent in 1981,
moneylenders accounting for barely 16 per cent; the share of institutional credit, however, had jumped
to 63 per cent—co-operatives contributing 30 per cent and commercial banks about 29 per cent.
Non-Institutional Sources :

A. Money-Lenders
There are two types of money-lenders in rural areas. There are rich farmers or landlords who
combine farming with money-lending. There are also professional money-lenders whose only
occupation or profession is money-lending.
The cultivators depend upon the money-lenders for their requirements of cash. The Government
and the Reserve Bank of India have been propagating that the importance of the money-lenders
as suppliers of loans to the farmers has been declining rapidly. How ever, there are many
reasons for the preponderance of the village money-lenders in rural areas even now.
(a) The money-lender freely supplies credit for productive and non-productive purposes,
and also for short-term and long-term requirements of the farmers.
(b) He is easily accessible and maintains a close and personal contact with the borrower,
often having relations with family extending over generations.
(c) His methods of business are simple and elastic.
(d) He has local knowledge and experience and, therefore, can lend against land as well as
against promissory notes. He knows how to protect himself against default, through legal
and illegal methods.
B. Landlords and Others
Traders and commission agents supply funds to farmers for productive purposes much before
the crops mature. They force the farmers to sell their produce at low prices and they charge a
heavy commission for their dealings. This source of finance is particularly important in the case
of cash crops like cotton, groundnut, tobacco, etc., and in the case of fruit orchards like mangoes.
Traders and commission agents may be bracketed with money-lenders, as their lending to
farmers is also at exorbitant rates and has other undesirable effects too.

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