AREPORT 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, MFCState Bank of India Utkal University Local Head Office Bhubaneswar Bhubaneswar

MASTER OF FINANCE AND CONTROL (MFC)P.G. DEPARTMENT OF COMMERCE

UTKAL UNIVERSITYBHUBANESWAR

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DECLARATION

I do hereby declare that the project entitled “Cluster

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, SME-

II, 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: ANANYA MISRA

ACKNOWLEDGEMENT

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       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)

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EXECUTIVE SUMMARY

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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.

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CONTENTS

DECLARATION

ACKNOWLEDGEMENT

CERTIFICATE

EXECUTIVE SUMMARY

CHAPTER 1: INTRODUCTION TO THE STUDY

1.1 : INTRODUCTION TO THE STUDY 1.2 : RATIONALE OF THE STUDY1.3 : OBJECTIVE OF THE STUDY1.4 : RESEARCH METHODOLOGY1.5 : LIMITATIONS OF THE STUDY

CHAPTER 2: COMPANY PROFILE

2.1: INTRODUCTION2.2: HISTORY2.3: ASSOCIATE BANKS2.4 : MISSION OF THE BANK2.5: VISION OF THE BANK2.6 : BOARD OF DIRECTORS2.7 : PRODUCTS AND SERVICES

CHAPTER 3: CLUSTER DEVELOPMENT – AN OVERVIEW

3.1 : MEANING OF CLUSTER3.2 : CONCEPT OF CLUSTER3.3 : CONSTITUENT OF A CLUSTER3.4 : TYPES OF CLUSTERS3.5: CREATION OF CLUSTER3.6 : ADVANTAGES OF CLUSTER3.7: DISADVANTAGES OF CLUSTER

CHAPTER 4: CLUSTER DEVELOPMENT – A STUDY ON RICE MILL

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CLUSTER OF BARGARH DISTRICT

4.1 : HISTORY OF RICE4.2 : INTERNATIONAL SCENARIO4.3 : NATIONAL SCENARIO4.4 : STATE SCENARIO4.5 : TECHNOLOGY AND VALUE CHAIN ANALYSIS4.6: BARGARH DISTRICT PROFILE4.7 : RICE MILL CLUSTER IN BARGARH – ANALYSIS4.8 : PROBLEMS FACED AND INTERVENTION PROPOSED4.9 : CUSTOM MILLING POLICY4.10 : PROCURING AGENCIES4.11 : MARKETING AND SALES

CHAPTER 5 : ANALYSIS : A CASE STUDY

5.1 : SWOT ANALYSIS5.2 : RICE MILLING POLICY5.3 : ANALYSIS

CHAPTER 6 : SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSIONS

BIBLIOGRAPHY

LIST OF FIGURES

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Figure 4.1: Distribution of World Paddy Rice Production (average from 1999-2007). Figure 4.2: World’s Main Importers of Rice (all types),( average from 1996-2006). Figure 4.3: World’s 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

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CHAPTER - I

1.1 INTRODUCTION

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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

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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

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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 India’s IT industry to the country’s 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 non-

basmati 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

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Cluster development is a relatively new art and science, born only around 1990’s. 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 inter-

relationships 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, it’s 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

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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 sources

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

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.

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CHAPTER - II

State Bank of India

2.1 Introduction

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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 nation’s 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 it’s 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

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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 India’s 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 India’s stake in SBI so as to remove any conflict of interest because the RBI is the country’s 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:

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SBI Capital Markets Ltd. SBI Mutual Fund (A Trust) 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 shareholder’s value through high sustained earnings per share.

2.6 Board of Directors:

Sl. No. Name of Director 1. Shri O.P. Bhatt (Chairman)

2. Shri S.K. Bhattacharya (MD & CC & RO)3. Shri R. Sridharan {MD & GE(A&S)}4. Dr. Ashok Jhunjhunwala5. Shri Dileep C. Choksi6. Shri S. Venkatachalam7. Shri D. Sundaram8. Dr. Deva Nand Balodhi9. Prof. Mohd. Salahuddin Ansari10. Dr.(Mrs.) Vasantha Bharucha11. Dr. Rajiv Kumar12. Shri Arun Ramanathan13. Smt. Shyamala Gopinath

2.7 Products and Services:

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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:NRI’s 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/c’s – 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.

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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. Bank’s Joint Ventures and Subsidiaries abroad further underline the Bank’s 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. Bank’s Joint Ventures and Subsidiaries abroad further underline the Bank’s 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 Bank’s Frankfurt branch.

The services include: Corporate Lending Loan Syndications Merchant Banking

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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

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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 Card

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 India’s 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.

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CHAPTER – III

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

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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:

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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.

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.

3.5 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.

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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 SME’s 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 cluster’s very survival.

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

3.6 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.

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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.

3.7 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:

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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.

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CHAPTER – IV

4.1 History of Rice

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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.

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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 Wang-Ta-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 tribal’s 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 Oriya’s, the locals traveled by indigenously built decorated wooden ships called boita’s 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.

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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 Oriya’s; 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 million

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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)

Source: 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:

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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.

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.

It is projected that the global market will increase 3 percent per year over the mid to long term. However, there are uncertainties about this projection because importers, normally low to lower-middle income countries, have vulnerable economies.

The map below shows the main importers and their suppliers. Each color represents an importer (either a country or a group). The values correspond to imports of different types of rice (paddy, brown, white, broken), in thousands of dollars. The major importers are Indonesia, Bangladesh, Nigeria, the Philippines, Iraq and Brazil.

Figure 4.2: World's main importers of rice (all types), average from 1996 to 2006, in millions of tons

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

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European Union (3.1 m t)

Russian federation (.39 m t)

Iran (.93 m t)

Japan (.63 m t)

Bangladesh (.87 m t)Indonesia (1.5 m t)

Brazil (.97 m t)

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

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.

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United States (3. 04 m t)

Pakistan (2.13 m t)

Thailand (7.17 m t)

China (1.86 m t)

Vietnam (3.91 m t)

India (3.41 m t)

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 2007 – 08 2008 – 09

Orissa 6.56 6.86 6.82 7.65 7.88Punjab 10.44 10.19 10.14 10.16 10.66Uttar Pradesh 9.56 11.13 11.12 11.15 11.80INDIA 83.13 91.79 93.36 102.70 112.9(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 2006 – 07 2007 – 08

Qty Value Qty Value Qty Value

Non-basmati rice 2921601 317816 3702191 424307 5285916 740979Basmati rice 1166562 304309 1045714 279280 1183355 434458Total 4088163 622125 4747905 703587 6469271 1175437(Source: APEDA)

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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)

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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.

4.4 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.

(000 ha)

PRODUCTION in

MT (000t)

YIELD in Kg/Hect.

(t/ha)

2008 4460 11290 2.60

2007 4444 11261 2.53

2006 4450 10237 2.30

2005 4479 10289 2.30

2004 4472 9699 2.17

(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.

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4.5. Technology and Value Chain Analysis:

4.5.1. 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

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Figure 4.6: The following flow chart shows manufacturing process of Raw Rice / Parboiled Rice:

Paddy

Cleaning

Drying

Open Steaming

Soaking

Parboiling(Atmos. / Pressure)

SunDrying

MechanicalDrying

Shelling Unit

Cleaning Dehusking Husk Seperator

PaddySeperator

Unshelled Paddy

Brown Rice

Polishing Unit

Bran Separator Bran

Rice Grader

Whole Rice Broken Rice& Impurities

Weighment &Packing

Weighment &Packing

FLOW CHART FOR RAW RICE / PARBOILED RICE MANUFACTURE

For Parboiled Rice

For Raw Rice

For Raw / Parboiled Rice

Husk

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

Rice produced bycommon rice mill

Silky Unit

Destoning Unit

Colour Sorting Machine

Grading

Weighment and Packing

Process Flow Chart for Super Quality / Export Quality Rice

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.

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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 by-products 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.

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

Paddy

Processing /Milling

Rice (63%) By-Products(27%)

Refraction(10%)

Bran (5%)(Used for SolventExtraction of Oil)

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

Gasifier, Furnace)

Broken Rice (3%)(Used for Cattle/Poultry

Feed, HumanConsumption, 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 government’s 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.

4.6. 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 21.33ºN 83.62ºE. 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

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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 IN HECTARESA. cultivable land 584Forest area 122Misc. tree, permanent pasture, land put to non-agricultural use, barren & uncultivable land.

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Cultivable waste 12Current fallow 28Other fallow 1Net area sown 317Percentage of forest area of district to state 2.09%

B. agricultural land 351 high land 183 medium land 89 low land 76Paddy area 204 High land 40 Medium land 87 Low land 77Irrigated area in kharif 145Irrigated area in rabi 83Approx. paddy production in kharif 22.28 qntl/hec

Source: centre for environmental studies, official website of Bargarh

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4.7. 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 state’s 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 Orissa and self investment for solvent extraction plant with testing laboratory under common facility centre (CFC).

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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

Year 2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

No. of rice mills

27 45 53 58 67 68 74 79 83

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Figure 4.10.: Type of Unit

Type of unit No. of unit Micro 1 Small 4 Medium 4 Large 2The 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 No. of units up to 50 lakhs 5 50 lakhs - 1 crore 1 1 crore - 5 crore 2 5 crore & above 3

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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 Sales up to 50 lakhs 10 50 lakhs - 1 crore 1 1 crore - 5 crore 0 5 crore & above 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 Mills

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Initial Investment made Amountup to 50 lakhs 36.450 lakhs - 1 crore 9.11 crore - 5 crore 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.

Owner’s 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 No. of Units Bank Loan 9 Own Capital 7 Government Subsidy 0 Friends & Relatives 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.

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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

Banks No. of units United Bank of India 3 Punjab National Bank 2 State Bank of India 5 O.S.F.C 2 Private Loan 3State 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

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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 No. of Units up to 50 lakhs 1 50 lakhs - 1 crore 8 1 crore - 5 crore 2 5 crore & above 073% 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

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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 No. of Units Standard 10 Below Standard 1 Manageable 0 Poor 0

The position of working capital requirement is standard in maximum rice mills.

Figure 4.20.: Labour Requirement of Rice Mills

Labour Requirement No. of Units 10 - 20 labour 4 20 - 30 labour 2 30 - 40 labour 4 40 - 50 labour 1

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Figure 4.21.: Types of Labour Available

Types of Labour No. of Units Local 11 Migrant 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 don’t 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.

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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.

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 the

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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.

Suggestions:

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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.

Suggestions: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.

4.9. Custom milling policy

Formation of Custom Milling Commiittee:

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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.

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 supplyChain from purchase of paddy from farmers at Minimum Support Price (MSP) throughPrimary Agriculture Cooperative Societies (PACS), its storage at storage centers ofMarketing Federation (MARKFED), custom milling by registered millers and receipt ofCustom 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

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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 owned 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 Hon’ble 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.

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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

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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 who 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)

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OSCSC FCI NAFED MARKFED PACS

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

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FCI Godown and Government Undertaken Godown

OSCSC FCI NAFED MARKFED PACS

Rice Miller

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

Custom Milling of Paddy

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

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Custom Milled Rice

OSCSC FCI NAFED MARKFED PACS

\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.

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CHAPTER – V

5.1 SWOT ANALYSIS

The SWOT analysis of the cluster is made on the following parameter:

1. Market2. Technology

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3. Input availability4. Human resource / skill5. Business environment

This analysis identifies the strong and weak areas as well as opportunities and threats envisaged in the cluster.

Sl. No.

Parameter Strength Weakness Opportunity Threat

1. Markets Market support available under levy/custom milling rice policy.

Most suitable climatic environment

All rice mills depend upon the custom milling policy.

Tremendous national market is there.

Institutional support is available.

All the units having sortex machine may be clubbed off for common brand and export.

Strong competition from Asian Countries.

2. Technology Low cost fabricated machines

Technological infrastructure available.

High production/automatic plant are very costly and are mostly imported which is beyond the reach of SSI sector

Entrepreneur not aware of sources of low cost imported automatic plants and appropriate processing techniques.

Locally fabricated plant is unstandardised and low productive.

There is potential for productivity

Cost reduction and quality enhancement by use of appropriate technology/QMS.

Traditional technology, standard and non-professional machinery leads to high cost and may retard the industry both at domestic and international market.

3. Inputs availability

Local resource Controlled minimum support

Large domestic / international

Imposition of high

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price (MSP) of paddy at compulsion of custom milling policy.

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.

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

4. Skills Traditional operators available

No skill up gradation training

Increased technical and managerial awareness and training may lead to productivity, quality and efficiency growth.

Skill base needs up gradation to adopt latest technology and management systems

5. Business environment

Ability of export segment to grow and meet international challenges

Heavy taxes or controlled trade has lead to closure/shift of events.

Tremendous growth potential with institutional support

Imposition of taxes in comparison to neighboring states may taper down the industry.

5.2. RICE MILLING POLICIES:

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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.

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

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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 re-commencing 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 (5), grant the permit specifying therein the period within which the mill is to be established or, as the case may be, the mill is to re-commence its rice-milling operation and some of the other conditions include improvements to existing machinery, replacement of existing machinery and use of improved methods of rice-milling, as may be necessary to eliminate waste, obtain maximum production and improve quality.

In granting a permit whether for the establishment of a new rice mill or for re-commencing rice-milling operation in a defunct rice mill, the Central Government shall give preference to:

A Government company or a corporation owned or controlled by the Government over every other applicant.

to a farmers' co-operative society over every other applicant not being a Government company or a corporation owned or controlled by the Government, notwithstanding that such other applicant has applied for the grant of a permit for re-commencing rice-milling operation in a defunct rice mill.

Grant of licenses: There are certain rules stated by the Act regarding granting of licenses to the rice mills.

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Any owner of an existing rice mill or of a new rice mill may make an application to the licensing officer for the grant of a license for carrying on rice-milling operation in that rice mill.

Every application under sub-section (1) shall be made in the prescribed form and shall contain the particulars regarding the location of the rice mill, the size and type thereof and such other particulars as may be prescribed.

On receipt of any such application for the grant of a license, the licensing officer shall grant the license on conditions including such as to improvements to existing machinery, replacement of existing machinery and use of improved methods of rice-milling, as may be necessary to eliminate waste, obtain maximum production and improve quality and conditions relating to the polishing of rice, on payment of such fees and on the deposit of such sum, if any, as security for the due performance of the conditions as may be prescribed.

A license granted shall be valid for the period specified therein and may be renewed from time to time for such period and on payment of such fees and on conditions including such as improvements to existing machinery, replacement of existing machinery and use of improved methods of rice- milling, as may be necessary to eliminate waste, obtain maximum production and improve quality, as may be prescribed.

No person or authority shall, after the commencement of this Act, establish any new rice mill except under and in accordance with a permit granted under section 5.

No owner of a rice mill shall, after the commencement of this Act, carry on rice-milling operation except under and in accordance with a license granted under section 6.

No owner of a rice mill:

In respect of which the license has been revoked or suspended shall carry on rice-milling operation in that mill after the revocation or, as the case may be, during the period for which the license has been suspended.

Shall, without the previous permission of the Central Government, change the location of the whole or any part of the rice mill.

Shall, after the commencement of this Act, affect any expansion of the rice mill except with the previous permission of the Central Government.

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Returns: Certain rules regarding the returns of the rice mills are stated by the Act:

Every owner of a rice mill shall furnish to the Central Government such returns relating to the affairs of the rice mill and in such forms as may be prescribed.

Penalties: The rules regarding penalties as stated in the Act are:

If any person contravenes or attempts to contravene or abets the contravention of any of the provisions of section 8 or sub-section (2) of section 18, he shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to ten thousand rupees, or with both, and in the case of a continuing contravention, with an additional fine which may extend to five hundred rupees for every day during which such contravention continues after conviction for the first such contravention.

Offences by companies: The Act also provides certain regulations to control the offences made by a rice mill. They are:

If the person committing an offence under this Act is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Repeal and savings: The rules stated in the Act regarding repeals and savings are:

If, immediately before the commencement of this Act, there is in force in any State to which this Act extends any law or order relating to the regulation or control of rice mills in that State, that law or order shall stand repealed.

Notwithstanding such repeal, any certificate of registration, permit or license granted in respect of any existing rice mill, under any such law or order hereby repealed and in force immediately before the commencement of this Act, shall continue to be in

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force for such period as may be allowed under the proviso to sub-section (2) of section 8 for the licensing of such rice mill under the provisions of this Act.

5.3. ANALYSIS

To know the scope for credit growth in Rice Mills in Bargarh District, an analysis was done on four Rice Mills. The analysis contained calculation for determining the Borrower Rating of a unit. The rating is done on the basis of a certain score. A unit with a high score gets a higher rating as compared to a unit with a lower score. These rates determine the Risk Level and Comfort Level of a unit for repayment of loan.

Table 5.1: The Table below shows the analysis done:

(A) Financial risk (FR)

Maximum

Weighted

Score

(a)*(b)

(c)

M/s Maa Samaleswari Udyog

(d)

Rajesh Rice and Poha Mills

(e)

M/s Shree Lingaraj Feeds Ltd.

(f)

Godavari Rice Mill

(g) Parameters

(i) TOL/TNW 25 20 20 25 20

(ii) Current ratio 20 20 16 20 20

(iii) Return on capital employed (ROCE) (%)

20 20 18 16 18

(iv)

PBDIT/Intt. 15 13.5 6 6 13

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(v) PAT/Operating income

10 8 10 0 8

(vi) Inventory/ Net Sales + Receivables/Gross sales

20 20 0 16 20

(vii) Group risk 5 5 5 5 5

(viii)

Forex risk 5 N.A N.A N.A N.A

(ix)

Future Prospects (FP) (projected ratios)

20 16 18 12 16

Total score out of 135

135 122.5 93 100 120

Total score 140 127.03 96.44 103.70 124.44

Qualitative factors (-ve)

(-10) -- -- -- --

Total score (FR) 70 63.52 48.22 51.85 62.22

(B)

Business & industry risk(B & IR)

Maximum score

M/s Maa Samaleswari Udyog

Rajesh Rice and Poha Mills

M/s Shree Lingaraj Feeds Ltd.

Godavari Rice Mill

71

(i) Access to resources (input profile)

3 3

(ii) User/product profile

3 3 3 3 3

(iii) Technology & consistency in quality

2 2 2 2 2

(iv) Competition & market risk

4 4 4 4 4

(v) Industry outlook/cyclicality

4 4 4 4 4

(vi) Regulatory, labour & environment risk/contemporary

2 2 2 2 2

(vii) Compliance of environmental regulations

2 2 2 2 2

Total (B & IR) 20 20 20 20 20

(C) MANAGEMENT RISK (MR)

Maximum score

M/s Maa Samaleswari Udyog

Rajesh Rice and Poha Mills

M/s Shree Lingaraj Feeds Ltd.

Godavari Rice Mill

72

(i) Integrity 2 2 1 1.5 1

(ii) Track record/conduct of account

2 2 2 2 2

(iii) Expertise, managerial competence & commitment

2 2 2 2 2

(iv) Adherence to covenants of sanctions

1.5 1.5 1.5 1.5 1.5

(v) Structure and systems

0.5 0.5 0.5 0.5 0.5

(vi) Expertise in the industry

0.5 0.5 0.25 0.5 0.5

(vii) Length of relationship with the bank

1 1 1 1 1

(viii)

Succession plan/key person

0.5 0.5 0.5 0.5 0.5

Total score under MR

10 10 8.75 9.5 9

Aggregative risk 93.52 76.97 81.35 91.22

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(D) score:

(A+B+C) ~ (70+20+10)

100 94 77 81 91

(E) CRA rating based on the above score

SB – 1 SB-5 SB-4 SB-2

(F) Financial statement quality

Virtually zero risk

Virtually absolute safety

Moderate risk with adequate cushion

Adequate safety

Low risk

High safety

Lowest risk

Highest safety

The above analysis shows that M/s Samaleswari Udyog has the highest Borrower Rating of SB-1. The Aggregative Risk Score is 94. While Godavari Rice Mill’s Borrower Rating is SB-2. The Aggregative Risk Score being 91. Rajesh Rice & Poha Mill has a Borrower Rating of SB-5 and M/s Shree Lingaraj Feeds Ltd. has a Borrower Rating of SB-4.

SB-1 category units have virtually zero risk and are absolutely safe to grant credit. SB-2 category units have lowest risk and are highly safe for granting credit. SB-5 and SB-4 category units are also low risk units and are moderately safe for banks to grant credit.

As all the Rice Mills analyzed are coming between SB-1 to SB-5 category, it is clearly determined that there is a huge Scope for Credit Growth in Rice Mills in Bargarh District for State Bank of India.

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CHAPTER – VI

6.1. Findings

The study on Cluster Development and Scope for Credit Growth in Rice Mills in Bargarh – Attabira belt included various data analysis and survey. The major findings of my study are:

The number of Rice Mills in Bargarh District has doubled from 27 rice mills in 2001-02 to 53 in 2003-04, which again rose to 83 by the end of the year 2009.

46% of Rice Mills in the cluster have an annual turnover of up to Rs. 50 lakhs per annum.

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The Rice Mills get a net profit of up to Rs. 50 lakhs per annum.

Bank loan is a major source of finance in the Rice Mill cluster of Bargarh District.

State Bank of India is the most preferred bank for credit loan by the Rice Millers. Some Rice Millers also get financing from O.S.F.C.

The working capital requirement of the Rice Mills range between Rs. 50 lakhs to Rs. 1 crore.

Labour requirement in the cluster is a major problem for the Rice Millers.

There is shortage of government storage facilities for storage of paddy and custom milled rice.

The paddy provided for custom milling is of low quality.

The technology used is not updated and modernized. Modern machineries like SILKY and SORTEX machines are absent.

There is lack of active associations. The existing association at Bargarh had been dormant for quite some time.

The Rice Mill owners are making high investment but are getting a low income due to custom milling procedure.

The Rice Mills in the cluster come between SB-1 to SB-5 category in the Borrower Rating done by the State Bank of India. The Borrower rating is done on the basis of the Aggregative Risk Score. The Score is calculated by summing up Financial Risk, Management Risk and Business and Industrial Risk.

6.2. Suggestions:

Various institutes should be established for the development of skilled labourers.

Workshops should be organized to upgrade the labourers.

The Rice Mill owners should individually be provided with financing opportunity to build their own storage facilities, such that they do not face problem to store the custom milled rice.

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Government should take steps to provide a Common Storage Facility to the Rice Mill owners of the cluster.

NABARD and various other government financial institutions should provide the Rice Mill owners with easy loan facility such that they can invest heavily and get a better income.

Various institutes should be established to educate the farmers about the development of paddy.

There should be formation of consortia and other types of groups in the cluster to improve its social capital.

There should be exposure visit to other rice milling clusters, to cull out best practices of Rice Milling.

There should be interactive seminars/ workshops with institutions such as CRRI, APEDA etc.

With a major number of Rice Mills coming between SB-1 to SB-5 category, there is a huge scope for State Bank of India to increase its credit growth. State Bank of India has an opportunity to increase its customer base by decreasing its interest rate and providing easy loan proceedings.

6.3. Conclusion:

There has been existence of Rice Mill in the Bargarh District since 50 years. With around 83 Rice Mill in the cluster and around Rs. 50 lakhs to Rs. 1 crore turnover of each Rice Mill, the value of the cluster stands around Rs. 100 crore. The Rice Mill cluster of Bargarh is developing fast and various opportunities are opening up for growth of Rice Mills both in social and financial field.

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The number of Rice Mills in Bargarh has been three fold in a decade. With more Rice Mills coming up each year and with the availability of opportunities for technological development and more social associations coming up for the upliftment of the Rice Mills, there lies an opportunity for the for the overall development of the cluster.

The various financial institutions established in the Rice Mill cluster of Bargrah have an open opportunity to increase their Credit Appraisal position and Savings Deposit. With the value of cluster being approximately Rs. 100 crore, there lie various opportunities for the financial institutions to provide finance in various areas of the Rice Milling business. The various areas where financing is required are:

Up gradation of technology

Maintenance of machinery

Working capital requirement

Initial investment for commencement of business

Renovation of Rice Mills and construction of storage facilities.

The State Bank of India is the pioneer bank in the Rice Mill Cluster of Bargarh. Out of 83 Rice Mills in the cluster, around 32 Rice Mills take service from State Bank of India. The other major financial institutions in the cluster are United Bank of India, Punjab National Bank, Orissa State Financial corporation to name a few. With a number of Rice Mills coming between SB-1 to SB-2 category of the Borrowers Rating by the State Bank of India, and various Rice Mills opening up in the cluster, State Bank of India has a huge scope to expand its customer base.

With the up gradation of technology and development of Rice Mils, the door has opened for State Bank of India, to increase its customer base, increase the number of credit appraisal and increase its savings deposit. State Bank of India needs to liberalize its loan proceedings and decrease its interest rate and introduce new schemes, giving more facilities than the ‘Rice Mill Plus’ scheme which is the only active scheme for Rice Mills.

BIBLIOGRAPHY

1. All Orissa Rice Millers Association, “A Collection of Selected Representations sent to Government during 2008-09 KMS and some Useful and Important Information/Government Letters (Volume - 2)”.

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2. APITCO Ltd., “Diagnostic Study Report on Rice Milling Cluster Ganjam District, Orissa”, Hyderabad, September, 2009.

3. Nayak, B., “Rice Milling Cluster of Bargarh”, Bargarh, 2008.

4. Credit Risk Management Department, “Food Processing (FP) Industry Review and Exposure Setting”, March, 2010

5. Foundation for MSME Clusters, “Getting to Know Clusters”, 2010.

6. Ananth, Ayyagari, Department of Food, Civil Supplies and Consumer Protection.

7. Kapur, B.N., Cluster Development Executive, Small Industries Service Institute, “Diagnostic Study Report of Rice Milling Industry at Karnal (Haryana)”.

8. General Review Study of Small and Medium Enterprise (SME) Clusters in India.

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10. Nayak, P., “Problems and Prospects of Rice Mill Modernization – A Case Study”, Journal of Assam University.

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24. www.idrc.ca

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