1st Five Year Plan
[ Home ]
<< Back to Index

Introduction || APPENDIX (CH-4) || APPENDIX (CH-9) || ANNEXURE (CH-12) || APPENDIX (CH-14) || APPENDIX (CH-24) || APPENDIX (CH-29) || Conclusion
1 || 2 || 3 || 4 || 5 || 6 || 7 || 8 || 9 || 10 || 11 || 12 || 13 || 14 || 15 || 16 || 17 || 18 || 19 || 20 || 21 || 22 || 23 || 24 || 25 || 26 || 27 || 28 || 29 || 30 || 31 || 32 || 33 || 34 || 35 || 36 || 37 || 38 || 39

Chapter 17:

1. The problems of agricultural finance discussed in the previous chapter relate to the pre-harvest requirements of the cultivators. The disposal of the produce after the harvest and the return obtained, therefore, also have a significant effect on production and on the welfare of the cultivator. Production in agriculture being seasonal, the crop is harvested during a short period and consumed gradually. While commodities like cotton and groundnut require large storage space which the average cultivator lacks, fruits, vegetables and sugarcane are of a perishable nature. The farmer has, therefore, to dispose of his surplus immediately either at the village or at the mandi. In the absence of staying power the large number of small farmers compete with each other and the markets witness conditions of occasional glut and scarcity. A major part of the commercial crops like cotton, jute, sugarcane and oilseeds has to be marketed immediately as the farmers are in need of cash for meeting their dues and other expenses. As regards foodgrains the marketable surplus varies by crops and regions but may be placed at about 20 to 30 per cent under normal conditions. The total quantity and value of the marketed produce, even in a predominantly subsistence economy as in India is considerable.

2. Sale of agricultural produce involves a number of functions such as assembling, storing, grading, standardising, transporting and financing the produce and negotiating sale. Some of these operations may be performed by the farmer, but storage and sale of a commodity and finding finance for purchase, call for specialised knowledge and adequate resources which the individual cultivator does not possess. Those who render these services, therefore, perform a useful function for which a reasonable return is due.

3. The village money lender or the mandi arhativa advances loans to farmers for securing production requirements like seeds, and manures and for meeting other needs. These debts some times carry an understanding or an obligation to sell the produce to or through the lender or his nominee. At the time of sale the position of advantage occupied by the village banker gets reflected either in a lower price or unfair weights or delayed settlement. If the sale takes place in the mandi or the market through the brokers or arhatiyas the farmer pays not only for the services rendered by the middlemen but is also subjected to other unwarranted deductions.

4. To remove the disabilities of the farmers in the mandi, regulated markets have been established in the States of Bombay, Madras, Punjab, Hyderabad, Mysore, Pepsu and Madhya Pradesh. Unauthorised deductions are prohibited and the charges of brokers and weighmen regulated. In some of these places the system of open auction or sales has been introduced. These improvements have benefited the cultivator to a certain extent. Regulated markets, however, do not exist in the States ofUttar Pradesh, West Bengal, Bihar, Orissa, etc. Some of the States which have adopted the Agricultural Produce Markets Acts have a large number of markets which still continue to be unregulated. It is necessary to extend the operation of the Act so as to cover all the important markets in each State by 1955-56, as this is the first step in improving marketing facilities.

5. The management of regulated markets vests in committees on which growers are also represented. Their voice is, however, seldom effective. Many of the marketing committees -ire not yet fully conscious of their responsibility of utilising their funds for developing marketing facilities. The Madhya Pradesh Government have, therefore, amended the Cotton and Agricultural Produce Markets Act with a view to entrusting the management of regulated markets to the Cooperative Societies and the Cotton Market at Amravati has been handed over to the local marketing co-operative.

Progress of co-operative marketing

6. The benefits of a regulated market which attempt only to improve the existing practices are limited ; without changing the marketing structure the number of middlemen and costs cannot be reduced. Efforts in this direction have been made in some States by organising cooperative marketing. For example, 1,600 cane cooperative unions and other primary societies have been organised in Uttar Pradesh in the last 10 years. They handle 85 to 90 per cent of the total cane supplied to sugar factories. The average value (3 years ending l95i-

7. Cooperative marketing of cotton has been attempted in Bombay where 84 cotton sale societies functioned in 1948-49. While the societies in Karnatak arrange the sales of the produce of their members in individual lots, the Gujerat cotton growers pool cotton of a similar variety for purposes of sale. The cooperatives own n ginning and pressing factories in the State. The producer-cyw-consumer societies in Aladras which have been converted into marketing societies and a few others in other States are also making efforts in this direction. Some of them have taken up procurement work for the Government. Provincial marketing societies which have been established in 9 States to assist the primary units registered only a small volume of business which amounted to Rs. i • 15 crores in 1949-50.

8. The progress of marketing societies, in spite of immense scope, has so far been slow. The entry of a co-operative even as an agent is not generally favoured by the trade. For instance, it refused to buy cotton offered by the cotton sale society in Knrnatak and boycotted its sales. The buyers also make payment after a time lag and the cooperatives acting as agents are required either to raise a larger amount of finance to meet their commitments or to keep the amounts outstanding. The U. P. sugar factories, for example, were in arrears to the extent of about Rs. 2 crores, to the societies by the end of the year 1950. Some of the cooperatives had to engage contractors for finding finance and making payments. The performance of the contractors was unsatisfactory and their charges were heavy. To overcome such difficulties the Gujerat Cotton Sales Society established a ginning factory. This facilitated the sales and the ginning charges were reduced by 50 per cent. The Society however, did not own the pressing factory and utilized a plant belonging to the traders. After sometime the press owners raised their charges by more than 75% and declined to undertake the pressing work on behalf of the Society. The society was, therefore, compelled to erect its own press. The cane growers of Ahmednagar District in Bombay State who had suffered for the last 30 years from violent fluctuations in prices of gur they produced, have recently set up a Cooperative Sugar Mill which has not only ensured them better prices and timely payment but has al^o helped them in improving the efficiency of production through the supply of manures, fertilizers and seeds. The society tries to work with each farmer on his problems and provides long term credit for development . The loyalty and the support of the members, the enlightened leadership, financial aid in the shape of share capital—Rs. 6 lakhs from the Bombay Government and a loan of Rs. 20 lakhs from the Industrial Finance Corporation are some of the important factors which have led to the success of the scheme.

9. It would thus appear that even after the linking of credit with marketing, cooperatives, which act only as commission agents for sale, (as in Uttar Pradesh) are not effective and that ownership and management of processing facilities on a cooperative basis are essential for protecting the interests of the growers and strengthening the economy. The benefits of efficiency and economy in the processing activities are considerable, and if they are transmitted to cultivators, there will be an incentive for increasing production. A co-operative which functions in this manner can also assist in crop planning by introducing improved varieties of seeds, by giving the necessary technical advice to cultivators and by financial help wherever necessary.

10. There are, however, some commodities which are marketed without elaborate processing. In such cases the marketing cooperative will have to establish direct dealings with the consumer cooperatives. In Canada, the Grain Growers' Cooperative Company in Winnipeg having been boycotted by the Canadian traders, had to negotiate sales of wheat with the Scotish Cooperative Whole-sale. In this country there exists a considerable volume of inter and intra State trade in wheat, pulses, fruits, vegetables, etc. By contacting its counter-parts in other States the provincial marketing association should work out an arrangement for imports and exports. Similar arrangements within the State could also be made.

11. Some of the marketing societies appear to have been organised without adequate share capita' The Madras Provincial Marketing Society, for instance, has a share capital of about Rs. 50,-aoo while Orissa and West Bengal Apex Marketing Societies are functioning with a share capital of about Rs. 13,000 and Rs. 5,000 respectively. The credit limit assessed by and assistance available from the State Apex credit agency and the Reserve Bank for financing marketing operations depend upon the capital structure and owned resources of the society and th" volume of its business is largely regulated thereby. It is, tl erefore, necessary that marketing associations especially those which are meant to be apex agencies should obtain sufficient capital from their constituents.

12. Marketing requires technical skill and specialised knowledge. Associations operating in a group of villages or in a commodity do not have the volume or turnover to warrant employment of trained or qualified personnel. The area of operation of a marketing society should, therefore, be fairly large, say a Tehsil. Further, separate societies for individual commodities should be restricted only to such staples of trade as have a specialized wholesale market.

Storage And Warehousing

13. Another difficulty that the societies encounter relates to storage facilities. Most cf the surplus produce in an area is assembled and sold at the mandi or market which is generally at the rail or motor head and possesses road transport and banking facilities. On the strength of the goods pledged the banks finance the marketing operations. Release of goods and their despatch either on consignment or sale can be arranged more quickly from the godowns at the mandi than from those located in the rural areas. It would, therefore, be an advantage to develop storage facilities at mandi centres. Some godowns space-temporary, semi-temporary or permanent—are available in every mandi. This accommodation is often unsatisfactory as it fails to provide adequate protection to goods from damage and deterioration by moisture, rodents, insects, pests, etc. Moreover, even for getting such space, fairly high rent has to be paid. It would, therefore; be better if the cooperatives ,plan to have their own storage facilities. Some State Governments, particularly Madras, Bombay, and Orissa are alive to this problem and are rendering assistance by providing loans and subsidies for the construction of godowns. Other States, we suggest, may follow this practice.

14. Several committees and commissions including the Royal Commission on Agriculture, the Central Banking Enquiry Committee, the Marketing Sub-Committee, the Agricultural Finance Sub-Committee, the Cooperative Planning Committee and the Rural Banking Enquiry Committee have emphasised the need to promote warehousing in the country and have also made various suggestions in this connection. In the absence of warehouse receipts which could serve as collateral for the promissory notes of the borrowing banks, it has not been possible for the Reserve Bank to extend assistance to the cooperative and scheduled banks under section 17 of the Reserve Bank Act for financing marketing operations. The Reserve Bank, therefore, suggested establishment of Licensed warehouses. The States of Bombay, Madras, Madhya Pradesh, Mysore, Hyderabad and Travancore-Cochin have already enacted the necessary legislation. We recommend that similar action should be taken by other State Governments ^s well. Even though the Warehousing Act has been passed in some States more than four years ago, licensed warehouses have not been established so far. This is largely due to the fact that the law, being an enabling piece of legislation, leaves it to the trade, private investors, limited companies or the cooperatives to set up the warehouses. The investors generally hesitate to take up a new venture in which they have little experience. Further, the law provides not only for regulation and inspection of the warehouses but also for fixing the charges at a reasonable level. Under the present conditions when the money market is tight and there are other more remunerative fields for investment it is doubtful if private capital would be attracted, particularly in producing areas. Progress will, therefore, depend mostly on the initiative of the cooperatives and their ability to secure the required long term capital. We therefore suggest that the State Governments and the Reserve Bank should assist warehousing development by measures such as provision of loans, etc. to organisations which are willing to undertake this work.

Future Pattern Of Development

15. Cooperatives will be successful to the extent that they render efficient service to the growers at the minimum cost. This in turn depends upon their ability to undertake processing activities, command warehousing accommodation, and obtain sufficient financial resources and, above all, honest, capable and efficient management. Though some States have fostered the growth of marketing societies, a policy for their development has yet to be laid down or followed for the country as a whole. Cooperative marketing linked with production, finance and cooperative ownership of processing industries will be a useful instrument in increasing production, cutting costs and introducing a system of crop planning. Favourable conditions for their growth have, therefore, to be created without loss of time.

16. In this context we suggest that processing plants established hereafter should be owned and managed by cooperative societies, and licences and other forms of support given to them by the States. Where such societies do not exist active and timely steps should be taken to organise and to equip them. As regards cooperative management and ownership of the existing facilities the progress will depend upon the speed with which the necessary organisation can be created and personnel trained. Where the movement has developed well in other fields such as the States of Madras and Bombay—marketing societies may develop more rapidly as to them would be available the long standing and valuable experience of cooperative workers. Cooperatives in other States would also benefit thereby as they would be able to build societies after taking into account the result obtained in these States.

17. The technical, marketing, financial and administrative problems involved in these operations need expert study, guidance and supervision particularly in the initial stages. As every State may not be in a position to provide the experts and in some cases they may not have full-time work, it would be an advantage to have a standing committee of four experts on processing and marketing at the Centre. The Committee should assist the State Governments and the cooperatives in drawing up detailed schemes after a careful examination. It would be their responsibility to review the progress of work of every unit in the State from time to time and make a comparative study of the factors which hinder the work. In the past many a marketing cooperative has foundered because the local manager and the Board are not able to foresee or tackle a problem on their own. While failures in private trade or industry often go unnoticed, mistakes or shortcomings of a cooperative attract a good deal of public attention and criticism because of their democratic character and economic and social significance. Hence the need for and importance of expert guidance. As regards long term finance required by the societies for purchasing machinery and other equipment we consider that it should be made available by the State and Central Industrial Finance Corporations.

18. As the cooperative gain a surer foothold in the commodity markets it should be possible to bring the management of regulated markets more and more under cooperative direction. Immediately, cooperatives should be given adequate representation on the managing committees of regulated markets. As the positive services made available to growers by these cooperatively directed market committees become more evident, the committees may be empowered to make a small charge on the produce handled by them for a further expansion of these services. In this manner it would be possible for each market to build up funds of its own. On their strength the cooperatives could obtain accommodation from the bank for financing their operations.


19. The introduction of proper grades and standards is another matter in regard to which the State can usefully assist. Grading of farmers' produce before sale on the basis of well defined grades in a regulated market will help in the proper valuation of his produce which will enable him to claim a price commensurate with the quality offered, thus providing an incentive to improve its quality. Grade standards are also necessary as a basis for the issue of negotiable receipts by warehouses and economical development of public storage facilities. The poor quality of the agricultural produce has been an important handicap in export markets. Shipments of cashew nuts, black pepper, turmeric, wool, etc., fetch reduced prices and get condemned abroad as they contain foreign matter and are not of uniform quality. On the other hand, the introduction of grading on the basis of Agmark quality standards has yielded satisfactory results in respect of tobacco and sann hemp. To remove the handicaps experienced by other commodities and promote export trade, it is proposed to undertake grading of wool, bristles, lac, sheep and goat skins, cashew-nuts, vegetable oil seeds, oils and kopak, the export value of which was of the order ofRs. no crores annually during the 3 years immediately after partition. These commodities would be brought under compulsory grading in successive stages. The total estimated expenditure on the scheme would be Rs. 86-47 lakhs which amount would be recovered from the levy of charges under Section 3(f) of the Agricultural Produce (Grading and Marking) Act of 1937. The following statement shows the programme :—


Scope of Plan

Developmental Expenditure (Rs. lakhs)


Grading of tobacco and sann hemp



Grading of wool, bristles and goat hair and lac



Grading of sheep and goat skins



Grading of cashewnuts, pepper, spices and lemongrass oil



Grading of kapok, myrobalans and other forest produce (rosin,turpentine, etc.), vegetable oilseeds and oils.





It is estimated that as a result of grading the export value of these products would increase by about 10 per cent.

20. In the internal trade the question of grading food products, particularly, milk, ghee and oil, is very important in view of its bearing on the health of the nation. We have discussed the problems connected with the purity of milk elsewhere. Our remarks here are confined to the grading of ghee and oil. The grading of ghee started in the year 1939 and a peak figure of 3 -4^ lakh maunds was reached in 1944 and then dropped down to 95,000 maunds; today it is about I -2 lakh maunds. Grading is voluntary and will develop to the extent that a market for graded products can be created. All departments of Government and other institutions, which buy ghee on a large scale, particularly hostels, hospitals, railway contractors, etc., should be made to purchase Agmark products. The graded ghee costs about Rs. lo/- per maund more than the ungraded product. The grading costs would get reduced by improving the efficiency of the operators and increasing the volume of business. A little rise in price is warranted by the superior quality of the products. Grading of mustard oil, groundnut oil, and til -oil has also been taken up by the Department and about i • 8 lakh maunds are being graded at present. The railways have decided to buy graded oil for the requirements of their personnel. In some- areas experiments with compulsory grading of oil and ghee could be tried by prohibiting the movement of ungraded oil by rail and road.

Sufficient power does not exist under the Agricultural Produce (Grading and Marking) Act, 1937 to prevent misuse of Agmark labels. The Act is being amended to secure these powers.

Laying down specifications for grading agricultural commodities should always be done in consultation with all the interests concerned, the State Governments and the Indian Standards Institution. This is necessary to preserve uniformity in standards throughout India. There are certain products which, though absolutely pure, have regional standards different from all-India standards. In such cases these regional standards should have the same validity as the Agmark standards and should be accepted by all State Governments. At present this is not so. Agmark standards should also be considered as satisfying the pure food laws of the local bodies.

Weights and Measures

21. The importance of standardisation of weights and measures may also be stressed here as there is a bewildering variety thereof in the country. To introduce uniform system the Central Government enacted the Standards Weights Act in 1939 and commended it to the States. Bombay, Punjab, Bihar, Mysore and Hyderabad have enacted and are enforcing the necessary legislation. But in Madras, Madhya Pradesh, Uttar Pradesh and Orissa the Act ttiough passed has not been fully implemented. We consider that every State should introduce and enforce the Standards Weights Act as this will benefit both the producer and the consumer.

[ Home ]
^^ Top
<< Back to Index