Finance for and Bankability of Forestry Development: Projects in India

The paper has discussed the procedures and problems in acquiring institutional finance for production forestry projects in India. Some steps, e.g., accounting the returns from outputs other than timber and fuelwood, raising crops by interplanting during the first 3-5 years before the main crops cover the top, and/or raising under storey crops, raising fast growing species, accounting for intangible benefits, reducing costs, have been suggested for improving “bankability” of forestry development projets. The estimated investment needs of the forestry sector during the 1970s and 1980s have been compared with the actual loans sanctioned through the regular institutional sources in India. There is a wide gap between the two which may be partly responsible for a demand for a separate institution to meet the financial needs of the forestry sector and a differential rate of interest in favour of forestry development projects. It is, however, pointed out that only 3-4 per cent of the loans sanctioned in the recent past have been utilized by the FDCs. Two main reasons for this appear to be, i) the availability of large sums of money with the FDCs out of the funds from which lease rental is to be paid to the state governments, and ii) considerably higher net returns from clearfelling natural crops compared to the initial estimates. It is pointed out that except in case of some practically bare areas, the expenditure incurred on raising new forests is likely to be considerably less than the revenues to be derived from clearfelling the area under question. Moreover, some 12 million m3 of annual used increment worth, at least, Rs 3,600 million is left unharvested. If this resource can be harnessed and 50 per cent of it can be ploughed back into forestry, the sector will have enough funds of its own to meet the investment needs of production forestry. This, however, does not obviate the need for developing institutional sources of finance, particularly for the forest poor regions/states.