I. The Genesis

3.1 Rural Infrastructure Development Fund (RIDF) was instituted in NABARD with an announcement in the Union Budget 1995-96 with the sole objective of giving low cost fund support to State Govts. and State Owned Corporations for quick completion of ongoing projects relating to medium and minor irrigation, soil conservation, watershed management and other forms of rural infrastructure.

3.2 Dr. Manmohan Singh, the then Hon'ble Union Finance Minister, while announcing the establishment of the RIDF, in his budget speech on 15 March 1995 stated:

"Inadequacy of public investment in agriculture is today a matter of general concern. This is an area, which is the responsibility of States. But many States have neglected investment in infrastructure for agriculture. There are many rural infrastructure projects, which have been started but are lying incomplete for want of resources. They represent a major loss of potential income and employment to rural population."

3.3 Accordingly, RIDF was operationalised through NABARD for financing of, at that point of time, the ongoing rural infrastructure projects in irrigation sector. The projects so supported were public irrigation projects, which were incomplete due to inadequate budgetary resources. Such projects were also having long gestation periods and as there were no cash flows, repayment were to be met out of the State budgetary supports. The funding was decided to be met out of the shortfall in Scheduled Commercial Banks' (both public and private) lending to agriculture.

3.4 Every year the allocation to RIDF is being met through announcement in the Union Budget, after which RBI prepares the list of bank-wise allocations based on the priority sector shortfall by each bank. Under RIDF I, the fund was allocated from the shortfall in sub-target (18%) for agriculture under priority sector lending with a ceiling of 1.5% of net bank credit. From RIDF II to XIV, the funds were allocated from shortfall in priority sector lending (40%) and/or agriculture (18%). From RIDF XV onwards, the allocation to RIDF is being met out of shortfall from priority sector and/or agriculture and/or weaker section (10%).

3.5 From an allocated amount of 2,000 crore under RIDF I (1995-96), the Fund has now reached the level of 20,000 crore under RIDF XVIII (2012-13) taking the cumulative allocation to 1,72,500 crore (inclusive of 18,500 crore under a separate window for funding rural roads under Bharat Nirman Programme during the period 2006-07 to 2009-2010, which was specially aimed to bridge the resource gap faced by PMGSY and Rs.2,000 crore and Rs.5,000 crore during 2011-12 and 2012-13 exclusively for funding warehousing projects). The successive allocations to the RIDF corpus in the Union Budgets have been mentioned in Chart 1.

3.6  As per GoI instructions, only ongoing Irrigation, Flood Protection, Watershed Management projects were financed under RIDF I as a 'last mile approach' to facilitate completion of the projects delayed on account of budgetary constraints. The financing of rural Road & Bridge projects was started during RIDF II. Subsequently, coverage of RIDF was broad-based in each tranche and at present, a wide range of 31 activities, as approved by GoI, covering almost all aspects of rural infrastructure is being funded under RIDF. These activities are classified broadly under three categories as (i) Agriculture and related sectors, (ii) Social Sectors and (iii) Rural connectivity. The detail list of all 31 activities is presented in the following.

List of Activities Supported under RIDF

i. Agriculture and related sectors
1.   Minor Irrigation Projects/ Micro Irrigation;
2.   Soil Conservation;
3.   Flood Protection;
4.   Watershed Development/ Reclamation of waterlogged areas;
5.   Drainage;
6.   Forest Development;
7.   Market Yard, Godown, Mandi, Rural Haat, and Marketing Infrastructure;
8.   Cold Storage, Public/ Joint sector cold storage at various exit points;
9.   Seed/ Agriculture/ Horticulture Farms;
10. Plantation and Horticulture;
11.  Grading/ certifying mechanisms, testing/ certifying laboratories;
12. Community Irrigation wells for the village as a whole;
13. Fishing harbour/ jetties;
14. Riverine Fisheries;
15. Animal Husbandry;
16. Modern Abattoir;
17. Medium Irrigation Projects;
18. Mini Hydel Projects/ Small Hydel Projects (upto 10 MW);
19. Major Irrigation Projects (already sanctioned and under execution);
20.      Village Knowledge Centres;
21. Desalination plants in coastal areas;
22. Infrastructure for Information Technology in rural areas;

ii. Social Sectors

23. Drinking Water;
24. Infrastructure for Rural Education Institutions;
25. Public Health Institutions;
26. Construction of toilet blocks in existing schools, specially for girls
27. "Pay & use" toilets in rural areas;
28.      Construction of Anganwadi Centres;
29. Setting up of KVIC industrial estates/ centers.

iii. Rural connectivity

30.      Rural Roads;
31. Rural Bridges;

II. The Process of Implementation

3.7  After the allocation under RIDF in each tranche is announced in the Union Budget, the same is allocated among all States on the basis of norms prescribed by the Project Sanctioning Committee (PSC). The PSC, while introducing the concept of normative allocation observed "normative allocation shall be for internal guidance. RIDF financing is not intended to be a fund-based approach, rather sanctions to States would depend upon the availability of projects conforming to the priorities and norms". Currently, the allocation norms provide weightage to rural population (20%), Geographical Area of the State (20%) and Infrastructural Development Index (20%) and availment of sanction (5%), disbursements( 20%) in the past tranches and Rural Credit/Deposit Ratio (15%). Based upon utilization of normative allocation the State-wise re-allocations are made by PSC from time to time.

3.8 All funding through RIDF is project specific and project based. The projects pertaining to eligible sectors under each RIDF tranche are submitted by the State Governments through their Finance department to NABARD’s Regional Offices. The project proposals are scrutinized and appraised by the Regional Offices with the help of Consultants by conducting desk and field appraisal for technical feasibility, economic/ financial viability and social benefits. The projects are prioritised based on the criteria that the projects submitted are of high priority to State Govt., should be completed in 3-5 years, ERR should be more than 15 per cent, BC ratio should be more than 1 at 15 per cent discounting factor. The appraisal reports submitted by the ROs are  scrutinised by State Projects Department (SPD) at HO before placing the same to Project Sanctioning Committee (PSC) for consideration of sanction.

3.9  The PSC is a committee of the Board of Directors with Members as Chairman of NABARD, MD of NABARD, Secretary (Banking), MoF, GoI, on the Board of NABARD, Secretary, Ministry of Rural Development, GoI, on the Board of NABARD, Secretary, Ministry of Agriculture, GoI, on the Board of NABARD, Deputy Governor, RBI, on the Board of NABARD,  One Nominee from RBI Board of Directors, and Two State Govt. Representatives from the Board of NABARD. Normally seven to eight meetings of PSC are held in a year to sanction loans from the RIDF corpus.

3.10  NABARD provides loan to the extent of 95 per cent for Agriculture and related sectors, 85 per cent for Social sectors and 80 per cent for Rural connectivity to all States except North East and Hilly States where it is 95 per cent for Agriculture sector and 90 per cent for Social sector & Rural connectivity. The balance amount is contributed by the respective State Govts. through budgetary support. 

3.11  Each drawal by the State Govt. is treated as a separate loan and is repayable over a seven years period including two years moratorium. Mobilisation advance @ 20% of the RIDF loan is released to the State Govts. (30% for NE & Hilly States) on conveying acceptance of the terms & conditions of sanction by the State Govt., before incurring expenditure on the projects for procurement and supply of materials, etc. Subsequent drawls by State Govt. are made on reimbursement basis. Depending on the drawls by State Govt., NABARD places demands for deposits on the banks.  As per the guidelines of RBI/GOI, NABARD retains a margin of 0.5% for administering RIDF.

3.12  The normal phasing for RIDF projects is three years.  However, due to operational constraints, phasing is normally extended for the Tranche as a whole or for specific projects to enable the State Govts. to complete the projects. In certain large projects, where loan amount is 50 crore and above, it is five years. In case of North-East & Hilly States the corresponding phasing are four and five years respectively.

3.13  The High Power Committee (HPC) at the State level, chaired by the Chief Secretary/Agriculture Production Commissioner (APC) oversees the implementation of RIDF projects. The HPC ensures proper coordination among different implementing agencies of the State Govt. so as to expedite project implementation. The progress in implementation is also assessed by NABARD through a set of specially designed returns and field visits. Periodical meetings/discussions are also held with implementing depts. of the State Govts. to sort out operational issues.

III. Review and Performance

3.14   Since the inception of RIDF in 1995-96, so far 17 Tranches of RIDF have been implemented. The tranche XVIII is being implemented during the current year, i.e., 2012-13. While tranche XII to XVIII are ongoing tranches, tranche I to XI have been closed. Cumulatively, 4,62,229 projects were sanctioned since the inception of RIDF with a sanctioned amount of 1,43,230 crore as on 31 March 2012 (Table 3.1). Of the cumulative RIDF loans sanctioned to State Govts, 42% has gone to agriculture and allied sectors, including irrigation and power; 15% to health, education and rural drinking water supply; while the share of rural roads and bridges was 31% and 12%, respectively. Sector-wise cumulative sanctions are indicated in Chart 2.

Significant number of rural infrastructure projects covered so far is related to Major, Medium and Minor Irrigation, micro irrigation, rural roads, bridges, watershed management, flood protection, rural market yards, command area development, primary schools, rubber plantations, public health, rural drinking water, soil conservation, citizen information centres, agro-forestry etc.

Table 3.1: Sector-wise Projects and Amounts Sanctioned
(As on 31 March 2012)
( crore)

* In addition, refinance aggregating Rs.759 crore were sanctioned under warehousing to banks under RIDF XVII.

3.15  As per the phasing of projects under various tranches (RIDF I to XVII), the total amount sanctioned was 1,42,471 crore (inclusive of 18500 under Bharat Nirman) against which disbursements aggregated 1,13,924 crore (inclusive of 18,500 under Bharat Nirman)., about 84% of the amount sanctioned  (Table 3.2). In addition, 759 crore were disbursed to banks under Warehousing-Refinance during 2011-12. The overall ‘tranche utilization’, from RIDF I (1995-96) to RIDF XI(2005-06),  the closed tranches, has been around 88%.  Total 50,233 crore were allocated during this period, against which the total disbursement was 44,203 crore. 
Table 3.2:Allocations, Sanctions and Disbursements
(As on 31 March 2012)
( Crore)

*inclusive of 18,500 crore under a separate window for funding rural roads under Bharat Nirman Programme during the period 2006-07 to 2009-2010, which was specially aimed to bridge the resource gap faced by PMGSY and  refinance aggregating 759 crore  sanctioned  and disbursed to banks during 2011-12.
3.16  Of the 1,99,334 projects sanctioned in RIDF I to XI,  1,70,477 projects (86%) have been completed.  Under the ongoing Tranches (XII to XVI, as on 31 March 2012), total 2,44,375 projects were sanctioned, of which 9,70,86      projects (40%) have been completed. Rests of the projects are under implementation at various stages. Of the aggregate 84,000 crore allocation under ongoing tranches, 51,227 crore or 61% have been disbursed.

3.17  RIDF grew remarkably during the five years (2007-08 to 2009-10). Total sanctions grew exceptionally by  58 % during the five years (RIDF XII to XVI), on account of additional sanctions to NRRDA for supporting the resource gap under PMGSY. A graphic look at the last six years’ sanctions and disbursements under RIDF is presented in the Chart 3.

3.18  With increased sanctions, disbursements, RIDF is able to directly contribute to creation of physical infrastructure and capital formation in rural areas.  The outstanding loans under RIDF have also fast increased over the years indicating better implementation of the projects and availability of more infrastructural facilities in rural areas.  As compared to the closed tranches, more and more implementing Depts are participating in RIDF and coming up with greater diversification and project-mix under the ongoing tranches. During 2001-02, the disbursement was 4,053 crore. In 2011-12, it increased to 14,927 crore. Back then, there were cumulatively 1,12,749 projects for 22,683 crore; now it is 4,62,229 projects involving 1,42,471 crore (excluding refinance of 759 crore to banks under warehousing during 2011-12). 

3.19  It has also been observed that RIDF is now getting better distributed across the States -with greater share going to the less developed States and NE States (Chart 4). There is also more balanced investment across the sectors. The State-wise targets for RIDF sanctions and disbursements were set more rationally, in transparent and participatory manner.

3.20  The pace of project completion has been encouraging. The period of implementation of projects sanctioned up to RIDF XI was over by 31 March 2012 with over 88 per cent utilization. The improved efficiency of RIDF operations in the past years can also be gauged by the fact that disbursements, as ratio, are far more --from out of ‘available pool of sanctions’. It speaks of quicker, greater utilization (Table 3.3 & Chart 5).

Table 3.3: RIDF Disbursement as per cent to Drawable Amount
crore

3.21  As far as monitoring of RIDF projects are concerned, the State Govts. have their own mechanism for monitoring of projects, which includes monitoring by Engineers in various grades, Engineers of Quality Control wing, maintenance of visit Registers, Laboratory test reports etc.  On the basis of observations the corrective measures are taken by the implementing depts. However, NABARD undertakes monitoring of RIDF projects through its Regional Offices and Head Office in two ways i.e. Desk Monitoring (off-site) and Field Monitoring (on-site). Social Audit is also being done through display board, press release and uploading the information on website. External monitoring is also being carried out selectively by leading consultants/ agencies/ accredited institutions. Services of agencies like, L & T Ramboll Consulting, TCS, Centre for Research in Rural & Industrial Development (CRRID), Consulting Engineering Services (CES), AFC, ORG-MARG, IIT, Roorkie, IIM, Benhgaluru, etc. were engaged in the past.

IV. Benefits and Impacts

3.22 The rural infrastructure projects have their own special features like,
(i) large capital requirement; (ii) high sunk cost, (iii) a large proportion of the cost has to be irrevocably committed upfront before the project becomes operative, (iv) long gestation periods, (v) returns are slow to pass in, (vi) sector is sensitive to local social, political and cultural environment and policy changes and (vii) the services produced/generated are non tradable. The excess services generated cannot be stored or exported and deficiency in service cannot be met with by imports except for certain exceptions.
 
3.23 However, adequate quality infrastructure in rural areas is enormously required for increasing the productivity and efficiency of agriculture in the form of improving the credit absorbing capacity, enhancing the productivity of crops and livestock, generating employment and increasing farmers’ income etc. and in the process, it would make a direct attack on minimizing the incidence of rural poverty.

3.24   Importance of infrastructure in agriculture and rural development are well documented. Investment in infrastructure plays a strategic role in producing large multiplier effects in the economy with agricultural growth. Rural infrastructure leads to agricultural expansion by increasing yields, farmers’ access to markets and availability of institutional finance.

3.25   The increase in the level of rural infrastructure has two effects: the promotion of economic growth and a decline in the incidence of absolute poverty (NCAER 2006). Another study (Thorat & Sirohi, 2002) observed that transport, power, irrigation and research infrastructure are four critical components, which affect the agricultural productivity significantly. There is complimentarity between the transport and power in the sense that the accessibility to roads is normally followed by accessibility to power. With access to power, the irrigation infrastructure improves particularly, through energization of pump sets. The other infrastructural facilities like access to fertilizer sale points, markets, credit infrastructure, extension services, etc. also develop with development of road infrastructure.

3.26   Fan et. al (2000) estimated that additional public expenditure on roads has the largest poverty reducing impact and also has a significant impact on productivity growth (Table 3.4). For every 1 million spent on rural roads, 124 poor people could be lifted above the poverty line - the largest rate of poverty reduction among all types of investments. Further, 1 invested in rural roads would generate 5.31 in returns from agricultural production.

Table 3.4: Returns to additional Government Spending in India

Source: Fan et. al (2000)

3.27   The RIDF has its significant potential benefits commonly arising out of financing incomplete infrastructure development projects in the form of

• Unlocking of sunk investment already made by the State Govts.
• Creation of additional irrigation potential.
• Generation of additional employment for the rural people.
• Contribution to the economic wealth of the State economy.
• Improved connectivity to villages and marketing centres.
• Improvements in quality of life through facilities in education, health and drinking water supply.

NABARD conducts evaluation studies on a continuous basis to assess the socio economic impact of investments under RIDF. These findings though limited by methodological variations, locational differences, price differentials etc, throw-up valuable insights into the levels of benefits derived by the farmers. It has been estimated that projects funded under RIDF would facilitate the expansion of the production base in rural areas and create additional employment opportunities as indicated in Table 3.5.
Table 3.5: Accretion to Rural Infrastructure and Employment

3.29  Five studies sponsored by NABARD conducted on irrigation projects under RIDF in various states have shown various positive impacts of RIDF such as on small farmers coverage, contribution to capital costs, expansion of irrigable and irrigated commercial area, enhanced cropping intensity, incremental income, higher financial rate of return and employment generation. It has been estimated that irrigation projects financed under RIDF I to XVII have created irrigation potential of 204.07 lakh ha and generated recurring employment of 85.43 lakh jobs per annum.

3.30  There were changes in asset holding pattern, increase in job availability, increased credit absorption, improvement in access to education and health, improved quality of life etc. Credit absorption in the project area increased by 163 per cent in Tamil Nadu and by 30 percent in Punjab. Significant change in enrolment to primary schools was observed in states covered in the study.  Improved connectivity on account of construction of bridges has resulted in reduction of transportation costs of farm inputs and outputs, vehicle operating costs, travel time, etc. It was also observed that commercialisation and diversification of crops, non-farm activities, access to urban centres, education/ health centres, asset holdings, etc showed improvement in the post-project situation (Badatya & Nair, 2004)

 (i) Benefits to Banking Sector

3.31  Several evaluation and monitoring studies on RIDF projects observed that agricultural and other credits significantly went up after the implementation of the RIDF projects. 

• Study in Tamil Nadu observed that investment on rural roads & bridges and irrigation projects culminated in credit widening and deepening which also improved the productivity of credit. While there was an increase of demand for credit by 185%, there was substantial increase (163.7%) in the loan amount.  Improved road condition and transportation facilitated promoters of NGOs, Banks etc. to form groups, monitor them and provide credit link.

• Study in Punjab pointed out that investment in RIDF projects led to increase in capital formation in agriculture in the form of structure, machinery, livestock.  The loan amount rose by 30.4 per cent in the post-development situation. Another study in Punjab observed that after the construction of link roads and reconstruction of damaged roads, the number of non-farm/service sector units  increased. The switch over to non-farm/service sector activities through bank credit generated an incremental income of Rs. 135.61 lakh and employment opportunities to the tune of 0.901 lakh mandays in the catchment areas.
• Study in Andhra Pradesh revealed that investment credit on irrigation wells, oil engines, pumpsets and tractors increased after the road project.  Cycles, scooters and autos were the major off-farm investments. Shops and establishments viz., kirana shops, tea stalls, tailoring shops, cycle repair shops came up in the area after the road project. Both ST (100%) and MT loans (54%) increased in post-bridge period.  Study on another road project in Andhra Pradesh observed that the demand for credit has increased among non-agricultural (331%), agricultural labour (69%), marginal and small farmers (35%) and big farmers (65%) households.

• Study in Maharashtra revealed that credit absorption capacity increased as number of non-farm units (brick-making, masonery activities, handicrafts, sand extraction, petty shops, carpentry, pottery, etc.) increased during post-RIDF period. The outflow of agri-horticultural and livestock-based products has gone up by four times during post-RIDF period. The augmented credit flow was also utilized for crop production, dairy, goatery, vegetables vending, grocery shops, etc.

• Study in bridge projects in Orissa observed that there has been a significant rise in the purchase of tractors through credit support in the study areas after construction of the bridge over river Mahanadi. Only 10 per cent households were using tractors prior to the bridge construction which increased to 60 per cent in post project period.

 3.32  All these studies conclude that

• Development of the rural infrastructure facilitated capital formation in agriculture in private sector through institutional credit support.