Rural credit delivery in India: structural constraints and some corrective measures

In view of the importance of rural credit to agriculture and rural development, this paper has examined a few structural constraints that hamper the credit delivery and has discussed some of the measures taken to improve the situation. The public policy on rural credit in India has been focussed on institutionalisation as a means of providing cheaper credit to farmers. As a result, the share of private moneylenders has decreased substantially from 93 per cent in early-1950s to 31 per cent by 1991. Disturbingly enough, they have emerged as an important source, more so for the resource-poor with a share of 39 per cent by 2002. The multiagency system onset for giving a wide choice to farmers has turned out to be ineffective due to deficiencies of design and architecture. Also, ailing cooperatives, backtracked RRBs and commercial banks with waning interest in rural credit have contributed to the ineffectiveness of the multiagency system, hampering the credit delivery. Several measures have been taken to revitalise the system from time to time. Cooperatives are being given a package assistance for revival following the Vaidyanathan Committee Report. RRBs have been amalgamated and are being given capital to cleanse up their balance sheets. Commercial banks have been successfully involved in ‘Farm Credit Package’ for doubling the credit and other initiatives of Government of India. The SHG-bank linkage has been promoted on a large scale to supplement rural credit delivery. But, its high transaction costs make it a costly alternative, especially when the business is handled solely by NGOs/MFIs. A thorough overhauling of the rural credit system and its restructuring is the need of the hour. However, it cannot be effective if done alone in isolation without revitalising the Indian agriculture itself.Agricultural Finance,

Rural credit delivery in India: structural constraints and some corrective measures

In view of the importance of rural credit to agriculture and rural development, this paper has examined a few structural constraints that hamper the credit delivery and has discussed some of the measures taken to improve the situation. The public policy on rural credit in India has been focussed on institutionalisation as a means of providing cheaper credit to farmers. As a result, the share of private moneylenders has decreased substantially from 93 per cent in early-1950s to 31 per cent by 1991. Disturbingly enough, they have emerged as an important source, more so for the resource-poor with a share of 39 per cent by 2002. The multiagency system onset for giving a wide choice to farmers has turned out to be ineffective due to deficiencies of design and architecture. Also, ailing cooperatives, backtracked RRBs and commercial banks with waning interest in rural credit have contributed to the ineffectiveness of the multiagency system, hampering the credit delivery. Several measures have been taken to revitalise the system from time to time. Cooperatives are being given a package assistance for revival following the Vaidyanathan Committee Report. RRBs have been amalgamated and are being given capital to cleanse up their balance sheets. Commercial banks have been successfully involved in ‘Farm Credit Package’ for doubling the credit and other initiatives of Government of India. The SHG-bank linkage has been promoted on a large scale to supplement rural credit delivery. But, its high transaction costs make it a costly alternative, especially when the business is handled solely by NGOs/MFIs. A thorough overhauling of the rural credit system and its restructuring is the need of the hour. However, it cannot be effective if done alone in isolation without revitalising the Indian agriculture itself

Application of Modified Internal Rate of Return Method for Watershed Evaluation

The use of modified IRR in developmental projects has been demonstrated by using data pertaining to four watersheds — two from Tamil Nadu and two from Maharashtra. The conventional internal rate of return (IRR) widely used in project evaluation, suffers from certain problems, most important one being the assumption of reinvestment at the rate of IRR, which has been often contested in project evaluation literature. The ranking of projects based on IRR and NPV may also come into conflict due to this assumption. Scale and time span differences across projects often make it difficult to compare. In India, the use of conventional IRR still prevails even though improvements have been suggested in literature long ago, perhaps for the reasons of ease in handling. Application of modified IRR method coupled with adjustment for scale and time span differences suggested in literature, has been demonstrated in this paper using data for watersheds. The study has shown that the rate of return from investment watershed is less lucrative when MIRR is used with necessary adjustments for scale and time span and the ranking based on IRR and NPV is consistent. The ranking of the projects has been found to change by using the adjusted MIRR methodology