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Summer Internship Project 2010 (Ananya Misra)

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CLUSTER DEVELOPMENT AND SCOPE FOR CREDIT GROWTH IN RICE MILLS IN BARGARH ATTABIRA BELTSubmitted to the State Bank of India In Partial fulfillment of the Master of Finance and Control Programme (2009-11)


ANANYA MISRAMFC, Utkal University

Roll No. 09MFC022 Exam Roll No. 33706V93013UNDER THE GUIDANCE OF Shri. Mihir Kumar SahooAssistant General Manager (SME II) State Bank of India Local Head Office Bhubaneswar

Dr. Anil Kumar SwainFaculty, MFC Utkal University Bhubaneswar












Development and Scope for Credit Growth in Rice Mills in Bargarh Attabira Belt is an authentic piece of work done by me under the guidance of Mr. Mihir Kumar Sahoo, AGM, SMEII, State Bank of India and Dr. Anil Kumar Swain, Master of Finance and Control (MFC), Utkal University for the partial fulfillment of the requirement for the degree of Mater of Finance and Control (MFC), Utkal University, Bhubaneswar. This piece of research is my genuine work and has not been published anywhere at any time to the best of my knowledge.

Place: Bhubaneswar Date: MISRA ANANYA



This project is not the culmination of hard work of just one person but is the result of a lot of help from a lot of people. The gratitude cannot be expressed in words, either written or oral but here I make an attempt to acknowledge those who have helped me in the successful completion of this project. At the outset, I would like to extend my sincere gratitude and reverence to the esteemed organization, STATE BANK OF INDIA and its management for providing me with the opportunity to pursue my summer project. I would like to thank Mr. Mihir Kumar Sahoo, AGM, SME-II, State Bank of India who mentored me on the project and made sure that everything from the little details to the big picture was taken care of. His mastery of the subject ensured that I was able to tackle even the complex of areas and this helped broaden the scope & significance of my project. I am also thankful to Mr. A.B. Behera, Manager, SME-II, L.H.O., State Bank of India, Mr. R.T. Pattnaik, Chief Manager, Mfg. T&S, L.H.O., State Bank of India, Mr. Manoj Biswal, Commercial Branch, Bargarh for helping me in completion of this project. The staffs of State Bank of India, LHO, Bhubaneswar were also extremely helpful at every stage of the project. I would like to mention my faculty guide Dr. Anil Kumar Swain who went out of his way to help me in my project. His support & knowledge was instrumental in the success of the project. I am also thankful to my other faculty members, parents and my friends for their continuous support and encouragement. Last but not the least to Mr. Umesh Kumar Aggarwal, Mr. Ravi Mittal and Mr. Prayash Hota, without whose help it would have been difficult to complete the project.

Place : Bhubaneswar(Ananya Misra)



This project is based on the study of Cluster Development of the Rice Mill Cluster of Bargarh Attabira belt and the Scope for Credit Growth in the Cluster for State Bank of India. An insight view of the project will encompass the objective of the study, the purpose and scope of the study, the various methods used for collecting data and their sources, further specifying the limitations of the study and drawing inferences from the learning so far. A general idea about cluster is done, followed by a thorough study on the Rice Mill Cluster of Bargarh Attabira belt. An analysis has been done to determine the Scope available for State Bank of India for Credit Growth in the cluster. Cluster Development has emerged during the last decade as one of the most innovative and effective ways for small firm development among industry developed and developing countries. From the international experience, it is well established now that Micro, Small and Medium Enterprises (MSME) gain competitiveness by forming strong relations with other firms. They also gain from linkages with service institutions in clusters of enterprises based on groups of related products. The enterprises together are better able than firms considered individually to grow rapidly, upgrade their skills, improve their productivity and technology, develop product niches and gain access to distant markets. The scope of the study is limited to the Rice Mill Cluster of Bargarh district in the state of Orissa. The diagnostic study report of the cluster has been conducted with an objective to find out present status of Rice Milling Industries, level of technology used, marketing network, availability of institutional support with regard to credit, capacity building etc. and to identify the problems being faced by them which hinders the process of development/ growth of the cluster. More emphasis will be given for promotion of both domestic and export marketing, technology up gradation, Institutional Capacity Building, quality improvement etc. The project also tries to evaluate the scope for credit growth in the cluster for State Bank of India. It is done by analyzing the Aggregative Risk Score of various Rice Mills and getting the Borrowers Rating as given by the State Bank of India.










Figure 4.1: Distribution of World Paddy Rice Production (average from 1999-2007). Figure 4.2: Worlds Main Importers of Rice (all types),( average from 1996-2006). Figure 4.3: Worlds Main Exporters of Rice (all types), (average from 1996-2006). Figure 4.4: Chart Showing the Trend of Quantity Exports for the Past Three Years. Figure 4.5: Chart Showing Trend of Value of the Exports done in the Past Three Years. Figure 4.6: Manufacturing Process of Raw Rice/ Parboiled Rice. Figure 4.7: Process for Super Quality/ Export Quality Rice. Figure 4.8: Recovery of Product & By Product from Rice Milling. Figure 4.9: Growth of Rice Mill Cluster in Bargarh District. Figure 4.10: Type of Unit Figure 4.11: Annual Turnover of Rice Mill. Figure 4.12: Net Profit of Rice Mills Figure 4.13: Initial Investment made in Rice Mills Figure 4.14: Various Sources of Finance Figure 4.15: Various Sources of Loan Figure 4.16: Various Types of Loan Figure 4.17: Loan Amount Taken by Various Rice Mills Figure 4.18: Working Capital Requirement of Rice Mills Figure 4.19: Position of Working Capital in Rice Mills Figure 4.20: Labour Requirement of Rice Mills Figure 4.21: Types of labour available Figure 4.22: Custom Milling Procedure in the Rice Milling Cluster of Bargarh District


LIST OF TABLES Table 4.1: Rice Production in Three Largest Producing States in India Table 4.2: Indian Rice Exports Table 4.3: Paddy Cultivation in Orissa Table 4.4: Land Pattern in Bargarh and the Land Utilization Pattern Table 4.5: Ananlysis



Agriculture is the main stake of India. Agriculture is the back bone of our country. India Ranks second world wide in farm output. Agriculture and allied sector like forestry, logging and fishing accounted for 17% of the GDP in 2009 and employed 5% of the total work force. Respite a steady decline of its share in the GDP agriculture is spice the largest economic sector and plays a significant role in the overall socio-economic development of India.


At the same time industrial sector of India is also booming. Industrial sector although does not employ majority of the population it employs 14% of the total work force which is only one third of what agricultural sector employees, but it accounts for 28% of the GDP of India. India ranks 16th in the world in terms of nominal factory output. The Food Processing Industry is not far behind in India. Food Processing involves any type of value addition to agricultural and horticultural produce as also meat processing and includes processes such as grading, sorting and packaging which enhance life of food products. The Food Processing Industry provides vital linkages and synergies between Industry and Agriculture.

The Food Processing Industry in India is one of the largest in terms of production, consumption, export and growth prospects. The Government has accorded it a high priority, with


fiscal reliefs and incentives, to encourage commercialization and value addition to agricultural produce; for minimizing pre/post harvest, generating employment and increasing exports. Due to the special emphasis placed on agriculture in the five year plans and steady improvements in irrigation, technology, application of modern agricultural practices and provision for agricultural credit and subsidies since the Green Revolution in India have increased the field per unit area of all crops since 1950 The economic reforms brought foreign competition, led to privatization of some public sector industries and led to an expansion in the production of fast moving consumer goods. Post liberalization Indian companies faced stiff competition from foreign companies and also from cheaper Chinese imports. But the Indian industrial sector handled the change by squeezing costs, revamping management focusing on designing new products and relying on low labour cost and technology.

The food processing industry which relates the industry and the agriculture sector of the country is valued at Rs. 3.50,000 crore and is growing annually at 14%.the government has recognized an investment opportunity of about Rs. 1,20,000 crore by 2015 in the food processing industry. The Indian Food Industry is highly competitive with many foreign players in the market. Competitive pricing, expansions, aggressive advertising campaigns and efficient packaging are the strategies used by firms to gain market share. India is the largest producer of milk, cashew nuts, coconuts, tea, ginger, turmeric, and black pepper. It is the second largest producer of wheat, rice, sugar, cotton, silk, peanuts and inland fish. It is the third largest producer of tobacco. India accounts for 10% of the world fruit production. India is the second largest producer rice in the world after China and Andhra Pradesh is the second largest rice producing state in India with West Bengal being the largest. The share of Indias IT industry to the countrys GDP increased from 4.8% in 2005-06 to 7% in 2008. Although IT industries in India are growing fast but at the same time the small scale industries are also developing. Apart from this, bread production is growing at 7.5% p.a. The organized market accounts for 55% of the market for bread. There are over 91,000 rice hullers and 2,


60,000 small flour mills engaged in primary milling. There are about 43,000 modernized rice mills, 820 large flour mills and 11,000 pulse mills. There are huge growth prospects for the Food Processing Industry. For the next 3 to 5 years, branded flour (atta) market is likely to grow at 16% p.a. The popularity of branded rice is rice is rising among the urban population. There is a surge in exports of India basmati and nonbasmati rice backed by rising international demand. Thus, both industrial sector and agricultural sector play a vital role in the overall economic development of India. If agriculture provides employment opportunities industry provides GDP growth. To back both the sectors food processing industry in India is rising and will contribute majorly to the GDP in the near future.

1.2 Rationale of the Study Cluster development is a relatively new art and science, born only around 1990s. In this relatively short time, the subject has gained immense popularity among the policy makers as a very important tool for micro, small and medium enterprise development. The web of interrelationships among enterprises, institutions and service providers in clusters is now considered an important a resource as much or even more potent than finance, technology, knowledge and skills. Cluster development has been undertaken in more than 50 countries across the world and at least 20 diverse independent initiatives are in progress or planning in India alone. Developing clusters is not only a means to improve the competitiveness but also for alleviation of poverty, generation of sustainable employment, fostering innovation, infusing technology, enabling better credit flow and sustenance of environment issues more effectively and sustainably.


The rice mill cluster of Bargarh is one of the oldest clusters of Orissa and one of the most developed clusters of the country in terms of technology, knowledge, skill and finance. 1.3 Objectives of the Study In view of the above backdrop, the present study has been undertaken with the following specific objectives: To define cluster, its constituent and other various aspects of it. To study the Rice Mill Cluster of Bargarh District in Orissa. To study the development of the Rice Mill Cluster of Bargarh District in Orissa. To make a study on the scope of credit growth for State Bank of India in the Rice Mill Cluster of Bargarh District in Orissa.

1.4 Research Methodology The study has been done about the development of cluster in Bargarh District and the Scope for Credit Growth for State Bank of India in the cluster, by collecting information about them and having a thorough study on the topic through questionnaire and journals. 1.4.1 Scope of the Study

The study covers various aspects of clusters and the process of development of the cluster. All the aspects that are necessary for development of cluster have been considered. The study also includes the procedure for rating a rice mill for the purpose of credit appraisal. Thus, this project will act as a learning device for finance students. 1.4.2 Sources of Data

The project includes data that has been collected both from primary and secondary sources. Primary sources13

Primary source includes first hand data from the people in the practical field visit. They


the employees of State Bank of India, commercial branch, Bargarh, DIC, Bargarh and Block Office, Bargarh and Rice Mill owners. The method of collection of such data includes personal interaction and interview through unstructured questionnaire. Secondary sources Valuable information was collected from secondary sources like magazines, journals, books, newspapers, annual reports of certain rice mills, circulars, and internet websites.1.5.

Limitations of the study Time was a limiting factor in this study. The area of study considered was quite vast field of study and lack of sufficient time was also a constraint. The study required personal interrogation with the rice mill owners. The rice mill owners were non-cooperating and did not provide much of their financial data. Number of rice mills in Bargarh being very large and spread in different parts of the district it was not possible to interrogate the owners of each and every rice mill.



State Bank of India2.1 Introduction

State Bank of India (SBI) is the largest bank in India. The bank traces its ancestry back through the Imperial Bank of India to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. The Government of India nationalized the Imperial Bank of India in 1955, with Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government took over the stake held by the Reserve Bank of India.

SBI provides a range of banking products through its vast network in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16000 branches, has the largest branch network in India. With an asset base of $250 billion and $195 billion in deposits approximately, it is a regional banking behemoth. It has a market share among Indian commercial banks of about 20% in deposits and advances, and SBI accounts for almost one-fifth of the nations loans.


State Bank of India has electronically networked all its branches under Core Banking System (CBS). The bank has one of the largest ATM networks in the region, more than 9000 ATMs across India. SBI has tried to reduce its over staffing through computerization of operations and Golden handshake schemes that led to a flight of its best and brightest managers. These managers took the retirement allowances and then went on to become the senior managers at new private sector banks.

The State Bank of India 29th most reputable company in the world according to Forbes. It is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating and various other rankings. The bank has 52 branches, agencies or offices in 32 countries. It has branches of the parent in Colombo, Dhaka, Frankfurt, Hong Kong, Johannesburg, London, Los Angeles, and Male in the Maldives, Muscat, New York, Osaka, Sydney and Tokyo. It has offshore banking units in the Bahamas, Bahrain and Singapore and representative offices in Bhutan and Cape Town.

State Bank of India has presence in Dubai International Financial Centre, Dubai, United Arab Emirates (www.sbi.ae).

2.2 History The roots of the State Bank of India rest in the first decade of 19 th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June, 1806. The Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay (incorporated on 15 April, 1840) and the Bank of Madras (incorporated on 1 July, 1843). All three Presidency Banks were incorporated as joint stock companies, and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks


amalgamated on 27 January, 1921, and the reorganized banking entity took as its name Imperial Bank of India. The Imperial Bank of India continued to remain a joint stock company. Pursuant to the provisions of the State Bank of India Act (1955), the Reserve Bank of India, which is Indias central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April, 1955 the Imperial Bank of India became the State Bank of India. The Government of India recently acquired the Reserve Bank of Indias stake in SBI so as to remove any conflict of interest because the RBI is the countrys banking regulatory authority. In 1959 the Government passed the State Bank of India (Subsidiary Banks) Act, enabling the State Bank of India to take over eight former State-associated banks as its subsidiaries. On September 13, 2008, State Bank of Saurashtra, one of its Associate Banks, merged with State Bank of India. SBI has acquired local banks in rescues. For instance, in 1985, it acquired Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, State Bank of Travancore, already had an extensive network in Kerala. 2.3 Associate Banks There are six associate banks that fall under SBI, and together these six banks constitute the State Bank Group. In tune with the first Five Year Plan, emphasizing the development of rural India, the government integrated these banks into State Bank of India to expand its rural outreach. There has been a proposal to merge all the associate banks into SBI to create a mega bank and streamline operations. The first step along these lines occurred in September 2008 when State Bank of Saurashtra merged with State Bank of India, which reduced the number of state banks from seven to six. State Bank of Indore State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travancore

Group of Companies: SBI Capital Markets Ltd. SBI Mutual Fund (A Trust)17

SBI Factors and Commercial Services Pvt. Ltd. SBI DFHI Ltd. SBI Cards and Payment Services Pvt. Ltd. SBI Life Insurance Co. Ltd. Banc assurance (Life Insurance) SBI Funds Management Pvt. Ltd. SBI Canada

2.4 Mission of the Bank: The main aim of the bank was committed to excellence in customer, shareholder and employee satisfaction and to play a lenders role in expanding and diversifying banking to become the premiere Indian Financial Service Group. 2.5 Vision of the Bank: The main vision of the bank was to retain its position in the country as a pioneer in development banking and to maximize shareholders value through high sustained earnings per share. 2.6 Board of Directors: Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Name of Director Shri O.P. Bhatt (Chairman) Shri S.K. Bhattacharya (MD & CC & RO) Shri R. Sridharan {MD & GE(A&S)} Dr. Ashok Jhunjhunwala Shri Dileep C. Choksi Shri S. Venkatachalam Shri D. Sundaram Dr. Deva Nand Balodhi Prof. Mohd. Salahuddin Ansari Dr.(Mrs.) Vasantha Bharucha Dr. Rajiv Kumar Shri Arun Ramanathan Smt. Shyamala Gopinath

2.7 Products and Services:


SBI has products and services customized with a significant global footprint to suit the banking needs of individuals. 1. Personal banking: SBI offers a wide range of services in the Personal Banking Segment which are indeed below:

SBI Term Deposits SBI Loan For Pensioners SBI Recurring Deposits SBI Housing Loan SBI Car Loan SBI Educational Loan Loan Against Mortgage of Property Loan Against shares And Debentures Rent Plus Scheme Medi-Plus Scheme

2. NRI Services: NRIs can open the following types of accounts with SBI: NRE Rupee Accounts Savings Accounts Current Accounts Term Deposits (Interest Paid Out quarterly) Special Term Deposits (Interest Compounded Quarterly) Non-Resident (Ordinary) Account NRO A/cs Rupee Accounts for Crediting Income in India


Foreign Currency Non Resident Accounts Fixed Deposits in Pound Sterling, US Dollar, Euro, Canadian Dollar and Australian Dollar Resident Foreign Currency Accounts

3. Agriculture / Rural banking: State Bank of India Caters to the needs of agriculturists and landless agricultural labourers through a network of 6600 rural and semi-urban branches. There are 972 specialized branches which have been set up in different parts of the country exclusively for the development of agriculture through credit deployment. To give special focus to agriculture lending Bank has set up agri business unit. Bank has also agri specialists in various disciplines to handle projects and guide farmers in their agri ventures. Advances are given for very small activity covering poorest of the poor to hi-tech activities involving large fund outlays. SBI is the leader in agri finance in the country with a portfolio of Rs. 18,000 crores in agri advances to around 50 lakhs farmers.

Produce Marketing Loan Scheme Loan Against Warehouse Receipts/Cold Storage Receipts Kisan Credit Card Scheme Agricultural Term Loans Land Development Schemes Minor Irrigation Schemes Farm Mechanization Schemes Financing of Combine Harvesters Kisan Gold Card Scheme Land Purchase Scheme Krishi Plus Scheme Arthias Plus Scheme


Dairy Plus Scheme Broiler Plus Scheme Finance to Horticulture Agri Business Heads Lead Bank Scheme

4. International Banking: International Banking Services of State Bank of India are delivered for the benefit of its Indian customers, non-resident Indians, foreign entities and banks through a network of 84 offices/braches in 32 countries. Banks Joint Ventures and Subsidiaries abroad further underline the Banks international presence. The network is augmented by a cluster of Overseas and NRI branches within India and correspondent links with over 522 banks, the world over. Banks Joint Ventures and Subsidiaries abroad further underline the Banks international presence.

The services include corporate lending, loan syndications, merchant banking, handling Letters of Credit and Guarantees, short-term financing, collection of clean and documentary credits and remittances.

The bank has created a niche for itself in the Euro land with branches located in Antwerp, Paris and Frankfurt. Indian banks and corporate are able to avail single window Euro services from the Banks Frankfurt branch.

The services include: Corporate Lending Loan Syndications Merchant Banking


Correspondent Banking Offshore Banking Handling Letters Of Credit and Guarantees Short-Term Financing Collection of Clean and Documentary Credits Remittances

5. Corporate Banking: SBI is a one shop providing financial products / services of a wide range for large, medium and small customers both domestic and international.

Working Capital Financing Term Loans Deferred Payment Guarantees Corporate Loans Export Credit Strategic Business Units Pricing

6. SME: State Bank of India has been playing a vital role in the development of small scale industries since 1956. The bank has financed over 8 lakh SSI units in the country. It has 55 specialized SSI branches, 99 branches in industrial estates and more than 400 branches with SIB divisions. The bank finances Small Business activities which are of special significance to a large number of people as many of these activities can be started with relatively lower investment and with no special skills on the part of the entrepreneurs.


Commodity Backed Warehouse Receipt Financing Surabhi Deposit Scheme Code of Banks Commitment to Micro and Small Enterprise Traders Easy Loan Scheme SSI Loans Business Current Accounts Open Term Loan Retail Trade Doctor Plus Dental Doctor Plus SBI Shoppe Cyber Plus SME Credit Plus Small Business Credit Card SME Petro Credit Dal Mill Plus Paryatan Plus Transport Operators Auto Loan Charter for SSI Artisan Credit Card Rice Mill Plus School Plus Swarojgar Credit Card23

7. Services: SBI offers various services to its customers. They are:

Domestic Treasury SBI Vishwa Yatra Foreign Travel Card Broking Services ATM Services Demat Services Internet Banking Mobile Banking E-Pay E-Rail Safe Deposit Locker Gift Cheques Micro Codes Foreign Inward Remittances

8. Government Business: State Bank of Indias linkage with Government business is widespread. No wonder that out of 9315 branches in India, about 7000 branches are conducting Government Business. The large network of SBI branches provides easy access to the common man to deposit the following Government dues and pension payments.



3.1 Meaning of cluster


A cluster is a concentration of economic enterprises, producing a typical product or service or a complementary range of products or services within a geographical area. A cluster of MSME is identified by the product or service the micro or small enterprises produce and the place where the enterprises are located.

3.2 Concept of cluster

United Nations Industrial Development Organization (UNIDO) cluster development programme, in India, has worked on some assumptions to estimate the number of MSME clusters. An industrial cluster is considered to be one that has 100 or more registered enterprises. As against this, even the presence of 50 handicraft enterprises is considered to be significant for handicraft cluster. In case of a handloom cluster, there should at least be 500 handlooms in a given location.

3.3 Constituent of a cluster

A cluster consists of not only the economic enterprises that actually produce the product or service that defines the cluster but also the raw material providers, sub-contractors, buyers, exporters, machinery suppliers and the various support institutions, regulatory agencies, consultants, common facilities, transporters and all other service providers that facilitate the production directly or indirectly in the cluster. Besides there are various interest groups such as business associations, self help groups, co-operatives and NGO are that may promote business interests of various groups of enterprises in the cluster. All these entities are called cluster stakeholders.

3.4 Types of clusters

The various types of clusters can be classified as:

a) Artisan cluster:


An artisan cluster is characterized by the predominance of household based enterprises. Such enterprises use personal skills of the artisans to production, rather than electrically driven machinery. They are run by the family labour both in production and management of the enterprise. They produce handicraft or handloom products.

b) Industrial cluster:

An industrial cluster may have some household enterprises but is characterized by predominance of small and medium industrial enterprises with hired labourers.

c) Natural cluster:

A cluster evolved in the past due to local availability of raw material, skill or demand. Most of the clusters known in India are natural clusters. Such clusters may have been in existence for several decades and at times for centuries.

d) Induced cluster:

Induced clusters come up at a location due to specific investment policy or public provision of specialized infrastructure. These measures can lead to the creation of new clusters in that particular new area.

e) Vertical cluster:

A vertical cluster consists of one or a few large enterprises and a large number of other small supplier enterprises.27

f) Horizontal cluster:

A horizontal cluster consists of a large number of small and medium sized enterprises that may produce and market directly while competing with one another. They may have other supplier firms in the same cluster.

g) Exporting clusters:

These are the clusters that have a primary market abroad are called as exporting clusters

h) Dynamic clusters:

Dynamic clusters demonstrate a high degree of vibrancy and high growth in the recent past.


Creation of cluster

There are essentially two components to cluster creation; the first is cluster creation, the second is cluster up gradation. Some experts claim that any effort to build clusters from scratch is doomed to failure. Some of the key elements for successful up gradation strategies are: Active stewardship from a full time cluster development agent (CDA) or equivalent profession. The time commitment could be 3-5 years or more, before an initiative becomes sustainable.


Existence of one or more dynamic business associations. In the case of Ludhiana hosiery cluster, the presence of several local training institutes had led to the development of a trained workforce.

A demand led approach to insertion into global value chains. This means a hard look at what the cluster produces, and for whom. It does not only concentrate on how it produces.

Securing a comprehensive policy package. Demanding Regulatory Standards and also a network of supporting institutions that extend beyond the tight geographical focus.

Activities should involve a broad range of related firms, not just those that imitate each other and compete solely on price. Activities will likely be holistic in scope.

Securing buy-in from a critical mass of SMEs participation will not be forthcoming unless the gains are tangible. In some cases, financial contribution can help secure ownership.

Activities over time to build trust, first on a one to one basis, and after that across the cluster as a whole.

Responding to external challenges can enhance collective action. As in case of Pune food clusters response to challenging food quality standards that initially appeared to threaten the clusters very survival.

Accepting the tremendous heterogeneity in how different clusters and firms react. Upgrading will change cluster dynamics, benefiting certain sorts of firm.



Advantages of cluster

The various advantages of having a cluster are: Proximity to Raw Materials: The conditions under which a concentration of economic enterprises is declared a cluster, availability of raw materials comes first. The members of the cluster get the advantage of easy availability of raw material. The source of their raw material is near and approachable. Creation of cluster gives them many advantages of cheaper rate of transportation.

Customized business development services: Clustering helps in the overall development of all the business enterprises in the area. Clustering helps in developing each and every business established in the cluster. Any business development service implemented in the cluster covers each and every unit. Thus, the business development services are customized in mature, which help in the development of each and every business unit of the cluster.

Abundant clients attracted by the cluster tradition: A cluster attracts a lot of clients. As many business units come under one regulation so the clients get a fair deal if they trade with a business unit established in a cluster. As the business units are well regulated and profitable in a cluster, the clients are attracted for their own advantage and profit.

A skilled local labour force: The creation of a cluster attracts local labour. Business units in a particular cluster usually prefer the local labour rather than migrant labour as the local labourers understand the place and environment well. This gives an opportunity to the local labourers to develop their knowledge and working skill. Thus it helps in the providing skilled labourers to the units.


Vibrant competition among entrepreneurs: Creation of cluster groups the various business units functioning in a particular area. It brings them under one rule and regulation, and leaves less scope for monopoly among the business units. This enhances competition among the business units to increase their profits. Thus clustering helps in development and overall growth of the business units. It spurs innovation among the business units and also increases efficiency.


Disadvantages of cluster

The various disadvantages of having a cluster are: Unregistered members:

When a cluster is created it has to take into consideration all the business units producing similar type of product in that area. Thus, many unregistered organizations also get the undue advantage of getting into the cluster.

Unsmooth flow of funds:

Clustering also facilitates unsmooth flow of funds.

Lack of modernization & up gradation of technology:

The manufacturers who are the members of the cluster do not seem interested in acquiring modern technology and high skill. Being the member of a cluster the manufacturers get a lot of benefits for running their business profitably. This makes them avoid investment in acquiring modern and updated technology.


Illiterate labourers:

The labourers working in the industry are illiterate and are not skilled to work with modern and updated technology. As the industries are also not much modernized so the labourers remain illiterate about the work they do.

Lack of trust:

There is not much co-ordination between smaller and bigger units in the cluster. Usually there is less scope in a cluster for a smaller unit to grow and there remains a lot of opportunity for the bigger unit to expand their units. So there is lack of co-ordination between the smaller and the bigger units. This is a major drawback for the development of a cluster.



4.1 History of Rice


Rice has fed more people over a longer period of time than any other crop. As far back as 2500 B.C. rice has been documented in the history books as a source of food and for tradition as well. Beginning in China and the surrounding areas, its cultivation spread throughout Sri Lanka, and India. It was then passed onto Greece and areas of the Mediterranean. Rice spread throughout Southern Europe and to some of North Africa. From Europe rice was brought to the New World. From Portugal it was brought into Brazil and from Spain to Central and South America. Rice could be taken to many parts of the world due to its versatility. It is able to grow in the desert conditions of Saudi Arabia, in the wetland deltas of Southeast Asia in the flooded rice plains which we are most familiar with. Oryza sativa and oryza glaberrima, are the most popular cultivated rice. From an early history, in the Asian areas rice has spread and is now grown on all continents except Antarctica. Being able to grow in this wide spectrum of climates is the reason rice is one of the most widely eaten foods of the world.

Rice, a member of the family Poaceae, is one of the three leading crops in the world and has a variety of uses. People have used rice to make snacks, desserts, main courses, alcoholic beverages and special foods for religious ceremonies. As a nutrition source, rice is abundant in carbohydrates while being low in nitrogenous matter and fat. For millions of people rice is 3/4 their total diet.


In looking towards the future, scientists are working on a technique to maximize year-round production of the crop on a given plot of land in order to increase yields for rice eating populous. History of Rice in Orissa:

Rice has been the principal food crop of Orissa much before the 14th century AD. When WangTa-Yuan, the Chinese writer of the 14th century visited the State it was being grown in abundance. Wild rice, it is known, was tamed by the tribals inhabiting the Jeypore tract of Orissa which is considered to be one of the secondary centers of origin of rice. The similarity between the name Orissa and the Greek name for rice Oryza has led many to speculate that the name of the State derives its name from the crop known as Oryza Sativa. Thanks to the maritime skills of the Oriyas, the locals traveled by indigenously built decorated wooden ships called boitas to far off Burma, Indonesia and Sri Lanka. It is during the course of such business and plundering that popular variety of rice from those lands may have been imported into the state to be later acclimatized and adapted as per local conditions. Besides these cultivated varieties, wild varieties are found in the Jeypore tract, where the initial survey in the early decades of the 20th century had recorded 150 varieties, and also the Bhitarkanika coastal area where a wild variety grows abundantly in tidal mud flats based upon which many flood and salinity resistant varieties have been developed. It is thus no wonder that Orissa once had 50,000 recorded varieties of rice. The actual number could have been more than 1, 00,000 as record keeping was never the farmers forte. The Kings too were fond of rice varieties as rice is an important part of the Mahaprasad that is offered to Lord Jagannath every day. Even today there are huge stretches of land across Orissa that grow rice for the daily offering to the deity. The farmers of Orissa both worshipped and loved the crop and never failed to improve on its practice that led to the enormous diversity of rice varieties observed in Orissa since ancient times.


Seed selection was based not just on yield but also on such other criteria as food habit; puffed rice, puffed paddy, beaten rice, beverage rice, rice cakes, rice pudding, sweets, rice milk, stale rice in water, are some of the favourite rice preparations of the Oriyas; for ritualistic use, a variety of black rice, kalakrushna, was partaken while mourning for the dead perhaps for its anti depressant qualities, certain varieties are grown purely for festive use and are used as offerings to God called bhoga; length of the stem, long stem ensures the rice survives a flood and the hay can be used for thatched houses as well as cow fodder; time taken to yield; draught resistance, a variety called Sarai can grow even in scanty rainfall. Rice was also selected and cultivated for medicinal value; malnutrition, asthma, arthritis, nutrition for the mother while weaning, indigestion, acidity and jaundice are conditions some native rice varieties of Orissa can address; aroma, certain rice varieties of Orissa can compare with the famous Basmati for its scent and taste; resistance to pests and disease; resistance to salinity; size of the grains, small grained rice does not break but long grained rice fetches more price in the market; size of the panicles; large panicles mean more grain per panicle, colour; taste; keeping qualities; and nutritional values. Thus rice in Orissa is associated not only with food, but also with rich history, traditions and cultural practices.

4.2 International scenario: Rice is the second largest produced cereal in the world. At the beginning of the 1990s, annual production was around 519 million tons and by the end of the century it had reached 594 million36

tons. World production however totaled 647 million tonnes of milled rice in the year 2007. By the end of the year 2008, the world rice production had reached 661 million tones. Production is geographically concentrated in Western and Easter Asia with more than 90 percent of world output. China and India, which account for more than one-third of global population (52.3% over the 1999-2003 period), supply over half of the world's rice. Brazil is the most important non-Asian producer, followed by the United States. Italy ranks first in Europe. World production has shown a significant and very steady growth, almost exclusively due to increasing production in Western and Eastern Asia. Figure 4.1 : Distribution of the world paddy rice production (average 1999-2007)

india china indonesia vietnam thailand japan brazil u.s.a pakistanSource: UNCTAD Secretariat from the Food and Agriculture Organization of the United Nations (FAO) data

Growth has not been homogeneous in this group of countries. Traditionally, production in Asian increases, except in Japan. The decrease in Asian production at the end of the 1990s did not get enough attention as it was considered to be a temporary abnormality. However, it has now begun to seriously affect some countries such as China where rice areas have declined as a consequence of water scarcity and competition from more profitable crops (oleaginous). Despite this trend, rice still plays a vital role in all the countries in the region.

Volume and value of import and export:37

International rice trade is estimated between 25 and 27 million tons per year, which corresponds to only 5-6 percent of world production. It makes the international rice market one of the smallest in the world compared to other grain markets such as wheat (113 million tons) and corn (80 million tons). Besides the traditional main exporters (Thailand, Vietnam, India and Pakistan), a relatively important but still limited part of rice traded worldwide comes from developed countries in Mediterranean Europe and the United States. There are two major forces behind this: new food habits in developed countries and new market niches in developing countries. Russian federation The Middle East is the leading import and export region, accounting for 35 percent of the world's rice imports and about 75 percent of total exports.European Union (3.1 It is projected that the global market will increase 3 percent per year over the mid to long term. Japan (.63 m t) However, there are uncertainties about this projection because importers, normallym t) to lowerlow middle income countries, have vulnerable economies.

The map below shows the main importers and their suppliers. Each color represents an importer Brazil country (either a (.97 m or a group). The values correspond to imports of different types of rice (paddy, t) brown, white, broken), in thousands of dollars. The major importers are Indonesia, Bangladesh, Nigeria, the Philippines, Iraq and Brazil. (.93 Iran Bangladesh (.87 Figure 4.2: World's main importers of rice (all types), average from 1996 to 2006, in millions of tonsm t) m t) Indonesia (1.5

Source: UNCTAD Secretariat from the Food and Agriculture Organization of the United Nations (FAO) data


United States (3. 04

India (3.41

Figure 4.3: World's main exporters of rice (all types), average from 1996 to 2006, in millions of tons

China (1.86

Pakistan (2.13 Thailand (7.17 m t) Vietnam (3.91

Source: UNCTAD Secretariat from the Food and Agriculture Organization of the United Nations (FAO) data

4.3 National scenario: In India rice milling units are mostly concentrated in the paddy producing states like Uttar Pradesh, Punjab, Haryana, Uttaranchal, west Bengal, Bihar, Orissa, Assam, Andhra Pradesh, Karnataka and Kerala. The basmati varieties of rice are mainly produced in Punjab, Haryana, Uttaranchal and Uttar Pradesh while the non- basmati varieties are produced in other states. India has received patent for its basmati variety of rice. In respect to exports of fine quality of basmati rice from the country, Haryana heads the list and is followed by Punjab. A few benchmarking rice clusters of the country have been developed in these two states which are in production, exports, quality and technology. The non - basmati rice produced in the country constitutes both the aromatic and non-aromatic varieties. Depending on the regional food habits the rice mills produce raw rice and parboiled rice mills in eastern India producing mainly the parboiled variety. Rice milling industry in India has undergone different phases of technological transformations related to parboiling and drying systems and has developed reasonably good rice mill machine manufacturing base, although it lags far behind the countries like USA, UK. Germany, Japan, Taiwan, etc. Few fully automatic plants imported from world renowned manufacturers from countries Japan and also colour sortex machine imported from USA, UK, Japan and Taiwan have


been installed by few mills of Karnal (Haryana), Kalady (Kerala), Rudrapur (Uttaranchal), etc. further some of the rice mills in Sambalpur-Bargarh (Orissa), Burdwan and Bolepur (Orissa), Vijayawada (Andhra Pradesh) clusters have installed colour sortex machine and silky polishing machine. Production of paddy in three largest producing states in India during the past four years is given below: Table 4.1: Rice production in three largest producing states in India (In mn. MT) STATE 2004 05 2005 06 2006 07 6.82 10.14 11.12 93.36 2007 08 7.65 10.16 11.15 102.70 2008 09 7.88 10.66 11.80 112.9

Orissa 6.56 6.86 Punjab 10.44 10.19 Uttar Pradesh 9.56 11.13 INDIA 83.13 91.79 (Source: Ministry of Agriculture)

The quantum of rice exported from India during the past few years was as given in the following table and the trend is represented graphically in the figure below.

Table 4.2: Indian Rice Exports (Qty in MTs and value Rs. In lakhs) 2005 06 Qty Non-basmati rice Basmati rice Total (Source: APEDA) Value 2921601 317816 1166562 304309 4088163 622125 2006 07 Qty 3702191 1045714 4747905 Value 424307 279280 703587 2007 08 Qty 5285916 1183355 6469271 Value 740979 434458 1175437


Figure 4.4: Chart Showing the Trend of Quantity Exports for the past three years:

(Source: APEDA)

Figure 4.5: Chart Showing Trend of Value of the Exports done in the past three years


(Source: APEDA) The major countries importing basmati rice from India include UK, USA, Belgium, Canada, France, Germany, Italy, Kuwait, Netherlands, Saudi Arabia, UAE etc. For non-basmati rice, the major importers from India are Bangladesh, Bhutan, Nepal, Ivory Coast, Djibouti, Gabon, Iran, Maldives, Malaysia, South Africa, Singapore, Saudi Arabia etc.


State scenario

Orissa, being one of the major paddy producers in the economy, with an estimated 940 rice mills of various capacities operating in the state. The capacity in terms of paddy throughout varies between 1.5 TPH to 40 TPH, with an average paddy throughout capacity of 2.5 TPH or 40 TPH per unit based on 2 shift operation (16 hrs. /day). These mills have an aggregated annual paddy throughout capacity of around 112.80 lakh tonnes (11.28 mn. tonnes). Rice produced by the mills in the state caters to both domestic and export market. Raw rice is the major product of these mills, although few rice mills are producing parboiled rice. Only few rice mills are producing aromatic variety of rice. Some of the modern rice mills have incorporated colour sortex machine and silky polishing machine for producing superior quality rice. Table below shows paddy cultivation in the state of Orissa in the past 5 years. Table 4.3: Paddy Cultivation in Orissa YEAR AREA IN Hect. PRODUCTION MT (000t) 11290 11261 10237 10289 9699 in YIELD in Kg/Hect. (t/ha) 2.60 2.53 2.30 2.30 2.17

(000 ha) 2008 4460 2007 4444 2006 4450 2005 4479 2004 4472 (Source: International Rice Research Institute)

The above figure shows that eventually with time the paddy cultivation in the state of Orissa has increased with time.


4.5. Technology and Value Chain Analysis:


.1. Technology analysis:

Two types of rice are produced by milling of paddy in the rice mills. They are: Raw Rice

Parboiled Rice Manufacturing of parboiled rice from paddy involves the following major steps:

Cleaning of paddy using paddy cleaner and destoner (Paddy Cleaner)

Parboiling of cleaned paddy in parboiling plant (Parboiling Plant)

Mechanical drying of parboiled paddy using steam (Paddy Drier Plant)

Milling of parboiled and dried paddy using Sheller type machine (Sheller Machine)

Separation of husk using sieve cleaning of rice (Rubber roll husk in mill plant)

Polishing of rice using parling cones (Polished Rice)

Separation of rice bran using sieve (Paddy Separation in Mill Plant )

Separation of broken rice using sieve


Weighing and packing of rice and by-products Figure 4.6: The following flow chart shows manufacturing process of Raw Rice / Parboiled Rice:


Paddy For Parboiled Rice Cleaning For Raw Rice Drying For Raw / Parboiled Rice Soaking Open Steaming

Parboiling (Atmos. / Pressure)

Sun Drying

Mechanical Drying

Shelling Unit Husk Seperator




Unshelled Paddy

Paddy Seperator

Brown Rice

Polishing Unit

Bran Separator


Rice Grader

Whole Rice

Broken Rice & Impurities Weighment & Packing

Weighment & Packing


Figure 4.7: The following flow chart shows the process for super quality / export quality rice:

Process Flow Chart for Super Quality / Export Quality Rice

Rice produced by com mon rice mill Silky Unit Destoning Unit Colour Sorting Machine Grading W eighment and Packing

While whole rice is the main product during the milling process, rice bran, rice husk & broken rice are obtained as by products during the process. Rice husk is the outer shell of rice and it is a fibrous material containing good amount of silica. Rice bran is a fine powder obtained during polishing of the brown rice when the outer coating on rice is removed as rice bran. It contains vegetable oil as a valuable constituent.

4.5.2. Utilization of byproducts of rice milling Industry: The growth of rice milling industry is largely dependent upon useful commercialiasation of its byproducts. For a milling unit, the main product is rice and byproducts are rice bran, broken rice and rice husk. Out of the four product and byproduct, rice is the main product accounting 68% of the quantity in use and taken for human consumption. Rice bran a byproduct of the industry accounts for about 4% of the paddy quantity. Broken rice is the second byproduct and accounts for about 1% of the paddy quantity. Husk is the last byproduct and accounts for about 27% of the total quantity.


Rice bran:

Rice bran has a variety of uses. It is used for extraction of edible oil in solvent extraction plant. It is also used as a cattle feed. Rice bran is obtained from the outer layers of the brown rice during milling. Rice bran consists of pericarp, aleuron layer, and germ and part of endosperm. Rice bran is a potential source of vegetable oil. Raw rice bran consists of 12-18% oil, whereas parboiled bran contains 20-28% oil. It also contains high fat & protein, vitamins, minerals & many other useful chemicals. Bran oil contains low linolenic acid and high tocoferol; hence it has distinct advantage over other vegetable oils. It is more economical as compared to other cooking oil. Besides at the time of frying there is less degradation of oil. Rice bran oil is also used in soap manufacturing, protective coatings, plasticizers & tocoferol. Broken rice:

Broken rice is another byproduct of rice milling industry. If nutrition is concerned, broken rice is as good as whole rice. Broken rice is fit for human consumption of the down trodden at a lower price. It has low economic value as compared to whole rice. The poor quality of broken rice is due to admixture with grit, stones and clay particles. Rice husk: Rice husk is another byproduct of the rice milling industry. Rice husk is generally reused in the rice mill as fuel in the boiler.

4.5.3. Value chain analysis: As there is custom milling prevailing in this cluster, the rice millers get profit out of the byproducts and from excess milling of rice. Various government agencies provide paddy to the rice millers at a certain rate. The role of the rice miller is to process the paddy and return the contracted amount of rice to the agencies. The final selling of rice is done by the government agencies.


Figure 4.8: The recovery of product and by-product from rice milling is as given below:


Processing / Milling

Rice (63%)

By-Products (27%)

Refraction (10%)

Bran (5%) (Used for Solvent Extraction of Oil)

Husk (19%) (Used as Fuel in Boiler, Gasifier , Furnace)

Broken Rice (3%) (Used for Cattle/Poultry Feed, Human Consumption, etc.)

It is stated by the government that from 100 kg of paddy 63kg of rice can be milled. In custom milling process, the agencies contract with the rice millers to deliver to the agency 63kg of rice for every lot of 100 kg of rice. The amount of rice that can be milled from 100 kg of rice depends upon the quality of rice. The amount of rice processed from 100 kg of rice varies for different qualities of paddy. If the rice miller can process more than 63% of rice, he can take possession of the excess rice after fulfilling the governments custom milling contract. Thus, in Bargarh district cluster the profit made by the rice miller depends upon the quality of paddy and the by-products. By selling the excess rice and by-product the rice millers make substantial profit. The rate at which they sell their by-product varies from miller to miller.


Bargarh District Profile

Bargarh, also baragarh, is a city & a municipality in bargarh district in the state of Orissa, India. It is the administrative head quarters of Bargarh district. Bargarh is located at 21.33N 83.62E. It has an average elevation of 171 meters (561 feet). The Bargarh district is one of the 14 most stable zones in the world.


As of 2001 India census, Bargarh had a population of 63,651. Males constitute 52% of the population & females 48%. Bargarh has an average literacy rate of 72%, higher than the national average of 59.5%, with 57% of the males & 43% of females literate. Bargarh is an industrial city, with cement, sugar & thread factories. But the economies of Bargarh district are largely dependent on agricultural productions. This is possible due to the availability of irrigation water throughout the year & the fertile nature of the land around this place. With commissioning of Hirakud dam project, a green revolution started after 1960. Attabira block is known as the rice bowl of Orissa because of its exemplary paddy production. Production of paddy in the district of Bargarh is about 6, 00,000.00 MT per annum which is the largest in Orissa. Recently abundance of diamond has been reported in the southern & western parts of this district. Table 4.4: The following table will give an idea regarding the land in Bargarh and the land utilization pattern.(Area in 000 hec.)

PARTICULARS OF THE AREA A. cultivable land Forest area Misc. tree, permanent pasture, land put to nonagricultural use, barren & uncultivable land. Cultivable waste Current fallow Other fallow Net area sown Percentage of forest area of district to state B. agricultural land high land medium land low land Paddy area High land Medium land Low land Irrigated area in kharif Irrigated area in rabi Approx. paddy production in kharif

IN HECTARES 584 122 39 12 28 1 317 2.09% 351 183 89 76 204 40 87 77 145 83 22.28 qntl/hec

Source: centre for environmental studies, official website of Bargarh



Rice mill cluster in Bargarh

4.7.1. Age of the cluster The Bargarh and adjoining areas has a paddy growing area traditionally. Looking to the raw material requirement availability and the ready market and rice being the staple food for the states population, rice milling became a natural choice for traders keen on investing. Thus the milling activity started in the area almost 50 years ago. Since then the number of units have grown to 85 units as estimated presently. The growth of the units in the cluster can also be attributed to the influence of the neighboring rice mills in Chhattisgarh with similar paddy cultivating areas. In fact, due to the ongoing purchase support from FCI, the number of milling units increased from 42 to 85 during the period 2001-2007. As such the cluster is a naturally evolved cluster having proximity of raw material, i.e. paddy which in turn enjoys regular water supply from Hirakud dam located in the cluster proximity. 4.7.2. Nature of the cluster As mentioned in the preceding paragraph, the rice mills are mainly spread around Bargarh. In all there are about 85 rice mills in the region up to 2007-08. These mills are of various capacities ranging from 2 tons/hr to 10 tons/hr. the older units usually being that of low capacities while the comparatively new units of higher capacities reflect the growing investment in the sector. The Government has introduced "Custom Milling which means milling of paddy, not belonging to the miller, into rice in his rice mill on payment of milling charges in cash or in kind; the success of any Industry depends primarily into two factors. One is availability of Raw material and secondly the assured market for the Finished Goods produced. The introduction of Custom Milling have helped Rice Milling Industry in both this aspect as the paddy is provided by Government which is milled into Rice by the Rice Millers and is delivered back to the Government for a consideration of fix milling charges. Thus the Rice Mills are nowadays prospering through Government Policy. A consortium has been formed with the name & style of Bargarh Rice Mill Consortium Pvt. Ltd. (BRMC Pvt. Ltd.). At present the consortium has 28 members having seed money with an amount of Rs. 14 lakhs. Board of management has been formed with 7 directors. M/s BRMC Pvt. Ltd. has been sanctioned Rs. 489.89 lakhs by government of India, government of Orissa49

and self investment for solvent extraction plant with testing laboratory under common facility centre (CFC).

4.7.3. Cluster details To know the cluster details a study was done in Bargarh district. The study revealed that: There are around 83 rice mills in Bargarh district. The processing and milling capacity ranges from 2 MT/hr to 8 MT/hr. the units are located in various blocks and villages of Bargarh district and some rice mills are located in Bargarh town itself. The graph below shows the growth of rice mill cluster in Bargarh district. There were 27 rice mills in the year 2001-02 which doubled in the year 2003-04. As various investment opportunities are available in Bargarh district in rice milling sector the number of rice mills doubled itself to 83 by the end of the year 2009. The first rice mill namely M/s Hanuman Rice Mill, Sasan, near Sambalpur came up with an investment of Rs. 75000 /- during 1953 in the cluster. Figure 4.9: Growth of Rice Mill Cluster in Bargarh District












No. of rice 27 mills









Figure 4.10.: Type of Unit

Type of unit No. of unit Micro 1 Small 4 Medium 4 Large 2 The rice mill cluster of Bargarh consists mainly of small and medium enterprises. Only 18% of the rice mills surveyed are large units and 9% are micro units. Figure 4.11.: Annual Turnover of Rice Mills


Annual turnover up to 50 lakhs 50 lakhs - 1 crore 1 crore - 5 crore 5 crore & above

No. of units 5 1 2 3

46% of the rice mills in the cluster give an annual turnover up to Rs. 50 lakhs per annum. 27% of the rice mills give an annual turnover of Rs. 5 crore and above. Figure 4.12.: Net Profit of Rice Mills

Net profit up to 50 lakhs 50 lakhs - 1 crore 1 crore - 5 crore 5 crore & above

Sales 10 1 0 0

91% of the mills in the cluster get a net profit of up to Rs. 50 lakhs per annum and only 9% of the rice mills get a net profit more than Rs. 50 lakhs. Figure 4.13.: Initial Investment made in Rice Mills52

Initial Investment made up to 50 lakhs 50 lakhs - 1 crore 1 crore - 5 crore

Amount 36.4 9.1 54.5

55% of the rice mills surveyed have initially invested an average of Rs. 2 crore. 36% of the rice mills in the cluster had initial investment of up to Rs. 50 lakh. Owners contribution Around 36% of the rice mill owners have contributed 50% of the initial investment. 27% of the rice mill owners have contributed 33% and 25% towards the initial investment, while 9% of the owners have fully contributed towards the initial investment without taking any kind of loan.

Figure 4.14.: Various Sources of Finance


Sources of Finance Bank Loan Own Capital Government Subsidy Friends & Relatives

No. of Units 9 7 0 1

Bank loan is the most preferred source of finance for the rice mill owners. While some go for their own capital, very few take help from friends and relatives for financing their projects. Taken any loan for business Bank loan is the most preferred source of finance for the rice mill owners. All the rice mills in the rice mill cluster of Bargarh have taken various bank loans from various financial institutions. Figure 4.15.: Various Sources of Loan


No. of units


United Bank of India 3 Punjab National Bank 2 State Bank of India 5 O.S.F.C 2 Private Loan 3 State Bank of India is the most preferred bank among the rice mill owners in Bargarh for bank loans. United Bank of India, Punjab National Bank and Orissa State Financial Corporation follow next. Figure 4.16.: Various Types of Loan

Type of Loan No. of Units Cash Credit 10 Term Loan 8 Bank Guarantee 8 38% of the rice mill owners have a cash credit, term loan and bank guarantee account and only 31% of the rice mill owners have a cash credit account. Figure 4.17.: Loan Amount Taken by Various Rice Mills

Loan Amount up to 50 lakhs 50 lakhs - 1 crore

No. of Units 1 8


1 crore - 5 crore 2 5 crore & above 0 73% of the rice mills surveyed have taken a loan amount ranging between Rs. 50 lakhs Rs. 1 crore and only 18% of the rice mills have taken a loan more than Rs. 1 crore. Not only has a single rice mill taken a loan more than Rs. 5 crore. Figure 4.18.: Working Capital Requirement of Rice Mills

Working Capital Requirement No. of Units up to 50 lakhs 2 50 lakhs - 1 crore 8 1 crore - 5 crore 1 5 crore & above 0 The working capital requirement per annum comes around 50 lakhs to 1 crore in majority of the rice mills surveyed. Small rice mill units manage there working capital requirement within Rs. 50 lakhs. Figure 4.19.: Position of Working Capital in Rice Mills

Position of Working Capital Standard56

No. of Units 10

Below Standard Manageable Poor

1 0 0

The position of working capital requirement is standard in maximum rice mills. Figure 4.20.: Labour Requirement of Rice Mills

Labour Requirement 10 - 20 labour 20 - 30 labour 30 - 40 labour 40 - 50 labour Figure 4.21.: Types of Labour Available

No. of Units 4 2 4 1

Types of Labour Local Migrant

No. of Units 11 0

As the rice mills are not large scale units, the labour requirement in these mills are not high. The maximum labour required is 4o labourers in a unit. All the labourers working in these mills are


local labourers. Migrant labourers are not employed as the work is not highly technical and expertise in work is not required. The rice mill owners dont require migrant and expert labourer. So the labour requirement is fulfilled by the local labourers.

4.8. Problems Faced & Intervention Proposed: The major problems faced by the cluster are: Labour problem:

The labourers working in the rice mills are from Bargarh and from nearby areas. There are no migrant labourers. The major problem is that the labourers available are unskilled and are not capable of handling new and updated machinery. Many opportunities are available for up gradation of technology but the non-availability of skilled labourers is restricting the rice mill owners from updating their technology.

The availability of Rs. 2/kg rice by the government of Orissa is also responsible for creating labour problem in the cluster. By working 15 days month, the labourers can live a satisfactory life for a month as the basic cereals are available to them at a cheap rate by the government. Some rice mill owners provide them with housing facility as well. This does not provide the labourers a chance to improve their skills and competitiveness.

Suggestion: Various institutes should be established for the development of skilled labourer. Workshops should be organized for up gradation and development of technology not only for mill owners but also for the labourers.

Shortage of government infrastructure:

The RMC yards do not have space and infrastructure to keep the paddy secured for long time. More RMC godown is needed to keep the surplus amount of paddy, which goes waste due to insufficiency of space in the RMC yard. The farmers are unable to sell their surplus rice to the rice miller and face heavy loss.58

There is shortage of FCI godowns. After the paddy is processed into rice, the whole lot of rice is not transferred to the FCI godown because of shortage of space. The rice mill owners do not have sufficient godown space to store the rice & have to close down the factory till the government agencies have collected the processed rice and space has been made in the godowns for storage of new processed rice.

Suggestions: The rice mill owners should individually be provided with finance to build their own storage facility. The government should provide them with funds or should negotiate with nationalized banks to provide them easy loans with cheaper rates.

The government should take steps to provide a common storage facility to the rice mill owners in the cluster. All the rice mill owners will store there processed rice after one lot of rice processing is over. This will help them not to close down there unit for the time there storing house is not empty. Storage problem of excess rice will be solved.

Provision should be made by the government such that the FCI godowns provide space to the rice mill owners to store the excess processed rice before it is returned to the government.

Rural godown scheme of government of India should be activated in this area.

High investment Low income:

To provide with fine quality rice the rice mill owners are using various modern technology. The rice mill owners are making high investment in their mills to give the59

finest quality rice. Due to custom milling the rice mill owners are not able to get the satisfactory profit as they have to sell the rice to the govt. at the rate fixed by the government.

Suggestions: To provide fine quality rice the rice mill owners invest heavily to update their technology and machinery. Due to custom milling of rice by the government, the rice mill owners get low profit as compared to the investment made. To compensate this loss NABARD should provide the mill owners with various lending facility through the commercial bank such that the investment can be made at a cheaper rate.

Shortage of quality raw material:

Raw material i.e. paddy is supplied to various government agencies by the farmers. The farmers produce the raw materials and supply them to the government agencies. The government agencies supply paddy to the rice mills according to the capacity of the rice mills. The rice mill owners have to process the paddy into fine quality rice and return to the government agencies. For every 100 kg of paddy the rice mill owners have to provide the agencies 68 kg of rice. But after processing only 63 kg or 64 kg of rice comes out. But according to the contract the rice mill owners have to return 68 kg of rice which leads to around 3 to 4 kg of loss of rice per quintal. With high quality paddy 68 kg of rice per 100kg of paddy can be processed. As the quality of paddy provided by the farmers is not good and poor ultimately the rice mill owners have to pay the price.

Suggestions: The farmers should be provided proper knowledge about various fertilizers and new technology available in the market so as to make them use in producing good and high quality paddy. Various institutes can be established to educate the farmers about the development of paddy as the farmers are the first stakeholders of the Bargarh rice mill cluster.

Lack of active associations:


The existing association at Bargarh had been dormant for quite some time and only due to the pilot level activities that were initiated during the study phase; some energisation of the association has taken place. They have got into the mode of commonly planning some activities and thus they need to be further strengthened to take up the developmental activities in the cluster. These vehicles of growth need to be strengthened for the long term growth of the cluster.


Place one secretarial staff (NDA) with the association to help in daily activities. The meetings of the SPV formation should be properly co-ordinate.

Formation of consortia and other types of groups in the cluster to improve its social capital Interaction of the association with other rice miller associations for information exchange etc. Entrepreneurship and motivation programmes for the rice millers.

Low technology level:

Though some of the mills of the area have modern facilities such as SORTEX and SILKY, the poor quality paddy and custom milling by the government has deterred most of the mill owners to go for technology up gradation in their mills. Some of the mill owners who have the modern facilities have reported better price appreciation even with the existing paddy variety. The low technology levels in boilers, the lack of facilities of re-use of the boiler heat and some technical gaps in the milling technology itself have led to low output, high percentage of broken rice and other related issues.



It is proposed to enable the mill owners adopt better technologies in their mills, riding over the availability of better quality paddy from the farmers and thus the following are proposed for improving the technology level in the mills:

Exposure visit to other rice milling clusters/ technical institutions etc. to cull out best practices of rice milling. Technical audit by suitable consultants to help the mills understand their technical up

gradation needs. Interactive seminars/ workshops with institutions such as CRRI, APEDA and other

sectoral technology institutions etc. Visit and interaction of various machinery suppliers and other technical input providers to the cluster.


Custom milling policy

Formation of Custom Milling Commiittee: This committee is chaired by District Dy. Commissioner & District Heads of procuring agencies as members & DFSC is Member Secretary. This committee meets at least once in a week to regulate, monitor and control the allotment of paddy to millers for milling & reviewing the progress of custom Milling of paddy operations. Paddy Allotment: 2500 MT paddy is allotted to Rice Millers having 1 MT cap. & additional 2500 MT is allocated for additional 1 MT capacity & maximum up to 5000 MT Paddy allocated on one miller. Agreement: Agreement with Rice Millers is made with various terms & conditions and Bank Guarantee/ security etc.62

Time Schedule for Milling: Entire paddy allocated to Rice Millers is liable to be milled well before 28-02-11as below: October & November - 20% December - 27% January -27% February -26% The bag used for delivery of levy rice is made in 50 kg gunny bags with stitching specifications to maintain. The other controlled areas include Packaging, Materials, CC Limit, Billing cum Payment agent Mandis & their allocations, procurement agencies, Labour, Transportation, Storage capacity, Control Room, Staff Deployment, Mode of procurem.ent, Sampling & Cleaning , formation of Mandi Level Committees for determining current price of food grains, bags filling, farmers education, , Inspection of Mandis, Role of BCPA & maintenance of purchase B/C etc. 4.10. Procuring Agencies:

Paddy Procurement and Milling is the complete computerization of food grain supply Chain from purchase of paddy from farmers at Minimum Support Price (MSP) through Primary Agriculture Cooperative Societies (PACS), its storage at storage centers of Marketing Federation (MARKFED), custom milling by registered millers and receipt of Custom Milled Rice (CMR) at receiving centers of CG State Civil Supplies Corporation (CSCSC) and Food Corporation of India (FCI). The description of procuring agencies for paddy is as below: OSCSC: OSCSC Ltd. was established on 3rd September, 1980 as a fully owned state government company under Companies Act, 1956. The corporation makes efforts to new approaches to expand its horizon of activities with changing needs. The corporation maintains a no profit no loss status, in order to fulfill its commitment to serve the poor segments of the society. The corporation seeks to engage either on its own or as the agent of Govt. of Orissa or any firm, company, corporation or institution to promote, develop, counsel and finance production, purchase, storage, processing, transport, distribution and sale of essential commodities like food grains and sugar. It also provides assistance, advice and services for capital and credit means, resources, technical as well as managerial services. OSCSC Ltd. Purchases rice from FCI and other agencies like PACS, MARKFED, and NAFED etc. The corporation also procures paddy from various parts of the state through its decentralized procurement operations and get the same milled and receive the custom milled rice (CMR) from the custom miller. The rice collected from FCI and other agencies are stored at godowns owned63

or hired by OSCSC Ltd. The stored rice is handed over to storage agents, as per the allotment made by the collectors of districts. Further, this stock is issued to the retailers as per allotment made by concerned Block/NAC authority. FCI: FCI, Orissa Region was purchasing only levy rice since 1982-83 to meet the requirement of food grains under various schemes of Government of Orissa as per directives of Honble High Court, Orissa, Cuttack and on the advice of State Government to avoid any possibility of distress sale of paddy, FCI started intervening in the market by purchasing paddy directly from the farmers since Kharif Marketing Season 2001-02. The state has participated in the procurement operation of direct purchase of paddy through the Orissa State Civil Supplies Corporation and other state agencies. But major target is put on FCI. FCI started its paddy purchase in Orissa for KMS 2001-02 and it has expanded its operations since then. The basic function of FCI in Orissa is to procure paddy from the farmers and supply the paddy to the rice millers for custom milling. After custom milling of rice the rice millers return the custom milled rice to FCI for a certain charge. FCI then stores the rice in its godown till it is supplied to retailers or for other government schemes. MARKFED: The Orissa State Co-operative Marketing Federation (MARKFED) procures paddy directly from the farmers in the state as a state government agency. It procures paddy directly from farmers in accordance with the Decentralized Procurement Scheme. The paddy procured is as per quality specifications laid down by the Government of India and in accordance with the guidelines issued by the FS & CW Department from time to time. NAFED: National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) was established on 2nd October 1958. NAFED is registered under the Multi State Co-operative Societies Act. NAFED was setup with the object to promote Co-operative marketing of Agricultural Produce to benefit the farmers. Agricultural farmers are the main members of NAFED, who have the authority to say in the form of members of the General Body in the working of NAFED. NAFED also procures paddy directly from the farmers as it is a state government agency. It procures paddy from the farmers in accordance with the Decentralized Procurement Scheme. It will purchase paddy directly from the farmers as per quality specifications laid down by the Government of India, in accordance with the guidelines issued by the FS & CW Department from time to time. PACS: Primary Agricultural Cooperative Societies are also involved in the paddy procurement business of the state government as a state government agency. It directly purchases paddy from the farmers as per the specifications laid down by the government of India in accordance with the guidelines issued by the FS & CW Department. 4.10.1. Presence of Supporting Institutions:


Ministry of Agriculture: Ministry of Agriculture declares minimum support price of

different food grain including paddy and rice. Civil Supply Department: It plays a major role in this cluster; it fixes the maximum

target of purchasing paddy for the rice millers through specific market yard. Agriculture Department of Orissa: The Deputy Director of Agriculture provides seeds to

the farmers. They also have an agricultural laboratory at Sambalpur, which in turn informs the farmer about seeds suitable for their local soils. CRRI, Cuttack: It is an international level rice research centre. It produces new variety of

paddy suitable to local climatic condition. OUAT: Orissa University of Agricultural Technology has a branch at Chiplima,

Sambalpur. NABARD: It is an agricultural development bank providing infrastructural assistances as

well as conducts training and awareness programmes for benefit of the farmers. DIC: It is a promotional agency and the path finder for setting of SSI units. Besides

above project profiles, schemes and survey reports are being prepared by DIC.

4.10.2. Business Development Service (BDS) Providers: The following are the basic BDS providers: Farmers Packing material suppliers Transporters Labour contractors Chartered Accountants Export Consultants The R&D and other institutes like ICAR, CRRI, OUAT, standard certificate agencies, APEDA, CDP etc. are in existence but rarely approached by the industry except a few organized units who65

have been benefited. There is a need to make the industry aware of various services available and provided by these institutions. 4.11. Marketing & Sales:

Against custom milled rice, the Govt. procuring agencies are purchasing paddy from open market and getting it milled from the rice shellers as per terms and conditions & agreement and the rice procured out of it is fed to the central pool mainly through FCI. In CMR milling contract the milling charges are given @ Rs. 25 per Qtl. to the millers which include transportation and loading and unloading of gunny bags. If the distance from the godown to the rice mill is more than 8 km then the rice miller will be paid 35 paisa for each extra kilometer.

Figure 4.22.: The charts below show the Custom Milling Procedure in the Rice Milling Cluster of Bargarh district: Farmers (paddy)

FCI Godown and Undertaken Godown



The farmers are the main stakeholders of the cluster. They produce the paddy and the various government organizations / agencies purchase the paddy from the farmers at the minimum support price. The paddy collected by there agencies are stored in the FCI godowns or any other government godown.

FCI Godown and Government Undertaken Godown






Rice Miller (paddy is delivered to the rice millers according to the contract made with the various agencies)


Custom Milling of Paddy

Custom Milled Rice The various government agencies deliver the contracted quantity of paddy to the respective rice millers for custom milling of paddy. A rice miller may get paddy from one or more agency in accordance to the contract made by the rice miller with the agencies. After the rice miller gets delivery of paddy it then custom mills the paddy into fine rice. The custom milled rice is again stored in the FCI godown or government undertaken godown by the agencies.

Custom Milled Rice






\ FCI Godown and Government Undertaken Godown

Sale by Government / Retail Sale of Rice


The various government agencies collect the custom milled rice from the rice millers as per the scheduled date. The customer milled rice is stored in the FCI godown and other Government undertaken godowns. It is then collected by the government agencies or government officials for selling as per terms and conditions mentioned by the central government or used for retail selling.





The SWOT analysis of the cluster is made on the following parameter: 1. Market 2. Technology 3. Input availability 4. Human resource / skill 5. Business environment This analysis identifies the strong and weak areas as well as opportunities and threats envisaged in the cluster. Sl. Parameter No. 1. Markets Strength Market support available under levy/custom milling rice policy. Most suitable climatic environment Weakness All rice mills depend upon the custom milling policy. Opportunity Tremendous national market is there. Institutional support is available. All the units having sortex machine may be clubbed off for common brand and export. Threat Strong competition from Asian Countries.



Low cost fabricated machines Technological infrastructure available.

High There is potential production/autom for productivity atic plant are very Cost reduction costly and are and quality mostly imported enhancement by which is beyond use of the reach of SSI appropriate sector technology/QMS

Traditional technology, standard and nonprofessional machinery leads to high cost and may retard



Inputs availability

Local resource

Entrepreneur not aware of sources of low cost imported automatic plants and appropriate processing techniques. Locally fabricated plant is unstandardised and low productive. Controlled minimum support price (MSP) of paddy at compulsion of custom milling policy.


the industry both at domestic and international market.



Traditional operators available


Business Ability of export environment segment to grow and meet international challenges

Large domestic / international market available. Potential for non exporting unit to export. Available institutional support may be exploited. Formation of consortium and making common brand for easy export. No skill up Increased gradation training technical and managerial awareness and training may lead to productivity, quality and efficiency growth. Heavy taxes or Tremendous controlled trade has growth potential lead to closure/shift with institutional of events. support

Imposition of high taxes as compared to other neighboring states. . This may lead to closure of the unit or shift of the unit to other states.

Skill base needs up gradation to adopt latest technology and management systems Imposition of taxes in comparison to neighboring states may taper down the industry.




RICE-MILLING INDUSTRY (REGULATION) ACT 1958 ACT NO. 21 OF 1958 [18th May, 1958.] An Act to regulate the rice-milling industry in the interests of the general public. Some of the important features of the Act are given below: It extends to the whole of India except the State of Jammu and Kashmir.

Definition of a rice mill according to the Act:

defunct rice mill: a defunct rice mill is defined according to the Act as:

A rice mill in existence at the commencement of this Act but in which

rice-milling operations have not been carried on for a continuous period of one year prior to such commencement.

a rice mill (whether established before or after such commencement) in

which rice-milling operations are not carried on for a continuous period of one year at any time after the commencement of the Rice-Milling Industry (Regulation) Amendment Act, 1968.73

existing rice mill: an existing rice mill is defined according to the Act as:

A rice mill carrying on rice- milling operations at the commencement of this Act. Some of the important terms used in rice milling industry as defined by the act are: Milling-rice: The term milling rice is define as:

Recovering rice or any product thereof from paddy.

Polishing rice, with the aid of power.

New rice-mill: The term new rice mill is defined as:

a rice mill other than an existing rice mill or a defunct rice mill

Owner: The term owner in accordance with a rice mill is defined as:

The person who, or the authority which, has the ultimate control over the affairs of the rice mill, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent shall be deemed to be the owner of the rice mill.

Rice Mill: The term rice mill is defined according to the Act as:


The plant and machinery with which, and the premises, including the precincts thereof, in which or in any part of which, rice-milling operation is carried on.

Grant of permits in respect of new or defunct rice mills: The Act states certain rules regarding the permission of any grant in respect of rice mills.

Any person or authority may make an application to the Central Government for the grant of a permit for the establishment of a new rice mill; and any owner of a defunct rice mill may make a like application for the grant of a permit for recommencing rice-milling operation in such mill.

If, on receipt of any such application for the grant of a permit, the Central

Government is of opinion that it is necessary so to do for ensuring adequate supply of rice, it may, subject to the provisions of sub-section (4) and sub-section

of 110/110
A REPORT ON CLUSTER DEVELOPMENT AND SCOPE FOR CREDIT GROWTH IN RICE MILLS IN BARGARH – ATTABIRA BELT Submitted to the State Bank of India In Partial fulfillment of the Master of Finance and Control Programme (2009-11) SUBMITTED BY ANANYA MISRA MFC, Utkal University Roll No. 09MFC022 Exam Roll No. 33706V93013 UNDER THE GUIDANCE OF Shri. Mihir Kumar Sahoo Dr. Anil Kumar Swain Assistant General Manager (SME II) Faculty, MFC State Bank of India Utkal University Local Head Office Bhubaneswar Bhubaneswar 1
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