Rural Indebtedness In India:
An Obstacle For Development
By Siba Sankar Mohanty13 July, 2007
Countercurrents.orgA recent release by the Ministry of Labour and Employment highlighted the issue of rural indebtedness captured in the Seventh Rural Labour Enquiry (RLE) –1999-2000. Rural indebtedness is increasingly being recognized as a significant obstacle for rural development. It not only aggravates inequality in the access to socioeconomic opportunities, but also hinders the growth process in rural areas and creates an intergenerational handicap for participating in democratic processes due to growing distress and shocks to social psyche among the indebted households. The latest report on Accidental Deaths and Suicides in India –2005 brought out by National Crimes Records Bureau states that more than 15 percent of all persons who committed suicide during 2005 were self employed in farming or agricultural activities. Suicide by debt-ridden farmers, who killed themselves being unable to cope with the fall in their social status, has been a burning issue in recent years. The records show that incidents of all suicide cases due to a fall in social status have increased by 121 percent between 2004 and 2005.
On the basis of the findings of the Seventh RLE the Labour Ministry rejoices the decline in the proportion of indebted households from around 39 per cent in 1993-94 (sixth RLE) to 25 percent in 1999-2000. For a government desperate to highlight some achievements this might seem to be a huge achievement for obvious political reasons. However, a careful look at the findings of the 7th RLE tells us an entirely different story.
TableAverage Debt Per Indebted Households
1993-94 (Sixth RLE)/ 1999-2000 (Seventh RLE)/ Percentage Growth
Agricultural Labour (in Rs.)/ 2901/ 5230/ 80.3
Rural Labour (in Rs.)/ 3169/ 6049/ 90.9
Source: Press Release, Ministry of Labour and Employment, Government of India, 25 June 2007.
While there has been a significant drop in the proportion of indebted rural households over last few decades, the gravity of such indebtedness has increased significantly. Per household debt for agricultural labourers has increased by 80 percent from Rs. 2901 to Rs. 5230 between last two RLEs. The situation is even worse for the people in non-agricultural occupations. The burden of debt an indebted rural household bears has increased by over 90 percent during this period. It is worth mentioning that on an average the per capita debt for the entire rural population has increased by 27 percent for agricultural labourers and 36 percent for all rural labourers. The NSSO survey on debt and investment in its 59th round reveals even more alarming situation. Going by the NSSO information, around 49 per cent of the total farmer households in the country were indebted in 2002.
An analysis of the sources of borrowing as described in the Seventh RLE is also disturbing. There has been a significant drop in the agricultural credit flow from government and other institutional sources over the 1990s. Government sources of credit did register a significant increase from around 3 percent to more than 8 percent between 1983 and 1993. But it almost halved to 4 percent in 1999-2000. Despite all high claims of micro finance and so-called SHG revolution, the share of commercial banks in total credit supply has declined from 21 percent to 16.6 percent between the last two RLEs. At the same time, the share of usurious moneylenders has increased from 22 percent to 29 percent of total debt received by agricultural labourers and from 27.6 percent to 31.7 percent by rural labour class. Moneylenders still continue to be the biggest source of rural debt. Another noteworthy finding is on the purpose of incurring debt. Meeting household consumption needs is the major purpose of debt followed by marriage and other ceremonies.
In response to a question asked in the Parliament by Shri Jyotiraditya Madhavrao Scindia, the Minister of Agriculture Shri Sarad Power on 24 July 2006 expressed concerns over the increasing vulnerability of farmers to depend on private moneylenders for their credit needs. Shri Power also highlighted several programmes run by the government to facilitate farmers’ access to institutional credit. The special farm credit package announced by Government of India announced in June 2004 aimed at increasing credit flow to agricultural sector at a whopping 30 percent rate per annum. Some other announcements included a targeted increase in the number of beneficiaries for each rural and semi urban branches, debt relief to farmers in distress, etc., under the special package. The information released by the Seventh RLE does not capture the impact of all these pronouncements and efforts made by the present government. The litmus test for all such efforts is not a set of policy packages alone but a positive and visible improvement of the rural economy, especially, the farm sector. Unfortunately, the growing agrarian crisis, mass suicide by the farmers occurred last year and widespread poverty among the rural masses does not call for celebration over such empty pronouncements.
The author works as a development economist at the Centre for Budget and Governance Accountability (CBGA), New Delhi and can be contacted at [email protected]
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