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Rural India - Progress & Potential

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Rural India - Progress & Potemtial

Table of Contents
Module: 1 - Rural Development & Rural Banking

  1. Rural India - Progress & Potential

  2. Rural Development - Overview of Ministry of Rural Development

  3. Rural Development - Moving Towards a Resurgent Rural India -
    Progress Made During 1998-2003

  4. Rural Development - Employment and Poverty Alleviation

  5. Panchayati Raj System in Independent India

  1. Role of Panchayati Raj Institutions in the Rural Developmnent Programmes

  2. The District Rural Development Agency

  3. Rural Banking - Structure & Performance

  4. Rural Infrastructure Development Fund (RIDF)

  5. National Bank of Agriculture (NABARD)

Other Modules under Banking Theory & Practice

  1. Module: 2 - Rural Credit - Agencies

  2. Module: 3 - Kisan Credit Cards(KCC)

  3. Module: 4 - MicroFinance

Problems of the Rural Poor

The burden of indebtedness in rural India is great, and falls mainly on the households of rural working people. The exploitation of this group in the credit market is one of themost pervasive and persistent features of rural life in India, and despite major structural changes in credit institutions and forms of rural credit in the post-Independence period, Darling's statement (1925), that "the Indian peasant is born in debt, lives in debt and bequeaths debt," still remains true for the great majority of working households in the countryside. Rural households need credit for a variety of reasons. They need it to meet short-term requirements for working capital and for long-term investment in agriculture and other income-bearing activities. Agricultural and non-agricultural activity in rural areas are typically seasonal, and households need credit to smooth out seasonal fluctuations in earnings and expenditure. Rural households, particularly those vulnerable to what appear to others to be minor shocks with respect to income and expenditure, need credit as an insurance against risk. In a society that has no free, compulsory and universal education or health care, and very few general social security programmes, rural households need credit for different types of consumption. These include expenditure on food, housing, health andeducation. In the Indian context, another important purpose of borrowing is to meet expenses for a variety of social obligations and rituals.
[Source: From Article titled "Does Informal Credit Provide Security? Rural Banking Policy in India" By V. K. Ramachandran and Madhura Swaminathan, Published by International Labour Office, Geneva - October 2001

About 75% of the Indian population lives in rural areas and about 80% of this population is dependent on agriculture for its livelihood. Agriculture accounts for about 37% of the national income. The development of the rural areas and of agriculture and its allied activities thus becomes vital for the rapid development of the economy as a whole.

In this regard, India has succeeded in developing one of the largest rural banking systems in the world. Various regulatory measures have been taken enabling the banking system to play an important role in the economic development of the rural areas. The two most prominent measures are rural commercial bank branch expansion, thus moving from class banking to mass banking and secondly, priority sector lending and the formulation of specific development programmes and action plans to facilitate credit flow to the rural sectors. Despite these measures, as per the Debt and Investment Survey, Govt. of India (1992) about 36% of the rural households are found to be outside the fold of institutional credit.

Rural Development as per Census Report 2001
[Source: Financial Express dated 01.05.2003- Columnist N.Chandra Mohan]

The other disparities brought out in rural development programmes as per the Census Report of 2001 are as under:

The Census of India 2001 points to rather slow changes in rural India. The house-listing operations, conducted nationwide between April and June 2000 as a frame for the Census enumeration, collected data on assets available to households like banking facilities, telephones, bicycles and so on. These suggest a rather different take on the inflection point in rural India.

"As against visions of a economic continuum, the Census indicates that only about one in three rural households avails of public, private and cooperative sector banking services. Credit and thrift societies are not part of the picture, but this is revealing enough of the progress made after the banks were nationalised and taken to the countryside."

"Only one in three rural households had access to a radio or transistor in 2001. The poor man's transport, bicycles, has only reached less than half of the rural households. Only one in five rural households have access to a television . One in 15 households have access to a scooter, motorcycle and moped. And only one in 78 rural households have access to a car, jeep or van."

"The upshot is a somewhat different vision of rural India - suggesting extremely tardy progress made since Independence - which is more in sync with the widening dualism between Bharat and India; of the extremely urban-centric and metropolitan nature of development and so on."

Agricultural Productivity

Even though India occupies the first or second position in the world in several crops in terms of area and production, it's rank in terms of productivity per hectare in the world is 52 for rice, 38 for wheat and much low in several other crops. The productivity of some crops is not only low but also remained stagnant over the years. The yield gap needs to be bridged through an integrated package of technology and agricultural policies to reap the untapped production potential, particularly, in rain-fed and other low productivity areas.

Causes for Backwardness of our Villages

  1. Zamindari System, the legacy of the British Rule
    India was under British rule for 200 years. British policies were aimed in revenue collection and not rural development. They introduced the zamindari system. The zamindars were deemed the owners of all land and they collected as much revenue as they could from the peasants. The system left the peasants very poor and the zamindars did very little to improve the conditions of the villages. After the country attained independence this system was abolished, but the conditions of the peasants is yet to transform completely.

  2. The Bonded Labour System
    It is equivalent to near slavery. Bonded labour is an indebted agricultural worker, who had borrowed from the money lender at usurious rate of interest and had to work in his farm for low wages. The system was used to permanently enslave the worker, as the worker was only able to repay a part of interest and the loan with compounded residual interest went on swelling. The agricultural labour can free himself eventually only by giving his son in bondage as a substitute. Under the 20-point economic programme, the Government India under Prime Minister Mrs.Indira Gandhi abolished bonded labour system and brought legislation to this effect in 1975. Despite the legislation the system is known to persist here and there in select areas

  3. Other contributory reasons are the total lack of agricultural development under foreign rule, poor communication, roads and other infrastructure development in villages, lack of education and health facilities, and the destruction of the thriving Indian cottage industries on account of competition from the cheap machine made goods imported under British rule

Progress made after the Country attained Independence

  1. After Independence the Country adopted planned development. The very first five year plan laid stress on agricultural development. It took a number of measures to bring more land under irrigation. Major irrigation Dams like Bakra Nangal, Hirakud, Nagarjunasagar, Tungabhadra were constructed which generated power for industrialisation of the country and water for irrigation. A number canals were build to distribute stored water over an extensive area. The Indian farmer, as a result, is now not exclusive depending on the monsoon.

  2. Intensive cultivation of land is made possible through farm mechanisation. Tractors are being produced in the country and these are available to the farmers everywhere. Farmers are also using threshing machines, deep boring and irrigation pumps. They get supplies of high yielding improved seeds, fertilisers and other inputs. To enable them to purchase such inputs the rural credit system has been invigorated with Cooperatives, Regional Rural Banks, and Rural Branches of Commercial Banks. The recent boon to the poor Indian peasant is the micro finance system and Self Help Groups that have rendered financial support within the easy reach of all.

  3. Land Reform legislation introduced in the country after independence include the abolition of the zamindari system, the abolition of bonded labour system, land ceiling legislation etc.. Legislation was also introduced to relieve rural indebtedness and the money lender could no longer legally collect more than reasonable interest. Untouchability was abolished and special legislation for the upliftment of scheduled cases and scheduled tribes were enacted.

  4. Community Development Programmes, Integrated Rural Development Programme, bringing local self-government to the roots of the village through introduction of panchayat raj system ushered a new era of rural development. Development of public health care system, schemes undertaken for promoting literacy and adult education in the country, programmes for development of rural industries are other development programmes that have received the thrust of the Government's development approach.


Agriculture, with its large dependent population has to thrive and flourish, in order to secure rural prosperity. To ensure orderly and vigorous growth of agriculture policy and structural issues need to be addressed quickly. Some of the important issues that need to be addressed are -

  1. Improving profitability of agriculture, through yield improvements, diversification and reform of agricultural marketing.

  2. Strengthening backward linkages and expanding irrigation coverage.

  3. Providing forward linkages especially for post harvest management, processing, transport, storage and market infrastructure.

  4. Securing a stable long term policy on agricultural commodities trade, including the role of private sector.

  5. Encouraging emergence of a market mechanism for agricultural commodities such as a commodities exchange.

  6. Streamlining the cooperative credit structure for facilitating hassle free flow of credit.

  7. Implementing watershed development projects in the rain-fed and dry-land areas.

No doubt our villages are in a state of neglect and under-development, with impoverished people, as result of past legacies and defects in our planning process and investment pattern. But the potential in rural India is immense. What if every village in the country is provided with basic amenities, like drinking water, electricity, health care, educational transport, communication and other facilities, with only a smaller population of the village engaged in agriculture and the remaining in other gainful occupations? When this happens India will turn into mighty country. The purchasing power of the rural population throwing enormous demand for goods and services will boost the national economy tremendously. The day will see the reverse migration of people from the urban slums back to the villages. Rural Development is the subject to come to the forefront after the economic reforms and rural banking will serve the backbone of this development.

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