Social Article: Rural Indebtedness in India

Rural Indebtedness is one of the biggest and most serious problems of Rural Indian Economy.

What is Rural Indebtedness?

Indebtedness means an obligation to pay money to another party. In rural India the poor farmers and wage labours etc. when are unable to repay a loan and accumulate it, gives rise to the problem of rural indebtedness. Rural indebtedness is an indicator of the weak financial infrastructure of our country, which includes inability of our economic system to reach to the needy farmers, landless people in the villages and the agricultural wage labourers.

The farmers borrow loan for either agricultural operations or some other uses like supporting the family in the lean season or to buy equipments. Due to lower income or wasteful expenditures when the farmers are unable to pay the loans they are unable to pay off their debts and thus accumulate the debt as well as pending interest on the amount. The weaker ‘financial inclusion’ in India has given the local money lenders an opportunity to exploit such farmers from generations to generations.

Royal Commission on Agriculture, 1928

The royal commission on Agriculture in India, 1928 was created in British India to exmine and report on the conditions of the farmers. It expressed:

“The Indian peasant is born in debt, lives in debt and bequeaths the indebtedness to his successors. “

Causes of Rural Indebtedness

The main causes of rural indebtedness in India are as follows:

1. Low income
2. Poverty and lack of education
3. Unproductive & wasteful expenditures of the loans
4. Inherited debts
5. Waste of money on Litigations
6. Poor financial inclusion
7. Weaker marketing system of banking facilities and services
8. Faulty money lending system in India
9. Uncertain Monsoon
10. Wasteful expenditures in social customs
11. High cost of agricultural production
12. Results of Rural Indebtedness:
13. Forced selling of mortgaged lands by the peasants due to nonpayment’s consequently giving rise to landless laborers.
14. Exploitation by moneylenders.
15. Growing poverty due to lost capacity as a labourer.
16. Discrimination in the rural society
17. Social unrest causing crimes and suicides.
18. Dividing the rural society into landlords and landless people.
19. Posing hurdles in the social and economic developments.
20. Giving rise to problems of bonded labour.
21. Political exploitation as poor farmers not able to choose the right candidates due to monetary avarice.
22. Overall decay of the economy of India

Some Remedial Measures to control the problem

• Debt waiver by state governments. At time to time state governments and central government have announced debt waivers on peasants.
• Farm Loan Waiver Scheme 2008:Government of India in 2008 released Rs 10,000 crore to banks and financial institutions as part of compensation for writing off loans under the farm-debt waiver scheme throughout the country.
• Agricultural and rural Debt relief Scheme 1990-91 by central government.
• Development of network of institutional credit network in rural area comprising cooperative societies, Regional rural banks, Commercial banks etc.
• Control on Moneylenders.
• Comprehensive Crop Insurance Scheme 1985
• Kisan Credit cards Scheme 1998
• National Agricultural Insurance Scheme 2000
• Farm Income Insurance Scheme 2004
• National farmers Commission 2004
• Small farmers Development Agency
• Farmers Debt relief Commissions (State level)
• Micro Finance Schemes-SHG Bank Linkage Programs Etc.

Further, various Rural Employment Scheme like MGNREGA for economic upliftment of the rural poor and landless labourers focus on remedy to rural indebtedness.