Rural indebtedness refers to the situation of the rural people unable to repay the loan accumulated over a period.
The existence of rural indebtedness indicates the weak financial infrastructure of our country, in reaching the needy farmers, landless people and agricultural labourers.
Features of Rural Indebtedness
Nearly three fourth of rural families in the country are in debt. The amount of debt is heavier in the case of small farmers.
Cultivators are more indebted than the non-cultivators. Most of the debts taken are short term and of unproductive nature.
The proportion of debts having higher rates of interest is relatively high. Most of the villagers are indebted to private agencies particularly money lenders.
Causes for Rural Indebtedness
The causes for rural indebtedness may be summarized as below:
The poverty of Farmers:
The vicious circle of poverty forces the farmers to borrow for consumption, cultivation and celebrations. Thus, poverty, debt, and high rates of interest hold the farmer in the grip of money lenders.
Failure of Monsoon:
Frequent failure of monsoon is a curse to the farmers and they have to suffer due to the failure of nature.
Therefore, farmers find it difficult to identify good years to repay their debts.
Litigation:
Due to land disputes litigation in the court compels them to borrow heavily. Being uneducated and ignorant, they are caught in the litigation process and dry away their savings and resources.
Money Lenders and High Rate of Interest:
The rate of interest charged by the local money lenders is very high and the compounding of interest leads to perpetuating indebtedness of the farmer.
Measures to Remove Rural Indebtedness
Several remedial measures have been introduced to reduce rural indebtedness. It includes regulation of money lenders, development of rural banks, Regional Rural Banks (RRBs), Micro Finance, formation of Self Help Groups (SHGs), Primary Cooperative Banks and Land Development Banks, Crop Loan Schemes, Lead Bank Schemes, Micro Units Development and Refinance Agency Bank (MUDRA), promotion of subsidiary occupation, off-farm employment opportunities, skill development programmes and so on. However, the interest rate charged plus transaction cost for poor people and Self-Help Groups is much higher as compared to that for rich people.
