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The Role of NABARD in the Economic Development of India

 The Role of NABARD in the Economic Development of India 

By Dinesh Kumar Kapila, Chief General Manager (Retd), NABARD.  

(Written as requested within 850 words for Business Sandesh, Published on 1st Aug 2025) 

The National Bank for Agriculture and Rural Development (NABARD) plays a crucial role in advancing rural development in India through a multifaceted approach. Established in 1982 by an Act of Parliament, NABARD, a statutory apex developmentalfinancial institution, has the mandate to foster agricultural and rural development by sustainable and inclusive growth with a focus on both financial and non-financial interventions. 

NABARD plays a crucial role in the growth of the rural economy through a range of functions. These include refinancing rural financial institutions for short term credit for agriculture, refinancing banks and NBFCs for investment creditincluding for MSMEs / SSIs, supporting infrastructure and developmental projects and initiatives, banking supervision, mapping credit potential, capacity building, advising on rural development policies, policy advocacy and research and  advancing climate-resilient agriculture.  Its initiatives contribute to the nation’s overall development. 

NABARD acts as a crucial link between the Central Government, State Governments and  financial institutions, RFIs / Commercial Banks and selectively NBFCs. Refinance support enables effective credit flow to farmers, agriculture, small businesses and industries and rural entrepreneurs, it minimizes challenges to  credit flow in rural areas due to perceptions of high risk and low profitability. 

In addition to refinance support, NABARD engages in direct lending to State governments / State owned institutions for specific rural development projects. The preference is for projects that have a significant developmental impact in the agriculture, rural connectivity, social infrastructure sectors. It’s funds, RIDF / NIDA; support a wide range of projects. By appraising and financing infrastructure projects, essential services and infrastructure are developed in rural areas, which spurs economic growth, supports sustainable agricultural practices and improves the quality of life. NABARD’s role in infrastructure development also extends to specific initiatives such as watershed development and WADI (horticulture-based) projects. Watershed development aims to conserve and manage water resources effectively. WADI projects focus on tribal communities and involve the development of horticulture-based farming practices. 

Supervision, Capacity Building and Institutional Development is another crucial aspect of NABARD’s role in rural development.   Supervision of RRBs and Cooperative Banks and close liaison with the RBI for ensuring their functioning as effective banking entities and their compliance with existing statutes is an important function. Effective knowledge support and sharing through its own training establishments for stakeholders across all hierarchies is undertaken alongside. 

 

The effectiveness of rural development programmes depends significantly on the strength and capability of rural institutions. NABARD builds the capacity of various rural institutions and intermediaries, including self-help groups (SHGs), farmer producer organizations (FPOs), and cooperative banks and societies. NABARD promotes and supports the microfinance initiatives specially the formation of SHGs, which have been effective in empowering rural women by providing training, financial support, and linkages to banks, Farmer producer organizations (FPOs) are supported by NABARD with capacity-building programmes, financial assistance, and technical guidance. NABARD also strengthens cooperative credit societies and institutions for ensuring  they can provide reliable and efficient services to their members. 

NABARD’s role includes credit planning, policy formulation and advocacy. As an apex leading developmental financial institution, NABARD advises the central and state governments on various policy matters related to agriculture and rural development. Its insights and research inform the design and implementation of policies that address the needs of rural communities and promote sustainable development. 

NABARD’s research and policy advisory functions are crucial for shaping effective rural development strategies. The institution conducts studies on various aspects of the rural economy, including agricultural productivity, rural livelihoods, and financial inclusion. This research provides valuable data and insights that assist policymakers. 

In addition to policy advisory, applied research and development are a priority. NABARD  promotes innovative practices in agriculture and rural development to address socio economic challenges. By supporting pilot projects and research initiatives, NABARD encourages the development and adoption of modern / new technology, sustainable / improved farming practices, and alternative / improved livelihood options. This innovation-driven approach empowers rural communities by enhancing productivity and improving incomes and driving sustainability. 

To empower rural communities, Financial Inclusion is a key area of focus for NABARD, NABARD organizes through various intermediaries financial literacy and awareness programmes. This enables informed financial decisions and effective management  of financial  resources by citizens in rural areas. NABARD promotes actively entrepreneurship / start ups and self-employment as also skill development, digitization, banking technology, directly and through its subsidiaries. It invests strategically in commodity exchanges, fintechs and agriinsurance to fulfill its mandate.  

Addressing climate change for sustainable development is important to NABARD and it supports projects / initiatives that enable rural communities to adapt to climate change and build resilience and promote sustainable farming practices, water conservation and the use of renewable energy. 

NABARD's integrated approach to rural development has made a significant impact on India's rural landscape. It has ensured the flow of necessary capital for advancing inclusive rural development, reducing poverty, encouraging entrepreneurship and fostering sustainable growth. Its initiatives bridge the urban-rural divide and enhance overall economic development, demonstrating its integral role in the nation’s developmentaltrajectory.

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