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Indian Economic Policy

Notes agricultural credit institutions, both co-operatives and RRBs, is in a very sad state in several parts of
the country. The Planning Commission regretfully admits : “Wilful default and overdues are mounting
in a number of states including some co-operatively progressive states like Maharashtra and Gujarat.
By writing off agricultural loans and providing subsidies out of the state exchequer, some of the
states have set a bad example to the entire country. If this trend is not reversed and if banks are
reduced to institutions providing grants rather than recycling scarce resources to get the maximum
benefits for the country as a whole, the banking system will be unable to provide more credit to meet
the growing needs of the farmers.”
Pitiable Financial Condition of Small and Marginal Farmers

The farming community, all over the country has been seething with anger and dissatisfaction about
the falling interest rates of banks not reaching them and being forced to borrow at exorbitant rates
from the moneylenders. There were a series of suicides among farmers in Andhra Pradesh.
Maharashtra and Punjab. This was one of the major reasons for the fall of NDA Government in 2004.
The UPA Government realized the need to enhance credit flow to agriculture. In consultation with
RBI, NABARD and commercial banks, the UPA Government announced a package for agriculture :
The initiatives announced in June 2004 include :
(i) Stepping up agricultural credit from all lending institutions (co-operative banks, RRBs and
commercial banks) from about Rs 85,000 crores to ` 1,05,000 crores (30 percent increase - this
would continue year after year).
The farm credit package of the UPA Government has increased year after year—` 125,000 crores
in 2004-05, ` 1,80,480 crores in 2005-06 and ` 2,04,000 in 2006-07. If these figures are true, as
farm credit, why do farmers commit suicide. This can only mean that much of the farm credit
goes to well-to-farmers.
(ii) The branches of commercial banks and RRBs would be energized to enhance the flow of
agricultural credit.
(iii) Under special agricultural credit plan, at least 100 new farmers would be financed at each rural
and semi-urban branch during each year.
(iv) Financing of at least 2 to 3 new investment projects by each branch in plantations and horticulture,
fisheries, organic farming, etc.
(v) Providing credit to tenant farmers and oral lessees.
(vi) Debt restructuring as opposed to debt write-off in the following forms :
(a) Relief to farmers in distress by rescheduling their loans and making them eligible for
fresh loans; and
(b) One-time settlement for small and marginal farmers and consider them eligible for fresh
loans.
None of these proposals worked satisfactorily. The money lenders still continue their strangehold on
poor and marginal farmers. The banks have increased their lending considerably but to the well to
do farmers only. Farmers suicides continue.
Rural Co-Operative Credit Societies

Indian planners considered co-operation as an instrument of economic development of the
disadvantaged, particularly in the rural areas. They saw in a village panchayat, a village co-operative
and a village school, as the trinity of institutions on which a self-reliant and just economic and social
order was to be built. The non-exploitative character of co-operatives, voluntary nature of membership,
the principle of one man one vote, decentralised decision-making and self-imposed curbs on profits
eminently qualified them as an instrument of development combining the advantage of private
ownership with public good.
The rural co-operative movement was started in over 100 years back largely with a view to providing
agriculturists funds for agricultural operations at low rates of interest and protect them from the
clutches of money lenders.

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