Rural Credit & Agricultural Marketing

5.1 Introduction — Why Rural Development Still Matters

India's villages are the home of the majority of its people. We have already seen in earlier chapters that poverty is one of the most stubborn challenges of our economy and that the bulk of the poor live in rural areas, deprived of the basic necessities of life. NCERT therefore opens this chapter with a question: when modern cities, large industries and information-technology hubs are growing all around us, why should we still attach so much significance to rural development^??

The answer lies in two simple numbers. More than two-thirds of India's population still depends on agriculture, and one-fourth of rural India continues to live in abject poverty. Agriculture has not yet become productive enough to provide a decent livelihood for everyone who works on it. So real national progress cannot happen unless rural India also becomes a developed India. Mahatma Gandhi captured this idea long ago when he insisted that India's true progress did not lie in the growth of urban industrial centres alone but in the development of its villages — a vision that remains relevant even today.

5.2 What is Rural Development?

Rural development is a comprehensive term. NCERT defines it as a plan of action for the development of areas that are lagging behind in the overall economic life of the village. It is more than just farming — it covers human well-being, infrastructure, jobs and dignity. Some of the areas that need fresh initiatives in rural India include:

It was noted in earlier chapters that although the share of agriculture in GDP^? has been on a decline, the proportion of the population dependent on it has not fallen by anything like the same amount. After the 1991 reforms, agricultural growth itself decelerated to about 3 per cent per annum during 1991–2012, lower than in earlier decades, and the sector has become volatile in recent years. During 2023–24 the GVA growth rate of agriculture and allied sectors was about two per cent. NCERT scholars identify the decline in public investment after 1991 as the major cause. Inadequate infrastructure, lack of alternate employment in industry or services, and increasing casualisation of work have together impeded rural development — the impact of all this can be seen in the growing distress witnessed among farmers across India.

5.3 Credit and Marketing in Rural Areas

5.3.1 The Need for Rural Credit

Growth of the rural economy depends primarily on a steady infusion of capital at the right time, so that productivity in agriculture and non-agriculture both rise. Because the gestation period between sowing a crop and earning income from its sale is quite long, farmers borrow from various sources to finance their investment in seeds, fertilisers and implements — and also to meet family expenses on marriage, death and religious ceremonies. Without timely credit at affordable interest, even a hard-working farmer can be pushed into a debt-trap^?.

At independence, moneylenders and traders exploited small and marginal farmers and landless labourers by lending at very high interest rates and by manipulating accounts to keep them perpetually in debt. A major shift came after 1969, when India adopted social banking and a multi-agency approach to meet the credit needs of villages. To coordinate the rural finance system, the National Bank for Agriculture and Rural Development^? (NABARD) was set up in 1982 as the apex body. The Green Revolution then acted as a harbinger of further changes, expanding rural credit toward production-oriented lending and diversifying the credit portfolio.

5.3.2 Sources of Rural Credit — The Multi-Agency Structure

The institutional structure of rural banking today is a set of multi-agency institutions, namely commercial banks, regional rural banks (RRBs), cooperatives and land development banks. They are expected to provide adequate credit at cheaper rates. Yet some kind of collateral is normally required, which automatically excludes a vast section of poor rural households from the formal credit network. To bridge this gap, Self-Help Groups have grown rapidly in recent decades.

5.3.3 Self-Help Groups and Micro-Credit

Because the formal credit delivery mechanism has been inadequate and not fully integrated into rural community life, Self-Help Groups^? (SHGs) have emerged to fill the gap. The SHGs promote thrift in small proportions by collecting a minimum monthly contribution from each member. From this pooled money, credit is given to needy members and is repayable in small instalments at reasonable interest rates. By May 2019, nearly 6 crore women had become members of 54 lakh women SHGs.

In recent years, about ₹10–15,000 per SHG, plus another ₹2.5 lakh per SHG as a Community Investment Support Fund (CISF), are provided as a revolving fund to take up self-employment for income generation. Such credit provisions are generally referred to as micro-credit programmes. SHGs have helped considerably in the empowerment of women — though it is sometimes alleged that the borrowings are mainly used for consumption rather than productive purposes.

5.3.4 Rural Banking — A Critical Appraisal

Rapid expansion of the banking system had a positive effect on rural farm and non-farm output, income and employment, especially after the Green Revolution. It helped farmers avail services and a variety of loans for their production needs. Famines became events of the past, food security has been achieved, and the country today maintains an abundant buffer stock of grains. Yet the system has serious weaknesses.

With the possible exception of the commercial banks, other formal institutions have failed to develop a culture of deposit mobilisation, lending to worthwhile borrowers and effective loan recovery. Agriculture loan default rates have been chronically high. To revive the link between rural households and the formal financial system, in recent years all adults are being encouraged to open accounts under the Pradhan Mantri Jan-Dhan Yojana. These accounts give the holder ₹1–2 lakh accidental insurance cover, an overdraft facility of ₹10,000, and a channel for receiving wages from MNREGA — now renamed Viksit Bharat — Guarantee for Rozgar and Ajeevika Mission (Gramin) [VB-G RAM G] — old-age pensions and other social-security payments. There is no need to keep a minimum balance. Over 50 crore people have opened bank accounts, with mobilised funds of more than ₹2,00,000 crore, indirectly promoting thrift and efficient allocation of financial resources in rural areas.

5.4 Agricultural Marketing System

How do food grains, vegetables and fruits we consume daily reach us from different parts of the country? Agricultural marketing^? is the process that assembles, stores, processes, transports, packages, grades and distributes agricultural commodities across the country. The mechanism through which produce reaches different places depends on the market channels.

5.4.1 Problems Faced by Farmers Before Reform

Prior to independence, farmers selling produce to traders suffered from faulty weighing and manipulation of accounts. Farmers who lacked information on prevailing market prices were often forced to sell at low prices. They also did not have proper storage facilities, so they could not hold back their produce to sell later when prices rose. NCERT records a striking fact: even today, more than 10 per cent of goods produced on farms are wasted due to lack of storage. These problems made government intervention to regulate private traders necessary.

5.4.2 Four Government Measures to Improve Marketing

These instruments are aimed at protecting farmers' incomes and providing food grains at subsidised rates to the poor. Yet despite government intervention, private trade — by moneylenders, rural political elites, big merchants and rich farmers — still predominates in agricultural markets. Government intervention is therefore especially needed where a large share of agricultural products is in private hands.

5.4.3 Emerging Alternate Marketing Channels

It has been realised that when farmers sell directly to consumers, their incomes rise. Several alternate marketing channels have therefore emerged across India:

In addition, several national and multinational fast-food chains are increasingly entering into contracts/alliances with farmers to grow farm products of a desired quality. The chains supply seeds and other inputs and assure procurement at pre-decided prices. NCERT notes that such arrangements help in reducing the price risk of farmers and also expand the market for farm products. In 2020, the Indian Parliament passed three laws to reform the agricultural marketing system — while some farmers supported the reforms, others opposed them, and the laws were later repealed.