Rural
Indebtedness In India:
An Obstacle For Development
By Siba Sankar Mohanty
13 July, 2007
Countercurrents.org
A
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.
Table
Average 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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