Scale of Finance and Unit Cost

Scale of Finance: Definition and Overview

The Scale of Finance refers to an indicative cost that is used as a base to determine the amount of financing required by a farmer for agricultural activities such as crop cultivation, livestock rearing, or other farm-related tasks. This cost varies depending on the farming practices, land type, and geographical region.

• Base Cost: It represents the estimated financial needs based on farming methods and regions. The base cost is typically provided as a range, which accounts for the difference in costs between traditional farming methods and modern farming techniques.
  • Lower Range: Corresponds to the costs of traditional farming practices.
  • Upper Range: Represents the costs associated with modern, resource-intensive farming methods.

The scale of finance is not limited to crops alone; it extends to livestock as well. For livestock, fixed unit costs are provided based on the type of livestock being raised. For example:

• Milch Cattle: The unit cost applies to a minimum of two animals.
• Sheep and Goats: The unit cost applies to at least ten animals.
• Poultry: A unit consists of a minimum of 500 birds.

Factors Influencing the Scale of Finance

Several factors influence the scale of finance for both crops and livestock:

1. Type of Crop: Different crops have different financial requirements, leading to variations in the scale of finance.

1. Nature of Crop: Even within the same crop, differences in financial needs exist between improved and high-yielding varieties (HYVs), which may require more inputs.

1. Seasonality: The financial needs for the same crop may differ between seasons. For example, the costs during the kharif (monsoon) season might be different from those in the rabi (winter) season, influenced by factors such as water availability and weather.

1. Type of Land: The scale of finance varies based on land type. Irrigated lands usually require more resources but may yield higher returns than rainfed (dry) lands.

1. District or Area: Regional variations in soil quality, climate, and agricultural practices contribute to differences in the scale of finance, even for the same crop.

How Scale of Finance is Fixed

The scale of finance is not fixed and is determined annually at the district level by the District Level Technical Committee (DLTC). The DLTC comprises a variety of stakeholders:

• Representatives from the lead bank of the district
• Representatives from NABARD (National Bank for Agriculture and Rural Development)
• Local cooperative banks and commercial banks
• Officials from the Department of Agriculture and Animal Husbandry

The DLTC meetings are chaired by the District Magistrate/Collector and convened by the lead bank’s district manager.

Process of Fixing the Scale of Finance:

1. Data Collection and Survey: The DLTC collects technical data from various sources, primarily from NABARD, which gathers information from the State Agricultural Department annually.

1. Assessment of Crops and Extent: Detailed information on crop types, the extent of their cultivation, and other agronomic data is provided by the State Agricultural Department.

1. Potential Mapping: Using the collected data, the DLTC creates a potential map, identifying priority agricultural activities in the district and determining the extent to which these activities should be financed.

1. Cost Estimation: The DLTC estimates the cost of cultivation, taking into account market trends, input costs (seeds, fertilizers, labor), and inflation. This helps in calculating the required financial assistance for each crop or livestock.

1. Annual Revision: Since agricultural practices, input costs, and market conditions evolve over time, the scale of finance is revised annually to reflect current agricultural trends and farmer needs.

In this manner, the scale of finance ensures that financial assistance is aligned with the actual needs of farmers, accounting for local conditions and the dynamic nature of agricultural practices.