Higher Financing Agencies:

Reserve Bank of India (RBI)

Overview:

• Established: April 1, 1935
• Act: Reserve Bank of India Act, 1934
• Headquarters: Mumbai
• Owner: Ministry of Finance, Government of India

Functions:

• Regulates the Indian banking system: Ensures the stability and smooth functioning of the banking sector.

• Manages the issuance and supply of the Indian rupee: Oversees currency management and the distribution of currency notes.

• Oversees payment systems: Co-established the National Payments Corporation of India (NPCI) to regulate and promote payment systems.

• Promotes economic development and financial stability: Aims for financial growth while maintaining economic balance.

Key Responsibilities:

1. Currency Management: Manages the issuance and control of currency notes through Bharatiya Reserve Bank Note Mudran Ltd (BRBNM) located in Mysore and Salboni.

1. Payment Systems: Collaborated to establish the National Payments Corporation of India to promote and regulate payment and settlement systems across the country.

1. Deposit Insurance and Credit Guarantee: Through the Deposit Insurance and Credit Guarantee Corporation (DICGC), provides deposit insurance for the safety of deposits and guarantees credit facilities extended by banks.

Governance:

• Central Board of Directors: Composed of 21 members, including:
  • Governor
  • Four Deputy Governors
  • Two representatives from the Ministry of Finance
  • Ten government-nominated directors
  • Four directors representing local boards (Mumbai, Kolkata, Chennai, Delhi)
• Chairperson: District Magistrate/District Collector
• Members: Includes representatives from the lead bank, NABARD, local cooperative banks, and commercial banks.

Preamble:

The RBI’s objective is to regulate the issuance of banknotes, maintain reserves for monetary stability, operate the currency and credit system in a way that benefits the country, and ensure price stability while supporting economic growth.

Current Governor:

• Shaktikanta Das

Special Divisions:

• BRBNM: Bharatiya Reserve Bank Note Mudran Ltd – Manages the printing and minting of currency.
• DICGC: Deposit Insurance and Credit Guarantee Corporation – Provides deposit insurance and credit guarantees.

Role of RBI in Agriculture:

The Reserve Bank of India (RBI) plays a crucial role in supporting and regulating the agricultural sector through various financial services, credit facilitation, and policy frameworks. Here’s a brief overview of its role:

1. Priority Sector Lending (PSL):
   • RBI mandates that scheduled commercial banks allocate a percentage of their lending to the priority sector, including agriculture. Currently, banks are required to direct 40% of their total lending to priority sectors, with a significant portion reserved for agriculture.

1. Agricultural Credit:
   • Refinancing through NABARD: RBI provides funds to NABARD (National Bank for Agriculture and Rural Development) for on-lending to rural financial institutions, cooperatives, and regional rural banks (RRBs), which in turn provide credit to farmers.
   • Kisan Credit Card (KCC): The KCC scheme, introduced by RBI in collaboration with NABARD, offers farmers timely and adequate credit for their agricultural needs, including crop production and other farm-related expenses.

1. Rural Infrastructure Development:
   • RBI supports rural infrastructure projects through the Rural Infrastructure Development Fund (RIDF). The fund finances infrastructure projects such as irrigation systems, rural roads, and warehouses, all of which contribute to boosting agricultural productivity.

1. Regulation of Cooperative Banks and RRBs:
   • RBI regulates and supervises Regional Rural Banks (RRBs) and cooperative banks, which are essential in providing agricultural credit and financial services to rural areas. This ensures that these institutions function efficiently and meet the needs of the agricultural sector.

1. Interest Subvention Schemes:
   • RBI works alongside the Government of India to implement Interest Subvention Schemes, which make short-term crop loans available at concessional interest rates, reducing the financial burden on farmers.

1. Financial Inclusion and Digitization:
   • RBI promotes financial inclusion in rural areas by encouraging banking services to reach unbanked regions. Initiatives like Direct Benefit Transfer (DBT) for subsidies and the promotion of digital payment systems streamline financial transactions, making banking services more accessible for farmers.

Through these mechanisms, the RBI helps foster agricultural development, ensuring that farmers have access to financial resources, support systems, and infrastructure to thrive.

National Bank for Agricultural and Rural Development (NABARD)

Origin of NABARD

• Background: The Agricultural Refinance and Development Corporation (ARDC) had limited impact on direct financing and delivery of rural credit.
• Committees and Commissions:
  • Banking Commission (1972)
  • National Commission on Agriculture (NCA) (1976)
  • Committee to Review Arrangements for Institutional Credit in Agricultural and Rural Development (CRAFICARD) (1979): Recommended the creation of NABARD.
• Establishment: NABARD was founded on July 12, 1982.
• Merger: ARDC, Agricultural Credit Department (ACD), and Rural Planning and Credit Cell (RPCC) of RBI were merged into NABARD.

Structure

• Headquarters: Mumbai, India.
• Offices: 17 regional offices, 10 sub-offices, and 213 district offices.
• Board of Management:
  • Appointed By: Central Government in consultation with RBI.
  • Members: Includes Chairman, Managing Director (CEO), and 13 other directors with expertise in rural economics, cooperatives, commercial banks, and government officials.

Sources of Funds

• Authorized Share Capital: ₹500 crore (equally contributed by Government of India and RBI).
• Issued and Paid-Up Capital: ₹100 crore.
• Other Sources:
  • Borrowings from Government of India and approved institutions.
  • Borrowings from RBI.
  • Deposits from state governments and local authorities.
  • Gifts and grants.

Objectives

1. Credit Needs Assessment: Survey and estimate credit requirements for agriculture and rural development.
2. Refinance Promotion: Promote and integrate rural development activities through refinance.
3. Direct Credit: Provide direct credit to institutions or individuals with government approval.
4. Coordination: Maintain close links with RBI for financial guidance and assistance.
5. Catalytic Role: Formulate rural development plans and policies.

Functions

a) Credit Activities

• Credit Plans: Prepare potential-linked credit plans for districts and participate in annual action plans.
• Refinance:
  • Short-Term: For agricultural production and marketing, up to 12 months.
  • Medium/Long-Term: For investments in agriculture and allied activities, up to 15 years.

• Refinance Extent:
  • 100% for pilot rainfed farming, wasteland development, non-farm sector schemes, etc.
  • 75% for agro-processing units, bio-gas schemes.
  • 70% for all other schemes including IRDP.
  • 50% for farm mechanization, rural electrification.

• Direct Finance: Provide direct finance to state governments and state-sponsored corporations.
• Monitoring and Consultancy: Ensure proper project implementation and undertake consultancy work.

b) Development Activities

• Institutional Development: Financial assistance for establishing financial agencies.

• Research and Development Fund: Support research and development.

• Agricultural and Rural Enterprises Incubation Fund (AREIF): Assist in new enterprise inception.

• Rural Promotion Corpus Fund (RPCF): Support training centers, entrepreneurship development, and technical monitoring.

• Credit and Financial Services Fund (CFSF): Assist innovations in rural banking and credit systems.

• Linking SHGs: Refinance banks 100% for loans to Self-Help Groups (SHGs).

c) Regulatory Activities

• Regulation: Shares regulatory functions with RBI for cooperative banks and regional rural banks (RRBs).
• Inspection: Inspects RRBs and cooperative banks.
• Branch Authorization: Provides recommendations for branch opening permissions.
• Assistance Authorization: Authorizes state and district central cooperative banks for assistance beyond the cooperative sector.

Role of NABARD in Agriculture

NABARD plays a crucial role in the development of agriculture and rural areas in India. It acts as a financial and developmental institution that promotes agriculture, cottage industries, small-scale industries, and other rural economic activities. Key roles include:

1. Refinancing for Rural Credit: NABARD provides refinance facilities to banks and financial institutions, ensuring that they have sufficient funds to lend to farmers and rural entrepreneurs.

1. Credit Planning and Monitoring: NABARD prepares Potential Linked Credit Plans (PLPs) for districts, ensuring adequate finance is available for agriculture and allied sectors and monitors the progress of credit flow to rural areas.

1. Kisan Credit Card (KCC) Scheme: In collaboration with RBI, NABARD introduced the Kisan Credit Card (KCC) Scheme to help farmers easily access credit for agricultural inputs.

1. Infrastructure Development: Through the Rural Infrastructure Development Fund (RIDF), NABARD funds rural infrastructure development projects, such as irrigation systems, rural roads, bridges, and warehousing, which enhance agricultural productivity.

1. Promotion of Microfinance and SHGs: NABARD promotes the formation of Self Help Groups (SHGs) and supports the SHG-Bank Linkage Program to provide financial inclusion in rural areas, especially for women.

1. Development and Promotional Activities: NABARD conducts various developmental programs such as training and capacity building for farmers, supporting sustainable agriculture, and promoting innovative farming technologies.

1. Long-Term and Short-Term Loans: NABARD provides loans for agricultural investment and working capital, crucial for purchasing machinery and establishing infrastructure.

1. Policy Advocacy: NABARD works with the Government of India to design policies and initiatives that support rural and agricultural development and advocates for reforms in rural credit, infrastructure development, and financial inclusion.

World Bank (WB)

Overview

• Establishment: The World Bank was established in 1944 during the Bretton Woods Conference, alongside the International Monetary Fund (IMF).
• Headquarters: Washington, D.C., USA.
• Mission: To end extreme poverty and promote shared prosperity by supporting developing countries in their economic development and structural reforms.

Structure The World Bank Group consists of five institutions:

1. International Bank for Reconstruction and Development (IBRD): Provides loans and financial products to middle-income and creditworthy low-income countries.

1. International Development Association (IDA): Provides concessional loans and grants to the world’s poorest countries.

1. International Finance Corporation (IFC): Supports private sector development by providing investment and advisory services to businesses and industries.

1. Multilateral Investment Guarantee Agency (MIGA): Provides political risk insurance and credit enhancement to encourage foreign investment in developing countries.

1. International Centre for Settlement of Investment Disputes (ICSID): Facilitates the resolution of disputes between governments and foreign investors.

Priority Areas

1. Poverty Reduction: Focus on implementing projects and programs to improve living standards and economic opportunities for the poor.

1. Sustainable Development: Invests in environmental sustainability, climate change mitigation, and natural resource management.
2. Infrastructure Development: Supports projects in transportation, energy, water, and sanitation to enhance economic growth and connectivity.

1. Human Development: Improves education, healthcare, and social services to enhance human capital.

1. Governance and Institutions: Strengthens institutions and governance structures to improve policy implementation and development outcomes.

Importance of World Bank in Indian Agriculture

The World Bank has played a significant role in the development of Indian agriculture through financial support and various initiatives aimed at improving agricultural productivity, rural infrastructure, and poverty alleviation. Key contributions include:

1. Financial Assistance
   • The World Bank provides substantial funding for agricultural development projects in India, which help modernize agricultural practices, improve irrigation systems, and promote rural development.

1. Irrigation Projects
   • The World Bank supports large-scale irrigation projects in India, improving water management and increasing crop yields by providing a reliable source of water for farming.
   • Command Area Development Programs: The World Bank funds irrigation schemes aimed at improving water use efficiency and extending irrigation coverage to drought-prone areas.

1. Agricultural Infrastructure
   • Enhances rural and agricultural infrastructure, including:
     • Rural roads for better market access.
     • Cold storage facilities to reduce post-harvest losses.
     • Warehousing facilities for better storage of agricultural produce.

1. Research and Development
   • Supports agricultural research and development projects that improve crop varieties, pest control, and farming practices.
   • National Agricultural Higher Education Project (NAHEP): A World Bank-supported project aimed at enhancing the quality of higher education in agriculture and empowering the agricultural workforce with better skills.

1. Promoting Climate-Resilient Agriculture
   • The World Bank promotes climate-smart agricultural practices in India, helping farmers adapt to the impacts of climate change. This includes:
     • Promotion of drought-resistant crops.
     • Water conservation techniques like drip irrigation.
     • Training on sustainable practices such as conservation agriculture.

1. Poverty Alleviation and Livelihoods Support
   • The World Bank supports rural communities, especially women, in creating sustainable livelihoods through programs like the National Rural Livelihoods Project (NRLP), which enhances agricultural productivity and marketing skills.

1. Support for Smallholder Farmers
   • Focuses on enhancing the livelihoods of smallholder farmers by:
     • Facilitating access to credit and financial services.
     • Supporting the Kisan Credit Card (KCC) scheme.
     • Promoting farmer producer organizations (FPOs) to improve market access and bargaining power.

1. Agro-Processing and Value Chains
   • Strengthens agricultural value chains by promoting agro-processing industries, improving post-harvest management, adding value to agricultural products, creating employment, and increasing farmers’ incomes.

Asian Development Bank (ADB)

Overview

• Establishment: The Asian Development Bank (ADB) was established in 1966, with the objective of promoting economic and social development in Asia.
• Headquarters: Manila, Philippines.
• Mission: To promote inclusive and sustainable economic growth, reduce poverty, and improve the quality of life of people in Asia and the Pacific through support to development projects and technical assistance.

Structure The ADB is an international financial institution composed of 68 member countries (as of 2023), with the main components being:

1. Board of Governors: Comprised of representatives from all member countries, it is the highest decision-making body of the bank.
2. Board of Executive Directors: The day-to-day operations are overseen by a board of 12 executive directors.
3. President: The President of ADB is responsible for the overall management and operations of the bank.

Key Operational Areas

1. Poverty Reduction and Social Development
   • ADB’s core objective is to help reduce poverty and improve the living standards of the people in the region, particularly in the poorest countries.

1. Infrastructure Development
   • ADB focuses on providing financial resources for infrastructure development such as roads, railways, water supply, sanitation, and energy projects to enhance economic growth.

1. Private Sector Development
   • The bank promotes private sector development by encouraging public-private partnerships and facilitating investments in key sectors.

1. Environment and Climate Change
   • ADB invests in projects that promote environmental sustainability and climate change mitigation, including renewable energy, water resource management, and sustainable agriculture.

1. Regional Cooperation
   • The ADB fosters regional cooperation and integration by supporting initiatives that enhance trade, connectivity, and regional development.

Importance of ADB in Indian Agriculture

The Asian Development Bank has significantly contributed to the development of Indian agriculture through its financial support and various development initiatives. Some key areas where ADB has supported Indian agriculture include:

1. Financial Assistance for Agricultural Development
   • ADB provides funding for various agriculture-related projects aimed at enhancing agricultural productivity and improving food security. This funding supports efforts to modernize agricultural practices and improve the efficiency of agricultural value chains.

1. Irrigation and Water Management
   • ADB has financed several irrigation and water resource management projects to improve agricultural productivity in India. These projects aim to optimize water usage, improve irrigation systems, and provide reliable water access for farmers in water-scarce regions.
   • Irrigation and Water Resources Management Projects: ADB has supported large-scale projects such as the Maharashtra Water Sector Improvement Project, which aims to enhance irrigation infrastructure and water-use efficiency in the region.

1. Climate-Smart Agriculture
   • ADB promotes climate-resilient agricultural practices by investing in projects that help farmers adapt to climate change. This includes promoting water-efficient irrigation techniques, sustainable farming practices, and increasing the adoption of climate-smart technologies.

1. Agricultural Infrastructure Development
   • ADB supports the development of agricultural infrastructure such as cold storage, market linkages, and rural roads, which help farmers reduce post-harvest losses and access markets more efficiently.

1. Support for Smallholder Farmers
   • The ADB focuses on improving the livelihoods of smallholder farmers by facilitating access to financing, improving agricultural technologies, and supporting farmer organizations to enhance their bargaining power and market access.

1. Agro-Processing and Value Chain Development
   • ADB promotes agro-processing and value chain development to add value to agricultural produce, improve food security, and create jobs in rural areas. It supports projects that help farmers access markets and ensure better processing and storage capabilities for agricultural products.

1. Rural Development and Poverty Alleviation
   • ADB supports rural development initiatives that aim to reduce poverty, particularly in agrarian communities. This includes projects focused on enhancing rural infrastructure, improving access to social services like education and healthcare, and providing livelihood support for farmers.

1. Capacity Building and Technical Assistance
   • ADB provides technical assistance and capacity-building support to strengthen the agricultural sector in India. This includes training for farmers, extension services, and support for policy reforms aimed at improving agricultural productivity and sustainability.