People's Democracy

NABARD: An Eventful Journey

Rana Mitra

ON 12 July 2006, NABARD, country’s premier agricultural development financial institution has stepped into its 25th year of eventful existence. Expectedly, it is of little surprise that an agricultural development bank, placed in the overall framework of semi-feudal, semi-capitalist nature of Indian agriculture, economy and social structure, will bear the essential architectural imprints of this framework in its goals and functioning. 

It is needless to say that by the index of numbers, Indian agriculture is dominated by a vast multitude of landless, sub-marginal, marginal and small farmers, who are at the bottom of the architectural pyramid in agriculture with nearly 80 percent of total cultivators cultivating fragmented land-holdings averaging 1.41 hectares. It is precisely for this group of farmers, NABARD was formed in 1982.

From a modest beginning, NABARD has grown into a unique kind of apex hybrid organisation combining best of central and development bank practices like planning, dispensation, regulation of credit and supervision of rural financial institutions like the agriculture cooperative banks (both short and long term structures), Regional Rural Banks etc. It also plays a unique institution building role that was instrumental in turning around many a loss making RRBs and Cooperative Banks in various parts of the country. During 2005-06, the balance sheet of NABARD grew by 11.3 percent - from around Rs 60,000+ crore in 2004-05 to Rs 67,645 crore in 2005-06. Disbursements during the year under production credit (for seasonal agricultural operations) were Rs 9617 crore, under investment credit (medium term+long term) Rs 8622.37 crore and under Rural Infrastructure Development Fund (RIDF) Rs 5953 crore. These indicators translated into a surplus before tax of Rs 1151 crore representing a 13.7 percent growth. From the parameter of profitability, it is one of the best run banks, not only in India, but in the world, as its per employee profitability is Rs 22 lakh (its net per employee profitability is around Rs 17 lakh assuming an income tax of Rs 300 crore). It may not be out of place to mention here that NABARD is the pioneer in the Self Help Group (SHG) – Bank linkage programme in the country that has brought the taste of banking to doorsteps of the poor clientele, especially the women. Beginning with a modest number of 500 groups in 1992, today this flagship programme comprises 2 million groups touching the lives of 150 million people. Till December 31, 2005, cumulative finance disbursed by banks to SHGs amounted to Rs 8319 crore, NABARD refinance being Rs 4000 crore+ on cumulative basis. NABARD support to RIDF behind 2.4 lakh projects has translated into developing irrigation potential of 108 lakh hectares, 2 lakh km. of roads, 370 lakh meters of bridge length, schools benefiting 28 lakh students, rural health centers benefiting 2.47 lakh people, drinking water supply benefiting 5.82 lakh people. In this connection, it may not be out of place to mention here that the declining credit-deposit ratio in backward regions of the country viz. north-eastern, eastern and central regions, in wake of concentration of banking business in developed urban, semi-urban centres in the post-liberalisation phase, got improved a bit when the RIDF investments are factored in. As the principal nodal agency, NABARD has been really instrumental in pushing the programme of doubling of the ground level agri-credit in the country – from Rs 86,981 crore in 2003-04 to Rs 1,46,688 till February end 2006. It is also acting as the principal nodal agency for implementation of recommendations of the Vaidyanathan committee for turning around the entire structure of agri-cooperative sector. 

However, in view of the increasing concentration of banking business in India, with a distinct ‘elitist shift’ in the post liberalisation phase, NABARD has been finding it increasingly difficult to cater to its mandate to serve the rural underprivileged. It is interesting to note that between March 2000 and March 2004, there have been sharp declines in the proportion of deposits owned by the farmers- from 10.7 percent to 6.6 percent. It is also noteworthy that the number of agricultural loan accounts serviced by scheduled commercial banks, which peaked in March 1993 to 26.22 million declined to 21.30 million in March 2004. The same is the story for small-scale industries. Whereas, it is interesting that as a result of new found enthusiasm amongst the banks for retail loans, the loan accounts that they service in that category at about 28 million are 40 percent higher than the number of loan accounts that they service for agriculture and small scale industries taken together. 

At the doorstep of its silver jubilee year, NABARD is standing at a crossroad. The principal agriculture development bank has to witness unprecedented crisis in the agricultural front with hundreds of farmers committing suicides in at least 31 districts spanning over five states. A study conducted by the Indira Gandhi Institute of Development Research (IGIDR) says the small and marginal farmers (holding lands up to 5 acres) were more vulnerable to suicide. Another category of NABARD clientele, landless labourers who leased in land constituted 19 percent of the suicide cases. Inspite of NABARD and public sector banks glorious existence for the more than two and three decades respectively, 51 percent of cultivator household is outside the ambit of any form of credit at all and out of 49 percent of the indebted cultivator households, only 27 percent are indebted to the formal sources. NSSO data show that in regard to very small land holdings of 25 cents, the formal credit delivery’s outreach is only 23 percent, while in regard to farm holdings of between 5 and 10 acres, it is around 65 percent. 

In the twenty-fifth year of its existence, NABARD is facing a crisis of sort in mobilising resources from the market with its cost of resource mobilisation shooting up to around 8.17 percent so far in 2006-07, as against 5.76 percent in 2005-06. The government’s abolition of long term capital gains tax has, in turn, deprived NABARD of a comparatively cheap source of fund by way of capital gains bond, the average interest burden of which in 2005-06 being 5.45 percent. In addition, the near total discontinuation of RBI contribution to NABARD behind national rural credit – long term operations fund, national rural credit – stabilisation fund (inspite of statutory obligations of RBI under sections 42 and 43 of NABARD Act, 1981) to support long and medium-term agri-credit needs and behind general line of credit for short term agri-credit operations have aggravated the problem of cheap resources. This, in turn, has accentuated the problem of cheap credit for farmers, even during distress, (as NRC-STAB fund is utilised to reschedule loans during calamities like flood, drought, and farmers’ suicide). The RBI’s surplus, instead, is diverted to balance the government of India’s fiscal deficit especially after operationalisation of Fiscal Responsibility And Budget Management (FRBM) Act. 

As principal agriculture development bank of the country, NABARD has to come out with a clear strategy to dovetail its goal with the five-point programme of action suggested by the National Commission on Farmers (NCF). These are: a programme of soil health enhancement; promoting water harvesting, conservation, equitable use by empowering gram sabhas to function as ‘Pani Panchayats’; initiation of immediate credit reforms coupled with credit and insurance literacy with intensive coverage of crops for insurance with village level farm land as the unit, provision of farm credit at 4 percent with firm support from both RBI and government of India, gender sensitiveness in credit dispensation; bridging the growing gap between scientific know-how and field do-how for both production and post-harvest phases of farming; crop-livestock-fish integrated production system are ideal for small farmers since this can also facilitate organic farming; finally, the gap between what the rural producer gets and the urban consumer pays must be made as narrow as possible, as has been done in the case of milk under Dr V Kurien. Additionally, executing its advisory role to the Planning Commission of the country, NABARD should strive for stringent measures like reimposition of quantitative restrictions for import of agricultural commodities, for applying the bound rate of tariffs for agri-imports (as in most of the cases, India is imposing much less duty). The institution should also pursue the government hard to carry out land reforms with explicit fiscal incentive for devolution of additional central resources to the states for carrying out successful land reforms. In order to radically transform NABARD to shoulder the higher responsibility as detailed out above, a conscious effort should be initiated by the central government the parliament and civil society organisations including the trade union movement to confer a unique hybrid apex status to NABARD. For this to happen, full operational autonomy should be conferred to NABARD, within the overall control of the parliament, as has been promised by the central government in the Economic Survey, 2005-06, p.64. This was precisely the crux of the alternate organisational study reports submitted by the All India NABARD Employees Association to the management of NABARD in 1998 and 2002. These only can go a long way in designing a framework of agriculture and agri-credit best suited to save farmer and save NABARD and to arrest a dangerous drift towards an ever-widening unequal social bargain scorching the rural sector of our country. 

(The author is the Vice-President, All India NABARD Employees Association)