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Indebted in Gujarat: Rural households depend more on moneylenders than other states

By Rajiv Shah
The new National Sample Survey Organization (NSSO) report, released in December 2014, has suggested that Gujarat has one of the highest proportions rural households reporting outstanding cash loan at a very high interest rate compared to most Indian states. Titled “Key Indicators of Debt and Investment in India”, the report, based on NSSO’s 70th survey round, has suggested that, in all, there are 260 rural households in Gujarat out of every 1000 which reported outstanding cash loans. A large majority of these households, around 64.6 per cent — 30.8 per cent at the interest rate between 25 to 30 per cent, and per 33.8 per cent at the interest rate 30 per cent and above — have taken loan at more than 25 per cent rate of interest. There is just one state out of the 21 major ones, selected for the sake of analysis, which has a higher proportion of rural households reporting cash loans at the high rate of 25 per cent or more than Gujarat – Jammu & Kashmir (69.3 per cent).
No doubt, the report suggests, Telangana and Andhra Pradesh are two states having the highest proportion rural households which reported highest number of outstanding cash loans – 591 per 1000 and 541 per 1000 respectively. However, clearly, being indebted is one thing, and being indebted at a very high rate of interest is totally another. Any economy in transformation — especially the rural economy of India which is fast moving from a feudal setup into a market framework — should mean that farmers would need loan in order to better their economic status by improving the quality of their agricultural output by going in for necessary inputs such as seeds, equipment, fertilizers, transportation, and so on. However, for this, formal banking sector should be effective enough to offer loan, which does not seem the case in Gujarat.
Whether it is Telangana or Andhra Pradesh, the proportion of indebted households reporting outstanding loans with a very high rate of interest (25 per cent or more) is 30.8 per cent and 23.5 per cent, respectively. At the all-India level, there are 40.1 per cent indebted households which reported taking loans at a rate higher than 25 per cent rate of interest. Taking loan at a very high interest rate – almost double of what the formal banking sector offers – should mean the farmer is dependent on the informal sector for loan, especially the usurious moneylender. A recent analysis, referring to the NSSO study, suggests that financial inclusion drive appears to be “failing rural India”, with rural households increasingly depending on informal sector for borrowings in a significant way, adding these are mainly “private moneylenders”, instead of “the organized financial sector”. If this is true of rural India, it is even truer for rural Gujarat.
Quoting the NSSO report, the analysis says, “Between 2002 and 2012, the number of rural households with bank accounts more than doubled in number. Yet, rural households increased their borrowings in a significant way from private moneylenders, and not the organized financial sector.” It says, despite a 120 per cent increase in rural households with bank accounts in the decade in question, “Indebtedness is more among poorer households, who borrow more from moneylenders and more for non-business use.”
An assistant professor at the Jawaharlal Nehru University, Himanshu, has been quoted as saying in a recent report, on the basis of the NSSO report, that the latest survey is “a stark reminder that little has changed for farmers in the last decade. While formal credit flow has multiplied by four times in this period, small and marginal farmers have certainly not benefitted. The question is who has benefitted from this increased outflow to the agriculture sector.” A visiting fellow at the prestigious Centre de Sciences Humaines, New Delhi, the scholar adds, “More worrying is the absence of minimum support price operations and extension services for most farm families- what it means is that the agriculture sector which sustains half the country is still out of the radar of government policy.”
While Gujarat may have targeted around 1.02 crore households under the Prime Minister’s Jan Dhan project for opening bank accounts, the issue at stake is: How many of those who already had bank accounts were able to avail credit at rates offered at the normal, not to talk of subsidized, rate, which would be around 10-12 per cent. The NSSO report, prepared on the basis of the data collected in 2012-13, suggests that there are in all 76.5 per cent of the rural households in Gujarat which bank accounts, which was lower as many as nine major states of 21 – Haryana (84.3 per cent), Himachal Pradesh (95 per cent), Jammu & Kashmir (86.8 per cent), Kerala (89.8 per cent), Punjab (78.1 per cent), Rajasthan (77.3 per cent), Tamil Nadu (77.1 per cent), Uttaranchal (79.4 per cent), and Uttar Pradesh (77.9 per cent). Bank accounts in most of these states has not meant the ability to use the banks for what they meant – to offer loans for investing in agriculture.

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