Chapter - 5 RURAL DEVELOPMENT

MEANING OF RURAL DEVELOPMENT:

• Rural development means an ‘action-plan’ for the social and economic growth of
the rural areas.

• It is the process of improving the quality of life, social and economic conditions of the
people living in rural areas.

Core elements of the action plan for rural development includes:

• Development of the means of transport, linking rural areas with the urban areas.

• Provision of power/energy for the rural areas.

• Permanent means of irrigation.

• Facilities for agricultural research.

There are certain lingering and emerging challenges in the context of
rural development in India.
Challenges

Lingering Challenges Emerging Challenges

Rural Credit Rural Marketing

Diversification of Productive
Activities Organic
OR Farming
Employment outside agriculture
Significance:
• Rural development is significant as bulk of our population lives in rural areas and one-third of
rural India is still below poverty line. Growth would be of no meaning if it is not aligned with
the growth and development of rural areas.

• Reforms of 1991 focused largely on industrial development and foreign trade. Our
agricultural sector was totally ignored. As a result of this there was a huge gulf between
overall GDP growth and growth of agricultural sector.

• Our agricultural sector continues to reel under absolute poverty with massive
unemployment without alternative means of sustainable living.

• Our overall GDP growth rate is 7-8%, whereas our agricultural growth rate is just 2%. This
shows structural imbalance in the economy.

• Rural-urban gap is increasing day by day. So, there is a great need to take actions for the
development of rural areas to reduced this gap.
 Lingering Challenges of Rural Development

A. Rural Credit:
Rural credit means credit for farming. Credit is the lifeline of farming activity in
rural areas because:

• Most farming families in India are small and marginal holders, producing just
enough for subsistence. They rarely generate surplus for further investment.
Therefore, they need credit.

• The gestation period between sowing and harvesting of seeds is too long.
Therefore, they need credit for the purchase of seeds, fertilizers and meet
family expenses.
 Credit needs of Indian Farmers

Short-term Credit Medium-term Credit Long-term Credit

• It is basically required for the • These loans are required for • These loans are required for
purchase of inputs like seeds, the purchase of machinery, the purchase of additional land
fertilizers, pesticides and construction of fences and and for carrying out permanent
insecticides, payment of digging the wells. improvements on the existing
electricity bills. land.
• These loans are taken for the
• These loans are taken for the period ranging 12 months to • These loans are taken for the
period ranging from 6 to 12 5 years. period ranging 5 to 20 years.
months.
 Credit Requirement

Productive Unproductive
Requirement Requirement
(Productive credit) (Unproductive credit)
When farmers take loan for When farmers take loan for
production activity like purchase of consumption activity like
inputs. expenses on ceremonies.
 Sources of Rural Credit

Institutional Sources Non-institutional Sources

v Non-institutional Sources: The main sources of non-institutional rural credit in

India are:
• Landlords,
• Moneylenders, and
• Village traders.

Ø 93% of the total borrowings of the farmers were met by Non-institutional sources in
the beginning of First Five Year Plan. It led to a debt trap for the farmers.

Ø But by 1981, the institutional sources emerged as the principal source of rural
credit.
v Institutional Sources: The main sources of institutional rural credit in India are:
• Government,
• Commercial Banks,
• Cooperatives, and
• The Regional Rural Banks.
Ø 7% of the total borrowings of the farmers were met by Institutional sources in the
beginning of First Five Year Plan. But presently their share has increased to over
66%.

Ø Out of the total institutional credit, cooperative credit contributes 15% and
commercial banks about 75%.
 Important Institutional agencies offering Rural Credit in India

Regional Rural
State Bank and National Bank for
Banks (RRBs) and
Cooperative other Agricultural and
Land
Credit Societies Commercial Rural
Development
Banks Development
Banks

Multi-agency System
Institutional structure of rural banking consists of commercial
banks, RRBs, Cooperative Credit Societies and Land
Development Banks. So, this structure is called Multi-agency
system.
1. Cooperative Credit Societies: Cooperative credit societies provide credit to the
farmers at reasonable rate of interest. Cooperatives account for 16-17% of rural
credit flow.
These societies ensure:
• Elimination of the moneylenders as credit agencies.
• Timely and fast flow of credit to the farmers.
• Spread credit facilities across all regions.
• Providing credit to areas covered by special programmes of development.
2. State Bank of India and other Commercial Banks: The State Bank of India was
set up in 1955 with a focus on rural credit. The nationalization of some banks took
place in 1969. The nationalized commercial banks were directed to provide credit
directly to the farmers as well as through cooperative societies.

3. Regional Rural Banks and Land Development Banks: RRBs and land
development banks were set up to provide credit in the remote rural areas and
backward districts. These banks operate at district level. These banks focus on
credit needs of weaker sections of the rural population.
4. National Bank for Agriculture and Rural Development (NABARD): NABARD is
an apex institution handling policy, planning and operations in the field of rural
credit and related economic activities.
• Set up on 12th July, 1982 and Headquarter: Mumbai

Main Functions of NABARD:

1. To serve as an apex funding agency for the institutions providing credit in rural
areas.

2. To improve the credit delivery system and reconstruction of credit institutions

and training of personnel.

3. To coordinate the activities of various rural credit institutions and maintain a

close connection with Government of India, State Government, RBI and other
national level institutions.

4. To monitor and evaluate the projects financed by it.

 RBI and Rural Credit
Since its beginning in 1935, RBI has been playing an important role in providing credit to farmers
and strengthening credit institution, cooperative credit societies and land development banks.

Its focus on:

• Providing short-term credit for agriculture activities.

• Development of cooperative credit institutions.

• Providing short-term and long-term funds for cooperative credit system.

• Training and professionalization of cooperatives.

• Conducting rural credit surveys to check the coverage of rural households by credit institutions.

• Helping bank-branch expansion in rural areas.

• Providing guidance to all the institutions on matters relating to rural credit.

Q1. How was the Green Revolution a harbinger of changes in Rural Credit
System?

Ans. Green revolution led to change in outlook of farmers from subsistence farming to
commercial farming.

• Commercial farming led to increase in demand of rural credit.

• It has changed portfolio of rural credit, focusing more on production loans.

Kudumbashree – The Poor Women’s Bank

• ‘Kudumbashree’ was started in 1995 in Kerala as a small saving bank for poor women to
encourage savings.

• It is considered as largest informal bank in Asia in terms of participation and savings

mobilised.
 Micro Credit Programmes and Self-help Groups

Micro Credit:
• Micro credit means giving small loan to the individuals, helping them to become
self-employed by establishing small enterprises.

• These programmes were started to help people in underdeveloped countries who

are not covered by any banking system.

• These programmes are becoming popular among small borrowers because it

involves very minimum legal formalities and no collateral.

• For example: Self-help Groups (SHG)

Self-help Groups (SHG):
• Self-help groups are informal groups of people who come together to address their
common problems. SHGs promote saving habit among rural households. Members
of SHGs pool their savings and offer as credit to its members, depending on their
needs. Credit is offered without any collateral security and at a moderate rate of
interest.

• Presently, there are 54 lakh women SHGs in our country with 6 crore women
members.
 Rural Banking – A Critical Evaluation

Advantages:
• Rural banking in India has been significantly expanded after nationalisaton of
major commercial banks in 1969. Nationalization of commercial banks promoted
social banking (credit at moderate rates of interest to rural people).

• NABARD has made a substantial difference in the institution of rural credit. Rural
financing has become more organized.

• Institutional credit has given farmers freedom from the debt trap of moneylenders.

• Institutional credit has also promoted commercialization of agriculture.

Deficiencies:
• Banking credit or institutional credit requires collateral security because of which a
large section of small and marginal farmers are often left out.

• Government often shows lack of strictness in the recovery of loans. It leads to

increase in default rate.

• Most financial institutions (other than commercial banks) have failed to develop
saving habits among farming families. So, mobilization of deposits has remained
very low.

• Due to burden of debt on the farmers, suicidal deaths are rising in our country,
particularly in Andhra Pradesh and Maharashtra.
• For expansion of banking system, all the adults are encouraged to open bank
accounts under the scheme Jan-Dhan Yojana. The account-holders are entitled to
accidental insurance coverage of ₹ 1-2 lakh and overdraft facility for ₹10,000.
They can get their salary and wages, old age pension and other social security
payments of the government directly to their bank accounts. There is no need
to maintain a minimum balance. This has generated more than 40 crore new
account-holders and banks have mobilised more than ₹1,40,000 crore through
these accounts.
 Kisan Credit Card (KCC) Scheme

• Scheme introduced in August 1998 (prepared by

NABARD).

• It aims at adequate and timely support to the farmers

for their short-term credit needs.

• Under this scheme, Kisan Credit Cards are issued to the

farmers for short term credit at low interest rates for
crop production and non farm activities.

• Farmers are issued a credit card cum passbook with the

name, address, details of land holdings, borrowing
limits, validity period, etc.
B. Agricultural Marketing/Rural Marketing:
• Agricultural marketing does not simply refer to the farmer’s act of bringing their
produce to the market for sale rather it includes all those activities which help him
getting better price for his produce.

• Agricultural marketing is the process that involves the assembling

(gathering), storage, processing, transportation, packaging, grading and
distribution of different agricultural commodities across the county.

Gathering Processing Grading

Selling and
Storing Packaging
distributing
Need for State Intervention:
• At the time of independence, agriculture marketing was almost under the complete
control of the moneylenders, traders and commission agents. In order to pay off their
debt, the farmers often made a distress sale of their produce.

• They had to suffer loss due to faulty weighing, manipulation of accounts and lack of
storage facilities.

• The farmers also lacked information about the prices prevailing in the market.

Distress Sale: A situation when farmers are compelled to sell

their produce immediately after the harvest, no matter how
low the market price is.
Measures initiated by the Government to Improve Marketing System

1. Regulated Markets: Regulated markets have been established by the government

where sale and purchase of the produce is monitored by the market Committee
including representatives of the government, farmers and traders.
• These committees ensure that farmers get appropriate price for their produce.

• The government has also built Regulated Market Yards on the outskirts of most
towns.

• Farmers can come to these yards for a fair sale of their produce. These yards also
offer storage facility to the farmers.
2. Provision of Physical Infrastructure: It includes transport facilities, storage
facilities, power, etc.

• Better transport facilities like roadways and railways enable the farmers to sell their
produce at better price.

• Storage helps the farmers to sell their produce at a time when price is profitable.
Even today, more than 10% of the goods produced are wasted due to lack of
storage.
3. Cooperative Agricultural Marketing Societies: Government is encouraging
formation of Cooperative Agricultural Marketing Societies. As member of these
societies, farmers find themselves better bargainers in the market, getting better
price through collective sale. For example, Milk Cooperatives in Gujarat (White
revolution).
Drawbacks of Cooperative marketing:
• Poor coordination between the market cooperatives and processing
cooperatives.

• Shortcomings in financial management of the cooperatives.

4. Policy Instruments: It includes three components:

Ø Minimum Support Price (MSP): It is an assurance to the farmers that their

produce would be purchased by the government at a specified price.

Ø Maintenance of Buffer Stock of Rice and Wheat by food corporation of India:

MSP purchases from the farmers are kept as buffer stocks by the government to
be used during the period of scarcity and emergency situations.

Ø Distribution of Foodgrains through Public Distribution System (PDS): PDS

implies distribution of foodgrains and other essentials through ‘fair price shops’ at
subsidised rates for the benefit of poorer section of the society.
 Shortcomings of Agricultural Marketing

ü Lack of transportation facilities.

ü Forced sales.
ü Lack of credit facilities.
ü Lack of storage facilities.
ü Presence of middlemen.
ü Lack of standard weights and measures.
ü Inadequate market information.
 Alternative Marketing Channels – A Ray of Hope
v An alternate way for agriculture marketing that has emerged are channels where farmers
can directly sell their produce to consumers. These channels are ‘Apni Mandi’ and ‘Big
Bazar’ (Punjab, Haryana and Rajasthan), ‘Hadaspar Mandi’ (Pune), ‘Rythu Bazars’
(vegetable and fruit markets in Andhra Pradesh and Telangana) and ‘Uzhavar Sandies’
(Tamil Nadu).

v Another channel of agricultural marketing is Direct sales contract with the farmers by
National and Multinational fast food chains. For example, Reliance Retails.

• These companies offer advance payments to the farmers to supply farm products at the
pre-determined price. These companies also help farmers with seeds and various other
inputs for production.

• This will help in expansion of market for the farm products and will reduce ‘price-risk’
for the small and marginal farmers.
 Agricultural Diversification and Marketing Risk

Agricultural diversification refers to the re-allocation of some of farm’s productive resources

into new activities or crops reduces market risk. Because price of all the crops may not drop
at the same time. If one crop fetches low revenue, the other crop may fetch high revenue. So,
diversification helps in stabilization of farm income.

Agricultural Diversification

Diversification of
Diversification of Crop
Production
Production
Activity/Employment
It implies production of a diverse It implies shift from crop farming
variety of crops rather than one to other areas of production
specialized crop. It means shift from activity or other areas of
single-cropping system to multi- employment.
cropping system.
 Emerging Challenges of Rural Development

A. Diversification of Productive Activity (Employment Outside Agriculture):

Finding options of sustainable livelihood outside agriculture is an important
emerging challenge of rural development.

Alternative Productive Activities

Animal
Fisheries Horticulture
Husbandry
1. Animal Husbandry: Animal husbandry is an important area of employment other
than farming. It is also known as livestock farming. Important components of
livestock in India are poultry, cattle and goats/sheep.

Two principal problems related to our livestock sector are:

Ø Low productivity due to backward know-how, and
Ø Deficient veterinary care.

In most areas, livestock farming is combined with crop farming. It is known as mixed
crop-livestock farming system.
 Operation Flood
• System of Milk Cooperatives launched in 1966 also known as ‘White
Revolution’.
• Member farmers pool their production of milk for collective sale in the
market.
• It increases quantity of their produce and increases bargaining power of
the farmers.
• It makes the process of processing of the product cheaper.
• Epicentre in Gujarat.
• Important non-farm area of income generation.
2. Fisheries: Fisheries is an important source of livelihood for the states of Kerala,
Maharashtra, Gujarat, Tamil Nadu. Fishing community continues to be backward
community in our country.

Following steps should be taken to improve their economic condition:

Ø Credit facilities should be provided to the fishing communities to break their continuous
cycle of indebtedness.
Ø Self help groups (SHGs) should be made to meet credit requirement of fishing
community.
Ø Fishery technology should be upgraded.

Sources of Fishing used in

India

Inland Sources Marine Sources

• Rivers, lakes, ponds and streams. • Seas and oceans.

• It contributes 65% of the total value • It contributes 35% of the total
of fish production. value of fish production.
3. Horticulture: Horticulture is diversification of crop production. Horticultural crops
include fruits, vegetables, flowers, ornamental plants, medicinal plans, etc. India is
second largest producer of fruits and vegetables in the world. We are emerging
as a leading producer of mangoes, bananas, coconuts, cashew nuts and various
spices.

• It contributes one-third of value of agricultural output and 6% of GDP of India.

• Enhancing the role of horticulture requires investment in infrastructure like electricity,
cold storage systems, market linkages & technology improvements.

TANWA
• Tamil Nadu Women in Agriculture (TANWA) is a project launched in Tamil Nadu to train
women in diverse techniques of farming.

• Purpose – To raise employment and income through higher productivity.

• These groups work as SHGs.

 Golden Revolution and Green Revolution

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Information Technology as an option of Livelihood in Rural Areas

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2. Organic Farming: Organic farming is system of farming that relies upon the use of
organic inputs for cultivation. It is a system of farming that restores, maintains
and enhances the ecological balance.

• Basic organic inputs are animal manures and composts.

• There is no use of chemical inputs like chemical fertilizers, insecticides and

pesticides.

• It is a system of farming that focuses on maintaining soil health so that farming

becomes a ‘long period sustainable process’ along with eco friendly environment.
Advantages of Organic Farming or Why Organic Farming?

1. Discards the Use of Non-renewable Resources: It does not use synthetic

chemicals which are petroleum based.

2. Environment-friendly: Chemical fertilizers pollute the ground water by raising its

nitrate content. Nitrates are health-hazard pollute the environment. Organic
farming discards the use of chemical fertilizers.

3. Sustains Soil Fertility: Chemical Fertilizers erodes soil fertility but animal
manures and composts helps sustain soil fertility. It is conductive to sustainable
development.

4. Healthier and Tastier Food: Organically grown food is more nutritious than the
food from chemical farming. It offers much tastier food than conventional farming.
5. Inexpensive Technology for the Small and Marginal Farmers: Conventional
farming makes use of HYV seeds, fertilizers, insecticides, pesticides and good
irrigation facilities. These things are very expensive. Most of the farmers in India are
small and middle class farmers. They often slip into indebtedness to purchase these
inputs. But organic farming offers inexpensive farming-technology.

6. Comparative Advantage: Organic farming involves a labor-intensive process.

Abundance of labour places India in a position to specialize in organic farming.

Limitations:
• Organic farming offers lesser yield.
• Organic farming have shorter shelf-life.
• Organic farming is not that cost efficient.
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