16. As regards long term loans, the responsibility for financing improvements of a long term character, which benefit the community or a group of villages, will increasingly devolve on the State and the need for individual loans may diminish to some extent. However, this can be only a gradual process and assistance to individuals or a group for schemes of a permanent nature will continue to be an important item of production programmes. Consolidation of holdings and other schemes for improving the productivity of agriculture by increasing the size of the unit of cultivation are bound to widen the scope for long term loans. It is, therefore, necessary to have an organization which will assess these requirements and be in a position to satisfy them. This function can be best discharged by the land mortgage banks which possess long term funds raised by shares, debentures and fixed deposits. These banks exist in only a few States, e.g. Madras, Bombay, Mysore and Madhya Pradesh. The two main difficulties responsible for the slow progress of land mortgage banks are the lack of trained personnel

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and the inability (legal) of the borrower to offer land as a security. As a result of recommendations made in this report elsewhere, these difficulties will soon be surmounted and we trust that as a part of the State Plan suggested in paragraph 12 of this chapter a long term agency will be created in more States. However, we do not deem it essential to have a separate land mortgage bank either at the State or district level in every case. Considering that the borrower and the security that he has to offer are generally the same for various types of loans, it has yet to be established that a separate agency for long term credit is invariably preferable to a single agency for different types of credit.

17. A major part of the advances made hitherto by the land mortgage banks are for repayment of old debts. The funds obtained either from the State or the community need in future to be utilised for purposes which will step up production and thus create a surplus of savings out of which the old debts may be discharged. The land mortgage banks should hence-forward lay greater emphasis on this developmental aspect and should give preference to applicants who want to increase their resources for enhanced production.

18. Another difficulty encountered by these Banks relates to finance which is often raised by floating debentures. Recently, some of the Central Land Mortgage Banks have found it somewhat difficult to raise long-term funds at sufficiently cheap rates of interest in spite of the fact that their debentures were guaranteed by the State Governments concerned and that the Reserve Bank, in accordance with its recent practice, subscribed 20% of the value in practically all these cases. There is therefore some apprehension that land mortgage banks, as a structure for long term credit, may languish for want of funds. This would hardly be in consonance with the objectives of the Plan. We have, therefore, made a provision of Rs. 5 crores spread over the next three years to supplement the long-term resources of the co-operative movement. We consider that the target for long term finance, Government and co-operative together should be Rs. five crores per annum at the end of the present Plan.

19. In regard to the principles which ought to govern the actual disbursement of the amount of Rs. 5 crores each which we have recommended to supplement the medium-term and long-term resources of the co-operative agricultural credit system, the following recommendations are made :-

(i) The loans made out of these amounts should in all cases be linked to the programme of increased agricultural production, and should therefore be subject to the same priorities as that programme.

(ii) Without prjudice to the above subject, the loans should be so distributed, with reference to regions and to classes of agriculturists, as to reach, by preference, areas and classes not served at present by the co-operative credit system.

(iii) In planning the distribution of credit among such areas and classes, forms of organization should, if possible, be devised (e.g. borrowers' groups in villages) which can be readily developed into, or eventually fitted in with, the co-operative type of organisation.

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(iv) Where credit is disbursed in an area already served by the co-operative organization, the agency of that organization should be utilised as far as possible.

(v) The contribution to long-term agricultural finance may, among other things, take the form of Government purchasing part of the debentures issued by land mortgage banks.

(vi) In regard to the implementation of these recommendations, a detailed plan should be chalked out by the Government of India in consultation with the Reserve Bank and other organisations concerned.

20. Finally, in putting forward the proposals outlined in this chapter we envisage them as helping in the realisation of the targets in the Plan and as a part of and a first step to a comprehensive and integrated policy of agricultural credit to be evolved as early as possible on the basis of the factual material which is expected to be furnished by the rural credit survey. At this stage we would only suggest that in the wider solution of the problem the integration of financial agencies would have to extend to all organisations-co- operative, commercial and other which act as repositories and suppliers of credit.

The history of agricultural development in all advanced countries shows that such an integrated system of credit laid the foundation for agricultural development and prosperity. Whether there should be a single agency dispensing all types of credit, or a separate agency for long term or for long and medium term, what form this agency should take at the State level and whether the State agencies need to be integrated in a Central Agency at the All-India level, and what part the Agricultural Credit Department of the Reserve Bank should play in this organisation, are matters which will have to be considered in the context of the wider issues referred to above.