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India with its population of 832 million in 1989 and with its per capita income of $340
is among poorest of the economies of the world. It had a share of 15.9 per cent in
world population, but a little more than 1 percent of world GNP.
Three observation made here regarding the U.N. classification of developedand developing countries on the basis of per capita income. First, there is gross
inequality of incomes between the rich and the poor countries. Second, the gap in per
capita income (and naturally in the level of living) between the rich and poor countries
is even widening over the years—the annual rate of growth of per capita income of the
rich countries was higher during 1965-89 as compared with the poor countries. More
recently, the growth rate among low-income countries has also shown an increase and
if this is sustained, the gap may show a decline over a period. Third, all the high
income countries are not necessarily developed countries. For instance, the high
income oil-exporting countries have high per capita income but this is mainly due to
their exports of oil; really speaking, they are not developed economies. Recently, with
a decline in world oil prices, the GNP per capita has started showing a decline in this
“A country which has good potential prospects for using more capital or more
labour or more available natural resources, or all of these, to support its present
population on a higher level of living or if its per capita income level is already fairly
high, to support a large population on a not lower level of living.” As per this
definition the problem of development is mainly the problem of development is
mainly the problem of poverty and prosperity. The basic criterion then becomes
whether the country has good potential prospects of raising per capita income, or of
maintaining an existing high level of per capita income for an increased population.”
1.1 Basic Characteristics of the Indian Economy as an Underdeveloped
Economy:
India is an underdeveloped economy. Its is a vast country having an area of
3.3 million sq. km. It has almost 5,76,000 villages. The population of India is widely
scattered over villages and towns. Nearly 75% of the population lives in rural & semi
urban areas, while the rest lives in towns. There is doubt that the bulk of its
population lives in conditions of misery. Poverty is not only acute but is also a
chronic malady in India. At the same time, there exist unutilized natural resources. It
is, therefore, quite important to understand the basic characteristics of the Indian
economy, treating it as one of the underdeveloped but developing economies of the
world.
1. Low per capita income:- Underdeveloped economies are marked by the
existence of low per capita income. The per capita income of an India is
lowest in the world. The per capita income in Switzerland in 1989 was about
88 times, in West Germany about 60 times, in U.S.A. 61 times and in Japan 70
times of the per capita income in India. It is also important that developed
economies are growing at a faster rate than the Indian economy and as a
consequence, the disparity in the levels of income has become wider during
period 1960-89.
2. Occupational pattern:- Primary producing. One of the basic characteristics of
an underdeveloped economy is that it is primary producing. A very high
proportion of working population is engaged in agriculture, which contributes
a very large share in the national income. In India, in 1981, about 71 per centof the working population was engaged in agriculture and its contribution to
current rate of capital formation is also low. Following table reveals that gross
capital formation in India is less than that of developed countries.
Gross Domestic Investment and Saving (As per cent of Gross Domestic Product)
As per Colin Clark to maintain the same level of living a country requires anadditional investment of 4 percent per annum if its population increases at the rate of 1
percent per annum. In a country like India where the rate of population growth is 2.11
percent (during 1981-91), about 8 percent investment is needed to offset the additional
burdens imposed by a rising population. Thus, India required as high as 14 percent
level of gross capital formation in order that it may cover depreciation and maintain
same level of living. A still higher rate of gross capital formation alone can give a
way for economic growth to improve living standard of the population.
2.0 History Of The Rural Economic Structure Of India
2.1 Indian Economy in the Pre-British period:-
The Indian economy in the pre-British period consisted of isolated and self-
sustaining villages on the one hand, and towns, which were the seats of administration,
pilgrimage, commerce and handicrafts, on the other. Means transport &
communication were highly underdeveloped and so the size of the market was very
small..
a. The structure and organization of villages: The village community was based
on a simple division of labour. The farmers cultivated the soil and tended
cattle. Similarly, there existed classes people called weavers, goldsmiths,
carpenters, potters, oil pressers, washer men, cobblers, barber-surgeons, etc.
All these occupations were hereditary and passed by tradition from father to
son. Most of the food produced in the village was consumed by the village
population itself. The raw materials produced from primary industries were
the feed for the handicrafts. Thus interdependence of agriculture and hand
industry provided the basis of the small village republics to function
independently. The villages of India were isolated and self-sufficient units
which formed an enduring organization. But this should not lead us to the
conclusion that they were unaffected by wars or political decisions. They did
suffer the aggressors and were forced to submit to exactions, plunder and
extortion, but the absence of the means of transport and communications and a
centralized government helped their survival.
b. Classes of Village India: There were three distinct classes in village India: (i)
the agriculturists, (ii) the village artisans and menials, and (iii) the village
officials. The agriculturists could be further divided into the land-owning and
the tenants. Labour and capital needed was either supplied by the producers
themselves out of their supplied by the producers themselves out of their
savings or by the village moneylender. These credit agencies supplied finance
at exorbitant rates of interest but since the moneylender and the landlord were
the only sources of credit, the peasants and even the artisans were forced to
depend on them. The village artisans and menials were the servants of the
village. Most of the villages had their panchayats or bodies of village elders to
settle local disputes. The panchayats were the court of justice.
2.2 Industries & handicrafts in Pre-British India:
The popular belief that India had never been an industrial country, is incorrect. It
was true that agriculture was the dominant occupation of its people but the products of Indian industries enjoyed a worldwide reputation. The muslim of Dacca, the calicos
3. Water Resources: India is one of the wettest countries in the world, with
average annual rainfall of 1100 m.m. India’s water policy, since
Independence, has mainly concentrated on highly visible large dams, reservoirs
and canal systems, but has ignored minor water works such as tanks, dugwells
and tubewells.
4. Fisheries: Broadly speaking, fishery resources of India are either inland or
marine. The principal rivers and their tributaries, canals, ponds, lakes,
reservoirs comprise the inland fisheries. The rivers extend over about 17,000
miles, and other subsidiary water channels comprise 70,000 miles. The marine
resources comprise the two wide arms of the Indian Ocean and a large number
of gulf and bays along the coast. About 1.8 million fishermen draw their
livelihood from fisheries, though they generally live on the verge of extreme
poverty. Out of a total catch of 3 million tones of fish in 1988-89, over 1
million tones came from inland fisheries and nearly 2 million tones from
marine sources. India is the seventh largest producer of fish in the world and is
second in inland fish production, which contributes 45 per cent of total
production in the country. Fish production reached the level of 5.4 million
tonnes in 1997-98, comprising 3.0 million tonnes of marine fishery and 2.4
million tonnes of inland fishery and is expected to reach 5.6 million tonnes in
1998-99 with 3.0 million tonnes of marine fishery and 2.6 million tonnes of
inland fishery, respectively. During 1998-99, the export of marine products
came down to US$ 1,038 million from US$ 1,208 million during 1997-98
3.1 Infrastructure In Process Of Economic Development In Rural India:
The prosperity of a Rural India depends directly upon the development of
agriculture and industry. Agricultural production, however, requires power, credit,
transport facilities, etc. Industrial production requires not only machinery &
equipment but also skilled man-power, management, energy, banking facilities,
marketing facilities, transport services which include railways, roads, shipping,
communication facilities, etc. All these facilities and services constitute collectivelythe infrastructure of an economy and the development and expansion of these facilities
initiatives of the Non-Governmental Organisations (NGOs) and banks in various parts
of the country.
Despite having a wide network of rural bank branches in the country and
implementation of many credit linked poverty alleviation programmes, a large number
of the very poor continue to remain outside the fold of the formal banking system.
Various studies suggested that the existing policies, systems and procedures and the
savings and loan products often did not meet the needs of the hardcore and assetless
poor. Experiences of many anti-poverty and other welfare programmes of the state as
well as of international organisations have also shown that the key to success lies in
the evolution and participation of community based organizations at the grassroots
level.
Micro-finance and Poverty Alleviation:
Most poor people manage to mobilize resources to develop their enterprises
and their dwellings slowly over time. Financial services could enable the poor to
leverage their initiative, accelerating the process of building incomes, assets and
economic security. However, conventional finance institutions seldom lend down-
market to serve the needs of low-income families and women-headed households.
They are very often denied access to credit for any purpose, making the discussion of
the level of interest rate and other terms of finance irrelevant. Therefore the
fundamental problem is not so much of unaffordable terms of loan as the lack of
access to credit itself.
The lack of access to credit for the poor is attributable to practical difficulties
arising from the discrepancy between the mode of operation followed by financialinstitutions and the economic characteristics and financing needs of low-income
households. For example, commercial lending institutions require that borrowers have
a stable source of income out of which principal and interest can be paid back
according to the agreed terms. However, the income of many self employed
households is not stable, regardless of its size. A large number of small loans are
needed to serve the poor, but lenders prefer dealing with large loans in small numbers
to minimize administration costs. They also look for collateral with a clear title -
which many low-income households do not have. In addition bankers tend to consider
agrarian during lean seasons it becomes impossible for them to repay the loan.
Pressure for high repayment drives members to money lenders. Credit alone cannot
alleviate poverty and the Grameen model is based only on credit. Micro-finance is
time taking process. Haste can lead to wrong selection of activities and beneficiaries.
Another model is Kerala model (Shreyas). The rules make it difficult to give
adequate credit {only 40-50 percent of amount available for lending). In Nari
Nidhi/Pradan system perhaps not reaching the very poor. Most of the existing
microfinance institutions are facing problems regarding skilled labour which is not
available for local level accounting. Drop out of trained staff is very high. One
alternative is automation which is not looked at as yet. Most of the models do not lend
for agriculture. Agriculture lending has not been experimented.
• Risk Management : yield risk and price risk
• Insurance & Commodity Future Exchange could be explored
All the models lack in appropriate legal and financial structure. There is a need
to have a sub-group to brainstorm on statutory structure/ ownership control/
management/ taxation aspects/ financial sector prudential norms. A forum/ network of
micro-financier (self regulating organization) is desired.
5.0 Rural Market Contribution In Total Indian Economy
When you consider a rural market then the measure part of the rural buiness directly or indirectly connected with agriculture. In this condition,whenever you study about rural
market you have to consider the impact of agriculture towards Indian Economy.
5.1 Profile of Rural people:-If we classify the rural people by their occupation, we
find cultivators as the predominant occupation group who account 72% of rural
households.
Distribution of rural households by their profession or business activity
There were 7,062 agricultural regulated markets operating in India, 162
agricultural commodities considered for grading standards and 3,253 cold storage with
capacity of 8.73 million tonnes as on end March 1998. With the introduction of
economic reforms, futures trading was permitted in coffee, cotton, castor oil and jute
goods during 1997-98. Earlier futures trading were permitted in gur, potato, castor
seed, pepper, turmeric, etc. Further, during 1998-99, futures trading was introduced in
oilseeds, oil cakes and edible oils. A network of co-operatives at the national, state and
primary level operates to help farm producers with access and further reach for sale of
produce. As per the Annual Report (1998-99) of Ministry of Agriculture, Government
of India, the value of agricultural produce marketed through co-operatives has
registered a remarkable growth of 21.6 per cent, from Rs.9,500 crore in 1994-95 to
about Rs.11,551 crore in 1995-96.
5.5 Agriculture role in Indian Economy
Agriculture for Industrial Development:
Indian agriculture has been the source of supply of raw materials to our leading
industries. Cotton and jute, textiles, sugar, plantations— all these directly depend on
agricultural output. There are many industries, which depend on agricultureindirectly. Many of our small scale and cottage industries like handlooms, oil
crushing, etc depend on agriculture for their raw materials.
But then, in recent years, agriculture is losing its significance to industries such
as iron and steel, engineering, chemicals, etc. However in recent years, the
importance of food processing industries is being increasing recognized both for
generation of income and generation of employment.
Agricultural credit is one of the most crucial inputs in all agricultural development
programmes. From olden days private money-lenders are main sources of credit
towards agricultural or rural products. After independence multi-agency approach
consisting of co-operatives, commercial banks and regional rural banks are adopted
due to its cheaper and adequate credit to farmers. The major policy in the sphere of
agricultural credit has been its progressive institutionalization for supplying
agriculture and rural development programmes with adequate and timely flow of
credit to assist weaker sections and less developed regions.
The basic aim of this Policy are as follows:-
a. To ensure timely & sufficient flow of credit to the farming sector;
b. To avoid money-lender chain from rural scene.
c. To reduce regional imbalance through their credit facilities.
d. To provide larger credit support to areas covered by special programmes. e.g.
National Oilseeds Development Project.
Need of Credit for Farmers:-
Farmers need finance mainly for the following things—to pay current expenses
of cultivation such as the purchase of seed, manures, etc.; the purchase of cattle,implements and raw materials; acquire new land; or improve land by irrigation,
drainage, wedding and planting; pay up old debts to build and repair houses, to
purchase food stuffs and other personal necessaries; pay land revenue to the
Government; meet expenses connected with marriage and other social events in the
family, but jewellery and conduct law suits. The credit need of agriculturists can,
therefore, be broadly divided into directly productive & indirectly unproductive
expenses. Unfortunately fact is that underdeveloped and old countries are in need of
sources 13.9. that time institutionals sources were 18.7 and the break up was
government 2.6%, Co-operative 15.5%, Commercial banks 0.6%. As per the All India
Debt and Investment Survey (1981), estimated that the share of private agencies had
further slumped to about 37% & share of institutional credit jumped to 63% break up
was 30% of co-operative & 29% of commercial banks. Government & Reserve Bank
of India is supporting commercial bank & co-operatives to meet the growing demand
for agricultural credit.
8.0 Private Agencies Sources:
Money lenders: Though there are drawbacks, moneylenders are by far the
most important source of agricultural credit in India. That we have already seen before, It is therefore, clear that the basic problem of the agricultural economy of
India is the huge indebtedness of farmers and their exploitation by private
moneylenders. For that government of India make provisions in act as follows a.
maintenance of accounts in prescribed forms, b. furnishing of the receipts and
periodical statements, c. fixing of maximum rates of interest, d. Protection of the
debtors from molestations and intimidations, e. licensing of moneylenders, and f.
penalties for infringement of the provisions. The basic objectives of such
legislative enactments can be stated as: I. To bring about an improvement in the
terms on which private credit was available to agriculturists and to place legal
restrictions on the unreasonable exactions of moneylenders, II. To enable civil
courts to do greater justice as between lenders and borrowers than was possible in
the prevailing circumstances under the ordinary Code of Civil Procedure.
The major problem faced by lending institutions, particularly co-operatives, is
the most unsatisfactory level of overdues. The ration of overdues to that of demand is
around 40 to 42 percent in the case of co-operatives and 47 percent in the case of
Regional rural banks. Accordingly, health of rural credit institutions, both co-
operative and commercial banks, is in a very sad state in several parts of the country.
1. Co-operative credit societies [9.1]
It is the cheapest and the best source of rural credit. The rate of interest is low. Since
1951, the co-operative credit movement has started helping the farmers in a big
manner. During 1989-90 there were about 88,000 primary agricultural credit societies.
The stranglehold of the moneylenders on the peasants is not met by the co-operatives. Besides, the small farmers find it difficult to meet all their credit
requirements from the co-operatives.
Primary Agricultural Credit Society:
The co-operative movement was started in India largely with a view to providing
agriculturists funds for agricultural operations at low rates of interest and protect them
from the clutches of moneylenders. The organization of the co-operative credit for
short period may be briefly outlined as follows:
A co-operative credit society, commonly known as the primary agricultural
credit society (PACS) may be started with ten or more persons, normaly belonging to
a village. The value of each share is generally nominal so as to enable even the
poorest farmer to become a member. The members have unlimited liability, that is
each member is fully responsible for the entire loss of the society in the event of
failure. This will mean that all the members should know each other intimately. The
management of the society is under an elected body consisting of President, Secretary
& Treasurer. The management is honorary, the only paid member being normally.
Loans are given for short periods, normally for one year, for carrying out agricultural
operations, and the rate of interest is low. 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 a school, and so on. The usefulness of the primary credit societies
has been rising steadily. In 1950-51, it advanced loans worth Rs.23 crores; this rose to
Rs. 200 crores in 1960-61, and to Rs. 4200 crores in 1988-89.
Financial Strength of PAC’s.: To make all primary agricultural societies viable and
ensure adequate and timely flow of co-operative credit to the rural areas the Reverse
Bank of India, in collaboration with State governments, had been taking a series of
steps to strengthen weak co-operative banks and to correct regional imbalances in co-
operatives development. Steps were taken to reorganize viable PACs and for
amalgamation of non-viable societies with farmer’s service societies or large sized
multipurpose societies. These efforts are being intensified by providing larger funds
to weak societies to write off their losses, bad debts and overdues.
PAC’s and Weaker Sections: The major objective of the co-operative development
programmes is to ensure that the benefits of co-operative activities flow increasingly
to weaker sections including scheduled castes and scheduled tribes. The government
seeks to achieve this through expanding the membership of the weaker sections in the
existing PACs and ensuring larger flow of funds and services to them. In the tribal
areas, large sized multipurpose societies are being organized mainly for the benefit of
the tribals.
Co-operative Central Banks: These are federations of primary credit societies in
specified areas normally extending to the whole district meance they are sometimes
called as district co-operative banks. These banks have a few private individuals as
shareholders who provide both finance of management. Their main task is to lend to
village primary societies, but they were expected to attract deposits from the general
public. But the expectation has not been fulfilled and many of the co-operative central
banks act as intermediaries between the State Co-operative Bank on the one hand and
the village primary credit societies on the other.
State Co-operative Bank: This bank forms the apex of the co-operative credit
structure in each state. It finances and controls the working of the central co-operative
banks in the State. It serves as a link between the Reserve Bank of India from which it
borrows and the co-operative central banks and village primary societies. The State
Co-operative Bank obtain its working funds from its own share capital and reserves,deposits from the general public and loans and advances from the Reserve Bank now
NABARDhas formulated a scheme for the rehabilitation of weak central co-operative
banks. NABARD is providing liberal assistance to the State Governments for
contributing to the share capital of the weak central co-operative banks selected for the
purpose. The State Co-operative bank is not only interested in helping the co-
operative credit movement but also in promoting other co-operative ventures and in
extending the principles of co-operation.
Problem of overdues to Co-operative credit
A highly distressing fact of co-operative credit is the heavy overdues of co-
operative credit institutions, now estimated between Rs.9,000 crores to Rs.10,000
crores. According to the RBI study team on overdues “lack of will and disciplineamong cultivators to repay loans was the principal factor responsible for the
prevalence of overdues of co-operatives. Defective lending policy pursued by co-
operatives, the apathy of management in taking quick action against recalcitrant
members and absence of favourable climate were other contributing factors.”
Apart from these commonly factors normally responsible for a high level of
overdues, intervention of external forces such as loan waivers, concession in various
forms towards repayment of principal and interest has also affected the recovery
performance of credit institutions to a significant extent. The problem is further
aggravated on the account of the state governments in ability to meet the financial
commitments to co-operative banks.
In recent years, the farmers are getting organized and one of their chief demands
of the farmer union is to cancel their debts to the co-operative societies and banks.
States have meekly surrended to such demands to write off the debts in a matter of extreme concern, as it hampers the recovery of dues from the farmers. The problem of
loan overdues is a matter of serious concern, as it affects the recycling of funds and
credit expansion on one hand and economic viability of the lending institutions,
specially the co-operatives and RRBs, on the other.
2. Land development banks[9.2]: The need for long-term loan is being satisfied
by land development banks (formerly the were called land mortgage banks).
The objective of such banks is to provide long-term credit to the cultivators
into various categories for credit support so as to enable them to become viable
cultivators. For instance, in areas where the subsoil water table is high, the small
cultivator has to be helped by banks to convert his dry holding into wet holding.
With pump set loan, the cultivator can change the cropping pattern into double or
even multiple cropping activity. As regards small cultivators near urban areas
and with irrigation facilities, commercial banks can help them to go in for
poultry farming and maintaining one or two vegetable cultivation or combine it
with small milch cattle.
Problems of Commercial Banks in Agricultural Credit :- The credit needs of
the agricultural sector in the next few years are estimated to rise to Rs.50,000 to
Rs.60,000 crores. To meet the needs is an enormous task, and responsibility will
have to be borne by co-operatives and commercial banks. As resources available
to commercial banks in the agricultural sector will naturally be limited, it is
important that every commercial bank attempts to make optimum use of its
limited resources in this sector. In the field of financing of agriculture, the
problem is not merely quantitative but also of coverage vis-à-vis the organization
and the personnel available to the nationalized banks. The majority of the rural
population consists of small farmers. Further, there are 5,50,000 villages spread
throughout the country. To reach all of them with only about 47,000 banking
offices is, no doubt, a stupendous task. Even with the completion of branch
extension programmes of the commercial banks now in hand or those which may
be undertaken during the next 5 to 10 years, commercial bank may not be in a
position to cover many of the villages. Moreover in recent years, the rural
branches of commercial banks in general and branches of RRB in particular,
have been under severe financial strain on account of higher transaction costinvolved in handling of large number of small size loan accounts and somewhat
lower interest income as a result of concessional rate of interest on small size
loans.
The lower proportion of current deposits in total deposits of rural
branches has also placed them at a disadvantage with regards to cost of
resources. Finally, the presence of overdues, particularly after the
implementation of Agricultural and Rural Credit Debt Relief Schemes, 1990 has
further adversely affected the viability of rural branches of commercial banks.
Under these conditions, if the development of agriculture is not to
suffer for want of credit and if there has to be some improvement in the lot of
innumerable small farmers, new dimensions will have to be given to schemes of
financing agriculture.
4. Regional Rural Banks [9.4]: These banks were first set up in 1975 specifically
to give direct loans and advances to small and marginal farmers, agricultural
labourers, rural artisans and other of small means. The loans are given for
productive purposes. There were 196 RRBs which have been lending around Rs.3600 crores annually by way of loans to rural people. Over 90 percent of the
loans of RPBs are given to the weaker sections in rural areas. The regional
banks, though basically scheduled commercial banks, differ from the latter in
certain respects:
The area of regional rural banks is limited to a specified region comprising
one or more districts of a State.
The regional rural banks grant direct loans and advances only to small and
marginal farmers, rural artisans and agricultural labourers and other of small
means for productive purposes.
The lending rates of the regional rural banks should not be higer than the
prevailing lending rates of co-operatives societies in any particular State. The
sponsoring banks and the Reserve Bank of India provide many subsidies and
concessions to RRBs to enable the latter to function effectively
Concessions to RRBs: From the beginning, the sponsor banks have continued
to provide managerial and financial assistance to RRBs and also other
concessions such as lower rate of interest on the latter’s borrowing from sponsor
banks. Further, the cost of staff deputed to RRBs and training expenses of RRB
staff are borne by the sponsor banks. The Reserve Bank of India has been
need be, and report such norms evolved by them to the concerned
RO of NABARD.
(b) Banks have also been advised to give focused attention on
financing power tillers by preparing a three year banking plan for a
compact area for the benefit of the small farmers.
C) Swarnajayanti Gram Swarozgar Yojana (SGSY)
SGSY, formed by restructuring ongoing self employment programmes, viz. IRDP,
TRYSEM, DWCRA, etc., is under implementation from 01 April 1999. The
programme envisages formation of SGSY Groups and their linkage with the banks.
Individuals as also SGSY group members, below poverty line are assisted under the
programme
D) Scheme for setting up of Agriclinic and Agribusiness centers
In pursuance of the announcement made by the Union Finance Minister in the budget
speech for the year 2001-02, National Bank in consultation with the Ministry of
Agriculture, GOI and select banks formulated a scheme for financing AgricultureGraduates for setting up Agriclinics and Agribusiness Centres The scheme aims at
supplementing the existing Extension Network to accelerate the process of technology
transfer to agriculture and supplement the efforts of State Agencies in providing inputs
and other services to the farmers.
E) Scheme for financing farmers for purchase of land for Agricultural purposes
In response to the Hon'ble Union Finance Minister's emphasis on the need to step up
priority sector lending and to examine financing farmers for purchase of land for
agricultural purposes, the Working Group constituted by Indian Banks Association
formulated a above scheme in consultation with the Government of India, RBI and
SHGs are self managed homogeneous groups of economically backward people that
promote savings among themselves and pool the savings. These pooled resources are
supplemented by external resources i.e. bank credit when these groups gain
experience. The Self Help Groups Linkage Programme of SBI is under
implementation since 1992. At the end of March 2001, the Bank has financed 25,000
self-help groups with aggregate credit limit of Rs 46 crore.
10.3 Various Finance Scheme Offered From Government:
Maharashtra Rural Credit Project (MRCP) - India - Out line of the project
features and Impact
General: Access to credit has long been considered a major poverty alleviation
strategy in India. A variety of credit-linked programmes supplemented by subsidies
have been implemented. The Integrated Rural Development Programme (IRDP)
operating since 1978-79 has been a major national rural poverty alleviation programme with a large credit component. Under this programme, nearly 53 million
families below poverty line were assisted with bank credit of Rs.31 billion and subsidy
of Rs. 10.5 billion upto 31st March 1998, but its impact had not matched the resources
spent. This was due to reasons like provision of supply rather than demand-led credit,
loans not tailored to meet needs of individual enterprises, lack of aftercare support,
weak linkages lack of supervision over loan utilisation etc. Further, there was no
effective involvement of the people at any stage of implementation of the programme.
As a result, the incidence of high overdues and high transaction cost for the banks in
financing the rural poor became a matter of concern for the policy-makers.
Maharashtra Rural Credit Project (MRCP)
Against this backdrop the MRCP supported by IFAD was evolved as an innovative
approach to poverty reduction with people’s participation. The strategy for
implementation of this project has been devised in such a manner that the rural poor assume centre-stage and their participation ensured at all stages of the project viz.
Agriculture and its associated activities are found constituting the economic
base and the main source of livelihood and employment for the people in the state.
However, unprecedented growth of population on one hand and decreasing rate of available agriculture land along with degradation of supporting natural resources as
required for sustaining crop productivity on the other have been seriously forcing the
problems of sustaining livelihood for farming communities. It is becoming difficult to
do the farming activity without external or internal sources. In this context the
significance of extending non-farm sector becomes only alternative but it also required