Rural Households in Debt

According to official survey by National Sample Survey Office, 52.9% of India’s agricultural households were in debt, with the average amount of unpaid dues being Rs 47,000.

About 40% of these dues are from non-institutional lenders - 25.8 per cent were from money lenders. With 60% of the loan dues were taken from institutional sources, about 42.9 per cent were from banks, 4.8 per cent from cooperatives and 2.1 per cent from the government, among other institutional sources.

Among the major states Andhra Pradesh has the highest number of indebted households in the country (92.9%), followed by Telengana(89.1%) and Tamil Nadu(82.5%).

Institutional lenders provide credit to these households at a moderate interest rate of 12-15%. On the other hand non-institutional lenders usually provide credit to households at interest rates of 20% or above.

The reasons for high debt is that majority of rural households have cultivation as their primary source of income, with fewer having alternate sources of incomes (like MGNREGA).Due to this high dependence on agriculture, the rural economy is prey to the fluctuations of the monsoons and hence off-seasons. To add to this, high input and labor costs associated with cultivation, increasing rural expenditure due to exposure to technology and education without a proportionate rise in income, the agricultural households have to depend on loans to meet their ends.

Due to limited scale of operations of institutional lenders in rural areas, most of the debt extended to rural households is by informal money lenders or non-institutional organizations. These loans are extended at high, unregulated rates and often come with unreasonable terms and conditions. Credit extended is usually for short term, renewed further at a higher rate of interest. This also adds volatility to the credit availed.

Loan borrowed at a high interest rate creates defaulters, and since they have no asset to repay the loan with, they further take a loan to repay the previous loan; thereby getting in a loan trap.

To gain independence and avoid exploitative money lenders, groups like the Self Help Groups are rising in number, following the principles of lending based on community and group trust.