Financing Small‐farm Development in India*

Abstract

Small-farm credit is important in public programs of developing countries. It is supported to finance increased productivity through modernization and to replace the exploitive moneylender. However, expectations often exceed performance. Indian research suggests the discrepancy may be traced to failure to account for the needs of liquidity management. It suggests, too, that programs that are designed to account for liquidity management can lead to modernization and to improved viability of small farms as well.Small-farm families comprise about one-fifth of India's 547 million people. The demographic characteristics of India, the macro constraints associated with economic growth and development [ 121, and the limited land space of the country insure that in the foreseeable future India's small-farm population will remain a large percentage of total population generally and rural population in particular. The Fourth Five-Year Plan recognized that small-farm problems are persistent rather than transitory. The Plan provided Rs. 115 crores (A$76.79 million) specifically for small farmers and agricultural labourers, 4.21 per cent of the total outlay [14]. The Small-Farm Development Agencies (SFDA) Program is the first major public sector program designed specifically for small-farm development. The Program subsidizes 25 per cent of improved production inputs, and provides loans from the SFDA through co-operative credit institutions and commercial banks. SFDA is intended to benefit about two million small farmers, a small proportion indeed, relative to the total small-farm population of India.The basic problems of small farms in India are chronic low income and malnutrition. A vicious cycIe of poverty is generated by small land holdings, inadequate resource position and unfavourable tenurial status. Low production and consumption, low returns on savings, high cost indebtedness, and credit constraints have been reported as causes of restricted growth of small-farm firms [15, 231. A study by Gilpatrick reports empirical information on the differences in production, consumption, marketing and 6nancial characteristics of five groups of smalI farmers, classified by the criterion of adequacy of net income to meet customary standards of living [ 2 ] . Theoretical bases for these differences have been discussed by Long [18]

Costs and benefits of livestock systems and the role of market and nonmarket relationships

“…The expression of the benefits of a single animal into two indicators parallels the distinction between “production value” and “liquidity value” used by Baker and Bhargava (1974) in their theory on liquidity management, but in our analysis both terms have a wider definition.…”

“…as well as the accumulation of wealth, security against contingencies, and display of status. These various roles are acknowledged, with animal scientists usually concentrating on physical production, and social scientists additionally including aspects of financing, insurance, and status display in their analysis (Baker and Bhargava, 1974; Bosman and Moll, 1995; Doran et al, 1979; Low, 1986; Moll and Heerink, 1998; Rosenzweig and Wolpin, 1993; Udo and Cornelissen, 1998).…”

Cattle as Live Stock: A Concept for Understanding and Valuing the Asset Function of LiveStock

“…The more quickly and easily the investment can be converted into money, the higher is its liquidity. Baker and Bhargava (1974) considered cattle to be an almost perfect source of liquidity, whereas Steinfeld (1988) maintained that the farmer could regard the cattle as a productive asset or as an illiquid store of wealth, which could decline in value. In our Brazilian example, capital is accumulated in cattle, but not immobilized, being highly liquid.…”

Education Financing of Rural Households in China

“…External financing operates on the credit side of rural financial market. In the form of loans from formal and informal sources, incurring debt is the major external financing method, while reserving credit is treated as a remaining potential to borrow in the future (Baker and Bhargava 1974). …”