Ending Unemployment In Rural India

Integrating Rural Finance With Skill Development

There is a significant, positive & direct coorelation between poverty & unemployment. When & where there is high degree of unemployment then & there is high degree of  poverty. Likewise, improvement of inherited skills coupled with acquisition & effective use of modern skills in the era of globalised & market driven economy, more particularly in developing countries, is a sine qua non  to significantly minimize the incidence of unemployment & having a direct impact on reduction of poverty.

India is one of the fastest developing countries in the world where it has been demonstrated that rural poor households exhibit tremendous potential for sharp & meteoric reduction & even total elimination of the incidence of unemployment if they are enabled to have easy & dependable access to acquisition of  Technical, financial, managerial  & marketing skills as a very large number of rural poor households do have access to credit to catalyse the process of enhancement of income generation capacity. It is against this back ground that an attempt is made in this paper to review the developments in the area of training poor rural households sharply focusing on imparting the necessary technical, financial, managerial & marketing skills that can ultimately result into high degree of productivity, quality & marketibilty of farm & non-farm products  

 Scenario of Rural Households

• Out of 260 million poor people in the country, about 200 million poor people are in rural areas. Around 100 districts are under the constant threat of drought & semi-famine like situation every year. Other 90 districts face floods & torrential rains every year. About 25% rural households are landless laborers & bonded labor, and have no income generating assets. About top 39 per cent own 80 per cent & lowest 30 per cent own only two per cent of the assets in rural areas.

• According to National Social Watch, 48% people in 13 States of India viz. Andhra Pradesh, Tamil Nadu, Maharashtra, Gujarat, Arunachal Pradesh, Assam, Bihar, Chhattisgarh, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh do not get two meals a day. People in 45% rural India do not get work for six months in a year & 20% villages do not have work opportunities for people in any form. Even revamped Public Distribution System (PDS) does not reach to 68% villages. Food security is a serious problem for poor people in these 13 States. This has, therefore, compelled the Government of India to enact the law, in the year 2004, that would constitutionally guarantee the right to work /employment that will ensure food security.

• Farm population is growing by 1.84 per cent per annum. The average farm size is becoming smaller & the cost-risk-return structure of farming is becoming adverse. All this is increasingly pushing farmers into debt, leading to distress & even suicides in some areas in the country. Recent National Sample Survey Organization’s survey reveals that nearly 40 per cent of farmers are willing to quit farming, if they have the option. Creating that option is also necessary.

• According to the latest Agricultural Census [1995-96],there were 115.58 million farming families or operational holdings in India. Of these, 71.18 million were “ Marginal” holdings of less than one hectare with an average size of 0.40 hectare. Another 21.64 million constituted “ Small” holdings of one to two hectares with an average size of 1.42 hectares. Only 30 per cent of Marginal & Small holdings are “ wholly irrigated” the rest being either “ partly irrigated or wholly unirrigated”. Thus, over 80.3 per cent of [92.82 million] farming population own less than two hectares of land.  To this are added a significant number of tenant farmers, share croppers, oral lesses and those residing in desret & drought prone, hilly & tribal areas.

• Agriculture’s direct contribution to GDP has fallen since India’s Independence in 1947-48 from 60 per cent to below 20 per cent in 2005-06, whereas the rural population’s  share has correspondingly reduced only marginally from 83 per cent to 72 per cent and within that, the proportion of cultivators has declined significantly from 72 per cent to 54 per cent.

• Rural artisans do not have easy & dependable access to modern technology, raw materials, efficient  tools/ equipment & marketing services. Perpetual & pernicious poverty in rural areas is deeply rooted in large-scale unemployment among rural house- holds during half of the year. Chronic unemployment for a large part of the year is prevalent in hilly, tribal, desert &drought prone areas and the situation is exacerbated when monsoon fails.

Rural Financial System

Credit has been a catalyst to lubricate the process of maximizing agricultural production[ crops, fruits, vegetables, plantations, fodder, milk, meat, fish etc], through efficient use of land, water, human & other resources. It plays significant role in promoting rural industrialisation [agro-based industries, rural, cottage &artisan-based industries] as well as business & service sector. It holds key to create maximum gainful employment opportunities in rural areas through diversification of occupational structure at village level. 

Rural Financial System has, therefore, been evolved & established in India since 1904 to provide  financial services, more importantly credit to improve farm productivity, increase rural employment & enhance  income of target groups besides, guaranteeing food security & containing mal-nutrition & under nourishment.

It may be appreciated that RFIs have supported development of farm sector through provision of credit for key purposes, such as development of irrigation potential, accelerating farm mechanization process, creation of storage & warehousing facilities, establishment of regulated agricultural produce market yards, raising seasonal crops & vegetables, establishment of horticultural orchards & plantation crops, establishing dairy, poultry, sheep & goat breeding farms, expanding fisheries & forestry, establishing intensive net work of farm input & equipment sale points, etc.  RFIs have, thus, contributed quite significantly in bringing additional area under seasonal crops, fruits & vegetables and plantation crops & there by increasing farm output in the country. However, there has not been proportionate increase in productivity & profitability of farm-enterprise per unit area, time & space. This directly reflects that there is a missing link or gap between the expectations & actual achievements. This gap can be bridged to the possible extent by integrating the existing training plans & programs meant for rural households with skill development efforts.  

Rights to Skills’ Development

Policies for human resources development in rural areas of India are very crucial. Investment in creating sustainable infrastructure in critical areas, such as drinking water, health, education, housing, food security, transport & communication,etc for improving the quality of human life is a must. While Government of India & State Governments have been committed to progressively create such a needed infrastructure, evolving human resource management & training policy with sharp focus on transferring, developing & continuously improving the much needed skills of poor rural households can be recokened as a first step towards country’s efforts in ending the unemployment. In fact, skill development of active & resource-poor households should be enshrined as a constitutionaly guaranted  right in developing countries.     

Government of India after its Independence in 1947 has initiated policy of formulating Five Year Plans focusing on the Government’s policy direction, programs, allocation of financial resources & mechanism of implementation such that country makes all round socio-economic development in all the three sectors of economy. In this process, catalytic role of bank credit [along with support services] to lubricate the process of farm & non-farm sector development and there by creating more & more employment opportunities in rural areas has been very aptly recognized. Rural Financial Institutions[RFIs] in cooperative, public & private sector have been greatly involved in providing need based training to their staff as well as farmer-borrowers/customers while purveying credit & mobilizing financial resources.

Policies & programs so far evolved, implemented, monitored & evaluated have sharply focused on the concepts of integrating farming activities pursued by poor rural households with rural industies and service & business sector.

All active members of poor rural households are encouraged & motivated to gainfully occupy themselves in more than one income generating activities for securing continuous stream of income through out the year from varios sources, such as farming [crop-cum-livestock-cum-fish farming] as well as rural /cottage industries [khadi & village industries, handloom, powerloom, handicrafts, coir, silk, rubber] & business & service sector [retail trade & service providers]. There are agencies to train, guide & assist rural households to take up activities best suited to them & if possible link them with bank credit as well as with capital subsidy under the Government sponsored programs.

If past experience were any guide for learning lessons it can be concluded that efforts put in by various agencies have yielded results which are far from satisfactory or expectations. While several factors are attributed for low rate of achievements, most striking ones are identified as inadequate focus on creating awareness & transfer of knowledge and conspicuous absence of capacity building through significantly developing & continuous improvement of skills  necessary to underatke possible economic activities in a precise manner when credit, technology & infrastructure is available. When heavy emphasis has since been  laid to create employment opportunities through provision of assets & credit in rural areas,  immediate need is to identify the types of skills these rural households require & how best these skills are imparted & ensured that enshrined objectives are achieved.  

Technical Skills :

• Improving farm productivity, production, quality of products, income, reduction in cost & profitability is most significantly associated with greater degree of employment among rural population & having direct impact on their standard of living. In this respect, technical skills are specifically necessary to select & purchase right kind & quality of  farm inputs [seeds, planting materials, fertilizers, pesticides, water], farm equipment & machinery; understand & adopt right kind of technological process[ cost-efficient & high return] in a precise scientific manner; seek most remunerative domestic & export markets[ alongwith effective post-harvest technology] and efficiently manage farm production plans to optimize return on the investment.  

• While efforts are made from time to time to train farmers for adoption of latest techniques of raising farm productivity practically all small & marginal farmers who number around 80% depend upon their indigenous, traditional & inherited skills while conducting farm operations.  They need to acquire modern/new technological skill that can facilitate them to understand the qualitative & comparative cost aspects of modern inputs, such as seeds/planting materials, organic manures/inorganic fertilizers, chemical pesticides, herbicides, weedicides, farm equipment& machinery. Better understanding of Government’s mandatory prescriptions & recourse to consumer forum in the event of possible deception is called for.

• It is necessary to analyse the quality of soil & water which are most appropriate to the seeds & types of crops they are going to raise.

• Acquisition of knowledge of weather which has profound influence on the sowing/planting, growth & harvest of crops is absolutely necessary so as to enable them to make use of technical skills in adopting mid-season correction & avoid catastrophic loss in the production.

• Financial Skills:

• Financial skills to better understand the procedure, method & system for securing, using & repaying bank credit; rights & obligations of both [ lender & borrower] contracting parties; credit risk; simple book-keeping; cash flow; balance sheet; profit & loss statements etc are crucial aspects of rural finance. These kinds of financial skills are  very much needed for enterprises relating to agriculture, rural industries as well as business & service sector.

• They also need to sharpen their financial skills in respect of understanding details of expenses incurred on farming activities, family maintenance, meeting eventualities & generating income from all possible sources through simple book-keeping practices. This can establish the extent to which farming is profitable & how best return on investment can be improved through provision of credit & diversifying or integating crop farming with livestock & fish farming as well as rural industries & business & service activities.           

Managerial Skills:

• Managerial skills include organizational, coordination, inter personal relationans & dispute-resolving to efficiently  manage human resources & the business enterprises so as to earn high rate of return on the investment made in the enterprise.

• Managerial skills help mitigating the incidence of business risks.

Marketing skills:

• Marketing skills help rural households to better understand the marketing environment, infrastructure, intelligence & marketing risk.

• Analysis of  the implications of prevailing market environment should facilitate strategic planning for marketing, to overcome marketing risk & help them to access highly competitive & supply-demand led markets for getting  remunerative prices of their produce/products

Adult Education:

Indian farmers have responded very favourably in accepting concept of Green Revolution sharply focusing on the use of high-yielding varietal seeds under optimum environment of water & fertilizers. However, in the context of market driven economy cost-benefit & eco-friendly aspects need more emphasis Adult education program is, therefore, most essential as a very large number of clients/borrowers being over the age of 35 to 40 years with elimentary school education need to share their experience among them & with the experts., Transfer of new knowledge calls for better appreciation of its significance & utility & thus need attitudinal change in them.

Disbursement of Farm Credit

Short term credit is required for raising crops & meeting maintenance cost towards livestock & fish farming where as long term loan/ investment credit is  needed for purposes, such as farm mechanization, creation of irrigation facilities, construvtion of  storage & warehouses, establishment of horticultural gardens & plantations, undertaking soil & moisture conservation works, land development & reclamation of saline & alkaline land etc. Investment credit must necessarily be supported by short-term credit in order to ensure that long term assets created are generating income and there by enable farmer-borrowers to repay the installments of investment credit over a period of time. This exercise calls for developing financial skills of borrowers that can facilitate them to better understand the revenue stream, expenses & cash flow generated under specific investment credit activity.           

Table No.1

Farm Credit Disbursements by Cooperative, Commercial & Regional Rural Banks

[ 2001-02 to 2005-06]                                                                         Rs. in Million

Figures in brackrt indicate % share to total   * Provisional figures   Source: Reserve Bank Annual Report 2005-06

The spatial spread of cooperatives across the country, especially in more remote & economically deprived areas has identified itself very well with the rural households. Today, every sixth village in India has a cooperative; cooperative membership touches the lives of nearly 480 million rural households, more than half the aggregate rural population. Seventy percent of rural cooperative clients are marginal & sub-marginal farmers. Cooperative banks numbering 1,145 through their 106,000 Primary Agricultural Credit Cooperative Societies have disbursed sum of Rs. 1,425,180 million during the five years from 2001-02 to 2005-06.

Twenty seven commercial banks through their 32,186 rural & semi-urban branches have disbursed sum of Rs. 3,134,350 million Regional Rural Banks numbering 196 through their 14,484 branches have disbursed sum of Rs. 1,425,180 million during the five years.

Table No.2 

 Number of Self-Help-Groups & Credit Disbursed by banks during 2004-06  [Rs.in Million]

Fogures in brackets indicate % share in the tota     Source: National Bank for Agriculture & Rural Development Annual Report 2005-06l

Micro-credit program of Linking Self-Help-Groups [SHGs] with RFIs in India has now completed  more than 14 years. & has been under implementation in 572 districts of 31 States & Union Territories of India. As on 31^st March’06, number of SHGs linked with banks were 2,238,565 & bank credit disbursed was of the order of  Rs. 113,975.5 million. The number of poor persons [one SHG representing 15 members] gainfully self-employed & financially assisted under the program were 33.43 million.

Training programs

Extension-Education System

• India has a very extensive net work of extension education system established by the Government & private sector. A team of well qualified, experienced  & trained personnel of Government visits villages to provide farm extension services whereas there are Krishi Vigyan Kendras [KVKs] or Farm Information Dissemination Centres in most of the districts and Agricultural Universities in each of the country’s different Agro-ecologial regions which are visited by farmers to seek new knowledge & resolve their farm production problems.

• There are companies manufacturing & dealing in seeds, fertilizers, pesticides, farm equipment etc. that provide farmers technical information on the proper & scientific use of inputs while selling their products.

• However, there is need for an integrated & focused approach that can help farmers acquire requisite skills & build their capacity that can directly address problem of securing right type of farm inputs, getting soil & water analysed to match requirement of crops, adopting high-yielding & cost-saving agronomic practices including harvesting & post-harvest technology and taking advantage of better transport, storage, warehousing, processing & domestic or export markets.

• Extensive net work of Krishi Vigyan Kendras , Farmers Training Centres, Extension departments of Agricultural Universities & field level extension staff of Panchayati Raj Institutions working through out the country provided training to millions of farmers during five years. Training included sharpening technical skills through  improving their inherited skills & transferring new skills which had direct impact on enhancing farm productivity, quality of products & cost of production. This increased number of man days employment resulting into increased production income & profitability.

• There are District Industries Centres in all  districts of the country to act as nodal agencies for supporting rural & cottage industries in the rural areas of the concerned district.

• There are Small Industries Service Institute in each State of the country to provide technical support for establishing small industries in rural areas.

• There are developmental & promotional agencies/boards, such as Khadi & Village Industries; Handloom; Handicrafts; Silk; Coir; Rubber etc which also provide support services including training to rural households to enable them take up these industrries in a planned & systematic manner.

• National Bank for Agriculture & Rural Development has been providing finncial as well as non-financial support to rural households including women beneficiaries to set up rural industries.     

Financial System

• Over half  of the primary agricultural cooperative societies are financially impaired & making a loss. They are also impaired in terma of governance, management & operations. This has, therefore, directly affected on their willingness & ability to allocate financial resources & consider  training plans & programs for their staff as well as clients/borrowers.

• Commercial banks have professional management [including technical experts] & business acumen. While they have been continuously reorienting their fileld & administrative staff with latest know-how & transferring required skills for efficient management of rural finance operations resulting into growth & profit.They have also set aside  financial resources to train their farmer-borrowers & transfer necessary financial skills in critical areas, such as simple book-keeping & financial matters that can facilitate farmers to maintain details of expenses incurred & income generated. This can give them better  understanding of  cash flow, repayment of loans, risks etc. which have direct impact on dealing with banks.

• Regional Rural Banks numbering 196 are sponsored by commercial banks & many of their branches are manned by technical personnel. They were , therefore, able to provide the much needed financial skills to their farmer-borrowers in the villages already allocated to them under the concept of Service Area.      

• Under small scale industries commercial banks, more importantly public sector banks, concentrated to provide credit to their borrowers for undertaking small scale, tiny, rural & cottage industries, such as Khadi & village industries, handlooms, powerlooms, handicrafts, coir, silk, rubber etc in collaboration with concerned promotional & development boards. These boards, inter alia, arrange for need based training focusing on development of inherited skills as well as transferring technical skills along with provision of tools, equipment, raw material & marketing. Commercial banks did provide training for better understanding of banking & credit services along with maintenance of simple books of accounts, preparation of cash flow starements, balance sheets & profit-loss statements.

• Under other priority sectors, commercial banks extended significant amount of credit to facilitate their borrowers to take up business activities, such as retail trade, road & transport opertions, small business, garments etc., There are 100s of activities under service setor in which case borrowers provide wide variety of services. Commercial banks arranged transferring financial skills which included maintenance of simple books of accounts, preparation of cash flow starements, balance sheets & profit-loss statements.

Managerial & Marketing System:

There is no institutional infrastructure for providing need based managerial & marketing skills which are so crucial to rural finance borrowers.

National Bank’s Support

National bank initiated training programs of different kinds to suit specific categories of trainees viz, bankers, NGOs, Government officials, SHG leaders & members, elected members of Panchayati Raj Institutions,. Main objectives have been [i] to create awareness among participants/different players on the immediate need for implementing micro-credit program through forming SHGs & linking them with banks for receiving credit [ii] making them fully conversant on the details of mechanism to form, promote, nurture & link SHGs with banks [iii] transfer of requisite skills & capacity building of participants such that they are ultimately in a position to form, promote, nurture & link SHGs with banks.

Besides, exposure visits, field visits of block level bankers’ committees, bankers’ meets, NGOs meets were organized so as to demonstrate them “ Best Practices” adopted at field level by successful players while forming, promoting, nurturing & linking SHGs with banks which should facilitate them to do the expected job satisfactorily.

As on 31^st March’05, as many as 1,008,430 persons were trained through regular training programs as well as through field &exposure visits and meetings held by banks & NGOs. Out of 951.120 trained persons as many as 637,511 persons [63.22%] were SHG leaders/members which established that SHG members & leaders were the most important persons to implement this program for their own survival, growth & economic sustainability. 

Bankers numbering 150,094 [14.88%] were trained specifically in areas of  attitudinal change, methods, system & procedure for linking SHGs with banks & becoming pro-active rather than reacting to the difficulties encountered while implementing the program.  

Out of total persons trained, Eastern region & Southern region had 35.04% & 33.79% persons trained followed by Central region [12.04&] whereas Northern & North-Eastern regions had 6.05% & 7.02% share of trained persons. 

Table No.3
No. of participants trained under programs of capacity building as on 31st March’05

Source: National Bank for Agriculture & Rural Development 2005-06

Impact Study

Ex-post evaluation studies of key investments were carried out by experts to estimate the benefits in respect of additional area benefited, net incremental income & number of employment man days generated and financial rate of return.. Studies established that significant benefits accrued out of long term investment in the area of irrigation, farm mechanization, poultry & small scale industries.                                                    

·          Labour replaced   Source: National Bank for Agriculture & Rural Development 2005-06

Non-Performing Assets & Recovery Performance

• Non-Performing Assets [NPAs] amount of banks was as high as Rs.401,428.4 accounting for 14.17% of total loan amount outstanding as on 31^st March’05. While cooperative banks [ SCARDBs, PCARDBs, SCBs & DCBs] had a lion share of 74.9% NPA amount in the total, public sector banks & RRBs had 18.1% & 7% respectively. NPA status in terms of percentage to loan outstanding as on 31^st March’05 was the highest at over 31% each in case of SCARDBs & PCARDBs followed by DCBs & SCBs at 19.8% & 16.25% respectively. Public sector banks had as low as 6.6% & RRBs at 8,59% of loan outstanding.

• Recovery percentage to demand was as high as 83%-84% each incase of public sector banks & SCBs followed by RRBs & DCBs at 79.8% & 71,23% respectively whereas it was the lowest [43.7%] for SCARDBs followed by PCARDBs at 50.6%.

• Over due amount was of the order of Rs. 55,800 million & Rs. 39,750 million for public sector banks & RRBs respectively. Cooperative banks together had Rs. 152,073.1 million representing loss amount & doubtful loans as on 31^st March’05.  

Table No.5

               NPA Status of Agriculture by Banks as on 31^st March, 2005. Rs in Million

Figures in brackets indicate percentage to total &Figures in bracket with * indicate NPA % of outstanding loan

Figures with * indicate loss amount & doubtful loans since overdue amount was not available.

Source: National Bank for Agriculture & Rural Development and Reserve Bank Annual Report 2005-06

Conclusion

• It is observed that Government of India has established intensive rural banking infrastructure as well as extension-education system that should facilitate rural households easy & dependable access to credit & skill development [technical & financial] in the area of agriculture, rural & cottage industries and business & service sector. This should in the process lead to improve productivity, production & quality of products reflecting on generation of additional employment, income & profitability of the concerned economic enterprise. However, evaluation of impact of these attributes & study of non-performing assets built up by lending banks clearly establish that there is immediate need for following.

• Revamping Human Resource Development & Training policy of RFIs as well as concerned departments/agencies responsible for transferring requisite skills to rural households.

• Institutional infrastructure should be created to provide managerial & marketing skills to rural house holds as it is conspicuous by its absence.

• Design structured class-room-cum-on the job integrated training program sharply focusing on provision of technical, financial, managerial & marketing skills for existing & prospective borrowes.

• Training modules for each of these four skill development along with adult education program need to be prepared so as to serve as desk reference manuals for rural house holds & staff.