Rural Development

Written and reviewed by Devendra Dubey, Mathematics & Commerce faculty at UniDrill (M.Sc. Mathematics, Osmania University · 10 years teaching). Based on NCERT Economics Class XI (Indian Economic Development), Chapter 5.

A farmer sows in June and is paid in October. Who pays for the months in between?

That gap is the starting point of this chapter. A farmer must buy seeds, fertiliser and implements, and support a family, long before any income arrives. If the only lender is the village moneylender, the first bad harvest can start a lifetime of debt. Rural development is a comprehensive plan of action for developing rural areas that lag behind in socio-economic development. Credit, markets and new sources of income are its main tools, and that is what this chapter covers.

Why rural development, and where to begin

More than two-thirds of India's people depend on agriculture, and a large part of the poor live in rural areas. The fall in agriculture's share of GDP has not been matched by a fall in the number of people who depend on it. Agricultural growth slowed to about 3% a year during 1991–2012. Scholars point to falling public investment since 1991 as a major reason.

The areas that need fresh effort include the following: human resource development (literacy, especially female literacy, health and sanitation), land reforms, development of productive resources in each locality, infrastructure (electricity, irrigation, credit, marketing, transport, research and extension) and poverty alleviation with special provision for weaker sections.

Two views. For the exam: Mahatma Gandhi held that the real progress of India lies not in the growth of industrial urban centres but in the development of villages. Another reading: planners after independence also gave heavy industry a central role, as the chapter on 1950–1990 shows. Historians describe this as a long-running debate between a village-centred and an industry-centred path to development, and the two were pursued side by side.

Credit: how farmers borrow

Farmers borrow because of the long gestation period between sowing and the sale of the crop. They borrow for seeds, fertilisers and equipment, and for family needs such as marriages, deaths and religious ceremonies. Before independence, moneylenders and traders charged high interest and manipulated accounts, which trapped small and marginal farmers and landless labourers in debt for generations.

How the system was rebuilt. In 1969 the country adopted social banking and a multi-agency approach to rural credit. In 1982 NABARD was set up as the apex body to coordinate rural financing. The multi-agency set-up includes commercial banks, Regional Rural Banks (RRBs), cooperatives and land development banks. The Green Revolution widened rural credit towards production lending. A Kisan Credit Card gives cultivators short-term credit for inputs.

Assessment. Banking expansion helped to make famines a thing of the past and supported food security through buffer stocks. But loan recovery has been poor and the default rate in agriculture has remained high.

Self-Help Groups (SHGs). Formal credit needs collateral, which poor rural households do not have, so SHGs grew to fill the gap. Members make small regular contributions to promote thrift, and the pooled fund is lent to members at reasonable interest. By May 2019 nearly 6 crore women were members of 54 lakh SHGs, and a Community Investment Support Fund of ₹2.5 lakh per SHG helps to expand income-generating work. Such small loans are called micro-credit. Kudumbashree in Kerala is a well-known women's thrift and credit network. TANWA (Tamil Nadu Women in Agriculture) trained women in farm skills such as vermicompost making.

Pause and predict: why can an SHG lend to a poor household without collateral when a bank cannot?

Check your answer: because the group knows its members and the loans come out of their own pooled savings, with thrift as the discipline. Peer knowledge replaces the collateral that banks need.

Two views. For the exam: SHGs give the poor, especially women, access to credit without collateral and promote thrift. Another reading: the chapter also records the concern that most SHG borrowing is for consumption rather than for production, so it may not raise incomes.

Jan Dhan Yojana. The scheme encourages all adults to open a bank account, with no minimum balance. Holders get accidental insurance cover of ₹1–2 lakh, an overdraft facility of ₹10,000, MGNREGA wages and direct transfer of government payments. More than 50 crore people had opened accounts, and deposits of more than ₹2,00,000 crore were mobilised.

Marketing: from field to buyer

Agricultural marketing is the process of assembling, storing, processing, transporting, packaging, grading and distributing farm produce. Before independence, farmers faced faulty weighing, manipulated accounts, no price information and no storage, which forced distress sales. Even today more than 10% of produce is wasted for lack of storage.

Alternative marketing channels cut out middlemen.

Another route is contract farming, as with fast-food chains that buy from farmers on agreed terms. e-NAM, a Pan-India online portal to connect mandis and regulated market yards, was launched in 2016. Three farm laws on marketing were passed in 2020 and later repealed.

Diversification: new sources of income

Diversification has two parts: a change in the cropping pattern and a shift of workers from agriculture to allied activities such as livestock, poultry and fisheries, and to non-farm work. It is needed because farm work is unevenly spread over the year. The kharif season offers plenty of employment, but in non-irrigated areas the rabi season has little.

Pause and predict: why does diversification matter more in areas without irrigation?

Check your answer: without irrigation, the rabi season offers little work, so families need income from livestock, fisheries or non-farm jobs to fill the idle months.

In non-farm work, agro-processing, food processing, leather and tourism are the dynamic sub-sectors, with strong links to the rest of the economy. Pottery, crafts and handlooms are low-productivity activities of subsistence.

Information technology also helps: it can predict food insecurity and spread information on technology, prices, weather and soil, and creates jobs.

Sustainable development and organic farming

Chemical fertilisers and pesticides harm food, water, livestock, soil and ecosystems. Organic farming is a whole system of farming that restores, maintains and enhances ecological balance.

Beyond the textbook. For the exam: organic farming is eco-friendly, cheaper in inputs and labour-intensive, with lower initial yields as its main drawback. In reality: the trade-off between yield and ecology is a general one in farming. The choice for a small farmer depends on whether the premium for organic produce, the cost of certification and access to a market can offset a lower yield in the early years.

Saansad Adarsh Gram Yojana (SAGY). Launched in October 2014, it asks Members of Parliament to develop one model village by 2016 and two more by 2019. The population should be 3,000–5,000 in the plains and 1,000–3,000 in hilly areas. It cannot be the MP's own village or the spouse's.

Timeline

Exam traps

60-second revision

Where this chapter connects

• Previous: Human Capital Formation in India shows the education and health base that rural development builds on.
• Earlier: Indian Economy 1950–1990 explains land reform and the Green Revolution that shaped village life.
• Class XII link: Money and Banking explains how banks create credit, the system behind rural lending.
• Next: Employment: Growth, Informalisation and Other Issues follows the workers who move out of agriculture.