Rural Indebtedness in India
Kamal Singh
Lecturer in Economics
GCCBA 42 , Chandigarh
Rural Indebtedness means Inability of Rural
people (Farmers) to pay their Debts
. NSSO in its 59th round of survey (January –December
2003) covered indebtness of farmers. The reports say
that 48.6 % percent of households were indebted.
Of the total number of indebt farmers, 61 % had
operational holding less than 1 Ha.
Of the total outstanding amount, 41.6 % was taken for
purpose other than farm related activities.
57.7 % of the outstanding amount was sourced from
institutional channels and balance 42.3 % from money
lenders, traders, relatives and friends.
The expert group estimate that in 2003 non
Institutional channels accounted for Rs 48,000
crore of farmers’ debt out of which Rs 18,000
crore was availed of at an interest rate of 30 %
per annum or more.
Causes of Rural Indebtedness:
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Poverty
Ancestral debt
Sub Division and fragmentation of holdings
Increasing cost of Modern Agriculture inputs
Extravagance of Farmers
Litigation
High Interest rate
land revenue and other taxes
Effects
It can be broadly classified into
1)Economic effects
2) Social and moral Effect
3) and Political effect
Economic Effects:
• Loss in Productive efficiency
• Transfer of land from Cultivators to Non
cultivators
• Terms of trade moves against the farmers
• Loss of property
Social and Moral effect
• Birth of new class of landless proletariat
• Frustration the minds of cultivators
• Fall in incentive to work to make permanent
improvement in land and increase in income
Political effects
• Leads to horse trading and selling of votes
• Political freedom of indebted farmers is
curtailed
Remedies/Solution to the problem of
Rural Indebtedness
Two pronged strategy is needed
• Reduction of Old debt
• Check the burden of New debts
Reduction of Old debt
• Perpetual debts on which enough rate of Interest has already been paid
should be written off. In this regards different state have passed Debt
conciliation Act and have established various boards for mutual
settlement between farmers and money lenders. In 1989 the Janta party
Government had written off loans of the small and marginal farmers. In
the 1990-91 government announced agriculture and Rural Debt Relief
scheme. In 2005-06 the government provided Rs 2939 crore as debt relief
to farmers. The various special relief packages have been announced
which are as follow:
• Special relief Package of 2006-07 for six debt ridden district of Vidarbha
region of Maharashtra.
• Relief measure for Distressed Farmers 2007-08
• Debt Relief package, 2008-09: UPA Govt. announced Rs 71,680 crore dent
relief package for farmers. It included complete waiver of loan given to
small and marginal farmers .One time settlement scheme has been
launched for other farmers
Check the burden of new Debts
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Reduction in Unproductive loans
Encouragement to savings
Check and control over money lenders
New agencies for rural credit including
regional rural banks and Micro Finance
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Rural Indebtedness in India