Importance of Agriculture in Economy Essay

The direct share of the floriculture sector to national economy is reflected by its dish bring turn out in total GDP, its foreign exchange earnings, and its role in supplying savings and labor to early(a) sectors. horticulture and altogether(prenominal)ied sectors like forestry and fishing accounted for 18.5 perpenny of total Indian double-dyed(a) Domestic Product (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about 58 percent of the orbits workforce (CSO, 2007). It accounted for 10.95 percent of Indias exports in 2005-06 (GoI, 2007) and about 46 percent of Indias geographical bea is used for bucolic activity. on that point has been a structural transformation in the Indian economy during the past few decades.The composition of Gross Domestic Product at 1993-94 constant prices reveals that the sh atomic number 18 of agriculture including forestry and fishing has declined as growth in industrial and services sectors far outpaced hoidenish sector (Figure 1) . The shargon of mining, manufacturing, electricity and eddy sector has increase from 21.6 percent in 1970-71 to 27 percent in 2004-05 and services sector has increased substantially from 32 percent to 52.4 percent during the said(prenominal) block. Despite a steady decline of its sh be in the GDP, agriculture is still an important sector and dawdles a crucial role in the overall socio-economic evolution of the country. Therefore, education rapid, sustained and broad- arse growth in agriculture remains key antecedency for the government.Consistent with the trends of economic knowledge at national aim, role of bucolic sector in the state economies is besides changing rapidly. The shargon of agriculture in Gross separate Domestic Product (GSDP) has declined signifi tramptly during the last devil decades. In some States, much(prenominal) as Bihar, Punjab, Uttar Pradesh, Haryana, Rajasthan, and Orissa, the sector today contributes much than unmatched-quarter of GSDP, piece in some states, such(prenominal) as Gujarat, Kerala, Karnataka, Tamil Nadu and Maharashtra, the sector contributes less than 20 percent to GSDP (Figure 2). However, contribution of agriculture to GSDP has declined in nigh all States between 1993-94 and 2004-05.The decline was the highest in Karnataka (16%), followed by Haryana (14.2%), and Kerala (13.7%). In Karnataka, decline was in the first place settle withable to significant increase in the shargon of service sector (from 37.9% in 1993-94 to 54.7% in 2004-05) mainly driven by informational technology (IT) industry. Similar is the human face with Haryana the decline is due to faster education of services sector in cities around the national cap, Delhi. Despite declining share of agriculture in the economy, majority of workforce continue to be on countrified sector for employment and in inelegant areas opineence on agriculture is more as or so 75 percent of inelegant population is employed in agricultural sec tor.However, in that lever is disguised employment in the sector due to limited opportunities for homespun non- work employment. This disguised employment leads to light labor and resources productivity in the sector relative to other sectors of the economy. The low labor productivity leads to higher(prenominal) arranges of poverty in boorish areas (Figure 3). factory farm in India is constitutionally the responsibility of the states rather than the key government. The central governments role is in formulating indemnity and providing fiscal resources for agriculture to the states.Agriculture payMeaning unpolished pay generally bureau speculateing, examining and analyzing the financial aspects pertaining to farm business, which is the core sector of India. The financial aspects include money matters relating to occupation of agricultural products and their disposal.Definition of Agricultural financeMurray (1953) defined agricultural. finance as an economic bailiwick of borrowing silver by grangers, the organization and operation of farm impart agencies and of parliamentary procedures interest in ascribe for agriculture .Tandon and Dhondyal (1962) defined agricultural. finance as a first of agricultural economics, which deals with and financial resources related to individual farm units.What is Agriculture FinanceAgricultural finance is the study of support and liquidity services reference book reserves to farm borrowers. It is also considered as the study of those financial intermediaries who provide add cash to agriculture and the financial markets in which these intermediaries obtain their loanable funds. John B. Penson, Jr. and David A. Lins (1980)Why Agriculture FinanceIndia is mainly an agricultural country. Agriculture accounts for approximately 33 percent of Indias GDP and employs nearly 62 percent of the population. It accounts for 8.56 % of Indias exports. About 43 % of Indias geographical area is used for agricultural acti vity. Agricultural production in this country depends upon millions of small farmers. It is intensity of their effort and the efficiency of their technique that lead care in raising yields per acre. Finance in agriculture is as important as bafflement of technologies. Technical inputs can be purchased and used by farmer only if he has money (funds). plainly his own money is al ports unsatisfactory and he needs outside finance or reference book.Because of understaffed financial resources and absence of seasonable opinion facilities at reasonable rates, many of the farmers, even though other than ordaining, are unable to go in for improved seeds and manures or to introduce better methods or techniques. The farming community must be unbroken informed about the various sources of agriculture finance. Agricultural finance possesses its usefulness to the farmers, loaners and extension workers. The knowledge of lending creations, their statutory and regulatory environment hel ps in selecting the appropriate loaner who can adequately provide the credit with monetary value and related services needed to finance the farm business.Nature and ScopeAgricultural finance can be dealt at both micro level and macro level. Macrofinance deals with different sources of raising funds for agriculture as a whole in the economy. It is also bear on with the lending procedure, rules, regulations, monitoring and controlling of different agricultural credit basiss. Hence macro-finance is related to finance of agriculture at aggregate level.Micro-finance refers to financial management of the individual farm business units. And it is concerned with the study as to how the individual farmer considers various sources of credit, quantum of credit to be borrowed from each source and how he allocates the same among the alternative uses with in the farm. It is also concerned with the future use of funds.Therefore, macro-finance deals with the aspects relating to total credit ne eds of the agricultural sector, the terms and conditions under which the credit is available and the method of use of total credit for the development of agriculture, while micro-finance refers to the financial management of individual farm business.Significance of Agricultural Finance1) Agril finance assumes vital and significant importance in the agro socio economic development of the country both at macro and micro level. 2) It is compete a catalytic role in streng indeeding the farm business and augmenting the productivity of scarce resources. When saucily developed potential seeds are combined with purchased inputs like fertilizers & plant egis chemicals in appropriate / necessary proportions will result in higher productivity. 3) Use of new technological inputs purchased by farm finance helps to increase the agricultural productivity.4) Accretion to in farm assets and farm supporting(a) infrastructure provided by gigantic scale financial investment activities results i n increased farm income levels leading to increased standard of donjon of homespun masses.5) Farm finance can also reduce the regional economic imbalances and is equally penny-pinching at reducing the interfarm asset and wealth variations. 6) Farm finance is like a lever with both forward and backward linkages to the economic development at micro and macro level.7) As Indian agriculture is still traditional and subsistence in constitution, agricultural finance is needed to create the supporting infrastructure for adoption of new technology. 8) Massive investment is needed to carry out major and nestling irrigation projects, rural electrification, installation of fertilizer and pesticide plants, execution of agricultural promotional programmes and poverty alleviation programmes in the country.LECTURE -2 recognise needs in A faith needs in Agriculture meaning and comment of credit-classification of credit establish on succession, mean, tribute, lender and borrower. _________ ____________________________________________________________ The word credit comes from the Latin word Credo which means I believe. Hence credit is based up on belief, confidence, trust and faith. Credit is other wise called as loan.Definition Credit / loan is certain tot of money provided for certain purpose on certain conditions with some interest, which can be repaid sooner (or) later. According to Professor Galbraith credit is the temporary worker transfer of asset from one who has to other who has notCredit needs in AgricultureAgricultural credit is one of the most crucial inputs in all agricultural development programmes. For a pine time, the major source of agricultural credit was private moneylenders. plainly this source of credit was inadequate, highly pricy and exploitative. To curtail this, a multi-agency approach consisting of conjuncts, commercial message beachs ands regional rural banks credit has been adopted to provide cheaper, timely and adequate credit to f armers.The financial requirements of the Indian farmers are for,1. buy agricultural inputs like seeds, fertilizers, plant protection chemicals, feed and fodder for cattle etcetera2. Supporting their families in those years when the molds maintain not been good.3. Buying additional land, to make improvements on the existing land, to clear old debt and purchase costly agricultural machinery.4. increase the farm efficiency as against limiting resources i.e. hiring of irrigation water lifting devices, labor and machineryCredit can be sort on the grounding of time, purpose, certification, lender and borrower.(i)Time classification- It classifies credit into collar assorts, i.e. short, strength and long term. (a) Short-Term (for distributor points up to 15 months) The short-term loans are generally advanced for discovering annual recurring purchases such as, seed, feed, fertilizers, engage labour expenses, pesticides, weedicides, hired machinery weight downs, etc., and term ed as seasonal loans/ exploit loans/production loans. These are expected to be repaid subsequently the harvest. It is expected that the loan plus interest would be repaid from the income received finished the enterprise in which it was invested. The time limit to repay such loans is a year or at the most 18 months.(b) Medium-Term (from 15 months up to 5 years) Medium-term loans are advanced for comparatively longer lived assets such as machinery, diesel engine, wells, irrigation structure, threshers, shelters, crushers, muster and milch animals, dairy/ poultry sheds, etc., where the returns accruing from increase in farm assets in spread over more than one production period. The usual quittance period for such shell of loan is from fifteen months to tailfin years. (c) Long-Term (above 5 Years) Loans repayable over a longer period (i.e. above 5 years) are separate as long-term loans. Long-term loans are related to the long lifed assets such as sinister machinery, land and its reclamation, errection of farm buildings, construction of permanent-drainage or irrigation system, etc. which require large sums of money for sign investment. The benefits generated through such assets are spread over the entire life of the asset. The normal re salary period for such loans ranges from five to fifteen or even upto 20 years.(ii) Purpose classification- Credit is also classified based on purpose of loans e.g. crop loan, poultry/dairy/piggery loan, irrigation loan, machinery and equipment loan, forestry loan, fishery loan etc. These loans signify the close relationship between time and use as well as rate of return (or profitability). Some measure loans are also classified as production and outlay loans due to the fact that production loans are diverted for consumption purposes by the weaker sections. So, the banks have also started financing for consumption purposes (exclusively for home consumption expenditures) besides financing for the production purposes. The c onsumption loans are also to be repaid from the sale proceeds of the crop.(iii) Security classification- Security offered/obtained provides another basis for classifying the loans. The unafraid(p)d loans are advanced as against the security of some tangible personal property such as land, livestock and other capital assets, i.e., median(a) and long term loans. The borrowers credit worthiness may act much more than the security offered, which if doubtful may result willful default.Moreover, the secured loans are notwithstanding classified on the basis of type of security e.g. mortgage loans, where legal mortgage of some property such as land is offered to the lender, i.e., loans for intangible asset property such as land improvement, irrigation infrastructures, etc. and hypothecated loans, where legal ownership of the asset financed remains with the lender though physical possession with the borrowers i.e. loans for tangible property such as tractor, machinery and equipments. The private money lenders, unremarkably possess items such as gold ornaments / jewellery or land as security, which reminds the borrower about his obligations of loan repayments. On the contrary, unlatched loans are generally advanced without offering any security e.g. short-term crop loans.(iv) Lender classification- Credit is also classified on the basis of lender such as (a) institutional Credit e.g. co-operative loans, commercial bank loans and government loans (b) Non-Institutional Credit e.g. superior and agricultural money lenders, traders and explosive charge agents, relatives and friends etc.(v) Borrower classification- The credit is also classified on the basis of type of borrowers (i.e., production or business activity as well as size of business) such as crop farmers, dairy farmers, poultry farmers, fisherman, rural artisans etc. or agricultural labourers, fringy/small/ long suit/large farmers, pitchers mound farmers or tribal farmers etc. Such classification has equit y considerations. credit is broadly classified based on various criteria1. Based on time This classification is based on the repayment period of the loan. It is sub-divided in to 3 typesShortterm loans These loans are to be repaid within a period of 6 to 18 months. All crop loans are said to be shortterm loans, but the aloofness of the repayment period varies according to the duration of crop. The farmers require this type of credit to meet the expenses of the ongoing agricultural operations on the farm like sowing, fertilizer application, plant protection measures, payment of wages to passing(a) labourers etc. The borrower is supposed to repay the loan from the sale proceeds of the crops raised.Medium term loans here(predicate) the repayment period varies from 18 months to 5 years. These loans are required by the farmers for bringing about some improvements on his farm by way of purchasing implements, electric motors, milch cattle, sheep and goat, etc. The relatively longer per iod of repayment of these loans is due to their partially-liquidating nature.Long term loans These loans fall due for repayment over a long time ranging from 5 years to more than 20 years or even more. These loans together with medium terms loans are called investment loans or term loans. These loans are meant for permanent improvements like levelling and reclamation of land, construction of farm buildings, purchase of tractors, raising of orchards ,etc. Since these activities require large capital, a longer period is required to repay these loans due to their non liquidating nature.2. Based on Purpose Based on purpose, credit is sub-divided in to 4 types. fulfil loans These loans refer to the credit wedded to the farmers for crop production and are intended to increase the production of crops. They are also called as seasonal agricultural operations (SAO) loans or short term loans or crop loans. These loans are repayable with in a period ranging from 6 to 18 months in lumpsum .Investment loans These are loans granted for purchase of equipment the productivity of which is distributed over more than one year.Loans given for tractors, pumpsets, tube wells, etc.Marketing loans These loans are meant to help the farmers in overcoming the distress sales and to market the declare in a better way. correct markets and commercial banks, based on the warehouse receipt are lending in the form of selling loans by advancing 75 per cent of the value of the produce. These loans help the farmers to clear off their debts and dispose the produce at remunerative prices. enjoyment loans Any loan advanced for some purpose other than production is broadly categorized as consumption loan. These loans seem to be unproductive but indirectly help oneself in more productive use of the crop loans i.e. with out diverting then to other purposes. Consumption loans are not very widely advanced and restricted to the areas which are hit by inseparable calamities. These loams are exte nded based on group guarantee basis with a maximum of three members. The loan is to be repaid with in 5 crop seasons or 2.5 years whichever is less. The branch manager is vested with the discretionary power of sanctioning these loans up to Rs. 5000 in each individual case. The rate of interest is around 11 per cent.The scheme may be extended to1) IRDP beneficiaries2) pocket-sized and marginal farmers3) Landless Agril. Laborers4) Rural artisans5) Other raft with very small means of livelihood hood such as carpenters, barbers, washermen, etc.3. Based on security The loan legal proceeding between lender and borrower are governed by confidence and this assumption is confine to private lending to some extent, but the institutional financial agencies do have their own procedural formalities on credit transactions. Therefore it is essential to classify the loans under this category into devil sub-categories viz., secured and unsecured loans. Secured loans Loans advanced against some security by the borrower are termed as secured loans. Various forms of securities are offered in obtaining the loans and they are of following types.I. Personal security Under this, borrower himself stands as the guarantor. Loan is advanced on the farmers promissory note. Third party guarantee may or may not be insisted upon (i.e. based on the understanding between the lender and the borrower) II. Collateral Security Here the property is pledged to secure a loan. The movable properties of the individuals like LIC bonds, fixed deposit bonds, warehouse receipts, machinery, livestock etc, are offered as security.III. personal chattel loans Here credit is obtained from pawn-brokers by pledging movable properties such as jewellery, utensils made of various metals, etc. IV. mortgage As against to collateral security, immovable properties are presented for security purpose For example, land, farm buildings, etc. The person who is creating the charge of mortgage is called mortgagor (borro wer) and the person in whose favour it is created is know as the mortgagee (banker).Mortgages are of two types a) Simple mortgage When the mortgaged property is ancestrally inherited property of borrower then simple mortgage holds good. Here, the farmer borrower has to register his property in the name of the banking institution as a security for the loan he obtains. The adjustment charges are to be borne by the borrower. b) Equitable mortgage When the mortgaged property is self-acquired property of the borrower, then equitable mortgage is applicable. In this no such registration is required, because the ownership functions are clearly contract in the title deeds in the name of farmer-borrower.V. Hypothecated loans Borrower has ownership right on his movable and the banker has legal right to take a possession of property to sale on default (or) a right to sue the owner to bring the property to sale and for realization of the amount due. The person who creates the charge of hypoth ecation is called as hypothecator (borrower) and the person in whose favor it is created is known as hypothecate (bank) and the property, which is denoted as hypothecated property.This happens in the case of tractor loans, machinery loans etc. Under such loans the borrower will not have any right to sell the equipment until the loan is clean-cut off. The borrower is allowed to use the purchased machinery or equipment so as to enable him pay the loan installment regularly. Hypothecated loans again are of two types viz., key loans and open loans. a) Key loans The agricultural produce of the farmer borrower will be kept under the control of lending institutions and the loan is advanced to the farmer . This helps the farmer from not resorting to distress sales.b) expand loans Here only the physical possession of the purchased machinery rests with the borrower, but the legal ownership remains with the lending institution till the loan is repaid.Unsecured loans Just based on the confi dence between the borrower and lender, the loan transactions take place. No security is kept against the loan amount4. Lenders classification Credit is also classified on the basis of lender such asInstitutional credit Here are loans are advanced by the institutional agencies like co-operatives, commercial banks. Ex Co-operative loans and commercial bank loans.Non-institutional credit Here the individual persons will lend the loans Ex Loans given by professional and agricultural money lenders, traders, thrill agents, relatives, friends, etc.5. Borrowers classification The credit is also classified on the basis of type of borrower. This classification has equity considerations.Based on the business activity like farmers, dairy farmers, poultry farmers, pisiculture farmers, rural artisans etc.Based on size of the farm agricultural labourers, marginal farmers, small farmers , medium farmers , large farmers ,Based on location hill farmers (or) tribal farmers.6. Based on liquidity The credit can be classified into two types based on liquidity and they are Self-liquidating loans They generate income now and are to be paid with in one year or after the completion of one crop season. Ex crop loans. Partially -liquidating They will take some time to generate income and can be repaid in 2-5 years or more, based on the economic activity for which the loan was taken. Ex Dairy loans, tractor loans, orchard loans etc., 7. Based on approachIndividual approach Loans advanced to individuals for different purposes will fall under this categoryArea based approach Loans given to the persons falling under given area for specific purpose will be categorized under this. Ex Drought abandoned Area Programme (DPAP) loans, etcDifferential Interest Rate (DIR) approach Under this approach loans will be given to the weaker sections 4 per cent per annum.8. Based on contactDirect Loans Loans extended to the farmers directly are called direct loans. Ex Crop loans.Indirect loans Loans giv en to the agro-based firms like fertilizer and pesticide industries, which are indirectly effective to the farmers aSource of Agricultural Credit are called iidirct loans.The sources of agricultural finance are broadly classified into two categories (A) noninstitutional Credit Agencies or informal sources, and (B) Institutional Credit Agencies or Formal Sources.A. Non-institutional Credit Agenciesi) Traders and Commission Agents Traders and commission agents advance loans to agriculturists for productive purposes against their crop without completing legal formalities. It often becomes obligatory for farmers to buy inputs and sell widening through them. They charge a very heavy rate of interest on the loan and a commission on all the sales and purchases, making it exploitative in nature.ii) Landlords Mostly small farmers and tenants depend on landlords for meeting their production and day to day financial requirements.iii) notes lenders Despite rapid development in rural branches of different institutional credit agencies, village money lenders still dominate the scene. Money lenders are of two types- agriculturist money lenders who combine their money lending job with farming and professional money lenders whose sole job is money lending. A number of reasons have been attributed for the popularity of moneylenders such as (a) they meet guide for productive as well as unproductive requirement (b) they are easily comprehensible at odd hours and(c) they require very low paper work and advances are given against promissory notes or land. Money lenders charge a very high rate of interest as they take advantage of the urgency of the situation. Over the years a need for regulation of money lending has been tangle. But lack of institutional credit access to certain sections and areas had facilitated unhindered operation of money lending.B. Institutional Credit AgenciesThe evolution of institutional credit to agriculture could be broadly classified into four dist inct phases 1904-1969 (predominance of co-operatives and displace up of run batted in), 1969-1975 nationalisation of commercial banks and setting up of regional Rural Banks (RRBs), 1975-1990 (setting up of NABARD) and from 1991 onwards (financial sector reforms). Institutional funding of the farm sector is mainly by commercial banks, regional rural banks and co-operative banks. Share of commercial banks in total institutional credit to agriculture is almost 48 percent followed by cooperative banks with a share of 46 per cent. Regional Rural Banks account for just about 6 per cent of total credit disbursement.i) disposal These are both short term as well as long-term loans. These loans are popularly known as Taccavi loans which are generally advanced in times of natural calamities. The rate of interest is low. But it is not a major source of agricultural finance.ii) accommodative Credit Societies The history of cooperative movement in India dates back to 1904 when first Cooperati ve Credit Societies stage was passed by the Government. The scope of the venture was restricted to establishment of primary credit societies and non-credit societies were left out of its purview. The shortcomings of the Act were rectified through passing another Act called Cooperative Societies Act 1912. The Act gave provision for registration of all types of Cooperative Societies. This made the emergence of rural cooperatives both in the credit and noncredit areas, though with abrasive spatial growth. In subsequent years a number of committees were appointed and recommendations implemented to improve the operate of the cooperatives.Soon after the independence, the Government of India following the recommendations of All India Rural Credit Survey Committee (1951) felt that cooperatives were the only alternative to promote agricultural credit and development of rural areas. Accordingly, cooperatives received substantial help in the provision of credit from Reserve Bank of India as a part of loan policy and large scale assistance from Central and State Governments for their development and strengthening. Many schemes involving subsidies and concessions for the weaker sections were routed through cooperatives. As a result cooperative institutions registered a remarkable growth in the post-independence India.iii) Commercial Banks Previously commercial banks (CBs) were intent only to urban areas serving mainly to trade, commerce and industry. Their role in rural credit was exiguous i.e., 0.9 per cent in 1951- 52 and 0.7 per cent in 1961-61. The insignificant participation of CBs in rural lending was explained by the risky nature of agriculture due to its heavy dependence on monsoon, unorganized nature and subsistence approach. A major change took place in the form of nationalisation of CBs in 1969 and CBs were made to play an active role in agricultural credit. At present, they are the largest source of institutional credit to agriculture.iv) Regional Rural Banks (RRBs) RRBs were set up in those regions where availability of institutional credit was found to be inadequate but potential for agricultural development was very high. However, the main thrust of the RRBs is to provide loans to small and marginal farmers, landless labourers and village artisans. These loans are advanced for productive purposes. At present 196 RRBs are functioning in the country lending around Rs 9,000 crore to rural people, particularly to weaker sections.v) Microfinancing Microfinancing through Self Help Groups (SHG) has assumed expulsion in recent years. SHG is group of rural poor who volunteer to organise themselves into a group for eradication of poverty of the members. They agree to save regularly and convert their savings into a common fund known as the Group corpus. The members of the group agree to use this common fund and such other funds that they may receive as a group through a common management. Generally, a self-help group consists of 10 to 20 persons.However, in difficult areas like deserts, hills and areas with scattered and sparse population and in case of minor irrigation and disabled persons, this number may range from 5-20. As soon as the SHG is formed and a couple of group meetings are held, an SHG can open a Savings Bank account with the nigh Commercial or Regional Rural Bank or a Cooperative Bank. This is essential to reserve the thrift and other earnings of the SHG safely and also to improve the transparency levels of SHGs transactions. Opening of SB account, in fact, is the beginning of a relationship between the bank and the SHG. The Reserve Bank of India has emerged instructions to all banks permitting them to open SB accounts in the name of registered or unregistered SHGs.Genesis and Historical BackgroundThe Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) set up by the run batted in under the Chairmanship of Shri B Sivaraman in its report submitt ed to Governor, Reserve Bank of India on November 28, 1979 recommended the establishment of NABARD. The Parliament through the Act 61 of 81, approved its setting up. The Committee after reviewing the organizations came to the conclusion that a new arrangement would be necessary at the national level for achieving the desired focus and thrust towards integration of credit activities in the context of the strategy for Integrated Rural Development.Against the backdrop of the massive credit needs of rural development and the need to uplift the weaker sections in the rural areas within a given time sight the arrangement called for a separate institutional set-up. Similarly. The Reserve Bank had onerous responsibilities to discharge in respect of its many basic functions of central banking in monetary and credit regulations and was not therefore in a position to devote undivided attention to the operational details of the emerging complex credit problems. Thispaved the way for the estab lishment of NABARD. CRAFICARD also found it prudent to integrate short term, medium term and long-term credit structure for the agriculture sector by establishing a new bank. NABARD is the result of this recommendation. It was set up with an initial capital of Rs 100 crore, which was enhanced to Rs 2,000 crore, fully subscribedRole and Functions NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the cranial orbit of credit for agriculture and other economic activities in rural areas. It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, raising of personnel, etc. It co-ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation. It prepares, on annual basis, rural credit plans for all districts in the country these plans form the base for annual credit plans of all rural financial institutions It undertakes monitoring and evaluation of projects refinanced by it. It promotes research in the fields of rural banking, agriculture and rural developmentby the Government of India and the run batted in.MissionPromoting sustainable and equitable agriculture and rural development through effective credit support, related services, institution building and other innovative initiatives. In pursuing this mission, NABARD focuses its activities on Credit functions, involving preparation of potential-linked credit plans annually for all districts of the country for identification of credit pot ential, monitoring the flow of ground level rural credit, issuing policy and operational guidelines to rural financing institutions and providing credit facilities to eligible institutions under various programmes Development functions, concerning reinforcement of the credit functions and making credit more productive Supervisory functions, ensuring the proper functioning of cooperative banks and regional rural banks ObjectivesNABARD was established in terms of the Preamble to the Act, for providing credit for the promotion of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas with a view to promoting IRDP and securing prosperity of rural areas and for matters connected therewith in incidental thereto.The main objectives of the NABARD as stated in the statement of objectives while placing the identity card before the Lok Sabha were categorized as under 1. The National Bank will be an apex fundamental law in respect of all matters relating to policy, planning operational aspects in the field of credit for promotion of Agriculture, Small Scale Industries, Cottage and Village Industries, Handicrafts and other rural crafts and other allied economic activities in rural areas. 2. The Bank will serve as a refinancing institution for institutional credit such as long-term, short-term for the promotion of activities in the rural areas. 3. The Bank will also provide direct lending to any institution as may approved by the Central Government. 4. The Bank will have organic links with the Reserve Bank and maintain a close link with in.sources of line of descents important share capital of NABARD is Rs 500 crores and issues and paid up capital is Rs 100 crores. NABARD accrues additional funds from borrowings from the Government of India and any institution approved by the Government of India, issue and sale of bonds i.e. Rural Infrastructural Development Bond, borrow ings from RBI, deposits from State Governments and local authorities and gifts and grants received. NABARD have been providing financial assistance to various financial institutions engaged in Rural Credit Delivery System. These agencies include Co-operative Credit Institutions, Regional Rural Banks and Commercial Banks. The demand for funds for rural development has come up considerably in recent times. To meet the increasing demand of rural credit, NABARD raises funds from the following sources (i) CapitalIt went up from Rs.100 crore in treat 1992 to Rs.1500 crore in bound 1998 and further Rs. 2000 crore in 1999. The total Capital of NABARD is contributed by Government of India and RBI. The capital remained at Rs. 2000 crore in work on 2002.(ii) DepositsThe deposits mainly come from Rural Infrastructural Development Fund (RIDF) introduced in Central Government Budget from the year 1995-96. other source of deposits comes from banks which fall short of attaining priority sector posterior. The total outstanding RIDF deposits aggregated Rs. 9725 crore as on 31st work 2002.(iii) BorrowingsNABARD raises funds through market borrowings, Loans from Union Government and borrowings in Foreign funds from abroad. Apart from these they also borrow funds from RBI. Their borrowings are mainly from three sources. They are by issue of bonds, borrowings from Government of India and borrowing abroad in foreign currency. The total outstanding borrowing amounted to Rs. 15,772 crore in March 2002.(iv) Reserves andThe excess of income over expenditures is generally accumu- Surplus lated as Reserves and surplus. As on March 2002, these reserves aggregated to Rs. 3626 crore.(v) Nation Rural CreditThese funds were earlier provided by RBI to NABARD in con- Funds (Long-term section with assistance under Agriculture Sector. These were Operation Fund & given out of profits earned by RBI. They stood at Rs.11064 crore Stabilization Fund) as on March 99. However it has deceased up t o Rs. 13,975 crore as on March 2002. However, Reserve Bank stopped contributing large sums towards these two Funds from 1994. Presently, the RBI contributes only Rs.1.00 crore each to these funds as a symbolic gesture because the RBI Act provides for such contributions. The balance contribution now comes from NABARDs own profit.(vi) Rural Infrastructural Development Fund (RIDF)The setting up of RIDF was announced in the Union Budget for 1995-96. The RIDF was set up with a contribution of Rs. 2000 crore mainly to provide assistance to State Governments to take up infrastructure projects pertaining to irrigation, rural roads, bridges and alluvium control measures. Contributions to this Fund came from Indian Scheduled Commercial Banks (other than RRBs) which failed to achieve the minimum agricultural lending target of 18 per cent of net bank credit. The shortfall of amounts in the target achievement was required to be kept in the RIDF with NABARD. Similarly RIDF II was set up in 1996- 97 with contributions made by customary sector banks which failed to achieve the minimum priority sector advances of 40 per cent. The shortfall in their target amount has to be kept in RIDF II. RIDF III was set up in 1997-98 with shortfall in priority sector landings of all private and public sector commercial banks.The contributions to these Funds were eligible for interest payment to be decided by Reserve Bank from time to time. The Funds are managed by NABARD. Loans out of these funds are mainly provided to State Governments to complete existing rural infrastructural projects and also for taking up new infrastructural projects in rural areas. Loans out of RIDF I was provided interest at the rate of 13.0 per cent and at 12.0 per cent out of RIDF II and III. The projects generally pertain to irrigation facilities and construction of Roads and Bridges in rural areas. Similarly RIDF IV and V were created in the Union Budget during 1998-99 and 1999- 2000. Further RIDF VI and VII were created in 2001 and 2002 with a corpus of Rs. 4,500 crore and Rs. 5,000 crore respectively.The scope of the fund has been extended to cover Gram Panchayats, Self Help Groups to develop rural infrastructural facilities like soil conservation, rural market yards, drainage improvement, etc. Students may observe the capital of NABARD has gone up by Rs. 1,500 crore to Rs. 2,000 crore during the year 2002. Similarly, the RIDF deposits which were only Rs. 3,608 crore in March 1999 were increased to Rs. 9,725 crore as on March 2002. The borrowing of NABARD has gone up substantially in the recent past from Rs. 9,000 crore in March 1999 to Rs. 15,772 crore in March 2002. The aggregate resources of NABARD were also substantially increased from Rs. 28,986 crore in March 1999 to Rs. 45,098 crore in March 2002. On the uses of funds while the loans and advances increased by about 25% between March 1999 and March 2002 loans out of RIDF funds went up substantially from Rs. 3,667 crore to Rs. 10,435 crore during the same period.