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A People’s Bank Publ
 

RURAL CREDT

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EONOMG REVIEW
Published by the People's Bark Research Department. Head Office. Sir Chittampalam A. Gardinar Mawatha, Colombo 2.
Sri Lanka,
N
THE ECONOMIC REVIEW is intended to promote knowledge of and interest in the economy and economic development process by a many sided presentation of views & reportage, facts and debate. THE ECONOMic Rev. Ew is a community servico project of the People's Bank. its contents, however, are the result of editorial considerations only and do Tot necessarily refect Bank policies or the officia viewpoint. Signed feature articles also are the personal views of the authors and do not represent the institutions to which they are attached Simiar contributions as wel als Comments and viewpoints are welcome THE ECONOMIC REVIEW is published monthly and is available both on Subscription and on die Ut Sale,
Volume 5
Beatrice V. de & Kamilaka Ab
Carter Henders
Manel Tampoe
Susantha Goona
Ivan Ribeiro
NEXT SSUE
3) Touri
O Golc
O A M
CO VER
Des
 
 

Numbers 1 and 2 April/May 1979
COLUMNS
2 Diary of Events March-April 1979
18 Industry Ready-made garments
exports
21 Trade Steep acceleration in 1978
24 Agriculture World food supply situation
SPECIAL REPORT
3 RURAL CREDIT
-Need, availability, problems, directions ZSLSLSYS
FEATURES
Mel 25 Patterns of Growth in Children ey ratne in Sri Lanka,
OH: 28 The Frugality Phenomenon
30 A New Economic Order or
Human Extinction
BOOK REVIEWS
tilake 32 A. Rahman. Triveni: Science, Democracy
and Socialism.
33 Susan George, How the Other Half Dies
The Real Reasons for World Hunger.
LSLSLSLSL LSLLLLLLS
ism—The growth of a new industry 1, the IMF and the Third World aster Plan for development of Sri Lanka's tea industry
igned by Palitha Kannangara

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Diary o
MARCH
1.
12
13
14
The Ministry of Public Administration and Home Affairs increased the combined allowances paid to state officers to cover cost of board and lodging when they are out of station, while travelling allowances were also revised. The increase in Government expenditure for 1979 on account of these revisions are estimated at Rs. 26 million.
Iran's new government, fighting economic chaos and constitutional confusion, devalued its currency and pledged that Iran will repay all its foreign debts, stated a Reuter report. ** Ger China signed a £7 billion econoanic co-operation agreement with U.K. which will pave the way for major U.K. contracts in China's industrialisation programme. The five year agreement is backed by a new £2.5 billion line of credit in dollars, supported by the Export Credit Guarantee Department of U.K., reported the London Financial Times. The first drawing under the International Monetary Fund's Extended Fund Facility (EFF) amounting to SDR 40 million (Rs. 780 million) was made by Sri Lanka. The EFF approved in January this year, permits Sri Lanka to borrow upto SDR 260.3 million (Rs. 5,206 million) over a period of three years.
Parliament amended the Monetary Law Act to safeguard the country's coinage from melting and mutilation; and in these amendments also prescribed a fine of Rs. 3,000 or imprisonment not exceeding two years for Such offences.
About 415 million Asians live in absolute poverty and the living conditions of 355 million have degenerated during the past two decades, an International Labour Organisation official told an ESCAP conference in Manila. He said the material conditions of life for large numbers of rural people in Asia are worse today than one or two decades ago, according to Reuter reports. The Group of 24 meeting in Washington warned that the slow growth in World trade, intensified protectionist measures by industrial countries and deterioration in the terms of trade will increase the poorer non-oil producing countries current account deficit to $38 billion this year. They were also concerned that the GATT trade talks in Geneva had done very little to accommodate the special problems of poorer countries, particularly in providing preferential treatment for their industrial products, reported the London Financial Times.
The State Timber Corporation, revised its prices of all types of timber. In May 1978 prices were raised by 50 percent and the current increases range from 40 percent to 280 percent over these prices. The revision was necessary to cover rising costs of timber extraction and the losses sustained by the Corporation. The Banque de L’Indochine et de Suez (Indo-Suez), the largest private bank in France, commenced operations in Sri Lanka through its Colombo branch. At a meeting of the European Committee (EC) in Paris all member-countries, expect the United Kingdom, agreed to set up a European Monetary System with immediate effect. The EMF is expected to eliminate more extreme fluctuations in exchange rates, and enable the Committee as a group to tackle the problem of inflation. The State Gem Corporation is to import Rs. 10 million worth of gold to help build Sri Lanka's jewellery export trade, stated a press report. China has agreed to supply Sri Lanka with 80,000 metric tons of quality rice this year, at prices three percent below the prevailing world market price, in terms of the trade
protocol between the two countries concluded in Peking

earlier this month, Sri Lanka's Food Minister stated on his return to Colombo. . 15 The Danish Government has agreed to give Sri Lanka 220 million kroner (Rs. 657.8 million) worth of aid in the next three years, following discussions between Sri Lanka's Finance Minister and the Danish Ministers of Finance, and of Overseas Co-operation. Denmark has also indicated that it would join the Sri Lanka Aid Group as a full-fledged member and was also prepared to assist Sri Lanka in an integrated rural development project and other specific sectors. Sri Lanka's Rs. 2,300 million Urea fertilizer factory at Sapugaskanda is expected to commence production by January 1980, the Fertilizer Manufacturing Corporation's chairman told the press. The factory will produce 310,000 tonnes of urea per year, using naptha- a by-product of the Petroleum Corporation's refinery. 19 Export quotas for ready-made garments granted to Sri Lanka by the EEC cannot be used by and are not available to any industry which comes under the jurisdiction of the GCEC. Official sources stated that these industries have to find their own market for their products, according to press reports. The EEC will give assistance to the value of about Rs.300 million, particularly for downstream works and agricultural settlements in the Mahaweli Development area, following discussions with Community officials and Sri Lanka's Minister of finance, an official spokesman told the press. The EEC will also support Sri Lanka's industrial investment effort by helping to bring potential investors from the EEC area into Sri Lanka. ۔ ۔ ۔۔۔ ۔۔۔۔ ۔۔۔ 22. A law for the establishment of the Mahaweli Authority of Sri Lanka was passed by Parliament. The new Authority would be responsible for the implementation of the Mahaweli Ganga Development Scheme. 24 Developing nations have demanded from the European Common Market that it should impose import curbs to protect home industries against competition from cheap poor nation products only if it simultaneously restricts imports from all larger suppliers. Such a step would in effect hurt imports of the Community's developed country partners. If the EEC rejeuts the demand it will appear to discriminate against the Third World, reported the Bombay Economic Times. 27 The world's major oil exporters decided to raise the price of oil by almost 9 percent from April 1, and also declared themselves free to increase charges even further if anyone was willing to pay, stated a Reuter report from Geneva. 29 Two aid agreements were signed by Sri Lanka and the Federal Republic of Germany; one providing for a commodity loan of DM 12 million (Rs. 98 m.) and the other for a loan of DM 26 million (Rs. 214 million) for the Kirindi Oya Arrigation Scheme, 30 The dollar has continued to strengthen against most major currencies in recent weeks, extending the rally that began at the start of the year. It appreciated by almost 3 percent against the yen, reaching a nine month high of 209 yen in mid-March. The dollar was also up Marginally against the mark and most other European Monetary System currencies. It declined by more than 1 percent against the pound sterling and by more than 2 percent against the Canadian dollar, according to the World Financial Markets Review. 31. The Government has agreed to raise the guaranteed price of Green leaf tea from 70 to 85 cents per pound, according to press reports. The new price was expected to benefit about 125,000 families engaged in tea production on smallholdings.
ECONOMIC REVIEw, APRIL-MAY 1979

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RURAL CRED
Need, Availability, Issues, Direction
Credit to the rural sector is a complex issue. It is quite a different proposition to that of lending to large-scale industrial or commercial enterprises or large-scale agriculture. Large enterprises have adequate collateral, their economic viability is easily determined, they can be relied on to use the funds in a profitable manner, pay their interest commitments and return the capital lent. Further, commercial banks have had years of experience in lending to such enterprises and the administrative costs of such lending are low as they deal with a small number of large borrowers.
On the other hand, the crying need to provide credit to the smaller farmers is counterbalanced by the
EconoMIC REVIEw, APRIL-MAY 1979
complex issue o should be given less than viable ur runs that credit farmers cannot b with their very are likely to us output too for determination of farmers poses C culties. The vi; depends not only size but soil fertil irrigation, croppi rental arrangemer size is determined country, the exclu farms may result being outside the tutional credit as
of farms is small.
 
 
 

T
S
f whether credit to farmers with hits. The argument given to these e recovered since, ow incomes, they {e the additional :onsumption. The who are viable onsiderable diffiability of a farm on its physical ity, availability of ng patterns and its. Once a viable by regions inthe sion of non-viable in most farmers umbrella of instia large proportion
The conditions of the rural peasantry in much of Asia has been tellingly described as that of being up to the neck in water'. A crop failure or sudden illness could result in most of the peasantry sinking. The village money-lender, who is usually pictured as usurious; the boutique keeper who provides daily provisions at perhaps very high hidden interest charges; the landlord who exacts commitments and conditions from his indebted tenants; they are all essential in this context where the peasant farmers have no other means of obtaining their daily consumption needs, cultivation costs and occasional unexpected expenditures.
A livelihood derived by the cultivation of a small holding which hardly gives a subsistence income is indeed a poor base from which most rural farmers can hope to move out of their deprived circumstances. On the one hand, they do not have the capital required to adopt new practices and the necessary inputs. Output in this 'traditional sector has become essentially a function of land and labour; and very rarely is there an accumulation of capital as in the modern or industrial' sector. On the other hand, the uncertainty of untried methods leads to a rational aversion of risks and almost a resistance to change and a continuation of the more certain but less productive methods. So poverty breeds poverty in rural areas.
And does this not answer the much asked question - Why has rural growth been slow and comparatively rural poverty been increasing? Most of the low income groups in the rural areas depend heavily on agriculture for their livelihood. They generally must contend with a limited access to natural resources. More frequently they suffer because they have little access to technology and services that could help raise their productivity. In many cases vested interests operate to ensure not only that the benefits of productive activity are distributed inequitably, but that the poor are denied access to inputs, services and organisations which would allow them to increase their productivity.

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Thus the rural sector, is characterised by a large number of small farmers with agricultural holdings often too small to generate a marketable surplus or a livelihood much above subsistence. The predominant role played by informal lenders like money-lenders, boutique keepers, traders, wholesale procurers of produce and landlords; the lack of a well-developed institutional set-up to channel credit and other inputs; the lack of effective farmer organizations; the procedural-bound nature of government and other institutional sources of inputs are among the other characteristics of this sector which render the provision of adequate institutional credit at reasona ble costs and in time a complex issue.
informal Lending
The rural sector of Sri Lanka has traditionally depended on informal non-institutional sources for its needs of credit. Friends, relatives and landlords who give credit to farmers at times of need may sometimes lend free of interest or at a low rate of interest. This may be because a reciprocity is assumed with the borrower perhaps lending at other times or the borrower helping in non-financial ways such as by assisting in farming operations or in the domestic chores of the creditor. Lending on a personal basis may have no reciprocity but be part of either the social and kinship relations in the village or be a facet of the patron-client relations which characterize traditional village society.
For instance, the interest rate structure that was revealed in the rural sector when the Central Bank conducted its survey of Rural Credit and Indebtedness in 1969 is most interesting. While usurious rates of interest of 175 percent per annum or more were charged, such rates applied to less than a quarter of borrowings and were mainly for loans of less than Rs. 5,000. A very large portion of loans was free of interest. About 36 per cent of loans was at Zero interest and nearly 50 percent of interest-free loans was household debts below Rs. 2,000. These facts bespeak of a highly personalised informal rural credit market. However, some loans
4
which are consic may have had an interest when th a transaction in
Informal or no dit sources have to the villager Little or no coll, and repayments to times convenie He need not go procedures and formal credit sc for consumption chase of consum expenditure at contingencies. II largely credit 'w asked.
The convenien. accessability of Sources account dependence on t sector. Despite ( institutional lendi advantages, all credit and indebt predominance oil sources of credit.
Why Credit
A fundamenta be posed befor of the sources o grammes devised and the problem institutional cred the rural sector 2.
Credit is often consumption req rural sector owin; of income, the and the discont income flows in economy. Often continuously for penses and repa harvest time. Un ture on illnesse vities, family marriages as wel crop failure ten debtedness as in current income a able for such e ness, with its c costs, could itse increasing indebte
Credit for agric more important

dered interest-free element of hidden Ley were part of kind.
n-institutional creseveral advantages und Small farmer. ateral is asked for
can be adjusted
at to the borrower. through elaborate form filling. Inurces give credit purposes like purer goods and for imes of personal formal credit is with no questions
ce, flexibility and
informal credit
for the greater hem in the rural efforts to increase ng, owing to these surveys of rural edness disclose the f non-institutional
il question must e the discussion f credit, the pro - to serve this sector is encountered by it. Why credit to
needed for normal (uirements of the g to the low levels lack of savings inuous nature of an agricultural farmers borrow their living exy their debts at expected expendis, religious festioccasions like as disasters like l to increase ino surpluses from re generally availpenses. Indebtedonsequent interest
lf be a factor in
dness.
ulture has become in recent years
owing to new technological developments which have increased production costs several-fold. The high yielding varieties which generate yields several times those of traditional varieties require the use of
costly inputs like fertilizers, in
secticides and weedicides. Farm machinery and equipment likə tractors and sprayers require
medium-term capital, while longterm capital requirements for irrigational improvements like tube wells are other needs. Today, therefore, one could say that the improvement of agricultural practices is one of the most pressing modern reasons for increased credit to the rural sector which is predominantly a small farm sector. But the question why rural credit goes far deeper than that - it takes us to the crux of the entire problem of indebtedness itself.
Degrees of indebtedness
There is no available measure of the indebtedness that prevailed in Sri Lankan village communities before the introduction of the plantation economy and the encroaches of commercialism. However, from available qualitative descriptions We could assume that the village level subsistence economy, based largely on barter transactions and exchange, would have had a certain degree of indebtedness tied to the village socio-economic structure. The integration of Sri Lanka as a dependent part of a world economy and the consequent spread of commercial links throughout the country led to the predominance of the plantation sector and the disruption of the traditional rural economy. Parallel to the disruption of the hitherto largely self-sufficient subsistence economy occurred the growth of indebtedness.
The traditional socio-economic structure in Sri Lanka provided a mutual set of supporting relations for individuals within the system and a considerable amount of economic activities were based on exchange governed by this matrix of mutual obligations. With the breakdown of this structure, due to increased commercialisation, money transactions entered the scene and the earlier obligations were now performed under sanctions of law
EconoMic REVIEW, APRIL-MAY 1979

Page 7
administered by officials. The growth of commercialism combined with very small-holdings and an increase in population subsequently gave rise to the growing problem of indebtedness in the Sri Lankan countryside.
The level of rural indebtedness can be seen in the context of the small farmer and the land tenure systems. The average paddy holding in Sri Lanka, is less than two acres and according to calculations, made by Yogaratnam and Schickle, most paddy farms under two acres tend to be non-viable in that they could not meet incomes for family needs. (See box at right). There is a tendency for farm sizes in certain areas to grow whilst as a parallel feature other farms get smaller. This process gives rise to the twin problems of a tendency to landlordism as well as fragmentation and even worse the growth of landless labourers. This fact explains one reason why the farmer is driven to an increasing debt spiral as indicated by several studies.
Several rural economic surveys undertaken between 1936 and 1948 disclosed a high level of indebtedness and high, interest rates prevailing in these areas. Another survey undertaken in 1950/51 when Korean boom conditions were prevailing indicated an improvement in the rural indebtedness situation. But the first systematic collection of data on credit conditions in the rural sector was the Survey of Rural Indebtedness undertaken by the Department of Census and Statistics in 1957.
SIZE OF PADOY
The majority of cultural sector are holdings. Thus ac of Agriculture cat much as 95.8 perc entire agricultural acres. The small
most evident in
comparison with th Data collected by Agrarian Services in the case of pad ducers had holdin; but they operated of the total land average size of a two-thirds of prod half an acre. Furt same source, thr land in the island w than 5 acres. Thes by other district le ance an Agrarian Institute study co tota in 1974 indic; extent of highlanc
(See box below) Ti that 54 percent c. and 60 percent of lies were in debt.
information had
the sources of cred that less than 8 pe from institutional the Central Bank ( of Rural Credit
but this survey wa changed circumst ple’s Bank had b 1961 with the sp serving the credit sector. The scu farmers indicates
file, as seen in T derived from the Surveys of 1957
Information of credit conditions in the rural sector prior to 1957, when the first National Survey of Rural Indebtedness was undertaken is very scanty. Several rural economic surveys undertaken between 1936, 1948 disclose a high level of indebtedness and high interest rates. The proportion of indebted families was very high in most districts Surveyed. As much as 75 percent of the families were indebted - in one district. The average indebtedness ranged between about 30 to 90 percent of average annual income and a very high proportion of families had an excess of expenditure over incomes. Contrary to the general impression that a high proportion of loans in the rural sector is for unproductive purposes, a very large proportion was for agricultural expenditure.
EARLY CONDITIONS OF RURAL INDEBTEDNESS
Another survey und when Korean boom co indicated an improven of rural indebtedness. due to the improvem prices at that time, the debtedness amcng fa While the size of debt proportion to incomes the rates of interest ha in the former surveys, loans for productive p high-53 percent of t surveys did not obt Sources of credit but operations of co-oper the main source of i implies a high depend borrowers.
EconoMIC REVIEW, APRIL-MAY 1979
 

LAND HOLDINGS,
producers in the agrithose who have small cording to the Census ried out in 1962, as ent of holdings in the Sector was less than 10 scale of operation is paddy production in at of plantation crops. the Department of in 1970 indicated that dy two-thirds of progs of less than 1 acre
only about one-fifth
under paddy. The cultivated plot of these ucers was only about ther, according to the ee-fourths of paddy vere in holdings of less a figures are confirmed vel studies. For instResearch and Training inducted in Harmbanated that the average i operated by paddy
SRI LANKA
cultivators was 1.9 acres while in two other districts studied (namely, Polonnaruwa and Kandy) it was found to be 2.2 and 2.1 acres respectively.
Further, the Paddy Lands Register of 1970 gave the number of tenant cultivators as 318,459 cultivating 308,459 acres and owned by 239,411 land owners. The landlords apparently held only small parcels of land. Of the 800,000 owners of paddy land only 3.6 percent had more than 5 acres.
Most recent reports indicate that there were 450,929 tenant cultivators who worked paddy fields of half an acre each; while there were about 7,000 tenant cultivators who worked fields of 10 acres and over. (The Government is introducing legislation to restrict the extent a tenant cultivator could work to five acres, because it was feit that anything over five acres was too large for a single cultivator to make maximum use of for paddy cultivation).
his survey disclosed fali rurai families agricultural famiFor the first time been obtained on it and it was found rcent of credit was sources. In 1969 ponducted a Survey and Indebtedness. s carried out under ances af the Peoeen established in ecific objective of needs of the ural rces of Credit for an interestir g proable II (on page 6), Rural Indebtedness and 969.
ertaken in 1950-51, inditions prevailed, ent in the position
No doubt largely ent in agricultural a proportion of inmilies had fallen. E had increased, its had declined and ld increased. Like the proportion of surposes was quite otal loans. Both ain data on the the limited credit atives which were institutional credit lence on informal
It is seen that a large percentage of the credit disbursements are from non-institutional sources, the most important source being friends and relations, an outcome of the extended family system in Sri Lanka. Further, there is considerable evidence that a high percentage of funds borrowed from these sources are free of interest as these transactions arise from a web of mutual family and other obligations and not from impersonalised business transactions. An important source of credit of a semi-professional nature were those of money lenders. ܗ
Government-sponsored Credit Schemes
With the recognition of indebtedness as a problem, several Government-sponsored institutions have attempted to intervene to alleviate the condition of the peasant. The most significant of these has been the Co-operative Credit institutions which have bee) in existence since 1912. The Government began first using this scheme for institutional credit for peasant farmers from 1947 whereby credit was channelled to farmers and administered on an islandwide basis hy the Land Commissioner. During the five-year period 1952 to 1957 this scheme of channelling credit was carried out by the Department of Food Production. During this early period disbursement of credit grew steadily and,
5

Page 8
DISTRIBUTION OF RURAL CRER).T BY SC
TABLE I
SK ANKA: 1957 AND 1969
Source Percent
1957 Institutional Sources : 7.8
of which: government 2. cooperatives 6 4. commercial banks 8 1. other financial institutions - II. Non-Institutional Sources 92.2
of which: professional money-lenders 5. semi-professional money-lenders rinn boutique keepers 7. merchants and commission agents 4. landlords a a 8. relatives and friends 44. others 13.
Total 100.0 100.
Sources :
Department of Census and Statistics, Survey of Ru
Central Bank of Ceylon, Survey of Rural Credit and Indebte
significantly, the repayments were satisfactory;
a contrast to later periods.
In 1957 the Cl
handed over to t
Agrarian Services.
RURAL INDEBTEDNESS EN 1957
The survey of Rural Indebtedness undertaken by the Department of Census and Statistics in 1957 was the first systematic collection of data on credit conditions in the rural sector. This survey disclosed that 54 percent of all rural families and 60 percent of agricultural families were in debt. The average debt per indebted family amounted to Rs. 790 for all families and Rs. 753 for agricultural families.
For the first time information was obtained on the sources of credit. Less than 8 percent of credit was from institutional sources. Co-operatives were the most significant source of institutional credit and accounted for over half of institutional credit or 4.1 percent of total credit. The distribution of credit sources is given in Table II. above.
Informal sources of credit were varied. Relations and friends were the sources for as much as 44 percent of total debts, while landlords, who became less important subsequently, contributed 8 percent of total debts. Boutique keepers, traders, and commission agents accounted for 11.5 percent of total credit. The bulk of informal credit is therefore from nonprofessional sources with professional money-lenders accounting for only 15.5 percent of total credit.
Credit regional differences in the sources of credit were also observed, Co-operatives were significant sources of credit in Kandy (24.4 percent), Batticaloa (19.2 percent) and Polonnaruwa (24.4 percent) districts while less than 3 percent of total credit was from them in Colombo, Kalutara, Matale, Matara, Hambantota Chilaw, Ratnapura and Kegalle districts. The uneven development of co-operatives in the different districts at this time perhaps accounts for this.
Relations and fri picuously large Sour wide. Over 50 per districts of Jaffna (5. (59 percent), Trinco and Kegale (61 perc
Landlords were a of credit in Matale ( Eliya (26 percent) percent) districts. B significant credit Sc (41 percent), Anurad and Ratnapura (31 Professional moneytant credit Sources ; percent), Hambantol law (23 percent), percent) and Badul tricts. Itinerant trad significant lenders ir (29 percent).
The purpose of into two broad cate use and non-product loans accounted for productive loans for debts. The product cluded loans for c trade, construction a cles, while the nonincluded expenditure ceremonial functions of debts.
A significant feat wise distribution is struction were the ductive borrowing about 30 percent c percent of loans wer 12 percent for othe Commenting on the agricultural loans th figures would indicat

}URCES,
of Total Borrowing
1969 25.0 6 2.7 9.7 6.7 -3 5.9
75. 5 10 17.8 4 14.3 15 O 0.7 2 25.8 O 3.9
O 100.0 OO.O.
tral Indebtedness 1957 glness 1969.
Ledit schenle was he Department of By 1962, 1963 the
total credit disbursed stood at Rs. 193 million whilst the amount in default was 9.4 percent of this amount. During this time a survey by the Department of Census and Statistics indicated that roughly 30
percent of the co-operatives were
defaulters and hence not eligible for further loans and this gave rise to a decline in the volume of credit.
A Committee appointed in 1968 tied the Guaranteed Price Schene for paddy purchasing to co-operative societies and thereby indirectly to the credit disbursement system. It was felt that by this process the peasant farmers who were members of co-operatives could obtain adequate credit. Other aspects of the recommendations of the Committee were compulsory recovery of share capital instalments
from payments owed to members
unsuitability of the present credit system to meet the basic needs of the peasant Sector of the economy, particularly because of the present heavy emphasis on ownership rather than on productiye capacity'.
ends were a consce of credit nationcent, of credit in the 5 percent), Vavuniya
malee (59 percent) ent) was from them.
in important source 22 percent), Nuwara and Batticaloa (35 outique-keepers were purces in Puttalam hapura (45 percent) percent) districts. lenders were imporin the Colombo (28 ta (32 percent), ChiAnuradhapura (27 la (24 percent) disers were particularly
unique feature of informal lenders. They are mainly the smaller loans, average size of which have been about Rs. 223. The 1957 data disclosed that while 13 percent of the number of loans was interest-free only 6 percent of the borrowed amounts were in this category. borrowed funds were in the interest group of 6-18 percent. About 22 percent of loans or 15 percent of the amount borrowed were at over 18 percent (See Table 2 below),
Interest-free loans are an interesting and
Over half the
TABLE 2 RATE OF INTEREST N RURAL
the Chilaw district the aW SC CREDT MARKET 1957 and 1969
oans was classified Percentage " gories of productive Rate of Interest of Total tive use. Productive per Annum Borrowings
56 percent and un- 量957 重969
44 percent of total ive dise category in. No interest 6.2 34.4 ultivation, livestock Less than 6 percent 7.7 2.2 nd purchase of vehi- 6 to less than 12 percent 24.4 32.5 Pಳ್ಲಲಿ : 12 and above* 42.0 30.9 S on food, medicine,
and the repay Unspecified s 16.8 Norwinn
Other arrangements . . 2.9 ܝܝ ܝܝܝܝ
Total 100.0 100.0
ure of the purposethat trade and con
*In 1957, 21.8 percent of loans was above
main items for proand accounted for of loans. Only 10 'e for cultivation and r agricultural loans. small proportion of be report said “these e the inadequacy and
Source: Department of Census and Sta
18 percent while in 1969, 19.5 percent of loans were 21 percent and above,
tistics, Survey of Rural Indebtedness, 1957; Central Bank of Ceylon, Report of the Survey of Rural Credit and Indebtedness, 1969.
ECONOMIC REVIEW, APRIL-MAY 1979

Page 9
from the Guaranteed Price Scheme: granting of further loans to defaulting co-operative societies for disbursementto non-defaulting mem
bers and an undertaking to be given by the borrowing members that they
would sell an adequate part of their produce to the society to cover the loans taken by them.
Although these recommendations were implemented and credit was thereby liberalised the implementation aspects as regards to recovery were not followed through. As a consequence loans outstanding continued to rise.
Conditions in Rurai Sector in 1961-62
The Department of Agrarian Services conducted a more restricted sample survey on rural credit in 1961-62. Cultivators in debt appeared to have decreased from 50 percent in 1957 to about 41 percent in 1961-62. The share of co-operative credit in total credit had risen from 4.1 percent in 1957 to 33 percent in 1961-62. But significantly non-institutional sources still provided about two-thirds of total credit. There was a conspicuous absence of landlords as a category of lenders due to the Paddy Lands Act of 1958 which prescribed maximum rates of interest on loans in cash and kind.
Rural Credit in 1969
The Central Bank conducted its Survey of Rural Credit and Indebtedness in 1969 under changed circumstances. The People's Bank had been established in 1961 with the specific objective of serving the credit needs of the rural sector and a scheme of rural banks under which Selected co-operatives performed limited banking functions was inaugurated in 1967. The quantum of credit to the rural sector had increased substantially under the Government's Extended Credit Scheme of 1963 and the New Agricultural Credit Scheme introduced in September 1967. These significant incursions of financial institutions into the rural sector reflected in the share of credit from the institutional sector increasing from less than 8 percent in 1957 to about 25 percent by 1969. Credit from co-operatives and commercial banks showed a significant increase and the new category of other financial institutions accounted for nearly 6 percent of credit. The detailed breakdown of the sources of credit is given in Table 1.
Despite these developments in institutional credit these sources still accounted for only 25 percent of total indebtedness. Money lenders had increased their share of lending from about 16 percent (in 1957 and 1961-62) to nearly 29 percent. Boutique keepers accounted for 14 percent of total debts. Relatives and friends were once again an important source of credit and accounted for a quarter of total debts but their share of lending had declined significantly from the 1957 level. Although landlords had reappeared as a category of lenders they contributed less than one percent of total credit.
EconoMIC REVIEw, APRIL-MAY 1979
The purpose-wise
rowing disclosed th
consumption of whi for food. About a ti for capital expendi half was for housing of borrowings for about two-thirds we Trade.
Several other intet credit emerged from Most of the credit f and trade was pro sources. The rural s entirely on the nonconsumption and Boutiques, landlor agents gave credit a and household expe on this the Reports
“This pattern of in that the emphasis credit agencies on cre duction has compell to turn to the nonmeet his credit need poses'.
In i967 a new ed the New A Scheme (see box into being recogn
Rising def: Misuse of Misuse of the societie
The result of that future credi nelled through t which would have tion. Over the co new scheme was Central Bank gue
s
TABLE 3
Case of Defau
Crop failure .. Low income .. No intention to Illness/death .. Indifference of Malpractices of Heavy expendit Considered loar Misuse of loans 10. Considers loans 11. Lack of irrigatic 12. Heavy capitale 13. Malpractices of 14. Heavy indebted 15. Unemployment 16. Political interfe 17. Withdrawal of ration books 18. Others
Source: Centrai Ba
 

classification of bort 32 percent was for h a little over half was ird of borrowings was ure of which nearly Of the thirty percent current expenditure, 'e for Agriculture and
sting features of rural he data of this survey. ir housing, agriculture ided by institutional actor depended almost institutional sector for current expenditute.
ls and commission :
(most entirely for food hditure. Commenting id:
aebtedness has revealed placed by institutional dit for purposes of pro2d the rural borrower institutional lender to | for consumption pur
:redit scheme termgricultural Credit on page 8) came ising three factors:
ults. oans by borrowers, Gan repayments by S.
these changes was it was to be chanhe People's Bank a supervisory func-operatives. This ; operated with a trantee of up to 75
percent of loans in default. The rate of interest paid to cultivators under this scheme was 9 percent and credit Was to be supervised by the extension Workers, the Cultivation. Committee and the Committee of the Co-ope - rative Society. A part of the loan was paid in kind, namely seed paddy, fertilizer, agro-chemicals and barbed wire. Even under this system both utilization and repayment continued to decline.
 ̄ ܢ- -- ܓ - ܘ–
The Comprehensive Credit Scheme of 1973 envisaged that the total credit requirements of the peasants would be given through the Co-operative Rural Banks and branches of the Bank of Ceylon located in Agricultural Productivity Centres.
A problem that has always faced the institutional credit programmes is the high rate of default. The overall trend of both the New Agricultural Credit. Scheme and the Comprehensive Rural Credit Scheme appears to have been the low rate of recovery. The reasons for defanit, as seen in Table 3, are also very revealing.
The credit granted to the peasant sector has increased steadily since the start of the various schemes. Thus the percentage increase by 1975/76 from a base year of 1947/48 was 2,310 percent which works out to an annual rate of 81 percent.
REASONS FOR DEFAULT
lt
repay
Co-op. Öfficials Co-ops. -
ure (legal, ceremonial etc.)
is may be written off
to be outright grants bn facilities xpenditure
government officials feSS
C. . .
facilities to surrender rice
% of Defaulters '', of Loans Overdue
26.4 32.8 17.2 16.2 12.0 14.6 8.9 8.8 8.8 6.3 7.8 5.0 2.3 2. 2O 1.6 1.9 1.7 1.7 1.7 1.5 1.2 1.5 0.7 1.6 0.8 1.2 1.3 Q.4 0.2 0.4 0.3
0.2 - 6.2 4.7
100.0 100.0
nk of Ceylon.

Page 10
NEW AGRCULTURAL CREDT SCHEME SINCE 1967
An important stage in the development of rural credit was reached in September 1967, when the new Agricultural Credit Scheme was introduced. For the first time the commercial banking network was entering such a scheme of lending to the rural Sector or more specifically to the small farm sector. The People's Bank initiated the scheme and after operating it for nearly seven years, from 1974, the Bank of Ceylon has also participated in it. The Hatton National Bank too grants loans under this scheme
but confines itself to lending for paddy
cultivation in the Debara Ara Wewa Scineme.
This scheme was operated on refinance from the Central Bank whichlent funds at 13 percent per annum. to the commercial banks. The People's Bank which is the main lending bank in this scheme lends to co-operative societies at 5 percent per annum, and co-operative societies in turn end to their members at a maximum rate of 9% per annum. The Bank of Ceylon lends directly at this rate of interest through its Agrarian Services Centres. When a loan is not repaid during the stipulated period a penal additional interest of 3 percent is added. Until 1970 the rice ration books of the farmer's household Was hypothecated to the co-operative society and when a farmer defaulted in his repayment of loans each ration coupon was credited to the loan account at the rate of one rupee. Until 1978 the Central Bank guaranteed loans to the extent of meeting 75 percent of the amount in default and charged a fee of one half of one percent for this guarantee. This guarantee has been discontinued from October 1978 in the hope that its withdrawal would result in commercial banks developing a capacity to supervise and recover loans. The sudden liberalisation of agricultural credit in 1977 resulted in total loan disbursements reaching the unprecedented level of Rs. 534.1 million in the 1977/78 season. A significant contraction in Bank loans for cultivation could now be expected with the withdrawal of the Central Bank's guarantee.
Credit is extended for paddy and other crops including chillies, red onions, potatoes, vegetables, bombay onions, groundnuts, Sugarcane, cotton and maize. The credit limit for paddy was initially fixed in 1967 at Rs. 220 per acre up to a maximum of 10 acres. Credit limits have been progressively increased to meet increasing costs of production. The loan limits are related to the variety of seed, cultivation practices and regions. Credit is given in both cash and kind by purpose and stages of production. Credit limits for paddy range from Rs. 380 to Rs. 810 per acre.
The volume of cre vation purposes ha: ficantly. The increase credit given for pad be gauged from Ta the amount of credi cultivation from 19 in three ten-year peri amounts of credit giv seasons. AS can be figures there was a credit in the second than a trebling of cre:
TTABLE
LOANS FOR CULTATIVAT
Period Τ
1947/48 - 56/57 1957/58 - 66/67 1967/68 - 76/77 Total 47/48 to 1976/7 Maha 77/78
Yala, a Total 47/48 to 77/78
Sources: People's Bar
to the third decade. precedented increase credit given for padd
CREDIT G
Cultivation Sea.
~
~
Maha 1967/68 Yala 1968 Maha 1968/69 . Yala, 1969 Maha 196970 Yala. 1970 Maha 1970/71. Yala 1971 Maha 1971/72 Yala, 1972 Maha 1972/73 Yala 1973 Maha 1973/74 Yala 1974 Maha 197475 Yala, 1975 Maha 1975/76 Yala 1976 Maha 1976/77 Yala 1977 - Maha 1977/78 Yala 1978
Total
Source:
People',

dit given for cultiS increased signi: in the volume of dy cultivation can ble 4 which gives. t given for paddy 47/48 to 1976/77 ods, as well as the en in the last two seen from these
near doubling of
decade and more dit from the second
E 4
& PADDY
TION
otal Loans Granted
Rs. Million
112.24 203.44
- 62.107
7 935.85 420.27 32.44
1,388.56
k; Bank of Ceylon.
There was an unin the amount of y in Maha 1977/78
when as much as Rs. 420 million was
disbursed. Credit given for paddy culti
vation since 1967 and the repayment position is given in Table 5.
Until 1967 cultivation credit was given for only paddy. The volume of credit given for other food crops by the People's Bank increased progressively from Rs. 5.4 milion in 1967/68 to Rs. 42.8 million in 1977 I78. The Bank of Ceylon which lent out Rs. 36,000 for subsidiary crops in 1973, lent as much as Rs. 63.9 milion in 1977. The volume of credit given by the two banks for cultivation of these food crops. Other than paddy, between 1967 and 1978, has amounted to Rs. 294.4 million.
A new scheme of credit called the Comprehensive Credit Scheme was envisaged in 1973. This scheme was to provide both production and consumption credit on a year-round basis through rural banks attached to multipurpose co-operative societies. There was to be a greater flexibility in the granting of loans, and decisions with respect to requirements in different regions were to be decentralised. The scheme was expected to mature into a self-financing one by increasing the mobilisation of savings.
Although only some provisions of the original scheme have been applied the new agricultural credit scheme was renamed the Comprehensive Rural Credit Scheme.
TABLE 5
VEN FOR PADDY CULTIVATION SENCE 1967
Rs. Million SOዖ? Loans Arnoitní Per ceint
Granted Recovered Recovered
64.42 52.86 86.0 .29 9.80 86.8
45.80 28.49 62.2 9.87 8-10 82. 39.35 20.62 52.4 12.36 8.77 71.0 23.46 12.88 54.9 .5.82 507 87.1 63.6 15.25 6ڑ23.9 6.67 5.39 80.8 20.24 - 盘3.48 66.6 8.03 5.09 63.4 85.82 43.3 50.5 25.24 15.38 60.9 74.75 35.27 47.2 10.83 8.32 76.8 55.29 29.84 54.0 16.91 12.58 744 83.07 34.10 41.0 15.75 9.48 60. 420.27. 83.55 19.9 32.44 13.81 2.6
,088.64 47.46 43.3
Bank; Bank of Ceylon; Hatton Nationl Bank.
al
ECONOMIC REVIEW, APRIL-MAY 1979

Page 11
g
Although this increase has been subjeet to fluctuation the increase has been consistent. Inspite of this, increase, no direct causal relationship
can be seen between the yearly provision of credit and output.
There has been no increasing level of output corresponding directly to the increase in the quantum of credit in different years. During the period 1947/48 to 1975/76 there were five peaks and li troughs with respect to the amounts of credit disbursed. However, one cannot observe a close relation in the output figures corresponding to these changes. For example, in 1960 to 1964 the paddy output increase was 5 percent compared to a 22.4 percent rise in amount of credit granted. Similarly in 1972, 1973 and 1974 credit rose by 376 percent whilst output increased by 26 percent. In contrast in 1959/60 paddy output increased by 18 percent at a time when the amount of credit declined by 24 percent. A similar phenomenon was observed in 1969/70 when output rose to 17.8 percent whilst credit declined by 7 percent. These figures indicate that although the increase in paddy production Over a period of three decades is roughly parallel to the increase in credit it is difficult to relate the macro credit disbursement without observing the micro phenomenon at the village level.
Credit disbursements also seem to filter through a status/class hierarchy. A People's Bank survey of Rural Credit in the Central Region of Sri Lanka, seemed to indicate this clearly. The selected sample questioned on whether the Rural Banks provided a useful service varied strongly in their views, according to income groups.
The majority of the upper income group found the services useful, whilst those in the case of the
lower income gro
to the question,
proportion found as not useful. It that a large propi income groups die same patternis se of the services o ployees by the sa
|EVALUA
EM
Opinion
Satisfactory Unsatisfactory No reply
*“Rui Peop
Source:
The upper income services satisfactc portion of the lo found them unsa 7). Once again i a large percentag come group did 1 question.
Government
schemes have te cycle where an i. and expansioli Od is followed by a faults and a col down on the volu rise to a fall in the borrowers. The disbursement as cipline are also gC factors whereb is opened under tical criteria.
By Yala, 1977 credit stood at R. Maha 1977/78 th, decision to relax disbursement an credit even to (
disbursed for M
TABLE 6
OPINION EXPRESSED REGARDING THE SERVICE OF TH
Opinion Useful 3 Not useful 4. No reply 17
Lower 40%. Middle 40%. Upper
17 3 12 2
Source: “Rural Banks in the Kandy District: A Case Study
People's Bank Research Department.
ECONOMIC REVIEW, APRIL-MAY 1979
 

up. who responded roughly an equal | it useful as well is significant also ortion of the lower i not respond. The en in the evaluation. f Rural Bank emme income groups:
at over Rs. 400 million of which the People's Bank's figure alone stood at Rs. 318 million. This season, gave a record output, a fact also connected with good weather, but also resulte di in a very poor recovery rate as seen in Table 5 on page 8. Credit criteria has been now tightened up again, for Maha 1978/79
TABLE 7
ATION OF THE SERVICE OF THE RURAL BANK PLOYEES BY DIFFERENT INCOME GROUPS
இ Lower 40%. Middle 40%. Upper 20%. All
4. 8 9 21
14 12 3 29
al Banks in the Kandy District: A Case Study', le's Bank Research. Department.
2 group finding the ry whilst a major wer income group tisfactory. (Table t is significant that ge of the lower innot respond to this
sponsored credit n.ded to follow a nitial liberalization f credit distribution. high rate of desisequent clamping me of credit giving y number of eligible twin objectives of well as credit disverned by political the credit tap non-banking poli
total Cutstanding s. 340 million. For ere was an official ponditions of credit i for banks to give lefaulters. Credit aha, 1977/78 stood
E RURAL BANKS
31 8 3.
and credit is now given stringently and only for non-defaulters. Further the Centra Bank has withdrawn its 75 percent guarantee for loans given to farmers by commercial banks.
The reasons for the high rate of default are many. The Central Bank of Ceylon which conducted a survey of reasons for failure to repay Agricultural loans adduced 17 reasons for default (see Table 3) which included low yields, crop failure, lack of interest of co-operative officials, use of funds for other purposes, malpractices of government officials, political interference and no intention of the farmer to repay loans. In other words some farmers do not repay because they are unable to, while others do not repay because they are unwilling to or think they need 11Ct repay. It is significant that l4.6 percent of loans were not repaid because the farmers did not have the intention to repay.
A survey carried out by the People’s Bank in 1977 Cn, an islandwide sample of members of Co-operatives gave the following reasons for default in cultivating cars ( ( ( Table 10 on page 12).
These broad reasons fol' default given by borrowers have been confirmed by other surveys conducted by the People's Bank.
Whatever the reasc in for non
repayment of loans it is clear that the large figure of non-repayment
9

Page 12
10
Rural Banks
An important innovation in banking to serve rural areas has been the Scheme of Rural Banks inaugurated in 1964. The idea of formalised Rural Banking in Sri Lanka has to be traced to the establishment of the People's Bank in 1961. As stated by the Commissioner of Co-operative Development, Mr. W. Pathirana, in March 1969, on the occasion of the opening of the fiftieth Rural Bank, "the avowed purposes for which the People's Bank has been established are, (to quote from the People's Bank Act No. 29 of 1961) :- to develop the Co-operative Movement of Ceylon, Rural Banking and Agricultural credit, by furnishing financial and other assistance to co-operative societies, approved societies, cultivation committees and other persons'. It is entirely due to the People's Bank, its appreciation of the realities of the village economy, of the dependence of the villagers, mostly farmers, on non-institutionalized credit at usurious rates of interest, its sympathy with the aspirations of the Co-operative Movement, its awareness of the role rural co-operatives could play in the alleviation, and eventual eradication, of the misery caused by the dependence of the villager on credit at exorbitant rates of interest, its foresight in evolving a scheme to help co-operatives realise their aspirations, and finally to the courage shown by initiating this experimental scheme, that “Rural Banks' have been established.
The first rural bank was started as a pilot project in March 1964, in a village co-operative society at Minikhinne in the Kandy District. The scheme was expanded to two other societies in April and May of the same year. Thereafter, as it became evident that the programme, in actual operation was working satisfactorily, the bank gradually stepped up its extension to other societies, and by March 1969, the number of societies brought within the scheme had reached the 50 mark. At the end of 1978, 183 rural banks
were in existence and 275 special branches
When the evolut the rural banks sinc two phases are notic
i. An experiment:
to 1972.
ii. A phase of ra
1972.
During the exper rural banks were set co-operative Societie expansion was rathe Seen from the follow
TASL
Year 1964 1965 1966 1967 1968 1969 1970 1971
Nu
A noteworthy cha ing by the rural bank is that the loans gra. only to purposes production, with lo production, mainly pa the co-op. Societies.
After 1972 the nur set up increased ra may be partly due to of the Multi-pur Societies in 1972. Wit a large number of Sm Multi-purpose Cowere amalgamated to mic units (although did not meet all its discussed in our sp operatives.) The Soc fewer and it was p the level of mana these changes, Settin for every reorganised as a matter of policy end of 1973, the nun
TABLE 9
EXPANSION
OF RURAL BANKS (1972-1
Year No. of Rural No. of Special
Banks Branches
1972 . . 242 - 1973 341 - 1974. 332 71. 1975 . . 338 109 1976. 345 158 1977 . . 28.5% 259
* The decrease in the number of Rural Banks in due to the
some multi-purpose co-operative societies.
As a result oft
a number of rural banks have been converted into special Bank - Review of the Economy 1977, p. 33)

there were a further affiliated to them.
cionary process of e 1964 is examined, eable.
a phase from 1964
pid expansion after
imental phase the up only in selected s. Therefore, their 2r slow as may be ing statistics.
E 8
"mber of Rural Banks 3
Lracteristic of lendis during this period nted were restricted other than paddy ans for agricultural addy, being given by
mber of rural banks
bidly. This increase ) the reorganisation pose Co-operative h the reorganisation all and uneconomic Dperative Societies
form larger econothe reorganisation
ends, as we have ecial issue on Coieties then became ossible to improve gement tOO. With g up a rural bank society was followed . As a result, by the liber of rural banks
77)
Tofa/
242 341 403 447 508 544
amalgamation of he amalgamation, branches (Central
rose to 341 i.e. there was a rural bank - for each of the 341 Multi-purpose Cooperative Societies. Later when Special branches of the rural banks were opened in the "pradeshikas of the Multi-purpose Co-operative there was further expansion of the rural banking network. The pace of expansion during the period may be assessed from Thble 9.
After 1972, the rural banks came to be named “Co-operative Rural Banks.' The nature and magnitude of business transactions of these rural banks from 1965 upto 1978 may be observed in the Table showing deposits and advances of the rural banks.
These rural banks and special branches provide limited banking facilities. They are departments of co-operatives and perform such functions as accepting Savings and Fixed Deposits and lending for Specified purposes such as debt redemption, housing and consumption needs. Pawnbroking - lending on the pledge of gold and jewellery - is another important credit operation of these banks.
The advantages expected of Rural Banks are as follows: Rural BankS operate in a small area, their clientele is expected to be personally known, the operational costs are low and their leSS imposing structure makes it easier for people in villages to transact business. They also provide an economically viable means of enabling certain banking operations to be available to areas where the establishment of a fullyfledged branch bank is not economically feasible. After a few years of operation the issue was raised as to why these same facilities could not be granted by the People's Bank directly through an expanded branch network to individual farmers. It was found that the Bank in fact did lend to farmers direct as far as possible but it was not feasible doing this on a comprehensive scale, because of the peculiar characteristics of the rural economy and the position of the small farmers who comprise the majority of the rural population. Several thousands of these Small-scale peasant farmers cultivated little plots of land, each averaging less than one acre, which many of them did not even own. Their incomes were low and securities they could offer were virtually nil. In such a situation it was necessary that credit decisions be based entirely on a close personal knowledge of each prospective borrower. The cost of a bank branch network necessary to acquire the basic “credit intelligence' and to issue and supervise the multiplicity of Small loans during particular seasons and also the mechanics of recovering such loans would have been prohibitive.
This is where the village level cooperative assumed significance. Although the co-operative did not rate high
ECONOMIC REVIEW, APRIL-MAY 1979

Page 13
beside the conventional financial institutions, in a farming community Where individual resources are so meagre the
group strength inherent in co-operatives
makes it an indispensable institution for promoting the economic well-being of individuals. It was accepted that the co-operative had many weaknesses in the existing set-up and this was to be expected, for it was a natural corollary of the paucity of resources of the small farmers themselves. Yet its potential to administer rural credit in agriculture was well known, for more than any other institution the co-operative had that close personal knowledge of farmer's capacities; a knowledge so essential in making credit decisions. The cooperatives themselves had several exist
lending, this prog with it a package o cial aid designed
The People's Bar the co-operatives to carry on the introducing proceC credit facilities. R their funds with Rank branch.
The development an important inst It marked a signifi both savings mol lending. The rura porated a blend C unit banking and
TABLE 5. DEPOSTS AND ADVANCE
Deposits
End Year No. of Banks ----------- Savings Fixed TI Deposits Deposits
1965 8 491626 4,734 1966 . . 13 703,011 22,737 1967 . . a 27 1,305,846 65,381 1968 . . . 44 3,110,576 222,614 1969 . . 68 5,712,893 460,168 1970 . . 90 16,109,287 799,117 1971 - - 111 17,188,297 676, 106 1972 . . 242 22,703,136 617,150 1973 - 341 44,281,601 872,935
1974 . . RB 332 Y
SB 71 5 61,549,118 1,186,243
1975 . . RB 338
SB 1 09 72,833,867 1,380,104 1976 . . RB 345
SB 158 114,495,097 1,793,923 |
1977 . . RB 285
SB 259 170,514,871 4,947,329 |
1978 . . RB 283 to SR
SB 275 209,607,670 12,537,698 2
RB-Rural Banks.
ing weaknesses but yet it was deemed
necessary to exploit their potential for this purpose. They were found to suffer from serious managerial and Operational shortcomings while their initial resources were woefully limited. Together with this new credit programme therefore it was decided to operate parallel programmes to reorganise and strengthen this Societies. The Rural Bank scheme was thus an exercise in rural credit incorporating Such a dual programme. While providing cooperative societies with funds for re
SB-Special Banks
operated through institution the comethods of lendir rural community, Sonę rura banks devised innovative savings.
A study assessi formance of co-c carried out by N S. Kahagalle, con banks scheme ha the need for, and
ECONOMIC REVIEW, APRIL-MAY 1979

ramme also carried f technical and finanto strengthen them.
nk came into assist by training personnel Se credit functions, iures and providing Rural Banks deposit the nearest People's
E of rural banks was itutiona innovation. cant development for bilization and rural 1 banks have incorf the advantages of branch banking and
tional methods to serve the rural Sector. It has also been an experiment in transforming Sophisticated devices into simple and functional means in the rural sector. Further innovative devices to meet the needs of the rural sector will be an important strategy in the development of financial institutions in this Sector.
The experience has also underscored the importance of institutions in the mobilization of savings and their capacity to transcend the disadvantage of. economic disincentives to saving, such as high rates of inflation and low rates of interest.
If the rural sector is to be serviced by institutional financial devices there is
S OF RURAL BANKS, 1965-1978
In Rupees
Difference Advances between Total
Deposits and - Total Advances
total Savings Short-term Pa hwning Total
and Fixed
496,360 914,699 252,596 1,167,295 - 670,935 725,748 1,326,457 427, 129 1,753,586 - 1,027,838 1,371,227 2,029,476 633,213 2,662,689 - 1,291,462 3,333,190 3,630,731 1,085,613 4,716,344 - 1,383,154 6,173,061 5,572,281 1,523,646 7,095,927 - 922,866 16,908.404 7,122,213 1,980,066 9,102,279 + 7,806,125 17,864,403 7,144.913 2,171,734 9,136,647 -- 8,547,756 23,320,286 8,226,663 6,958,250 15,184,913 + 8,135,373 45,154,536 16, 177,708 22,734,438 38,912,146 -- 6.242.390
62,735,361 29,008,262 38,398,508 67,406,770 - 4,671,409
74,213,971 37,387,369 49,898,203 87,285,572 -13,071,601
16,289,020 47,624,595 54,167,951 101,792,546 + 14,496,474
75,462,200 55,034, 180 55,849,120 110,883,300 +64,578,900
22,145,368 63,763,200 61,315,568 125,078,769 --97,066,599
a known and existing Operative. It has used g well-known to the like pawnbroking, and are known to have means of mobilizing
ng the role and perperative rural banks, imal Sanderatne and cluded that “the rural s demonstrated both the capacity of, insti
Source: Central Bank of Ceylon
a crying need for a proper understanding of the nature and operations of the unorganized, informal money markets which still operate to a very significant extent in the rura! sector. The study and underStanding of these markets would provide a useful basis for devising policies, methods and techniques of providing
finance for this Sector and for devising innovative means of mobilizing savings as well. The existing network of rural banks and co-operatives could itself be used for this purpose.

Page 14
effect an indirect subsidy for the farmer and in the case of non-repayment due to crop failure a substitute for insurance.
Commercial Bank Branch Expansion
The expansion in rural credit has not been confined to the increases in credit for cultivation purposes. institutional network to rural areas has been rapid in recent years. The People's Bank had 216 branches at the end of 1978, many of these being in rural areas, and was also servicing the 283 rural banks and their 275 additional special branches. (See box on Rural Banks). The Bank of Ceylon, which till recently concentrated on urban areas, has also ventured into remoter areas. At the end of 1978, it had 480 branches of which390 were suboffices at Agrarian Services Centres.
Total Bank Credit to Rural Sector
A complete picture of institutional credit for the rural sector is not available due to the lack of data on credit for all purposes given by all institutional sources.
Some estimates place total credit to the rural sector in 1978 at about Rs. 400 million. Of this nearly 75 percent had been given out as cultivation loans, while nearly 10 percent was for purchase of machinery, 5 percent for housing and electrification, and the balance 10 per cent for animal husbandry, crop diversification, small industry,
12
The extension of the
TABLE 10 REASONS FOR DEFAULT IN THE REPAY.
CULTIVATON LOANS
Nunn
Reason that
ዘ‛eር፲5
1. Crop failure o o 14
2. Lack of extension work
3. Investing in other activities 1.
4. Considering loans as Government aid
5. Settling other debts first
6. Other reasons
Total 22
Source : People's Bank Research Department
implies that credit has become in debt redemption
trade and other m poses.
Credit given un hensive Credit Sc vation was the sing credit in 1978.
Credit for Tree Cr
While there has ciable expansion of and food crops, cr for tree crops gi farmers are very lin mers growing such tea, and rubber ha little access to ins They have benefitte sidies for replantil The provision of crops is particulal small-holdings hav the Land Reforms A certain amount estates has been small-holdings and ings cannot be expé or improve their p out adequate credi
Tree crops are ch long period of gest credit for these crt for repayment aft
when the crops yield
is required for ni planting and for
upkeep of the crop to bear. Besides, in Zation requires in underplanting all,
augmented fertiliza
Recently a new c for coconut small
X

MENT OF
ነber gave Percentage
Ofi
8 65.78
6 7.11
8 8.0
3. 5.77
5 6.67
5 6.67
5 100.0
, consumption,
iscellaneous pur
der the Comprecheme for cultile largest item of
"ops
been an apprecredit for paddy edit programmes own by smallnited. Small farCrops as Coconut, we generally had stitutional credit. di mainlyby subng and fertilizer. credit for these ily important as e increased since of 1972 and 1975. of land held by re-distributed as these small-holdacted to maintain. roductivity witht.
aracterised by a ation. Therefore ops should allow er several years la return. Credit 2w planting, refertilization and still they begin tensive land utiliJer-cropping and of which require tion.
redit programme holders has been
worked out. All growers of coconut of less than 25 acres but excluding home gardens of less than 1/2 an acre are eligible. Repayments begin after 2 years and are spread over 5 years. The People's Bank and Bank of Ceylon will operate this scheme on Central Bank refinancing which willinitially amount to Rs. 15 million. per year for 2 years. Credit limits are based on a maximum of 640 lbs. offertilizer per acre.
Tobacco Credit
One of the success stories of an integrated credit scheme is that operated for the cultivation of tobacco. In this scheme the assistance given by the People's Bank has been complementary to that extended by the Ceylon Tobacco Company and the results of this co-operation are evident in the comparative prosperity which it has brought to the peasant farmers in these tobacco areas. This scheme for granting of loans for growing tobacco was ini
tiated in the late 1960's in conjunc
tion with the Department of Agriculture and Ceylon. Tobacco Company on lands which were not suitable for growing other crops. The basic features of this scheme were that facilities were given to barn owners who could not furnish security and who were not income tax payers up to Rs. 4,000/- per barn. on the security of other barn owners. Those who owned two or more barns were able to obtain loans to Rs. 6,000. The loan and the interest are repaid out of the proceeds collected when the tobacco is sold to the Ceylon Tobacco Company. The Company provides the planting material,fertilizer and other agro-chemicals. Its extension personnel give advice on the growing of the tobacco and purchases the crop at a price fixed at the commencement of the season. The value of inputs provided is deducted from the gross sales income of each farmer. Farmers a chieve a high level of productivity and are generally satisfied with the prices and marketing arrangements.
This is a model of lending that could be utilised for other crops which need to be processed and which are grown by small farmers in a fairly contiguous region. It could
EconoMIC REVIEw, APRIL-MAY 1979

Page 15
s
also be used by agencies set up to develop land and settle for cultivation. The banks could lend the finances to the commodity processing agency which could establish the necessary infrastructure to serve the farmers. Sugarcane, coffee, tea and rubber are crops which could be served in this manner. Where the crop is directly consumed or there are competing purchasers of the produce, the creditsinput giving agency runs a risk-the-farmer could sell the crop to others and the hold of the lender is weakened.
Dairy Development Credit
An important recent development in credit is the new loan scheme for dairy development initiated by the Ministry of Rural Industrial Development. Plantation workers on estates in the Nuwara Eliya District will be given a loan of Rs. 2,500per cow for two cows at an interest rate of 93 percent. The Superintendents would have to certify that there are cattle sheds and facilities for the rearing of the cattle. They are to exercise supervision of the livestock and organize the marketing of the milk to the Milk Board. The Superintendents are responsible for the recovery of the loan from the wage payments and Milk Board payments.
This scheme is interesting as it has used an existing institutional framework of another agricultural subsector to provide the facilities and supervision of the enterprise as well as to recover the funds lent. The supervisory functions of the estate Superintendents can ensure the proper use of funds while the employment on the estates provides security for the loan. It would be useful to find other enterprises in which these principles can be used to grant credit to commence or expand them in the rural sector. ܠܗܘܢ
Problems and Weaknesses of Insti
tutional Credit
The most serious problem which institutional credit programmes have faced is the inability to recover a large proportion of the funds lent to farmers. This jeopardises the capacity of credit-giving agencies to continue their programmes, or
EconoMic REVIEw, APRIL-MAY 1979
when the Gov its funds it create to the Governm there is evidence for agricultural used for other other hand, it serving arid elig not get credit.
The rates of loans given in T recovery rate o for the entire 1977/78. A tren covery rate is a this data. In M a record sum of was lent only R 19.9 percent ha by the end of 19 cent of these are not in defa default for subsi were low initia, creased over time 17 percent of su, given by the Pec default in the firs and 1968/69, the increased to nei 1977/78. Loans of Ceylon have fate - only 43 lent for paddy a funds lent for been recovered 1973|74|-1977|78
The most serio the village level unable to lend farmers credit wi the use of fund purposes and el of funds. Alth banks entered t credit in the agency finally g farmerin most cas co-operative. T. are poorly staffed tion and have no to supervise the sequently crediti has been used and those borro feel an obligation
Commercial B involvement in grammes have no plete capability disbursements a credit supervisio.

2rnment has used sa, financial burden ent. Besides, this that funds meant purposes have been purposes. On the is likely that deible borrowers do
recovery of paddy Cable 5 indicate a f only 43 percent period 1967/68 to (d of declining rebalso observable in aha, 1977/78 when Rs. 420.3 million Es. 83.5 million or d been recovered 78. About 7.5 perloans though due ult. The rates of diary crops which lly have also in2. While only about bsidiary crop loans bple's Bank was in t two years 1967/68 rate of default has arly 45 percent in given by the Bank suffered a similar percent of funds nd 21 percent of other crops have during the period
us weakness is that organisations are
on the basis of orthiness, supervise s for the intended asure the recovery
hough commercial he field of rural 1960s the credit
iving credit to the ses is the village level hese co-operatives , accused of corrupit shown an ability lent funds. Conintended for farmers for other purposes wing funds do not l to repay.
anks despite their
rural credit proit developed a comto supervise credit n.d. improve their n. One reason for
this is that at times governments have laid down policies on who should be given credit rather than having left it to the banks to determine the credit worthiness of borrowers.
Credit and Other Supports
Rural credit for today's paddy farmer is not to be seet), in isolation, but as part of a package of supports for the farmer, which after the introduction of the new technologies included extension work, fertilizer subsidies, guaranteed price schemes and more recently issurance. The selling price of paddy is at least partly dependent on the Guaranteed Price Scheme (GPS) price and the profit that the farmers can get varies
with the guaranteed price as well as
on other factors. The profit is largely related to the ability of the farmer to repay loans. The amount of surplus accruing to a farmer who sells at the Guaranteed Price Scheme level are indicated in the following figures taken from a study conducted by the Agrarian Research and Training Institute (see Tablesill and 12).
The ARTI study carried out during the 1976/77 Maha season gave the following production costs per bushel and profit margin if the produce was sold under the GPS indicating that profit margins were still adequate. With a certain stabilization of prices the paddy purchases has improved in the subsequent years.
However, the operation of the Guaranteed Price Scheme depends on several factors. At the level of the Co-operatives, sometimes the farmers are unable to sell their produce to the Co-operatives partly due to the seeming remoteness of their purchasing apparatus compared to the private sector which tends to be more flexible. This means that at the village level, the problems of paddy purchase is governed by factors of micro-political economy as much as the national policy which fixes the Guaranteed Price Scheme.
Further, there is variation in the amount of paddy going to co-operatives (hence through the GPS) and the private trader in different parts of the country. The following
13

Page 16
TABLE 11 Profit Margins and Production Costs for Paddy Dis
Polon- Hamba
Item Hidroll /0 tota
Production costs (Rs...) 24.39 23.0C Profit margins in relation to the
Guaranteed Price of Rs. 33.00
per bushel . . e (Rs...) 8.61 10.00 Profit margin as a percentage of
production costs . . (Rs...) 35 43
data from the ARTI study of modes of disposal of paddy output indicates this. Xn.
The ability of a farmer to repay his credit is directly related to his ability to sell his output at a reasonable price. Although the GPS
potentially gives this fair price this
is not always received; the difference between the GPS price and the price at which the farmer sells his produce varying from district to district,
Credit and the High-Yielding varieties
The use of high-yielding varieties has required a high credit input because the physical inputs now cost more. The varieties of paddy used in Sri Lanka can be arranged on four tiers depending on whether traditional varieties are used (poten
TABLE 12
SSSSR
tial yield 40 bu; improved traditio tial yield 60 bus yielding varieties or the newer hig (120 to 140 bush
By the early
high-yielding var spread very wide over 70 percent O covered by these 1973/1974 of the categories of tra yielding and
varieties are as b
Seed Variety Ad
New high-yielding v
Old high-yielding va, Traditional
Source : Crop (
Modes of Disposal of Paddy Output
(Quantity Disposed as a Percentage of Total (
Polon- Hamban. Mode of Disposal HidW‛ዚ4}V፴ {O፫ር፬
% % (a) Sales
To Co-operatives 67 23 To Private Traders 3 32
70 55 (b) Payments in kind
Landlords share M 9.
Others* 3. 12
3 21 (c) Home Retention
For consumption .. 24 20 For seed . . 3 4
27 24
Total output per form :
(Percentage) 100 OO (In bushels) 273 197
* Includes loan repayments, payments in kind to hired labour

tricts
in- Kandy
Kegalle Colombo
) 25.44 29.75
7.66 3.25
30 11
SS
shels per acre) the nal varieties (potenhels), the old high
(80 to 100 bushels) ih-yielding varieties els yield potential).
60s the 'H' early ieties had begun to ly so that by 1970 if the sown area was
The situation for a three broad seed ditional new high
old high-yielding elow.
opted Maha 1973/74
% offarmers arieties 42.0 rieties 33.3
24.7
utting Survey
Dutput)
- Kegalle- Colombo
Катdy
% %
10 m
12 13
22 is
O 5
5 4
is 9
59 75
4 3
63 78
100 100
36 23
and draught power.
Despite this adoption of high
yielding varieties having a yield
potential of between 100-i-10 bushels per acre, the national average re-i mains around the low figure of 50
bushels.
Fertilizer . . .
Fertilizer is another aspect of the total package surrounding credit use and fertilizer has been given under a subsidy scheme now amounting to 50 percent and fertilizer use has increased dramatically over the years, but has tended to be price responsive as was shown in the drop in its use in 1975 because of the cut in the fertilizer subsidy.
TABLE 13 Fertilizer Issues for Paddy (Thousand Tons)
1961 29.0 1962 38.1 1963 47.1 1964 60. 1965 42.0 1966 44.1 1967 73.2 1968 85.2 1969 83.5 1970 87.1 1971 95.4 1972 88.4 1973 125.5 1974 96.4 1975 48.7 1976 72.4 1977 815 1978 113.3
Credit disbursement, its use and recovery therefore are not dependent purely on financial criteria. It depends on the size of the farms and their ability to get a surplus to pay back the loans. Further it also depends on the prevailing tenure systems and the proportion of paddy left for the farmer. It is dependent on the marketing system and the prices the farmer gets. It is also potentially dependent on the insurance supports for the farmer, use of fertilizer and new high-yielding varieties with the associated agrochemicals. Vagaries of climate also influence it strongly, (which the insurance scheme is expected to cushion the farmer from). However, the most important factor is the social matrix within which credit is perceived by the farmers. In a
ECONOMIC REVIEW, APRIL-MAY 1979

Page 17
highly politicised situation as in Sri Lanka, credit has often been a part of politics and one has seen the credit tap being opened and closed on criteria, unconnected with paddy production. In such a psychological regime rewarding farmers for nonrepayment by giving them further loans leads to cynicim and the good farmer who pays back his loan is looked at with subtle ridicule by other farmers whilst the non-paying farmer is often considered the folk hero. (In certain parts of the North Central Province because of the prevailing climate built up over the decades, days of loan repayment are referred to in lighter vein as "cultivation pay-days). In such instances credit becomes in fact an indirect subsidy to the farmer and in the case of non-repayment due to crofailure the substitute for insurance. More damagingly it breeds cynicism,
Insurance
The crop failure risk is a major factor in discouraging peasant initiatives and counteracts the benefits
of other programmes such as credit, guaranteed price schemes and extension pro
grammes. It has a direct bearing on credit and rural indebtedness. Natural disasters such as drought, floods, pests and diseases enlarge the uncertainties the farmer has to meet with and these act as disincentives for increased production and adoption of improved methods. Insurance in the agricultural sphere theoretically assures farmers financial protection that would allow them to continue cultivation even after a crop failure. Sri Laka is one of the few countries where attempts at crop insurance have been made. (A strong case is made for such a scheme in India, see box on pages 16 and 17.)
The paddy crop insurance programmes have been in operation, although in a seminal form, since 1958. In the Maha season of the latter year approximately 26,000 acres in five of 22 revenue districts were selected for a pilot project. In 1962/1963 the area covered by insur. ance was enlarged to 65.000 acres in eleven districts. This was further extended to cover 200.000 acres in 16 revenue districts by Maha 1973/74.
EconoMic REVIEW, APRIL-MAY 1979
By the early 19 realisation that the defects in the schen the very low premia as in the high ra avments. Conse Âမ္ဗိနီfilttfital Insura was introduced Wh establish a system c surance for paddy. to be administered tural Insurance Boa rates were to be fix basis. The Agricu Scheme under the commenced operati and was expected t area under paddy.
The scheme in . unit of insurance Committee area, an hold as earlier. Ir were expected to Cultivation Comm their lands for ins It was expected th agency would by with only 5600 ins the Over 900.000 h( was expected that Productivity Comm vation Committee mary link with the poses of determinin purposes of assessr “stretch” (Yaya) i Committee was to unit of assessment.
It was found th level this arrangem to several irregular who did not cultiva their names into th ter through their with the Cultiva often on political As a consequence Insurance Board at ay indemnities in this refusal to pay correct grounds, t tended to take the seriously than it is
After the introd scheme in 1975 ins compulsory for the vation loans by th ties. When loans individual co-oper latter were expect mia, and forward 1

70s there was a re Were inherent he as reflected in collected as well te of indemnity squently a new nce Law of 1973 ich attempted to f compulsory inThis scheme was
by the Agriculurd and premiuma ed on a regional ultural Insurance new approach ons in Yala, 1975 o cover the entire
1975 had as the
the Cultivation d not the housedividual farmers register with the littee and enter urance purposes. Lat the insurance this means deal 'ureds as against usehold units. It the Agricultural ittee of the CultiWould be the prifarmer, For pur!g premia, and for ment of loss each in a Cultivation be taken as a
at at the village ent also gave rise ities: 'Farmers' te were able to get e Insurance regisinformal contact tion Committee, atronage criteria. the Agricultural times refused to such cases. With even though on he farmers have 2 scheme far less hould be.
Luction of the new
surance was made granting of cultie lending authoriwere approved to ative societies the id to recover prehem to the Agri
cultural Productivity Centre within the area of operation. The premia varied from Rs. 8 to Rs. 30 per acre for a cultivation season depending on the area, the figure being decided by the Insurance Board in consultation with the APC. However, the scheme was not strictly followed in the initial years and it actually ccmmenced only from the 1975/76 Maha. In 1976 premia rates were revised again and new rates were effected from the 1976/77Maha season. When the cultivation loans are granted to the co-operative societies the banks are expected to satisfy themselves that the whole crop was insured. The insurance premia varies with the area of cultivation and is fixed by the Insurance Board in consultaticn with the APCs. A higher premium, three times higher than the others, for those farmers who claim cultivation loans has been introduced as a compulsory measure for the current 1978/79 Maha season. This has been done largely at the insistence of the Banks which have had a very bad experience in regard to recovery of cultivation loans. It is too premature to assess this latter scheme.
The figures quoted in Table 14 of insurance premia collected and area insured in comparison with the total loans given indicate that the system has not been effective as yet.
It is seen that the area covered under insurance continues to be small. In Maha 1976/77 only 22 percent of the total acreage cultivated was insured, compared to 17 percent of the acreage for the previous year. Premia collected for 1976/77 Maha were only 20 percent of the premia expected and represents a marginal decrease compared with the Maha season of the previous year.
For Yala, 1977 the area insured was only 8 percent of the total cultiwated area and premia collected were also only 8 percent of the premia due, which is less than the figure for previous Yala 1976. The last column in the table indicates that the difference between indemnities paid and premia collected was positive in Maha 1976/77, as well as in Yala 1977. This contrasts with the previous three seasons which had
15

Page 18
RURAL CREDIT AND BANKING-The Indian
B. Natarajan
Sit
The situation of the rural peasant and the small farmer is muc
developing countries of Asia.
Institutional credit has yet
impact on his conditions of indebtedness and the hand-to-1 is often compelled to lead. In this paper, written in 1977 by in the Tamil Nadu Journal of Co-operation (we publish only e. sises that credit is not all; and farming alone can hardly be e sufficient income surpluses to get these rural people out of His paper shows many parallels to the Sri Lanka situation in
adopted to tackle this problem.
Credit is a vital factor of the production function. More so in India's agriculture, where the prospects of 'plough back are weak compared to trade and industry. For the farmer, credit therefore, is no less important than other inputs like seeds, fertilizer, water, etc. The persistent low production in agriculture in many parts of the country can be attributed to the inadequate and none-too-timely Supply of agricultural credit.
To channelize agricultural credit both in terms of adequacy and timelines, the first step should be to institutionalize credit. The starting of the co-operative movement in the beginning of the century was therefore hailed with great hope and expectations. But it failed to show results commensurate with the country's requirements. As of today, after over seven decades of its existence, the cooperatives hardly account for about 30 percent of the total needs of the agriculturists; and that, by-passing, as it were, the small, marginal and low income brackets in the farming community.
The possibilities of commercial credi to agriculture became a reality only after the advent of social control and the Subsequent nationalization of 14 major banks in 1969. In fact, one of the compelling reasons for nationalisation was the need
to extend credit to the neglected sectors
in the economy such as agriculture, smallscale industry, etc.
What made the commercial banks nego lect agriculture prior to nationalization? Banking tradition in the country and elsewhere had much to do with it. The banking industry being highly competitive, risky advancôS had to be kept at a minimum. Loans to agriculture were considered highly risky. Also land, which was all that the farmers could offer as security, was not welcomed by the banks because of its illiquidity, and other problems involved.
Further, the country was held in the belief that in co-operation and co-operative credit alone lay the salvation of the farmers and the Solution to their credit needs. Co-operators themselves Were largely responsible for this belief and they sedulously fostered the credo. “Find Raiffeisin and you will have found everything else. They lived and hoped for the day when the co-operative commonwealth dawns as a solution to al their problems, farm credit taking the
16
place of priority. T that halcyon peric banking credit coul to the credit bow; in the gap in their C Above ali, until t with recurrent food a growing populatic cultural Sector itseli to a secondary plac thinking. The nati« on the building of structure that will support for rapid a modern lines. Look Sight, feW can questi of this growth stra wheeli has turned tİ time has come for the development p. cultural Sector.
After 1969, the 1 became a potent we the government Wh resources of the should Supplêmenat rative banks in the
An analysis of th of public sector bar sector shows that a crores had been pro and another 300 ci as indirect finance t
Public sector ban creasingly associat. the financing of pri dit societies. The S currency among the than half of the sta meeting the farm ( in operation. Over
societies have been
the public sector Nearly two lakhs been admitted to th the advances to ti RS. 20 croreS.
In addition to
agricultural operati also disbursed me investment purpoS. credit for stocking agricultural inputs.
However, inspite
- 40 percent of the c
ches are located ir that over 800 crore disbursed so far, a made in commercie
s

as
uation
ch the same in most
to make a major mouth existence he y Dr. B. Natarajan xcerpts) he emphaxpected to generate
the poverty trap. the measures being
o few did it occur in pd that commercial d be a Second String a source that can fill :redit supplies.
he country was faced deficits in the face of in pressure, the AgriF had been relegated 2 in our development on was concentrating an industrial infraitself be an eventual gricultural growth on ing at this with hindon today the wisdom. tegy. However, the he full circle and the priority attention to roblems of the agri
4 nationalized banks apon in the hands of uich decided that the public sector banks those of the co-opeSupply of farm credit. e credit development aks to the agricultural in amount of Rs. 650 vided as direct finance ores of rupees or so by the end of 1975.
ks have also been ining themselves with mary agricultural crescheme is fast gaining e states, and in more tes this joint etiort in >redit requirements is two thousand primary taken over so far by commercial banks. of new members have ese co-operatives and hem Stand well over
short-term loans for ions, the banks have dium-term loans for es, besides extending and distribution of
of the fact that nearly ommercial bank branthe rural areas and is of rupees have been ld inspite of the claim banking circles that
agricultural credit advanced by banks at
present accounts for nearly half of the
total credit requirements of the agricultural sector is met by them it is necessary to point out that the banking staff are still urban-based, and are ignorant of local conditions; that the loan procedures are not sufficiently flexible and that on the Whole the banks have mot conne up tc) the expectations in assisting agriculturers, these should be taken up as a challenge by the commercial banking sector.
Our farmers are essentially of two groups; those who are rich and those who are poor. The former who have ample security to offer and enough own resources to deploy are least affected by the availability or non-availability of credit. In fact, they themselves engage in lending activities often. The poor who form the bulk of our peasantry are at the Subsistence level with virtually no surplus left for future investment or production. After the harvest is sold, they are left with just enough for their consumption after paying the creditors back. If they are to raise the next crop-they have to obtain credit again all through their round of operations. Thus they need credit to buy seed, fertilizer and pesticide, to hire labourers or tractors, to instal pumpsets or dig a canal, etc. Here again the needs of different farmers will be different depending upon the mode of cultivation, Selection of crops, nature of land, etc.
Desperate to start their next crop and having been shown the cold shoulder by the commercial and co-operative banks in the absence of the necessary security or Surety, the farmers have no option but to go to the money lenders, however, harsh their terms and however high their interest rates may be. The money-lenders who may lend in trust may not hesitate to recover by threat. This was the position until recently and now with the disappearance of the private money lending agencies and pawnbrokers consequent on the promulgation of various ordinances by the then Government the plight of the villagers has become even more trying.
Thus it is that for the small and marginal farmers living at subsistence level, whose credit needs demand the highest priority, provision of short-term loans alone will not help tide over the problem. While the short-term advances to farmers owning less than 5 acres of land accounted for nearly 45 percent of the total agricultural advances and long-term advances were a mere 16 percent of the total advances. The final solution should be to make each farmer self-sustaining and selfreliant. This can be done only by providing the farmers with credit to instal permanent overheads like wells, tractors, motors, etc., which would render the holdings viable.
Considering the present rural set-up, it is evident that the commercial banks would have to restructure themselves to conform to the requirements of the rural sector, their traditions and practices. In some ways the new approach of the banking system functioning in the countryside
ECONOMIC REVIEW, APRIL-MAY 1979

Page 19
TABLE 1.4
OPERATIONS OF THE AGRICULTURAL INSURANCE
(POSITION AS AT END OF 1977)
S.S ؟
ཕྱི སྒེར་ གྱི་ཕྱི་གྱི་རྩེ་རྗེ་
ఏ ーミミ ミミ ミミ ミミ S S సై S
నీ S S S S S S S S Sミ ミ ○ ミ
。 ミミ ミ薬 ミミ ミミ ミミ葉。き
梁 S།༤༤༤ Sདྲེ་ཛི་སྦྲུS
Yala 1975 - 824 54 8,665 800 7,865 l, Maha 1975/76 .. 1,147 198 18,377 3,854. 14,523 4. Yala i 976 642 114 8,490 1,568 6,922 2, Maha 1976/77 .. 1,329 288 21,158 1,155 17,003 3, Yala 1977 - - 78 58 9,523 80 8,722 4.
* Lincomplete data
Source: Agricultural Insurance Board; and Department of Ceisits
should be on the same lines as the private growing the four major money lending agencies in that credit paddy, cotton and gro should be flexible and timely. But the Nadu has revealed tha interest rate charged should no doubt be from farming 1s still c appreciably lower than that charged by petuate farming as a w the money lenders and repayment instal- A net income of Rs. 5( ments easier. Further, the banks acting 300 for groundnut, Rs. as agents of development and social cotton and Rs. 900 to R change should give their prospective cane Was all that a one borrowers positive guidance as to how This excludes capital ex they could make their borrowed funds and interest on worki productive, so that repayment is practi revenue and cesses whic cable. into consideration in con But credit is not all. It is but one of gate cost. On this level ( the inputs, though a crucial input in family has to subsist farming. The end and aim of credit is to Seyerl months in the ye: make farming a viable proposition. As India being, what is it is, despite the vast investment made by graphical absurdity an the Government by way of augmenting affecting agriculture W the infrastructure facilities, like irrigation base the prices of farm power, etc. the numerous incentives given findings of a monolithic to the farming sectors and the far-reaching Sion at Delhi is as absu. changes affected in agricultural practices HoWever, neither Su! through the “Green Revolution', it is and timely credit, nor í disappointing to note that farming still rative prices for farm pr remains a way of life, rather than an farming a viable Secto economic proposition. proposition. Nor can få -- vast infrastructure by v The notion that prevails in Some quar- gations works, and po ters that the agricultural terms of trade taken up and complet have been constantly rising, and that this technology too can help upward trend has redistributed income in as the risks to whic favour of the agricultural Sector is largely country is heir to from based on the theoretical concepts little nature, droughts and applicable to the vast diversities of the tempests remain a ser agricultural Sector in the country. To agricultural stability. generalize for the entire agricultural eco- prehensive and, if need nomy of the country from the experience scheme of crop insurance of few prosperous pockets in Punjab and significance and urgency Haryana is an exercise in faulty methodo- Even as was done in n logy pregnant With Wrong, leads for the mercial banks, a bold st policymakers. It is one thing to say that part of government is the prices of firm products require to be histancy on this score maintained a reasonable levels as a of farmers and exagge measure of checking inflationary pres- of cost is advis Sures, and that rich farmers should be sche of crop insura made to pay into Caesar what is Caesar's, long and delayed in the but a far different thing to say that farm- as a scheme of social ing is an Eldorado, and farmers the relevant to an agricult plutocracy of the countryside. ours and as measure of: A recent field study conducted by the lity and progress at onc Institute for Techno-Economic Studies, occupation has been cor Madras, covering a sample of farmers carious existence for to
ECONOMIC REVIEw, APRIL-MAY 1979
 

PROGRAMME
2
9
9
-
4.
9
9
734 - 880 846 - 1,278 O91 -- 1,064
528 - 349
& Statistics.
crops, Sugarcane, undnut in Tamil t the net income alculated to peray of living only. )0 for paddy, RS. 400 for irrigated S. 1,000 for sugar-acre farmer got. penditure on land ng capital, land :h Were not taken inputing the aggreof income a whole for a period of äT。
termed a "geoLd the conditions idely diverse, to produce on the > Prices Commisrd as it is unfair. pply of adequate ixing of remune'oducts will make - and a business arming wait till a Vay of more irriWer projects are 2d. Science and but little as long farming in this l the vagaries of loods, pests and ious menace to Here it is a combe, a compulsory } has its relevance,
ationalizing comroke Oract on the called for. The pased on mistrust rated calculations A comprehensive ince, debated for process, will serve security, specially ural country like agricultural Stabi'e. Farming as an demned to a preo long.
Hessensessassassessessassassassassaegsensessione
Cూ S s ミミミ、ミ ミ S ミ ミ.ミミ ܓܬܼ. ミー ミ ミ ミミ ミ s SS S S SSSS S ། ミミミ ミミミ *ミ క్షా సాక్ష S SS Sས་ བོདྲ་བ། རྗེ་བ། ས་། ༦ بیخ ܓܔܙ
negative balances due to unprecedented droughts. The latter necessitated a high degree of subsidy by the Board.
It should also be noted that figures for premia, collected, shown in the Insurance Board figures, is apparently undervalued. According to our investigations the individual co-operatives have not yet paid the premia to the Insurance Board. (For example, for the 1977/78 Maha season we came across several such instances, in the Dry Zone non-irrigated areas, amounting at times to about 0.7 million of unpaid premia).
It should be noted in summary that the first few years of the scheme were marred by several successive drought periods. The situation improved from 1976 onwards and preliminary indications, from the figures quoted above, therefore are that the new scheme is promising although it is still premature to make a more firm estimate. All agricultural credit is now theoretically tied to insurance which on paper should provide castiron guarantees for both lending bank as well as borrowing peasant. Yet this, like all centrally planned measures, will have to prove its worth in the real arena at the village level.
Conclusion
An important implication that has emerged in this discussion is that credit policies alone cannot be exected to solve the problems of the rural sector. Many problems of the rural sector arise out of the fundamental structural deficiencies that have arisen and grown ever since the dualistic split began to appear in the country's economy from the early colonial days. When viewed in perspective it appears that these problems can be resolved mainly by devices such as agrarian reform encompassing tenure changes and development of firm village level institutions.
Credit to the rural sector must be viewed as a facet of agricultural development policy where the provision of infrastructural requirements and institutional structures are a prerequisite, credit for agriculture could be effective only if
17

Page 20
integrated with other measures such as the availability of improved technologies and extension services, the provision of irrigation and transport facilities and adequate prices and marketing facilities.
Another aspect of the indebtedness problem is that credit for consumption remains largely outside the orbit of institutional credit. The observation of several decades ago that institutional credit is for specific production purposes and that this limitation implied that the most pressing needs of the rural sector cannot be serviced by institutions remains largely valid today. Rural Banks have made only a limited impact on consumption credit but their success in mobilising savings should provide a sound basis for expanding their loan operations.
The distinction often made between production credit and consumption credit with the limitation of credit to the former is also counter productive. Consumption needs are often prior needs and if they are not met, production credit would either be used for consumption or where it is not possible to use credit for consumption owing to credit being given in kind, a farmer's commitment for consumption credit will reduce the effectiveness of production credit.
There is an implicit assumption in discussion of credit that institutional credit is 'good' and that informal credit is 'bad'; that institutions charge low rates of interest and informal lenders high rates of interest. These are not necessarily the perceptions of peasant farmers. To them the flexibility of the informal sector is sometimes more important.
As one of our economists stated recently "It may be heretical to suggest that the institutional sector itself lends to informal lenders. But increasing non-institutional liquidity could create a competitiveness in the informal credit market which would reduce interest charges'. Given the advantage of the informal sector to operate in the rural sector such a policy may serve its needs well. Alternatively the secret to the success of the institutional sector lies in its ability to approximate the informal sector.
18
INDUSTRY
READY-MADE G
While competiti more protection
The rapid expansio of the established 1 ments manufacture region has become cern for the existing US and many We countries and possi anxiety among the themselves. The Inte Fibre Agreement wh renewalin 1977 gav Nordic countries, th Japan and Australia to bring in various the more popular items of the Asian s cent times the cry tectionism has been of the developed c. Meanwhile, big ext hausting their annu; the year's end a various means of t{ of conditions in til countries which had comparatively late. Asian countries W Bangladesh, Indones the Philippines. Th long-run is by no me for the Asian expo countries like Sri l. now setting up enol to feed a restrict market. An overvie
situation among sol producers and in
country markets W.
A recent study p Overseas Developm London has warnes tries of the Indian India, Pakistan, Bal Lanka-must expec riers to continue According to the
in tariffs has rapidl,
by the emergence non-tariff barriers particular quantita on products such the countries in t are likely to be wo newly industrialisi South Korea.

ARMENTS EXPORTS
on grows more intense among producers ist and other barriers appear
in in the exports ready-made gars of the Asian a cause of conindustries in the stern European bly a cause for Asian producers rnational Multiich came up for 2 the E.E.C. and e USA, Canada, the opportunity restrictions on apparel export suppliers. In refor greater proraised in many ountry markets. porters Were exall quotas before ld looking for aking advantage hose developing entered the race Among such ere Sri Lanka, sia, Pakistan and e outlook in the ’ans encouraging rters, especially anka, which are mous capacities ed international w of the current me of the Asian the developed ill explain why.
ublished by the ent Institute in that the coun
sub-continentngladesh and Sri t EEC trade bar
or get Worse. study reduction y been overtaken of the numerous to trade and, in tive restrictions as textiles where he sub-continent orse hit than the ng countries like
The study adds that if the MultiFibre Agreement (MFA) is retained more or less in its present form. South Asian producers will suffer most in the long-run,
The most recent OECD forecast also expresses fears of a growing protectionism. Energy and inflation were two of the major constraints now facing the 24 developed market
economy nations of the Organi
sation and OECD experts believe
that prevailing constraints are so
sellious that member-governments will have to deal with them before hoping to return to higher economic growth and hence lower unemployment. The OCED Secretary. General has warned that lower growth was breeding protectionism in various forms and expressed the hope that ministers will renew the 'trade pledge' under which member-countries refrain from taking unilateral defensive measures to the detriment of otnes. The US government too was meeting with strong press res at home; and with growing predictions that the US economy was entering a recessionary period there was every possibility that restrictions or inports into US would continue.
China
On the other hand, a potential threat to established exporters and smaller exporting countries in Asia is that posed by the massive production capacities of China. In her outward thrust China, is likely to enter the export market on a sizeable scale. Cheap labour and generally low production costs have created a demand for Chinese products in the US market. The United States has applied import quotas on China's apparel exports, as it has done in the case of most garment-producer countries. These quotas were applied to cotton work gloves, cotton trousers, cotton shirts for men and boys, women's cotton knit blouses and for synthetic fibre sweaters, though there were no quotas íor cottom print aid other textiles. But both courtries were hoping to negotiate appa
ECONOMIC REVIEW, APRIL-MAY 1979

Page 21
rel agreements and until such time as agreement is reached the existing restrictions would continue.
Negotiations are underway between US and China for an overall trade agreement. The comprehensive trade pact being negotiated
includes provision for most favour
led nation' status for China, which
would give it a lower tariff schedule
and access to certain trade credit. If the trade agreement is approved US and China trade which totalled about $1 billion in 1978 is expected to rise to $2 billion this year and reach $5 billion a year by 1985, and textiles and ready-made garments exports would therefore be expected to go up proportionately. Hong Kong, Taiwan, South Korea
The big three Asian exporters (Hong Kong, Taiwan and South Korea) are now beginning to feel the competition from newcomers such as China. Taiwauese officials noted that in the US market textile exports from two of these exportes fell sharply in the first quarter of 1979. In March, for instance, the volume of Taiwan's textile exports to the U.S. fell 32 per cent from a year before, accoraing to U.S. statistics. Meanwhile, South Korean exports dropped 24 per cent, and Japan's 41 per cent. The cutback in exports was caused in part by lower demand iil the U.S. market, they said, and also by competition from such newcomers as China. One concrete example was that exports of Taiwan's synthetic fibre sweaters had declined sharply this year at the exper, se of the Chinese competition. In the first quarter, Taiwan's shipments of wounen's synthetic sweaters to the U.S. fell 5 per cent to 211,000 dozen, while at the same tine, China's shipments of women's sweaters suurged 949 per cent to 203,000 dozen. ܠ
US negotiaters are due to begin a second round of textile talks for the year with the three major textile exporters-Hong Kong, South Korea, and Taiwan-in July this year. Officials from these countries expect, the talks to result in the creation of more restrictions as the U.S. government is under pressure from domestic textile manufacturers and Congress to restrict imports in order to protect the American textile industry. The US textile makers’ demand
ECONOMIC REVIEW, APRIL-MAY 1979
for relief has because of the
ori textile imp Multilateral Tra placate them til has agreed to re. in ports. And
extended to T. and South Kore
Despite the q Hong Kong's a has recorded a 3 the value of he quarter of 1979 moved over to u; better quality fall garments outsid
The Philippines
Among the ready-made gar. to enter the exp Philippines. Bu capacities of Pł turers have grov last two years, were upsetting There is no dovu exports have e For instance, ga. which are regi traditional expo 25 to 30 per cent since 1975. Est. ports varied bet lion and $358 m with US $250 mi year. In 1970 t ported only sor worth of garmer since 1975 rapid realised. The Ph estimate that ex match those oft industry is now aggressive promo and has set up all Garments Techn Manila in which to be trained a lated garment fac has now become traditional expor pines and is also employer, outsid employing more workers.
The Philippin many other Asi facing the prob quotas being app tional developed Philippine's expo quota limits in I
 

cen building lately proposed tariff cuts rts reached in the de Negotiations. To e U.S. government strict Chinese textile ihese curbs may be viwan, Hong Kong a as well.
uota restrictions on pparel exports she 0 percent increase in exports in the first Hong Kong has sing more expensive, prics and turning out a quota control.
omparatively receit ment manufacturers ert market was the it while production ilippines manufacvin heavily over the
restricted markets
their calculations. bt that Philippine's ontinued to grow. ruments and textiles, stered as a Mionrt, have recorded a 5 increase in exports imates for 1978 exween US $ 338 millhillion as compared illion in the previous the Philippine's exnie US $ 40 million its and textiles, but increases have been ilippines authorities orts in 1979 vould he last year and the 7 moving into an tion and sales drive
in advanced Exports
ology Terminal in 1,200 managers are nnually in a simu - tory. This industry o the leading nonter of the Philipthe nation's biggest e the government,
than one million.
es, however, like an producers are lems from import lied in many tradi
country markets. )rts have reached many categories of
products and by February this year an appeal was made to the US to review its classifications of Philippine garments exports which had led to an embargo of l.6 million pieces. The Philippine's situation was one that could become typical for many of the new producer countries in the market. Philippine's exporters were running into problems of restricting their production and exports to the quotas allocated to them by the officials of the country's Garments and Textile Export Board. Philippine's garments exports for the first quarter of 1979 were 116 per cent above that of a year earlier; recording an earning of $ 70 million with both exports and foreign orders continuing to rise. Fearing the danger of only some producers taking up the country's allocations the Government brought in restrictions.
The main complaint from Philippines exporters is about regulations that have slashed their 1979 quotas to 70 per cent for each quota item. But some exporters have already contracted to sell the quotas their companies had received before these rate changes were announced. They were now in a quandary as to how they could possibly keep their commitments. The General Manager of the Philippine's leading garment exporter, Levi Strauss (Phil.) Inc., said his company lost sales of more than 100,000 pairs of pants this year because of gyrations in government policy. In Britain, alone his company’s 1979 quotas of 128,000 pairs has been slashed to 76,000 he said.
The Manager of another firm, M. Greenfield. Inc. said his firm has promised its previous 1979 quota of blouses to such prestige U.S. Department stores as Bloomingdale's and Lord & Taylor. He said the stores are currently printing their Christmas catalogues, and he could not deliver the goods that they were advertising with his quota brought down. “l cannot tell them that a government regulation says 'no' for this year, he said, “No other country does this.
The Philippine's garment manufacturers are also asking ASEAN to help in negotiations with countries imposing quotas on these products. Textile and garment makers in the ASEAN group of countries have begun working towards negotiating on a regional basis with countries that impose import quotas on
19

Page 22
their products. One of the most concrete steps taken so far is that the ASEAN manufacturers have agreed to hold a joint apparel show in Manila, next January. In the face of growing restrictions and competition the five ASEAN countries would resort to closer collaboration as the one practical way of meeting the situation, which may once again have an impact on all other Å sian garment exporting nations.
Countries in the South Asian region such as Pakistan, India, Bangladesh and Sri Lanka, would also have to contend with such a situation. They all are having their problems, yet they all appear to be expanding their capacities and are pushing more aggressively in their search for markets for their textiles and ready-made garments.
India
In India, for instance, the cotton textile industry is finding it extremely difficult to push up its exports because of the protectionist policy pursued by the developed countries and most affected has been the performance of India's handloom sector. The export statistics released by India's Handloom Export Promotion Council indicate that exports of cotton handloom goods at Rs. 22.37 crores recorded a fall of Rs. 4.19 crores in 1978-79. Authoritative sources commented that on the face of it, the decline is marginal. But the itemwise figures show that the decline took place despite a handsome rise of about Rs. 31 crores in exports of cotton handloom readymade garments. In other words, the gain in garments was more than offset by the decline of Rs. 27 crores in exports of cotton handloom fabrics and Rs. 8 crores in those of cotton handloom made-ups.
A fact that emerges here is that India has experienced an unprecedented expansion in her readymade garments industry, over the past five years and now had markets in over 100 countries, the major outlets being the United States and Western Europe. In February, it was reported that India was making a strong bid to gain a foothold in the Japanese market with her firstever apparel exhibition opened in Japan last month. Indian government spokesmen announced on the
20
occasion that the has not been eff by the Indian ind example, while til exports of Hindiar U.S. was of the million (Rs. 120 c. the U.K. $50 mill Japan's share last $8 million, they to achieve a target (Rs. 800 crores) ment exports.
Pakistan
Pakistan too is in its textiles and ments sector. Pa. dustry which ha over the past five signs of bouncing to a governments tics for the Septe ruary 1979 period total value of ya rose 27 percent in because of the l ported, and part proved internation
Pakistan's expo garments, towels continued to shov the government According to him items rose 13.9 pe to $ 22. millio earlier. The Econc Committee of the ters, expressed ho sent stable condi role of cotton and the economy of Pa restored to its Before 1972, cottic ducts were Pakist:
The protection loped country ma with it a system products of each The more este nations have felt though the notgarment produce and Sri Lanka, w quotas. These lat eyer, Were not g their entire quota producers were til to these countries making the best o
Bangladesh
Bangladesh in foreign investmen

Japanese market ectively exploited ustry so far. For e present annual garments to the order of $ 160 rores) and that to on (Rs.40 crores) year was a mere aid. India hopes of $ 1,000 million annually for gar
placing new hope . ready-made garkistans textile iIbeen depressed years was showing g back, according pokesman. Statismber 1978 to Febshowed that the rn exports alone the period, partly arger volume exy because of imhal prices. rts of ready-made and hosiery also v a healthy trend, spokesman said. the value of these rcent in the period a from the year omic Co-ordination, Cabinet of Minispe that “if the pretions continue the cotton products in kistan will SC C.n.be original status. In and cott Cn proUn’s biggest expClit. isInn in the dev"C - Likets has brought of quotas for the exporter country. blished exporter it more severely to-well established 's like Bangladesh. ere also given set er countries, hc Weared to fulfilling s. The established. erefore moving in with the hope of f the situation.
ts drive to attract ts into the country
has emphasised that one of its significant attractions was that in an era. of rising protectionism there were minimum western restrictions on Bangladesh products. The recent restoration of US governmentbacked overseas investment insurance has encouraged American in
vestors to think in terms of expand
ing their existing pharmaceutical and garments units and moving into several other industries as well. Reports also indicate that South Korea's investors have already set up a garment factory, while various Hong Kong and Singapore garment producers were now seriously considering joint ventures. Furthermore, Bangladesh exports were growing and responding to the country's new concessional export programme, With ready-made garments ranking high among the items of export?
Some of the established Asian producers have also resorted to Various measures to beat quota restrictions and other forms of regulation on their exports. In February this year American officials began investigating allegations that textile products from Taiwan and Hong Kong were being shipped through Indonesia and Sri Lanka, in order to get around US textile and apparel import quota restrictions. Imports from Indonesia, and Sri Lanka, were not regulated by quotas and the chief US textile negotiator visited both Sri Lanka and Indonesia, to lookinto these charges. Subsequent reports stated that the US intended fixing quotas on the exports of these two countries as well.
Where does Sri Lanka standin the light of this situation?
Sri Lanka
Current estimates indicate that the proportion of Sri Lanka's share of the market in the developed market economies would gradually diminish between 1980 and 1982. Production capacities, on the other hand, are well beyond the projected marketability of 18 million pieces of quota items that Sri Lanka, could sellinits restricted internationalmarkets by 1982. Sri Lanka's position will be discussed, in our next issue, through a study which maintains that there is heavy overcapacity in the industry as it now stands.
ECONOMIC REVIEw, APRIL-MAY 1979
non-traditional

Page 23
TRA DE
Steер Acceleration in 1978
The introduction of the economic reforms in late 1977 were regarded as preconditions for an outward looking' strategy geared towards economic growth, and following these measures a relatively more open economy' has come into being in Sri Lanka. This policy also implied a liberalisation of trade and exchange restrictions which are mainlly intended to stimulate the pro
duction activities in the economy.
The immediate effects of the import and exchange liberalisation programmes were apparent in the steep acceleration of imports after November 1977. Naturally, the export sector generally experiences a greater time interval to adjust and respond to any policy change. The combined effect of these two trends therefore, was a massive deficit in Sri Lanka's external trade account in 1978.
For two consecutive years, Sri Lanka had enjoyed surpluses in her trade balance, but the sharp rise in imports together with a low rate of growth in exports has resulted in a considerable trade deficit in 1978. On the basis of Customs data, export earnings in 1978 increased by only 3 percent while imports rose by 23 percent. In rupee terms the value of exports stood at Rs. 13,206 million as against an import bill of Rs. 15,366 million registering a trade deficit of Rs. 1,457 million.
Compared with ing figures for t. the rupee values appear excessive because the exch in November, 19. ciation of the r
TABLE 1. -
Exports:
R.S. Million
Imports:
Rs. Million
Trade Balance
Rs. Million
Terms of Trade (1967-100)
Source Central Bani
much higher val dollar or pound
ports or imports. stable unit of acc has been suggeste Bank, for the a data. This unit kn, Drawing Rights
accounting unit ac by the member
purpose of borrov ing with the Inter) Fund. The export for 1978 compare
TABLE 2. FOREIGN TRADE INDICES 1968-78
lindex Number (1967-10
Volume Price All All All
Year Exports Ітports Exports
1968 O3 O 117 1969 98 08 17 1970 O2 102 8 1971 99 90 17 1972 97 88 18 1973 98 79 37 1974 85 56 217 1975 O2 69 99 1976 97 75 239 1977 89 97 382 1978 95 132 698
Source Central Bank of Ceylon
EconoMIC REVIEW, APRIL-MAY, 1979

the correspondhe previous years recorded in 1978 y high. This is ange rate reform 7 led to a depreupee resulting in
fully and realistically with that of the previous years when this unit of accounting is used.
The SIDR equivalent of the exports and imports in 1978 are shown within brackets in Table I. There has been a marginal increase in exports from SDR 659 million in I977 to SDR 676 milion in 1978. Imports on the other hand, have risen from SDR 630 million to SDR 774 million over the same period. Hence, the surplus situation
EXTERNAL TRADE ACCOUNT 1974-78
(SDR values within brackets)
1974 1975 1976 1977 1978
3,472 3,933 4,815 6,638 13,206 (432) (466) (495) (659) (676)
4,554 5,251 4,645 6,007 14,663 (569) (617) (477) (630) (774)
1,082 1,318 170 631 1457 (-137) (-151) (%. 18) (%. 29) (-98)
58 46 62 81 80
s
k of Ceylon
lues for a given equivalent of exThe use of a more ounting therefore, }d by the Central unalysis of trade own as the Special
or SDRs is an :cepted universally countries for the ving and transactnational Monetary and import data es more meaning
0)
s
All Terms
Imports of Trade
126 93 134 88 40 84 150 78 57 75 209 65
37 58
433 46 383 62 47 8 877 80
of the previous year has disappeared
and a deficit of nearly SDR 100 million has emerged. Comparable data for the past five years are also given in Table I.
The annual Terms of Trade Index that takes into account the relative change in the import and export prices had indicated a generally favourable position in 1977, when it improved from its very low levels of the previous years. This trend continued in 1978 when the Terms of Trade Index was computed as 80 (1967-100), but was still quite unfavourable for Sri Lanka. An index of less than 100 indicated a deterioration in a country's terms of trade due to import values rising much, faster than those of export values. In such cases, the quantity increase in exports may not be sufficient to arrest a worsening trade balance. In view of the low prices of exports and the relatively inelastic nature of the supply of export goods in the short run, the import liberalization programme (at a time when the import prices were rising) resulted in an enhanced trade deficit.
21

Page 24
TABLE 3.
MAJOR ITEMS OF EXPORT N 976, 97.
Vaiu e Rs. Ty/icm *ercs 976 1977 量978 97.6
Tea 2,100 3,503 6,383 43.7 Rubber 890 93. 2021 18.5 Coconut . . - 382 335 972 8.0 Textiles and Textile
articles - 73 285 734 3.6
Gens & Jewellery . . 264. 302 536 5.5 Mineral Fuels 40 49 376 2.9 Fish & Cristaceans 75 95 233 1.5
Suh-Total 4,024 5,600 11,255 83.8 Other Expsrts 777 1,015 1920 16.2
Total Domestic Exports 7,801 6,615. 13,175 100.0 Re-exports 4. 23 3. Total Exports 4,815 6,638 13,206
Source Sri Lanka Customs Returns
Exports
Export earnings in 1978 were low primarily because of poor tea prices which more than offset the contribution of the increased quantity of tea exported. In SDR terms, thus, tea export earnings fell by about 8 percent in 1978. Rubber exports, however, improved substantially by about 11 percent in SDR terms with the favourable world market prices which rose by about l4 per cent. A production recovery in coconut enabled a greater export volume in 1978, and the SDR value of exports from three major coconut products rose by more than 50 per cent in 1978, despite a reduction in the export prices of coconut. However, the poor performance of tea exports is a matter for concern as this commodity still accounts for almost half of Sri Lanka's export earnings
Within the past decade, several non-traditional exports were encouraged with the idea of diversifying the export structure (Table 3) Minor Agricultural exports, industrial exports and gem exports together now contribute about 25 ercent of the total export earnings of Sri Lanka. In 1978, the value of industrial exports (including petroleum products) amounted to Rs. 1,891 million or nearly SDR 100 million, reflecting about 4 percent of the total export earnings. While the industrial exports as a group registered an increase in earnings, gem exports fell by about 10 per cent, and the export value of minor agricultural crops also declined by about 13 percent, in
22
SDR terms. In r these exports Wol earnings in 1978 change rate adju. would not be real the trade performa of rupee values a tioned earlier.
imports
After several ye trative controls, tions and exchan, import trade begar of restrictions with of the Government policy in Novem of the consumer go goods and capit Rs. 700,000) were Government's pric a result of this imports, the volu
TABLE 4. CO (Percent
1. Consumer Goods
a. Food & drink b. Textiles c. Consumer durat
2. Intermediate Goods
a. Fertilizer b. Petroleum c. Other
3. Capital Goods
*a. Building materi b. Transport *quip c. Machinery č. e.
4. Un classified
Total
Source Central Ba

7 and 1978
2ntage of Exists
1977 1978
53.0 48.5 4.0 15.3 5.0 7.4
4.3 5.6 4.6 4.1 2.2 2.9 14 1.8
84.7 85.6 15.3 14.4
106.0 000
-
upee terms, all ld show higher due to the exstments, but it listic to evaluate ince on the basis hymore, as men
ars of adminispayments restricge controls, the l to operate free the introduction j's new economic ber 1977. Most ods, intermediate all goods (upto allowed without )r approval. As liberalization of lme of imports
went up immensely and rapidly. The Import Volume Index (1967-100) calculated by the Central Bank indicated a 36 percent rise from the 1977 level, when the index level reached 132 in 1978. The value of imports went up due to both quantity increases and price increases. The level of imports at Rs. 4,663 million in 1978 was equiValent to SDR, 774 million compared with SDR 630 million in 1977, reflecting a 23 percent
SC.
The growth in imports, however, was accompanied by a shift in the shares of the major import, sectors. The composition of imports clearly demonstrated an increase in the import of capital and investment goods. This can be seen from Table 4 which compares the percentage shares of types of imports. Over the period 1977 to 1978, the share of capital goods has risen from i2 to 23 percent or by twofold, the main item in this category being machinery and equipment. The capital and intermediate goods inports in 1978 together accounted for over 70 per cent of the total import bill and this appears a satis - factory development, for the economy, arising from the import liberalization policy. The impact of this development will be se en in the medium and long-run as the capital goods and intermediate imports would after a time-lag, other factors being favourable, contribute to the enhancement in production.
MPOSTION OF MPORTS BY CATEGORIES 974-78
age shares are given within brackets) (Rs. Million)
1974 1975 1976 1977 1978
\ (47) (50) (36) (42) (38)
2,138 2,651 1,689 2,534 5,594 1,950 2,520 1,491 2,181 4,103 - 59 20 49 150 53 bles & other goods 129 111 49 203 959 (42) (36) (49) (44) (38) 1,920 1888 2,259 2,648 5,591 22 208 99 5 252 905 872 1,164 1.441 2,403 794. 808 996 1,156 2,936 (10) (12) (14) (12) (23) 457 653 64 746 3,367 als 147 169 104 29 50 meint 9. 116 175 232 988 fuipment 183 322 364 286 1,846 (1) (2) (1) (2) (1) 39 59 54 79 0.
4,554 5,251 4,645 6,007 14,663
nk of Ceylon
ECONOMIC REVIEW, APRIL-MAY 1979

Page 25
TABLE 5. MAJOR ITEMS OF IMPORT IN 1976, 197
Vale RS. Emilion
1976 977 1978 s
Petroleum 1,196 1,490 2.433.7 2. Rice & Cereals 743 1,061 84 16 Four 686 930 --- Sugar 68 199 562.9 Textiles & Yarn 189 459 1,217.6 Fertilizers 76 18 251.6 Pharmaceuticals 59. 87 156.8 Boilers, Machinery
and Appliances 292 33 1,800.3 Iron and Steel 83 88 927.8 Motor Vehicles and
parts . . 150 233 1,681.6
Sub-Total 3,642 4,978 11,979.8 7, Others 1,003 1,029 2,633.6 2 Total Imports 4,645 6,007 14,613.4 C
nomy arising from the import U.S.A., UK, Inc
liberalization policy. The impact of this development will be seen in the medium and long-run as the capital goods and intermediate imports would after a time-lag other factors being favourable eontribute to the enhancement in production.
t
Machinery and appliances, and motor vehicles and spare parts alone have taken up almost 25 percent of the total value of Sri Lanka's import bill in 1978; in 1976 these items did not take even 10 percent of the total import bill. Another item of importance was textiles and yarn which took up 8.3 percent of the import bill in 1978 as compared with only 3 percent in 1976.
Sources of Supply
It is significant that with the changing pattern of imports, following the liberalisation, that Japan should have ended up as the foremost supplier of our imports in 1979. Hitherto Saudi Arabia, our major petroleum supplier, had occupied the top position in 1976 and 1977 and was behind only China in 1975 For the first time, however, Japan. which had not been within the first three suppliers over the past years, came to occupy the leading position as supplier of our foreign products. A notable feature in the pattern of imports has been the increasing concentration of sources of supply in recent years. The first five supplying countries accounting for nearly half the value of our imports and the first ten for almost 75 percent.
ECONOMIC REVIEW, APRIL-MAY 1979
Arabia have con the first six sourc too. Of the nea Sri Lanka’s impc 25 accounted for total value. I imports from mal. countries more t
TABLE 6.
SR LANKA"S
. Japan - . Saudi Arabia
U.K. . India.
U.S.A. . Iran . Germany, F.R. . Australia ... France Birma li. China
. Singapore . . . Netherlands .. . Italy . Canada i 6. Religium 17. J.S.S.R.
. Hong Kong . . . Pakistan . New Zealand . South Africa
Sweden. . Switzerland . Malaysia . Denmark.
Sub-Total Others
Total (a countries)
Sorce Sr

7 and 1978
'ercentage of imports
76 1977 1978
5.7 24.8 16.7 5.0 7.7 5.8 4.8 15.5 14.4 1.5 3.3 3.9 4.0 7.6 8.3 1.6 0.3 1.7 1.3 1.4 11
6.3 5.2 2.3 3.9 3.1 6.4
3.2 3.9 11.5
8.4 82.9 82.1 1.6 17.1 17.9 0.0 (0.0 100.0
lia, Iran and Saudi tinued to be among es of supply in 1978 rly 90 suppliers of rts in 1978 the first 93.3 percent of the in 1978, however, ny leading supplierhan doubled with
the very large volume of machinery equipment, industrial manufactures and motor vehicles coming in from these sources.
Japan, for instance, moved aggres sively into the Sri Lanka's liberalised imports market. The value of Japan's exports to Sri Lanka moved up from Rs. 376 million in 1976 to Rs. 398 million in 1977 and increased almost fourfold to Rs. 1,159 millioi). in 1978. Nearly 50 percent of these imports from Japan in 1978 were vehicles and other transport equipment (Rs. 405 million) ànd electronic equipment parts and machinery and mechanical appliances (Rs. 389 million). Another major area was base metals and articles of base metat (Rs. 252 million). Most recent Customs data indicates that Japan pursued its aggressive trade drive into 1979 and by March this year 15 percent of the value of Sri Lanka's imports were from Japan. India was following second, accounting for 9 percent of the value of our imports and third was Singapore accounting for S percent of imports.
IMPORTS 1975, 1976, 1977 and 1978
25 MAIN SUPPLIERS OF FOREGN PRODUCTS IN 1978
1975 1976 1977 1978 RS. m. %. Rs. m. %. Rs. m. RS. m.
447 8.5 376 8.0 398 6.6 1590.4 11.0 637 12. 596 12.8 747 12.4 1,385.3 9.6 223 4.3 275 5.9 327 5. 1,396.1 9.6 150 2.9 8 3.9 377 6.2 1,242.0 8.6 337 6.4 379 8.2 538 8.9 1,104.6 7.6 28 4.2 499 10.7 586 9.7 858.3 5.9 252 4.8 83 3.9 223 3.7 831.9 5.7 429 8.2 273 5.8 291 4.8 738.4 5.1 429 8.2 294 6.3 231 3.8 690.7 4.8 12 2.3 231 4.9 167 2.7 498.7 3.4 662 12.6 56 1.2 284 4.7 452.5 3.
04 2.0 79 1.7 26 2.1 405.0 2.8 46 0.8 70 5 107 1.7 380.3 2.6 38 0.7 52 . 139 2.3 275.2 .9 62 1.2 06 2.3 71 1.1 264.4 8 7 0.3 56 1.2 73 1.2 230.7 1.6 2 2. 72 1.5 13 2.1 237.5 .6 8 0.2 25 0.5 44 ().7 23.5 1.5 220 4.2 274 5.9 273 4.5 1 72.2 .2 2.9 3 15.3 .3 23.4 .4 134.3 0.9 30.5 .6 5.3 . 9.6 .2 100.4 0.7 36 0.9 59 1.2 33 0.5 O6 O.7 15.3 3 14.0 .3 22.2 .4 100.7 0.7 15.5 3 16.5 .4 29.0 5 100.4 0.5 30.2 .6 18.7 .4 8.8 .2 51.7 0.4
4,653.0 87.1 4,206.0 88.70 5,259.0 85.30 13,561.2 93.3 598.0 12.9 439.0 1.30 748.0 4.70 1,052.2 6.7
5,251.0 100.0 4,645.0 100.0 6,007.0 100.0 14,613.4 100.0
i Lanka Cusfomas Rettirns
23

Page 26
Foreign Markets
UK emerged as the leading market for Sri Lanka's products in 1978, accounting for almost 8 percent of Sri Lanka's export earnings. China which in 1975 occupied top position as both importer and exporter had, in 1978, moved into second position as a buyer of Sri Lanka's products. Pakistan which was the chief importer of Sri Lanka produce in 1977, mainly because of her heavy imports of tea, had fallen into fifth position last year. USA retained third position as a market for Sri Lanka products while Japan moved up from sixth position in 1976 to fourth position last year. Other important markets for Sri Lanka, were the Middle Eastern countries of Saudi Arabia, Iran, UAR, Iraq and Syria, which took in a large volume of Sri Lanka
tea. Among th Western Europea West Germany, Ita lands while Polan the only East El among the leading Lanka produce. 25 buyers and sup that recorded the trade gap was Indi. products valued million in 1978 Lanka, with good Rs. 1,396 million.
During the first this year USA was for Sri Lankas e for 9.5 percent of exports, followed which had both each of the valu during this peric
TABLE 7. EXPORTS 1975, 1976, 1977 and 1978
THE 25 MAN BUYERS OF SRI LANKAS PRODUC
1975 1976 1977
RS. m. %. Rs. m. RS. m. 9.
1. U.K. . . 311 7.9 465 9.7 528 8. 2. China 460 11.7 481 10.0 434 6. 3. U.S.A. 219 5.6 335 6.7 500 7. 4. Japan 178 4.5 213 4.4 321 4. 5. Pakistan 345 8.8 363 7.6 534 8. 6. Saudi Arabia 94 2.4 122 2.5 175 2. 7. Germany, F.R. 118 3.0 163 3.4 26 3. 8. Iran. . . 117 3.0 100 2.0 123 1. 9. U.A.R. 121 3.1 101 2. 304 4. 10. Iraq 190 4.8 145 3.0 356 5. 11. Italy . . 68 1.7 131 2.7 110 1. 12. Netherlands .. 69 1.8 116 2.4 186 2. 13. Syria. . . 65 1.7 79 1.6 168 2. 14. Canada 95 2.4 117 24 127 1. 15. Singapore 50 1.3 143 3.0 98 1. 16. Australia 110 2.8 129 2.7 199 3. 17. Hong Kong . . 59 1.5 121 2.5 153 2. 18. South Africa 121 3.1 141 2.9 20 3 19. U.S.S.R. 103 2.6 153 3.1 125 20. Poland 39 O.9 42 0.8 69 21. France 44 1.1 56 1.2 94
22. Switzerland 30 8 25 0.5 55 23. New Zealand 34 0.9 42 0.8 68 1
24. India. . . 2 .1 2 .1 10
25. Belgium 13 .3 10 .2 29
Sub-Total 3,055 7672 3,795 78,30 5228 76 Others 868 23.28 1,006 21.70 1387 23
Total (all countries) *3,923 100.0 4,801 100.0 6,615 1(
*Re-export of Rs. 31.2 mn. in 1978. R.s. 22.7 mn. in 1977.
and Rs. 10.5 mm. in 1975 are excluded.
Source Sri Lanka Customs Retturns
24
 

e other leading n markets were ly and the Netherdi and USSR were ropean countries 25 buyers of Sri Among the major pliers the country
most significant a which imported at only Rs. ll0 but supplied Sri s to the value of
three months of the chief market kports accounting the value of total oy Japan and U.K. taken 7.9 percent e of our exports
TS IN 1978
1978 6 Rs... m. %
0 1,038.5 7.9 5 955.6 7.3 5 924.9 7.0 3 766.3 5.8 0 689.4 5.2 6 626.9 4.8 9 564.9 4.3 8 568.4 4.3 6 559.6 4.2 4 457.7 3.5 6 307.7 3.0 8 367.3 2.8 5 362.4 2.8 9 291.1 2.2 5 278.0 2.1 O 254.8 1.9 3 198.3 1.5 0 2014 1.5 9 1970 15 0 165.1 1.3 4 172.2 1.3 8, 151.5 1.2 0 127.8 1.0 2 110.2 0.8 4. 72.1 0.5
64 10,409.1 79.70 36 2,765.9 20.33
1.0 13,175.0 10.00
Rs. 13.7 mm. in 1976
AGRICULTURE
WORLD FOOD SUPPLY STUATION
Possibilities of a world food shortage in the 1980s has engaged the attention of a special body set up by the UN General Assembly in December 1977. The Committee's view is 'already there are reports that levels of grain reserves now at a record will decline Sharply by the mid-1980s due to less favourable harvests. In the case of crop shortfalls, there is therefore no guaran
tee of supplies precisely at the moment
when food is most needed. Such a pre
carious situation cannot be allowed to
threaten world security. The "wheat talks' (officially known as the UN Conference to negotiate an international arrangements to replace the existing International Wheat Agreement of 1971) have in the meantime resulted in a deadlock and this has been regarded as a serious blow to world food security since the new arrangements were intended to stabilize world cereal markets and establish a system of reserve stocks. With a view to closing the gap in world food security left by the suspension of the "wheat talks', the FAO's Director-General, Edouard Saouma, presented the following five-point plan of action at a recent meeting of the UN Committee and also called for replenishment of the International Finmergency Food Reserve to ensure the target of 500,000 tons of cereal.
FAO's Five-point Plan of Action
* Ali countries should adopt nationai grain reserve policies and set target levels for the size of their reserves. The reserves would be used for food security purposes, as opposed to commercial aims. Food surplus countries would also hold stocks against international shortage.
* The FAO Committee on World Food Security would establish guidelines for releasing stocks. Stocks would be used in the event of crop failure or natural disaster, or to help developing countries meet their food imports at reasonable cost.
* As many developing countries already have large food deficits, food donor countries are asked to increase their food aid commitments (from the legally binding level of 4.2 million to 10 million tons). FAO further recommends that commitments should be stepped up to 13 million tons by 1982 and 16 milion tons by 1985.
* Both bilateral and multilateral aid should be increased to help developing countries create and maintain food reserves.
* Food security of developing countries should be promoted through collective selfreliance.
What the impact of the UN Committee’s meeting would be on the future world supply situation is difficult to assess. As the Committee's Chairman, Thorvald Stoltenberg emphasised, general agreement on the need to take measures does exist but “The problem is . . ... to transform this general consensus of opinion into concrete action”.
ECONOMIC REVIEW, APRIL-MAY, 1979

Page 27
FEATURES
Patterns of Growth in Children
in Sri Lanka Beatrice V. de Mei and Kamilaka Abeyratne
Nearly one fourth of the babies born in Sri Lanka fail to re. of 2,500 grams at birth. On the other hand a study of the socia. elites of this country have revealed, in this group, rates of grow those of the United States; but only up to 11 years of age. Withi it has been found that the growth retardation prevalent in rura. the age of 4 to 6 years was 16 times higher than that seen in chil Montessoriand Nursery schools in Colombo. These are some of that come out in this concise and revealing survey of the patt Sri Lanka's children, by Dr. Beatrice V. de Mel of the Departme the Medical Research Institute and Dr. Kamilaka Abeyratne of Ridgeway Hospital for children. They emphasise that growth fail is the result of a large number of interlinked factors and what is term solution through an integrated programme, comprising re size, provision of better environmental conditions, immuniza ventable disease, nutrition education, continuous surveillance an
where necessary.
Growth is the process in the human by which a single cell reaches full adult stature. This process requires not only 'the building materials' but also energy for fuelling the various intricate chemical processes involved. These substances are the nutrients in the human diet. There are other factors involved in the rate of growth and the final stature reached, heredity being one of them; although the importance of this factor has been somewhat reduced by studies on immigrant populations, particularly the so called “small
races the Japanese and the Chinese
residentin developed countries where in a generation or two the same stature as the Caucasian races is reached. Growth is not a uniform process throughout. There are periods when growth is very rapid and there are periods when it may be very slow or even quiescent. Growth is also not continuous throughout all parts of the body. At certain stages, certain organs and systems may grow faster than others and this gives rise to the characteristic change in form, illustrated in Fig. l.
The most rapid period of growth, of course, is the intra-uterine, when the child grows in the mother's womb and starting as a single cell weighing 1-2 micrograms will reach a weight of 2,730 grams (average), an increase in size of two million times. Nearly one fourth of the babies born.
ECONOMIC REVIEW, APRIL-MAY, 1979
in Sri Lanka fail : mum of 2,500 g growth in this per a large number of cases the baby is term, in others, tain because moth their dates. Tin son of intra-literine gr. disease in the mot. the placenta, whic culation of the me growing embryo C baby. Unfortur proportion of und birth in this co failure of nutritic which means that ceive sufficient nU to meet both hern of the child deve This can be a cum ting subsequent c the first one and
on from one ge
nourished and st the next.
It is clear that have suffered f: during gestation, handicap which, they are able to c The next phase during the first ye this period is clean rapid bodily gro period when the greatest rate of therefore, a period
 

ach the minimum (and nutritional) th comparable to the country itself children between lren from private the stark findings erns of growth in nt of Nutrition of Colombo's Lady ure in our children ecessary is a longduction in family tion against prei supplementation
-
bo reach the miniams. Failure of iod may be due to factors. In some born before full One cannot be cerers are not sure of
ne cases this failure
owth may be due to her orto disease in h connects the cir5ther to that of the ir to disease in the lately the largest erweight babies at Intry are due to in of the mother i she di Ces notretrients in her diet eeds and the needs loping within her. ulative effect affechildren more than even being passed Heration of malunted mothers to
such babies who ailure of growth start life with a in most instances, atch up on.
of growth occurs ar of life. Though ly a period of very with it is also the brain reaches its growth and it is, in which dramatic
advances are made in physical and mental performance. Failure of growth during this period is likely to affect permanently the capacity of the brain. In addition, if this failure of growth is associated with malnutrition, resulting from overcrowding, large families, neglect and parental deprivation, there is likely to be permanent damage to the child's psychological responses to his environment. ۔*
The key to this phase of growth is breastmilk. Breastmilk is nature's food for the child. It provides all the nutrients in the correct proportions throughout, in addition to providing certain substances which are essential in the protection of the child from infections. Further, the physical contact that is an essential part of breast-feeding, undoubtedly leads to secure, confident, and wellrounded personalities ensuling a normal psychological development as the child grows. Except in the
case of illness or grave inconvenience
to the mother, there is no excuse for the use of poor artificial substitutes during this phase of growth, which, in effect denies the child of its birthright. Perhaps the best compromise that can be reached today is breastfeeding alone for 5-6 months, supple
mented and later substituted by
artificial feeding concurrent with a programme of weaning onto solids.
The next phase of growth carries the child from the end of the first year to the end of five years-known as the preschool period—this is undoubtedly the most appealing phase of a child's growth. The child is learning to explore his environment. learning to walk and talk and is developing as a personality. Unfortunately this group in our country provides the highest number of severe cases of growth failure and the rate of sickness and death, in our children is highest in the period of up to 3 years of age (see table). Growth failure in this age group may arise from several factors. The most important is the fact that in a large number of families children are expected to join the adults for their meals. taking what is for them unsuitable food in inadequate quantities in two or three instalments for
25

Page 28
Growth in children is not a uniform process throughout. There a slow or even quiescent. Growth is also not continuous throughou may grow faster than others and this gives rise to the characteristi
The most rapid period of growth, of course, is the intra-uterine, during the first year of life. The following phase of growth carri known as the preschool period - this is undoubtedly the most ap country provides the highest number of severe cases of growth fail period of up to 3 years of age.
School-going children are available for programs aimed at detectii programs aimed to supplement the nutrition intake. The problen
A study on the Social (and nutritional) elites of this country have re' vard and NAS) but only up to 11 years of age. There is a fall of adult statures. This may be due to a genetic factor as this observ
CHANGES IN BoDY PRopoRToN S vA
GRLS
.8 ft
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} 79.9 87. 845 to 3 (7.3 3.0 17.9
(India) '' 兽。 9.9 87. * 0.2 74.2, 80.9 86.6 95.7 103.2 109. 15.3 22.3 28.0 * (Àamerica) ܬ
3.2 8,8+ 0.8 1.9 13,8 5. O 2.2 20.3 24.0 25.5 لأنه
- 26. * (Sri Lanka) 18.4+ 2莓一喀 2缉,8 β. ι భా
- - 5. 7.3 92 ... - IIIldial 7t 岛.4 }1.2 2.8 s.3 5.8
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26
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3.° 38.6 g5.S. 102.2 ta8.4 4. a 119.8 y 23
50, 8 7Տ.2 * 8.8 37.5 96.2 03.4 108.7 17.5 24. 1 3Ꮳ , Ꮳ ] 35 väiderica)
3.3 9, 0.6 2.2 14.5 6、18.4 20.8 24.1 256 28
* Sri L s nika ) ---- 17・ち* 日8.8 2!.○ 22, 6 24
\india) 8.3 to 0 ! 98 i 3. 4, 5.2 LS, A 8.4 9 3 6 2 3.4 0.7" .4 2.6 翡4,6 6.5 }8.4 2}.9 24.5 27.3 29 (APIerica)
DATA ARE THOSE OF THE 50TH PERCENTILE OF WEIGHT FOR AGE FOR ALL AND
I PERCENTILES PROVIDE A MEANS OF QUANTIFYING THE ARIATIONS WITH IN A
LLLLLLLLS LLLLLLmmLmLS LLLLLLLLmLaaSLLLLLS SGGLLLLSS SLLSS SLLSS SLLG C0S KLSS SLSS a GGLS CS 0000 SLLLGLLLLSLLL ESS S LL 00aL SLmYLmmL LL LS L aa S000SS LGGLS 0a0Sa 0L S S LLL SSLSLSS SLLSS Saaa SaSaaS LSLSLS
 
 
 

a periods when growth is very rapid and periods when it may be very all parts of the body. At certain stages, certain organs and systems change in form as illustrated below. ༤.
then the child grows in the mother's womb. The next phase occurs is the child from the end of the first year to the end of five years - pealing phase of a child's growth. Unfortunately this group in our re and the rate of sickness and death in our children is highest in the
g growth failure due to lack of nutrients and also can be reached by , therefore, is not as severe as for the preschool group.
ealed rates of growth comparative to those of the United States (Harin growth in our children after this age leading to the difference in ation has been made in India.
- GROWT
|
f
_{iji
ş } 조 月5 ‘莲香 is ፤ኧ  ̈ ;莎 ↑ 22 , 1 · ]36 .5 14 ] .3 ] Ꮞé .0 1 52.Ꮞ ] 55.0 ]59 ,5 ]58, 6 156.8 ]ᏚᎦ,8 0AS0 000S0 S 00S0S 000S0 S 000S 000S 0 S000S0SKS S0S000S0S000S0
22.5 28. 南33。孪 33.3 4.5 i48.1 150.0 15 0 1s2. i56 329 138.8 }$层。了 5.9 青57, 羅59.6 16, 1 62.2 62.5 ge,s
27) 28, 9 32.7 36,7 39, 车4、0 45. 45.车 晏委、钟 499
297 33.5 36.5 42, 6 44.车,本6,7 48.2 A9.8 49.9 S0, 21.0 23.2 25.7 &9.3 33、ü 37.G 39.1 4.0 420 4°3
28.9 3.9 38 39.7 *5。●- 43.2 55 53, 54.0 S孕、手。
霍2 is 翡今 45 fs 翼了 영 2 136.2 黑车3.8 45,154.9 6.0 559 69.5 69.9 7.3 8 1340 37.8 43.5 51. 53.2 6.9 3.0 70. 69.5
28.9 133, 3 * 38, 1 :44, ծ 303 1566 53 W62.4 33.5
5 49.3 14ፋ , 2 }49. € }55.Q 52.7 Si,8 171・6 173,7 74,5
4 30.8 53.2 350 42.9 473 522 55.3 56.7 59.0
is 26.6 28.3 32.3 35. 43 奉5、3 49,2 53.8 52.4
2. 22,9 25.4 27.9 3.3 35.2 39.9 436 45.s 47.4
9 32,6 352 38.3 车2。之 48.8 545 58.9 68 63.
figHT FOR AGE : 9.7: i?ERCETILE GF REPRESENTATIVE CIIILREN CF SRI LANRA
INCLUDING THE MALAOURISHED - INDIAN THE SAME SAMPLING. 'OUP - IN THIS CASE THE HE TGil 1 AND THE WEIGHT FOR EACH AGF GROUP.
SLLLaLLLLSSS S L0aa0YSLS HLGLS S00S SS SS SSLSLSS S S S SLLLL LLSLLLLLLGGaL0LLS LLLLLLG LLLL
'W') A T.S. 7'FHF, PÅ ETT AN } .
ECONOMIC REVIEW, APRIL-MAY 1979

Page 29
the day. The other problem is that in the exploration of the environment children pick up a large number of uninvited and unwelcome guests in the form of worms and other intestinal parasites who, living in the child's gut, consume the child's food. In cases where the nutrient intake is marginal, the presence of large numbers of intestinal parasites may tip the scales towards severe growth failure.
Chronic or recurrent infections, such as those of the bowel, causing diarrhoea, or those of the throat and lungs may debilitate a child to the point when its nutrient intake is not sufficient to meet the increased demands of fighting repeated infections. For example, in a child Un a marginal nutrient intake. an apparently simple disease like measles can prove to be fatal or lead to a severe form of malnutrition known as Kwashiokor. School-going children starting from 8 years may be
marks the final as Boys start off by taller than girls : caught up by til passed in both he girls but only till any case the pI spurt is very dra Caucasians have
growth spurts ind The picture in S. clear but in fema. reached 2-3 years an urban (well-t than their shorte counterparts.
Growth failure ability to achieve mental stature economic handica and a, financial li not only from rec but also from the medical care for and sociai service been disabled thi
considered in two groups, primary - fore necessary to
school ending at 12 years, and secondary school thereafter.
The problems of the school child are mainly those of increased demands of energy to meet the greater physical effort of attending school. In addition, some children living far away from their schools may be affected by the long single session, and its late termination leading to their having their first meal for the day at 2 or 3 in the afternoon. School-going children are available for programs aimed at detecting growth failure due to lack of nutrients and also can be reached by pro
grams aimed to supplement the
nutrition intake. The problem, therefore, is not as severe as in the preschool group (see table).
One of the features of growth failure and a lack of nutrients in
school-going children is that they are
listless and unable to concentrate and therefore unable to make use of the excellent free educational systems provid by the State. This is a comment that has been often made by teachers of remote rural schools. This may be an hitherto undetected cause of the poor academic performance of this part of the country.
The next period of adolescence marks a very important event in growth and development, the passing of puberty, after which the acquisition of the ability to reproduce
ECONOMIC REVIEw, APRIL-MAY 1979
detecting grow enough to do sc These are based ments (anthrop height, weight an head, chest and these individual compared against retarded growth There is a great ( in which measul used and which applied. It is a that whatever made and wha applied must be made accurately with the simplest para medical field should be intellig public. The Inor able in this cou Weight in relation the basis of grow used in the CAR posha Program wil tional food mad indigenous foods a vitamin/miner: supplied to the vu infant children, tating mothers, p mary school chill
In 1936 Lucius
ted that there was in stature betwee and rural poor C
 
 

cent to adult status.
being heavier and at 5 years and are he 10th year and ight and weight by the 13th year. In 'e-pubertal growth matic. Studies in shown that early icate early puberty. ri Lanka, is notas les the mena, che is earlier in girls with to-do) background
r and lighter rural
: leading to an ina full physical and can be a socioup to the individual ability to the State, iuced productivity. a need to spend on the undernourished. s to those who have ereby. It is therehave the means Óf tha failure early mething about it. on bodily measureOmetry) such as di circumference of left arm. When measuremelts are t a norm, cases of can be detected. ea of controversy ements should be norms should be bsolutely essential measurements are teve' noms are capable of being and interpreted 5 of equipment by personnel, and they ible to the general m currently availintry is based ciri to age and forms rth cards currenty E-sponsored. Thrihich includes nutria exclusively from tuffs fortified with all additive being illnerable groups of pregnant and lacre-school and pridiren.
Nicholls commens such a difference en the urban rich if this country as
though they were of two different races. More specifically, in the Shi Lanka Nutrition Status Survey in 1975/76 an official of the Department of Health Education, and Welfare, United States: commented that the prevalence of growth retardation. in rural children between the ages of 4 to 6 year's was 16 times higher than that seen in children f: cm liivate Montessori and Nursery schools in Colombo. A study on the social (and nutritional) elites of this countly have revealed rates of growth comparative to those of the United States (Harvard and NAS) but only upto lll years of age. There is a faii offin growth in our children after this age leading to the difference in adult statures. This may be due to a genetic factor as this observation has been made in India.
The State,inal Third World countries, has a special function in the prevention of severe forms of growth failure in its population. Various programs of food subsidies have been a feature of life in this country since the war.
Subsidies have been mainly in the energy-giving focds rice, flolu and sugar and to a lesser extent in the "building materials, i.e. milk, pulses and dried fish. These subsidies were aimed more at the working adult and the needs of children were served by special programmes aimed at identified groups, communities and areas at risk and providing them with free supplements to their diet ranging from the buns ald skimmed milk of the past to Thriposha and biscuits. Food subsidies are being replaced by a similar supplementary programme of food stamps for all members of deprived households.
On the whole, growth failure is a result of a large number of interlinked factors. Overcrowding. Overlarge families, underemployment and poor sanitation, and housing leading to intestinal parasitosis and recurrent infecticis, all of which together tend to diminish, the value of the marginally ade quate fo cd available to such groups. The only longterm solution, is an integrated program comprising reduction, in family size, provision of befter er vir Cnmental conditions, immunization against prevertible disease, nutrition education, continuous surveillance and supplementation, where necessary.
27

Page 30
The Frugality Phenomen
More and more Americans are turning towards that is “outwardly simple and inwardly rich Carter Henderson
There is occurring today a deep change of attitudes about v "good life' in the Western countries. The most advanced marke country, namely U.S.A. seems to have changed; away from the demanding more and more worldly goods, to a less materialist and the Western world generally, was built on the acquisitive dri tant ethic exemplified at timmies by such catch-words as “Keej Joneses'. The accompanying article by Carter Henderson, Princeton Center for Alternative Futures, which we reproduce wi Bulletin of the Atomic Scientists, A Magazine of Science and Pub right, Educational Foundation for Nuclear Science, Chicago, Ill some of the energing new American attitudes.
This turning back from some of the assumptions of Wester sation of the last 200 years is of significance not only to Americ Third World, as well as to the Sccialist countries. The goal of tries whether lt was under the Leninist slogan of Socialism eq plus Hydroelectricity or under the post-Maoist slogan of the “fou has always implied a philosophy of following, catching up a West, in material production. The Socialist world has reject not all-of the social institutions of production in the Westbu Western products whether they be cars, aeroplanes, colour te clothes has tantalized Eastern Europe, American rejection of a has therefore a strong impact on some of these follower cou for instance, countries that have overtaken the West, as the G.D a higher standard of living than Great Britain). For the Thir holds true; post-independence rhetoric has always evoked an part of the West's supply of material abundance. A reversal therefore of a model of technological development in the West significance for “follower' countries, whether they be the Th Socialist ones.
The uestion one has to pose is whether symptoms of the U of a society in decline, a spent-out force or is it still the torch bea nology, a 'technology' very different from what has been
Ir the accompanying piece Manel Tampoe, a journalist repu and thought-provoking commentaries on social issues, an non-renewable-resources and changes to the environment, 1 situation from a local angle and poses the issue 'A New Economi Extinction'. She maintains that “the progressive or develope future will have the characteristics of the present “under-dev
What would happen if consumers decided to simplify their lives and spend less on material goods and services? This question is taking on a certail, urgency as rates of eco
nomic growth continue to decelerate
throughout the industrialized world and as millions of consumers appear opting for more frugal life-styles. The Stanford Research Institute. which has done some of the most extensive work on the frugality phenomenon, estimates that nearly five million American adults are pursuing lives of 'voluntary simplicity', and double that number “adhere to and act on some but not all of its basic tenets.
The frugality phenomenon first achieved prominence as a middleclass rejection of high consumption life-styles in the industrialized world.
28
during the '50s a Silent Revolution, of the Universit Institute of Social ed this experier States and 10 W nations. He concl has taken place whelming emphas. being and physici greater emphasis life, that is, “a, rialism to postma.
Inglehart calls years'. Among trappings were the boyantly patched ed by the affluen the retreat from ever, vas less visi fixed Americans v, making things la

O a life-style
what is the desired t-oriented Western
earlier attitude of ic one. America, ve and the Protesping up with the co-director of the ith the courtesy of )lic Affairs (copyinois), Summarises
n industrial civilica, but also to the che Socialist counuals Soviet Power ir modernisations” nd overtaking the ed some-though t not its products. 'levision or Smart in acquisitive trend intries (especially, .R. has today with i World the same
image of gaining and partial denial is of tremendous ird World or the
Stoday are a sign rer of future techhitherto accepted.
tad for her serious d particularly on ooks at this same c Order or Human 2d Societies of the eloped societies.
In di 60s. In The Ricinald Ingle hait y of Michigan's Research examince in the United Westein, European, uded that a charge “frem an Cveris Cr material wellall security toward On the quality of shift from mateterialis m**.
the C0s the “fait their more visible e ragge di ard flambluejeans favourt y°C Ung. Most of materialism, howble. Comfortably Tere going with Cut, st longer, sharing
things with others, learning to do things for themselves and so on. But while economically significant it was hardly discernible in a U.S. Gross National Product climbing vigorously toward the $2 billion mark.
Yet as the frugality phenomenon matured-growing out of the soaring ‘60s and into the sombre ’70s— it seemed to undergo a fundamental transformation. American consumers continued.. to lose faith in materialism and were being joined by new converts who were embracing frugality because of the darkening economic skies they saw ahead. Resource scarcities, soaring energy prices, persistent inflation, highlevel unemployment, balance-oftrade deficits, and the declining value of the U.S. dollar on foreign exchange markets forced consumers to look to their own resources. The one device which seemed most promising, the one over which they had the most control, was frugality-learning to live with less in a world where a penny saved was stilla, penny earned.
The Western democracies are now 'in the midst of a revolution that we have only begun to perceive’, former Secretary of State Henry Kissinger told a 1977 meeting of business, political and education leaders in Washington, D.C. The next decade he added, will decide whether the
industrial democracies will be able
to manage their economic policies and maintain social peace in the face of a probably lower long-term growth rate in the 1980s.
According to the Stanford Research institute, the nearly five million Americans living lives of voluntary simplicity appear to be predominantly young (between the ages of 18 and 39), evenly divided between the sexes, almost exclusively white, from middle or upper class backgrounds, exceptionally well-educated, politically independent, largely urban and from households where both wife and husband earn incomes. The reasons these men and Woman have chosen simple life-styles include the the desire to live in a way that is “outwardly simple add inwardly rich', a “preference for smallness as opposed to “com
plexity, anonymity, artificiality, dehumanization
manipulation and wastefulness.' Theirs is an “insistence upod living as naturally as
ECONOMIC REVIEw, APRIL-MAY 1979

Page 31
possible' and a desire “to free the inner self for exploration' and to better cope with the “new scarcity'. The Stanford Institute authors projected that Americans pursuing lives of fully voluntary simplicity would grow from 5 million to 25 million in 1987, and to 60 million in the year 2,000; while those opting for partial voluntary simplicity lifestyles would be from 10 million to 35 million in 1987, and 60 million by the turn of the century.
Paradoxically, the authors suggest that this growth in voluntary simplicity stands a good chance of being perhaps the fa stest growing consumer market of the coming decades'. The reason for this paradox
is that “the person living the simple
life tends to prefer products that are functional, healthy, non-polluting, durable, repairable, recyclable or made from renewable raw materials, energy-cheap, authentic, aesthetically pleasing, and made through simple technology.
The growth projected for both the number of Americans pursuing lives of voluntary simplicity and the size of the new consumer markets this would generate, presupposes (1) a continuation of the pressures currently pushing people toward more frugal lifestyles such as the prospectof chronic resource shortages, (2) that those choosing these lifestyles will find themsatisfying, and (3) that America's mass productions consumption economy will remain strong enough to avoid a severe depression and to maintain decent living standards.
Many of the Stanford Research Institute's basic contentions about the trend toward more frugal lifestyles are supported by a public opinion poll recently conducted by Louis Harris and Associates Inc. on the subject of America’s unlimited economic growth.
'The American people', said Harris, have begun to show a deep skepticism about the nation's capacity for unlimited economic growth, and they are wary of the benefits that growth is supposed to bring. A significant majority places a higher priority on improving human and social relationships and the quality of American life than on simply raising the standard of living.'
EconoMIC REVIEW, APRIL-MAY 1979
Among the Har: significant finding majority of the now prefers :
"Teaching people basic essentials' thar standards of living percent);
"Learning to get non-material experie “satisfying our needs services' (76 percent “Spending more t each other better as person-to-person bas proving and speedin communicate with better technology' percent); and
“Improving those already havi' rather t to get more places fas percent).
"Taken together, t pressed . . . sugges lution may be t values and aspirat attitudes reflect th the realization th materials is not bc legacy of all thos pressed for in the begun to take roo
In America fri work have been national character bequeathed to An ethic. Since then, tinually reminded simple living and 1 its antithesis by a social commentato Thoreau (Walden) (The Theory of t David M. Potter
 
 
 

ris survey’s more s were that a large American public
how to live more with 1 on “reaching higher (79 percent vs. 17
our pleasure out of nces,' rather than on for more goods and vs. 17 percent);
ime getting to know
human beings on a is', instead of “im!g up our ability to each other through (77 percent vs. 15
modes of travel we han “developing ways ter' (82 percent vs. 11
he majority views exit that a quiet revoaking place in U.S. cions. Some of these le energy Crunch and at the supply of raw bundless; others are a 2. ideas young people 1960s that have now t in the 1970s.
Lugality and hard ingrained in the since the Pilgrims merica, the Puritan
We have been con
| Of the joys of She discomforts of succession of such rs as Henry David , Thorsten Veblen he Leisure Class), (People of Plenty)
CHOPPING WOOD FOR FUEL - a practice this American's family had abandoned many generations ago is now back in vogue, with more and more. Americans turning towards a life-style that is "outwardly more simple than earlier and certainly more frugal. A recent estimate indicates that nearly 5 million American adults are pursuing lives of “voluntary simplicity' with the new middle-class rejection of high-consumption life-styles in the industrial world. Most of these nearly 5 million Americans living the 'simple life, are said to be young, idealistic and imaginative and appear to be displaying once more a mentality of frugality and hard work that has been ingrained in their national character from the days of the founding of the Americar? Ftafion.
and Staffan Linder (The Harried Leisure Class). Only very recently, however, have we begun to believe that the transition from baroque to basic consumption patterns may be essential to national economic survival.
In examining frugality, and its potential as a resource for national economic survival, it is useful to look at the difference between those Americans currently turning to more frugal lifestyles and those who have been living in what is generally described as the 'counterculture.
While the two groups differ in many ways, the most significant difference would appear to be that frugal Americans largely accept the values of the industrial culture while the counterculture Americans do not. The essence of the counterculture lifestyles is its commitment to unhook from the consumption driven mainstream economy.
The fact that more and more Americans are choosing to live lower-consumption lifestyles is, of course, attracting attention throughout the country. A lively family of publications such as Mother Earth News, Whole Earth Catalogue, Rain Prevention and Organic Gardening are showing hundreds of thousands of readers how to actually create more self-reliant, wholesc mely simple lifestyles. Should these readers wish to pursue any particular aspect of frugal living they can do so consulting hundreds of New Age” books.
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Groups pursuing New Age lifestyles are springing up all over the United States. A recent issue of the counterculture magazine Green Revolution, for example, examined more than 200 communities, most of which got their start in the late 1960s or early 1970s. Begun in private homes these communities are overwhelmingly populated by young people in their 20s and early 30s.
The emphasis on sharing and selfreliance in the growing New Age movement arises in part from its adherents' belief in the philosophy of “right livelihood' which might be broadly defined as engaging in work which does not threaten our human species, the planetary environment which sustains us, or future generations whose lives will be largely shaped by what we do today.
What seems to be happening in America and the other marketoriented democracies is that a 'counter-economy more interested in psychic than material income, is taking firm root within our mainstream economy whose vitality is dependent on endlessly growing production and consumption.
Those moving into the countereconomy are apparently convinced that the mainstream economy is now encountering limits to its previous exponential growth, and that those whose lifestyles are attuned to enough rather than mure will be far better equipped to get through the wrenching transition many see ahead.
Finally and perhaps most important, is the suspicion now shared by so many people in the industrialized world that fulfilment on this planet cannot be found in the endlessly increasing consumption of material goods (even if this were possible in the future), but only through the life of the mind and spirit as taught by all the world's great religions.
Whether the frugality phenomenon represents a fundamental shift in Western economic attitudes, or something more transitory, remains to be seen. What does seem clear, however, is that the appearance of millions of Americans, Canadians, Britons, Swedes and others willing to live more frugal lives could not have come at a more opportune time.
30
A New Human
Manel Tampoe
The clamour of for a New Intern Order has so fa] concrete benefit, the despatches fi Fifth UNCTAD M in May will no dividends either. national Economi framed for the h’ chiefly at Nature
: still a fair-off clou
and its configurati chiefly as prophet. sensitive western 1 Ehrlich, Geoffrey Robert Heilbrone the Writers of th cause they forese present industrial
These speculati cern Third Worl majority of whi emulating wester velopment, becaus the model will s obsolete. But wh that these specula analysed, might ( of a New Interni Order which will the roles of the the underdevelope
În his An Inqui Prospect” a pro which even his cı the over-simplific much of similar w declares that 'th industrial civilisat. two centuries giv material advance of elan and purp be losing their fication’. Besides social manifestat jection of materi the educated yout whose protest ha of drug addiction withdrawal, there awareness that it v to sustain the tr growth for very
This is a ser because the conc

Economic Order or Extinction
the Third World
ational Economic produced little and judging from 'om Manila, the feeting in Manila it yield tangible But a New Interc Order is being uman community 's instance. It is d on the horizon on is yet realised ic speculations by thinkers like Paul Barraclough and ', who are dubbed e Apocalypse bee the end of the
society. ons should con.d countries, the 2h are currently l, models of dese it appears that oon be declared at is exciting is tions, if properly offer the outlines ational Economic virtually reverse developed and
ed
y into the Human vocative treatise ritics find free of ations that mar riting, Heilbroner Le values of an ion, which has for en us not only but also a sense pse, now seem to self-evident justisuch disturbing ions as the re|alistic values by in these countries s taken the form and hippie style is the the growing vill not be possible end of economic much longer.
ious predicament ept of unlimited
growth is the key pivot of western industrial systems both, capitalist and socialist. It is depended on to ensure better and better standards of living for high consumption societies, defuse the tensions between the North and the South over the unequal distribution of international wealth and keep the developed
countries ahead of the poorer ones
in the economic race.
Two significant events triggered off the new thinking. The Arab oil cmbargo forced the industrialised countries to recognise their extreme vulnerability in respect of energy and, by extension, raw materials. The other perhaps more funda - mental reason followed from the findings of the Club of Rome eco
logists which were published under
the title Limits to Growth in 1974. These represent some of the most far-reaching insights achieved in the 20th century and demonstrate that the parameters of exponential growth are ultimately regulated not by Techno-Scientific Man as he had so arrogantly assumed during the last two centuries, but by allembracing Nature. ¬¬
They compelled Man to recognise that he is also dependent on the 4 great biological systems - fisheries, forests, grasslands and croplands -for both food and raw materials; that there is a definite limit to human management and human interference and furthermore that the activities of Industrial Man have in many areas impinged dangerously on the natural limits so that the danger signals are already on.
Extrapolating from environmental, social and cultural sources, Heilbroner sums as follows:
'Urder any and all assumptions one irrefutable conclusion remains. The industrial growth process, so central to the economic and social life of capitalism and western socialism alike will be forced to slow down, in all likelihood within a generation or two and will have to give way to decline thereafter'.
EconoMIC REVIEW, APRIL-MAY 1979
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Page 33
One of Heilbroner's best insights is that the future will be shaped not by economic rationalisations but the human capabilities for political change among various groups. Concepts like World Government might be theoretically desirable but fundamental human traits militate against their acceptance. National identification is the extension of a deep-lying human need for a child to identify with its family during the early years of its life. Although the capacity to empathise widens, there is in every known culture a limit beyond which this impulse to identify is blocked, and this demarcates those within a society from those beyond it. In this way nation-states, often with the most heterogenous populations serve as psychologically valid surrogates of the family in childhood.
The other important political aspect of human nature' is the trait of obedience which is easy to locate in the first years of experience and is expressed in adult behaviour as the normal willing acquiescence of men in the exercise of political authority. Heilbroner concludes with great reluctance that the implication of this recognition is:
"that the passage through the gauntlet may be possible only under governments capable of rallying obedience far more effectively than would be possible in a democratic setting'.
Making the vital futurological projections Heilbroner says:
"The human prospect is not an irrevocable death sentence. It is not apocalypse or doomsday toward which we are headed, although the risk of enormous catastrophies exists. The prospect is better viewed as a formidable array of challenges that must be overcome before human survival is assured and that can be overcome by the saving intervention of nature, if not by the wisdom and foresight of man. The death sentence is therefore better viewed as a contingent life sentence--one that will permit the continuance of human society, but only on a basis very different from that of the present, and probably only after much suffering during the period of transition.
"What sort of society might eventually emerge? I believe the long-term solution requires nothing less than the gradual abandonment of the lethal techniques, the uncongenial ways of life,
EconoMic REVIEw, APRIL-MAY 1979
and the dangerou trial civilisation i of the post-indu discerned.
'The societal viev consumption mu monious, not th The resource c. generating proce as necessary evils, to be relegated to economic life as a sweeping reorg: of production in foretold, but that the end of the gi office, perhaps o
“It is therefore
industrial society the direction of societies-toward inner states of e. the outer world accomplishment. the pillars of li industrial societi
'once again asser as the guide to an likely that the el Intimately linked cation would play and that the r would witness th the "work ethic entwined with ou
The future is in a ble but there are as the recession. economy has n shake off for the and the oil troub establishment of regime in Iran, t these speculations one set of distinc
Third World st action are being taking these proj sideration at all tinuing economic of the eternal veri in ideas has beer World weakness th most of our dev What is of fundar here is that th societies envisage incorporate the traditional societi World - econon traction and cons linked with thei acquisitive charact the exploration o experience rather
 

s mentality of indusself. A few elements trial society can be
of production and st stress the parsiprodigal, attitudes. nsuming and heatis must be regarded not associal triumphs, as small a portion of possible. This inplies nisation of the mode ways that cannot be would seem to imply ant factory, the huge the urban conplex.
ossible that a postwould also turn in many pre-industrial the exploration of sperience rather than of fact and material Tradition and ritual, fe in virtually nones, would probably their ancient claims d Solace for life. It is hos of “Science” so with industrial applia much reduced role host-industrial society a waning of much of '' that is intimately ur industrial society”.
lot totally predicta many signs such that the world ot been able to past several years les caused by the an anti-Western. hat indicate that 3 provide at least t possibilities.
rategies for future framed without ections into conas though conexpansion is one ties. This time-lag l, a serious Third at has confounded 'elopment efforts. mental importance e post-industrial d by Heilbroner main features of es in the Third lical resource exumption, which is o basically noner, and stress on. f inner states of than the acqui
sition of material wealth and power. The implication is that the progressive or developed societies of the future will have the characteristics of the present "underdeve. loped societies.
Should we or should we not incorporate these possibilities when we frame our strategies for the coming decade? We shall have to make our own reassessments of concepts such as 'growth and 'resource consumption' and realise that parsimonious resource-use within our societies at present covered by terms such as 'underdevelopment have great survival value and that consumerism and rising material aspirations are dangerous values to encourage in our populations.
In the international field it has been admitted by the advanced countries that their motive for encouraging growth in the developing countries is that we may further serve as markets for manufactured products. But industrial growth in the Third World is indirectly blocked by protectionist policies. lf we persevere with growth, strategies inspite of the danger signals that are now clearly showing We shall share, or more probably take the brunt of the collapse when it comes especially because weapons threats may be used to pressurise us into impossible loan repayments. If we adopt export-led Growth strategies we will only be making our raw materials available for growth in the industrialised countries till our resources are also consumed.
The global market is the mechanism that makes the Present Economic Order possible and it is the instrument that perpetuates industrial growth which is bringing humanity close to the brink of disaster. We cannot compel the industrialised countries, either capitalist or socialist, to make concessions but we can make a concerted move to consider withdrawing ourselves frcm the global market because our societies are still largely pre-industrial and can survive the wrench. This is perhaps one way in which we might assist nature to achieve a New International Economic Order and also ensure the continuance of human civilisation.
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REVIEWS
TRIVENI: Science, Democracy and Socialism A. Rahman, Indian institute of Advanced Study, Siml
Susantha Goonatilake
One of the hopes of development in the newly-independent countries was the use of science and technology for increases in production. The new millenium which seemed to be at hand in the rhetoric of thirty years ago when independence was either granted or proclaimed in many Asian countries had, as an implied central theme the widespread use of science and technology. One of the countries that emphasised - at the very highest political levels - from the earliest post-independence times, the need for sponsoring science and technology was India; (A contrast we should note in parenthesis, to the case of Sri Lanka, which has yet to see the type of sponsorship which was given by Nehru. 30 years ago in India). As a consequence India. today is reputed to have the third largest scientific and technical manpower pool in the world, as well as possessing scientific and technological capabilities in almost every point in the science/technology spectrum. Yet, Indian per capita incomes and life expectancy of the population remain at a low level whilst a majority of the population is still illiterate.
Prof. Rahman's book is a foray into this territory of the interconnection of science on the one hand, and society on the other. He subtitles his book Science, Democracy and Socialism implying this inter-connection, and also indicating his value bias towards democracy and socialism. Prof. Rahman's study is largely on India, but the lessons he validity for many other Third World countries. Prof. Rahman is the Head of the Council for Scientific and Industrial Research which oversees science policy in India and this book is a collection of lectures given by him at the Indian Institute
of Advanced Study at Simla.
<৪
32
draws have.
His book deals science in both the and the Indian o case he goes ba of the Greeks a forwarded by the cuireans on behal and rational kn Indian side he t of the Carv, devastating critiq and superstitions he describes the ship of a materi world. He discuss text within which fic-materialistic and interacted in of the ancient wo
That was, as it fic” world that and West millenia science arose mo the crucible of Rí and Rahman trac the breakdown ol and the associal ments. In this di the impact of the cular ideas and
the context of th economic structu by emerging capi background of th science in the W describes the trar scientific movem social movement times. Events st First World W: conscious attemp by governments of the Soviet
first such examp to this.
But the import World is in the science that grew parameters with

, 1977
with the roots of western tradition ne. In the former ck to the times Ld. the arguments Ionians and Epif of experimental owledge. On the ukes the example aks and, their ue on the myths of their time and Carvaks sponsoralist view of the es the social conthese two scientiapproaches grew the two countries rld.
were, the 'scientiwas, in the East ago. But modern re recently within enaissance Europe es this rise within f medieval society Jed social movescussion he traces growth of partiviewpoints within e changing socio‘es brought about talism. With this e growth of early 'est Rahman also sformation of the ent to almost a
in more recent lbsequent to the var and the later b to foster science - the experience Union being the le — were crucial
ance to the Third interaction of this within European
the developing
societies. In tracing the problems of contemporary India. Prof. Rahman goes back historically and traces the growth of scientific viewpoints within the medieval period-after which period the European impact became significant. Although in India secular science and technology was overshadowed by religious philosophies he notes important technological developments during the medieval period like the development of the techniques of grafting in fruit culture, developments in textiles and architecture and several innovations in the 18th century giving rise to sophisticated armaments like the screw cannon and the multi-barrel gun.
The modern period of Indian science begins largely with the arrival of the British whereby Rahman notes a process of development occurred “to make the culture, economy and science and technology satellitic to the culture and economy of Britain’. He identifies this artificial grafting as being the major problem of Indian science then and afterwards. The fact that the implanted science and technology grew up to solve problems of a different social and cultural milieu continued to deform the development of Indian science, (a number of the books that were used in teaching for example being quite often irrelevant). He identifies this externalisation of the value systems of science and technology away from India and the consequent isolation of the science and technology system from the society as being key aspects of the problem of science in India.
His view on science and technology, as it exists today in India, is that it is a relic of cultural domination by the West and further that a continued growth of "satellitic science, satellitic to the conceptual, theoretical and practical development of Europe and U.S.A.' is maintained in India. In the name of transfer of technology he identifies the transfer of junk technologies at exorbitant cost to the
ECONOMIC REVIEW, APRIL-MAY 1979.

Page 35
Third World and he asserts that the experience of over three decades in India has clearly indicated that lack of development of indigenous R & D and import of knowhow and technology, instead of helping in the rapid industrialisation, puts the clock back through increasing the dependence on advanced countries.
His prescription is for the growth of alternative technologies not in the sense of inferior technologies but sophisticated technological systems fitting into the local milieu. He identifies biological engineering and current trends in microbiology as being specific areas for development of alternative systems. He also calls for the freedom of expression of scientists to raise and discuss issues without fear of reprisal by limited, narrow sectoral interests which he identifies as of particular significance for scientists working in industry and government agencies.
Triveni is an important work in the growing literature of science and technology in the Third World. Rahman's approach is global and historical and reminiscent of what Bernal did for the study of science and technology in the West in the 1930’s and of what Kosambi did a few decades ago for the study of Indian history. The book is not without its faults. The style is somewhat jerky and one wishes that adequate reference was also given to other work (though small in number) that has been done in this genre. One also notes the underlying definition of an almost mechanistic view of science which does not take into account the non-mechanistic nature of reality being presented, say, in today's particle physics. It also does not pose questions about how far alternative sciences have been developed, in say countries such as the Soviet Union; for that matter whether countries such as the Soviet Union are in fact developing sciences as imitative as those in the Third World. However, these omissions should not cloud the fact that Prof. Rahman's book would remain, in the years to come, an important and even a necessary introduction to the problems of science and developing societies.
ECONOMIC REVIEW, APRIL-MAY 1979
How the Othe The Real Rea:
Susan George. Pe Ivan Ribeiro
During the last tw. piling attained the leve StockS, which are no main producing coun rather as surpluses, ficant fall in the le prices. As a result, th those countries startec duction, arguing that remunerative; and t tration is inclined, an to return to the poli adopted untıl 1973. TI aware of the meanin adopt a set of incent restrict the area sown
Meanwhile, accord mates, there were abol and undernourished this number is expe. nearly two-thirds by hension of this paradc surplus and deliberat duction versus peopl study of the ways to I sidered crucial to ou context, Susan Georg sidered a valuable co
The author argues has too long been pr of nameless forces anc passive voice. Such this or that occurs, bu visible actors on the tends to identify Who (, to na nne the names cl mise that `famine, are not inevitable, but fiable forces within the human control'.
Beyond the reach
With this aim, the a a remarkable amount carried out a penetra activities of some of are supposed to deal V ger in the world, name and some of its ager Bank. The author Wa the multinationals business and to othe to the problem of hu the population myth green revolution.
George's analysis o interesting and Stimul of a very good docum whether the Bank caj de veloper. She dei “bankable' approach basic element to deter of a project and show a rule, still remain er are beyond the reach sarily related to, the and to the rural poo way the Bank deals agrarian reform and improving the living sants is a special point Quoting some Ban shows how its recog mental role agrarian I ducing poverty and hl
 

' Half Dies
ons for World Hunger nguin Bks. Ltd. 1976
years, grain StockI of the 1960s. These t considered by the tries as reserves but nave caused a signivel of international e farmers in some of to reduce their pre
the prices are not ne Carter Adminislong other measures, cy of “land freeze he reader is certainly g of this policy: to ves and subsidies to by grain,
ing to FAO’s estiut 500 million hungry people in 1970, and 2ted to increase by 1985. The comprexical situation (grain e reduction of proe starving) and the resolve it can be conr time. Within this es book can be conIntribution.
that “the food crisis esented as the result i, so to speak, in the
and such happenS, it there are no living, stage. 'George inor what) is acting and early, having as prehunger and poverty t are caused by idena province of rational
author has assembled of information and ting analysis of the the institutions that vith poverty and hunly the United Nations cies and the World s also concerned with dedicated to agrir subjects connected nger as, for example, technology and the
f the World Bank is ating. On the basis entation, she analyses n be considered as a monstrates that the still prevails as the mine the effectiveness S that the projects, as claves, whose effects of, and not necescountry as a whole r in particular. The with the problem of its possible role in onditions of the peaof the author's focus c documents, George nition of the fundaeform can play in reInger in rural areas is
not accompanied by concrete support and incentive. On the contrary, she maintains that it has happened that when a country expanded a process of agrarian reform on the basis of a law passed in Parliament (Chile during the Popular Unity Government), the Bank decided to withdraw all financial help to that country.
AS regards FAO, George studied basically two aspects of its activities, the Industrial Co-operative Programme (ICP) and the Investment Centre (mainly the FAO Bankers Programme). Her conclusions are very interesting. According to her, FAO, within the whole UN system, is unique in its integration of both multinational industry and commercial banks into its official structure. After disclosing some positive and negative aspects of ICP, she asks whether this FAO activity is really necessary When there is another department in the Organization (the Agricultural Services Division) capable of providing assistance to developing countries in Search of food industries. Concerning the FAO Bankers Programme (which includes fifteen major Western banks), she criticizes the prevalent "bankable' approach and the excessive placement of loans to food-exporting activities, disregarding production for the local population.
The Real roots
George ends her book with two chapters entitled respectively 'What can they do' and 'What can I do. In the former by "they she means those ill-defined groups in positions of power who are Supposed to be able to alter the status quo), the importance of alternative food sources, immediate food aid, the quick implementation of a World Food Security System, the creation of an early warning System and investment in agricultural development (but not following the "bankable' approach and not without actual income equalization effects) is Stressed. Finally the importance of land reform in the context of planned action against dependence in the developing countries is pointed out. In the next chapter, attention is called to the need of organizing people at all possible levels, with the aim of studying the actual reasons and causes of hunger in the world and, Simultaneously, carrying Out concrete actions destind to overcome it.
These are, in Synthesis, the basic topics dealt with in this well-documented, courageous and helpful book. It would not be exaggerating to say that it will certainly help the reader to improve his knowledge of the real roots of the misery and starvation that affect hundreds of millions of people in developing countries.
However, it is necessary to mention that the book was written in a very personal and excessively colloquial style that Some how reduces its effectiveneSS. George sometimes presents her reasoning in a very linear way, hampering a better understanding of the issues under consideration. Notwithstanding these few minor shortcomings, this is an important book and should be read by everybody concerned with starvation in the World.
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