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TOPPERS POINT ACUMEN ACADEMY

CHAPTER 6: RURAL DEVELOPMENT

 In India, majority of the poor people live in rural areas, where they do not have access
to the basic necessities of life. Around 22% of our population still lives below poverty
line.
 Agriculture, with maximum share of the rural economy, has grown at a meager rate of
2.7% in the last 50 years. During 2007-12, agriculture output has grown at 3.2%.
 The share of agriculture sector to GDP was on a decline and there has been increase in
the share of industrial and service sector. However, the population dependent on
agriculture sector did not show any significant change.
 After the economic reforms of 1991, the growth rate of agriculture sector decelerated
to 3% p.a. during 1991-2012, which was lower than the earlier years.
 Scholars identify decline in public investment since 1991 as the major reason for this.
They also argue that inadequate infrastructure, lack of alternate employment
opportunities in the industry or service sector, increasing casualization of employment
etc. further impede rural development.

Rural development is a comprehensive term. It essentially focuses on action for the

development of areas that are lagging behind in the overall development of the village
economy.

Some of the areas which are challenging and need fresh initiatives for development in India
include:

 Development of human resources including – literacy, more specifically, female literacy,

education and skill development – health, addressing both sanitation and public health
 Land reforms resulting in elimination of exploitation in land relations, increasing
agricultural productivity and improvement of socio-economic conditions of rural poor by
widening their land base.
 Development of the productive resources of each locality to enhance opportunities of
employment (particularly other than farming).
 Infrastructure development like electricity, irrigation, credit, marketing, transport
facilities including construction of village roads and feeder roads to nearby highways,
facilities for agriculture research and extension, and information dissemination

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 Special measures for alleviation of poverty and bringing about significant improvement
in the living conditions of the weaker sections of the population.

All this means that farming communities have to be provided with various means that help
them increase the productivity of grains, cereals, vegetables and fruits. They also need to be
given opportunities to diversify into various non-farm productive activities such as food
processing.

Giving them better and more affordable access to healthcare, sanitation facilities at workplaces
and homes and education for all would also need to be given top priority for rapid rural
development.

RURAL CREDIT: Growth of rural economy depends primarily on infusion of capital, from time to
time, to realize higher productivity in agriculture and non-agriculture sectors. As the time
gestation between crop sowing and realization of income after production is quite long, farmers
borrow from various sources to meet their initial investment on seeds, fertilizers, implements
and other family expenses of marriage, death, religious ceremonies etc. so, credit is one of the
important factors, which contribute to agricultural production. An efficient and effective rural
credit delivery system is crucial for raising agricultural productivity and income.

SOURCES OF RURAL CREDIT

NON-INSTITUTIONAL SOURCES INSTITUTIONAL SOURCES

1) MONEYLENDERS 1) COOPERATIVE CREDIT

2) RELATIVES 2) LAND DEVELOPMENT BANKS

3) TRADERS & COMMISSION AGENTS 3) COMMERCIAL BANK CREDIT

4) RICH LANDLORDS 4) REGIONAL RURAL BANKS

5) GOVERNMENT

6) NABARD

7) SHG BANK LINKAGES

PROGRAMMMES FOR MICRO FINANCE

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NON-INSTITUTIONAL SOURCES:

1) Moneylenders: they are providing credit to farmers in rural areas since a very long time.
The peasents are exploited through exorbitant (very high) rates of interest. Their
accounts are manipulated without their knowledge.
2) Relatives: cultivators borrow funds from their own relatives in times of crisis. These
loans are informal in nature and carry no interest and are normally returned after the
harvest.
3) Traders and commission agents: they provide credit to the peasents on the mortgage of
crops at high rate of interest, on a condition, that crops will be sold to them at low
prices.
4) Rich landlords: many farmers take loan from the landlords for meeting their financial
requirements. Landlords also charge high rates of interest on such loans and exploit the
peasents, particularly small farmers and tenants.

INSTITUTIONAL SOURCES: the various non institutional sources used to exploit small and
marginal farmers by lending to them on high interest rates and manipulating the accounts to
keep them in a debt trap. A major change occurred after 1969, when India adopted the
institutional credit approach through various agencies. Government established the
institutional sources with the following objectives:

 TO PROVIDE ADEQUATE CREDIT TO FARMERS AT CHEAP RATE OF INTEREST; &

 TO ASSIST SMALL AND MARGINAL FARMERS IN RAISING THEIR AGRICULTURAL
PRODUCTIVITY AND MAXIMISING THEIR INCOME.

Some of the institutional sources of agricultural credit are:

1) Co-operative credit: the primary objective of cooperatives is to liberate the Indian

peasentry from the clutches of moneylenders and to provide them credit at low rates of
interest.
2) Land development banks: they provide credit to the farmers against the mortgage of
their lands. Loans are provided for permanent improvement of their lands, purchasing
agricultural implements and for repaying old debts.
3) Commercial bank credit: initially, commercial banks played a marginal role in advancing
rural credit. However, after nationalization in 1969, they expanded their branches in
rural areas and started directly financing the farmers.
4) Regional rural banks: they are opened up in those areas where there are no bank
facilities. Their main objective is to provide credit and other facilities, especially to small
and marginal farmers, agriculture labourers, artisans and small entrepreneurs in rural
areas.

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5) The government: the loans provided by the government are known as taccavi loans and
are lent during emergency or distress, like famines, floods, etc. The rate of interest
charged against such loans is as low as 6%.
6) NABARD: it is the apex bank which coordinates the functioning of different financial
institutions, working for expansion if rural credit. Its objective is to promote health and
strength of credit institutions. It also provides financial assistance to the non-farm
sector, to promote integrated rural development and prosperity of backward rural
areas.
7) SHG bank linkages programme for micro finance: SHG has emerged as the major micro
finance programmed in the country in recent years. Their focus is largely on those rural
poor, who have no sustainable access to the formal banking system. Their target groups
comprise of small and marginal farmers, agricultural and non-agricultural labourers,
artisans, etc. SHGs promote thrift in small proportions by a minimum contribution from
each member. From the pooled money, credit is given to the needy members at
reasonable interest rates, which is to be repaid in small instalments. By March 2012,
more than 43 lakh SHGs had reportedly been credit linked. SHGs have also helped in the
empowerment of women. However, the borrowings are mainly confined to
consumption purposes and negligible proportion is borrowed for productive purposes.

CRITICAL APPRAISEL OF RURAL BANKING

Rapid expansion of the banking system had a positive effect on rural farm and non-farm output,
income and employment, especially after the green revolution — it helped farmers to avail
services and credit facilities and a variety of loans for meeting their production needs. Famines
became events of the past; we have now achieved food security which is reflected in the
abundant buffer stocks of grains. However, all is not well with our banking system. Following
are some of the problems faced in rural banking:

1) Insufficiency: the volume of rural credit in the country is still insufficient in comparison
to its demand.
2) Inadequate coverage of institutional sources: the institutional credit arrangement
continues to be inadequate as they have failed to cover the entire rural farmers of the
country.
3) Inadequate amount of sanction: the amount of loan sanctioned to the farmers is also
inadequate. As a result, farmers often divert such loans for unproductive uses, which
dilute the very purpose of such loans.
4) Less attention to poor or marginal farmers: well to do farmers are getting more
attention than poor farmers due to their better credit worthiness than the latter.

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5) Growing overdues: the problem of overdues in agricultural credit continues to be a
matter of concern. The basic reason for this is the poor repaying capacity of farmers. As
a result, credit agencies are becoming more cautious of granting loan to farmers.
Agriculture loan default rates have been chronically high and many studies reveal that
about 50 per cent of the defaulters were categorised as ‘wilful defaulters’ which is a
threat to the smooth functioning of the banking system and needs to be controlled.

Thus, the expansion and promotion of the rural banking sector has taken a backseat after
reforms. To improve the situation, banks need to change their approach from just being
lenders to building up relationship banking with the borrowers. Inculcating the habit of
thrift and efficient utilisation of financial resources needs to be enhanced among the
farmers too.

AGRICULTURE MARKET SYSTEM:

Rural people not only face problems with regard to finance, but also encounter difficulties in
marketing their goods. Agricultural marketing is a process that involves the assembling,
storage, processing, transportation, packaging, grading and distribution of different
agricultural commodities across the country.

Problems faced by farmers:

1) Manipulation by big traders: prior to independence, farmers suffered from faulty

weighing and manipulation of accounts while selling their produce to traders.
2) Lack of market information: farmers were often forced to sell at low price due to lack of
required information on price prevailing in the market.
3) Lack of storage facilities: they also did not have proper storage facilities to keep back
their produce for selling later at better price. Even today, more than 10% of goods
produced in farms are wasted due to lack of proper storage facilities.

THEREFORE, GOVERNMENT INTERVENTION BECAME NECESSARY TO REGULATE THE ACTIVITIES

OF THE PRIVATE TRADERS.

MEASURES TO IMPROVE AGRICULTURAL MARKETING:

1) Regulated markets: The first step was regulation of markets to create orderly and
transparent marketing conditions. By and large, this policy benefited farmers as well as
consumers. However, there is still a need to develop about 27,000 rural periodic
markets as regulated market places to realise the full potential of rural markets.
2) Infrastructure facilities: Second component is provision of physical infrastructure
facilities like roads, railways, warehouses, godowns, cold storages and processing units.

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The current infrastructure facilities are quite inadequate to meet the growing demand
and need to be improved.
3) Cooperative marketing: in realising fair prices for farmers’ products, is the third aspect
of government initiative. The success of milk cooperatives in transforming the social and
economic landscape of Gujarat and some other parts of the country is testimony to the
role of cooperatives. However cooperatives have received a setback during the recent
past due to inadequate coverage of farmer members, lack of appropriate link between
marketing and processing cooperatives and inefficient financial management.
4) Different policy instruments: The fourth element is the policy instruments like (i)
assurance of minimum support prices (MSP) for 24 agricultural products (ii)
maintenance of buffer stocks of wheat and rice by Food Corporation of India and (iii)
distribution of food grains and sugar through PDS. These instruments are aimed at
protecting the income of the farmers and providing foodgrains at a subsidised rate to
the poor.

These instruments are aimed at protecting the income of the farmers and providing food grains
at a subsidized rate to the poor.

However, despite government intervention, private trade (by moneylenders, rural political
elites, big merchants and rich farmers) pre dominates agricultural markets. The quantity of
agricultural products, handled by the government agencies and consumer cooperatives,
constitutes only 10 per cent while the rest is handled by the private sector. Agricultural
marketing has come a long way with the intervention of the government in various forms. The
rapid commercialization of agriculture in the era of globalization offers tremendous
opportunities for value addition of agro-based products through processing and this need to be
encouraged apart from awareness and training of the farmers to improve their marketing
ability.

EMERGING ALTERNATE MARKETING CHANNELS:

1) ORIGIN OF FARMERS MARKET: It has been realised that if farmers directly sell their
produce to consumers, it increases their share in the price paid by the consumers. As a result,
the concept of farmer’s market was initiated to help farmers by providing them direct access to
the consumers and eliminating the middlemen. Some examples of these channels are Apni
Mandi (Punjab, Haryana, Rajasthan); Hadaspar Mandi (Pune); Rythu Bazars (vegetable and fruit
market in Andhra Pradesh) and Uzhavar Sandies (farmers markets in Tamil Nadu).

2) ALLIANCE WITH NATIONAL AND MNCs: Further, several national and multinational
fast food chains are increasingly entering into contracts/alliances with farmers to encourage
them to cultivate farm products (vegetables, fruits, etc.) of the desired quality by providing

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them with not only seeds and other inputs but also assured procurement of the produce at pre-
decided prices. Such arrangements will help in reducing the price risks of farmers and would
also expand the markets for farm products.

DIVERSIFICATION OF AGRICULTURAL ACTIVITIES:

 Diversification includes two aspects: one relates to diversification of crop production

which involves a shift from single cropping system to multi cropping system. The main
aim is to promote shift from subsistence farming to commercial farming. There is a need
to encourage farmers to take up cultivation of a wide variety of crops. This will raise
their standard of living by raising the bar of their income. And the other relates to a shift
of workforce from agriculture to other allied activities (livestock, poultry, fisheries etc.)
and non-agriculture sector. As agriculture is already overcrowded, a major proportion of
the labour force needs to find alternate employment opportunities in non-farm sectors.
 The need for diversification arises from the fact that there is greater risk in depending
exclusively on farming for livelihood. Diversification towards new areas is necessary not
only to reduce the risk from agriculture sector but also to provide productive
sustainable livelihood options to rural people.
 Much of the agricultural employment activities are concentrated in the Kharif season.
But during the Rabi season, in areas where there are inadequate irrigation facilities, it
becomes difficult to find gainful employment.
 Therefore expansion into other sectors is essential to provide supplementary gainful
employment and in realising higher levels of income for rural people to overcome
poverty and other tribulations.
 Here the focus will be only on allied activities, nonfarm employment and other
emerging alternatives of livelihood, though there are many other options available for
providing sustainable livelihoods in rural areas.
 As agriculture is already overcrowded, a major proportion of the increasing labour force
needs to find alternate employment opportunities in other non-farm sectors.
 Non-farm economy has several segments in it; some possess dynamic linkages that
permit healthy growth while others are in subsistence, low productivity propositions.
 The dynamic sub-sectors include agro-processing industries, food processing industries,
leather industry, tourism, etc.
 Those sectors which have the potential but seriously lack infrastructure and other
support include traditional household-based industries like pottery, crafts, handlooms
etc.
 Though majority of rural women find employment in agriculture with men looking for
nonfarm employment, in recent times, women have also begun to look for nonfarm
jobs.

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NON FARM AREAS OF EMPLOYMENT:

1) ANIMAL HUSBANDRY: is that branch of agriculture, which is concerned with the

breeding, rearing and caring for farm animals. It is aka livestock farming.
 Under this, cattles, goats and fowls(ducks, goose, etc.) are widely held species.
 India owns one of the largest livestock populations in the world.
 Livestock production provides increased stability in income, food security,
transport, fuel and nutrition for the family, without disrupting other food
producing activities.
 Livestock sector provides alternate livelihood options to over 70 million small
and marginal farmers, including landless laboureres.
 A significant number of women also find employment in the livestock sector.
 In India, poultry accounts for the largest share of 58% followed by others
(camels, asses, horses, ponies and mules.)
2) DAIRYING: is that branch of agriculture which involves breeding, raising and utilization
of dairy animals for the production of milk and various dairy products processed from it.
 Dairying is the business of producing, storing and distributing milk and its
product.
 The performance of the Indian dairy sector over the last 3 decades has been
quite impressive.
 Due to the successful implementation of operation flood, India ranks 1st in
world in milk production. India’s milk production increased from 17 million
tonnes in 1950-51 to 102.6 million tonnes in 2006-07 and increased to 165.4
million tonnes in 2016-17.
 Operation flood (or White Revolution) was started by NATIONAL DAIRY
DEVELOPMENT BOARD (NDDB) in 1970 under the expert guidance of then
chairman, Dr. Verghese Kurien. The objective of this programme was to
create a nationwide milk grid.
 Under this programme, all the farmers pool their milk produce according to
different grades and same is processed and marketed to urban centres
through cooperatives. The farmers are assured of a fair price and income.
 Gujarat state is held as a success story in the efficient implementation of milk
cooperatives, which has been followed by many states.
 Meat, eggs, wool and other by-products are also emerging as important
productive sectors for diversification.
3) FISHERIES: it refers to the occupation devoted to the catching, processing or selling of
fish and other aquatic animals. In India, after progressive increase in budgetary
allocations and introduction of new technologies in fisheries and aquaculture, the
development of fisheries has come a long way.
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 The fishing community regards the water body as ‘mother’ or ‘provider’. The
water bodies consisting of sea, oceans, rivers, lakes, natural aquatic ponds,
streams etc. are, therefore, an integral and life-giving source for the fishing
community.
 Presently, fish production from inland sources contributes about 64 per cent to
the total fish production and the balance 36 per cent comes from the marine
sector (sea and oceans).
 Today total fish production accounts for 0.8 per cent of the total GDP. Among
states, Kerala, Gujarat, Maharashtra and Tamil Nadu are the major producers of
marine products.
 The overall socio-economic status of fishermen is comparatively lower than that
of other backward sectors of our economy. Rampant underemployment, low per
capita earnings, absence of mobility of labour to other sectors and a high rate of
illiteracy and indebtedness are some of the major problems faced by these
communities.
 Even though women are not involved in active fishing, about 60 per cent of the
workforce in export marketing and 40 per cent in internal marketing are women.
There is a need to increase credit facilities —cooperatives and SHGs — for
fisherwomen to meet the working capital requirements for marketing.
4) HORTICULTURE: Blessed with a varying climate and soil conditions, India has adopted
growing of diverse horticultural crops such as fruits, vegetables, tuber crops, flowers,
medicinal and aromatic plants, spices and plantation crops. These crops play a vital role
in providing food and nutrition, besides addressing employment concerns. The period
between 1991-2003 is also called an effort to heralding a ‘Golden Revolution’ because
during this period, the planned investment in horticulture became highly productive and
the sector emerged as a sustainable livelihood option. India has emerged as a world
leader in producing a variety of fruits like mangoes, bananas, coconuts, cashew nuts and
a number of spices and is the second largest producer of fruits and vegetables.
 Economic condition of many farmers engaged in horticulture has improved and
it has become a means of improving livelihood for many unprivileged classes
too.
 Flower harvesting, nursery maintenance, hybrid seed production and tissue
culture, propagation of fruits and flowers and food processing are highly
remunerative employment options for women in rural areas.
 It has been estimated that this sector provides employment to around 19 per
cent of the total labour force.
 Though, in terms of numbers, our livestock population is quite impressive but its
productivity is quite low as compared to other countries. It requires improved

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technology and promotion of good breeds of animals to enhance productivity.
Improved veterinary care and credit facilities to small and marginal farmers and
landless labourers would enhance sustainable livelihood options through
livestock production.
5) INFORMATION TECHNOLOGY (I.T.): IT refers to that branch of engineering that deals
with the use of computers and telecommunications to retrieve and store and transmit
information.
 We know that IT has revolutionised many sectors in the Indian economy.
 There is broad consensus that IT will play a critical role in achieving sustainable
development and food security in the twenty-first century. Many examples justify this
observation, such as the ability of governments to predict areas of food insecurity and
vulnerability using appropriate information and software tools so that action can be
taken to prevent or reduce the likelihood of an emergency.
 It also has a positive impact on the agriculture sector as it disseminates information
regarding emerging technologies and its applications, prices, weather and soil
conditions for growing different crops etc.
 Most importantly, it has ushered in a knowledge economy that is a thousand times
more powerful than the industrial revolution. Though IT is, by itself, no catalyst of
change but it can act as a tool for releasing the creative potential and knowledge
embedded in our people.
 It also has potential of employment generation in rural areas. Experiments with IT and
its application to rural development are carried out in different parts of India.

SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING

In recent years, awareness of the harmful effect of chemical-based fertilisers and pesticides on
our health is on a rise. Conventional agriculture relies heavily on chemical fertilisers and toxic
pesticides etc., which enter the food supply, penetrate the water sources, harm the livestock,
deplete the soil and devastate natural eco-systems. Efforts in evolving technologies which are
eco-friendly are essential for sustainable development and one such technology which is eco-
friendly is organic farming. ORGANIC FARMING: is the form of agriculture that relies on
techniques such as crop rotation, green manure, compost and biological pest control. This
method avoids the use of synthetic chemical fertilizers and genetically modified organisms.

In short, organic agriculture is a whole system of farming that restores, maintains and
enhances the ecological balance. There is an increasing demand for organically grown food to
enhance food safety throughout the world.

Benefits of organic farming:

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 Organic agriculture offers a means to substitute costlier agricultural inputs (such as HYV
seeds, chemical fertilisers, pesticides etc.) with locally produced organic inputs that are
cheaper and thereby generate good returns on investment.
 Organic agriculture also generates incomes through international exports as the
demand for organically grown crops is on a rise.
 Studies across countries have shown that organically grown food has more nutritional
value than chemical farming thus providing us with healthy foods.
 Since organic farming requires more labour input than conventional farming, India will
find organic farming an attractive proposition as employment is generated.
 Finally, the produce is pesticide-free and produced in an environmentally sustainable
way

Challenges before organic farming:

 Popularizing organic farming requires awareness and willingness on the part of farmers
to adapt to new technology.
 Inadequate infrastructure and the problem of marketing the products are major
concerns which need to be addressed apart from an appropriate agriculture policy to
promote organic farming.
 It has been observed that the yields from organic farming are less than modern
agricultural farming in the initial years. Therefore, small and marginal farmers may find
it difficult to adapt to large scale production.
 Organic produce may also have more blemishes and a shorter shelf life than sprayed
produce.
 Moreover choice in production of off-season crops is quite limited in organic farming.

Nevertheless, organic farming helps in sustainable development of agriculture and India has a
clear advantage in producing organic products for both domestic and international markets.

EVALUATION OF RURAL DEVELOPMENT

It is clear that until and unless some spectacular changes occur, the rural sector might continue
to remain backward. Some of the changes which need to be taken for the development of rural
economy are:

1. STRESS ON DIVERSIFICATION: There is a greater need today to make rural areas more
vibrant through diversification into dairying, poultry, fisheries, vegetables and fruits.
2. RURAL AND URBAN LINKAGE: linking up the rural production centres with the urban
and foreign (export) markets to realise higher returns on the investments for the
products.

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3. BETTER INFRASTRUCTURAL FACILITIES: infrastructure elements like credit and
marketing, farmer-friendly agricultural policies and a constant appraisal and dialogue
between farmers’ groups and state agricultural departments are essential to realise the
full potential of the sector.
4. MORE EMPHASIS ON SUSTAINABLE DEVELOPMENT: Today we cannot look at the
environment and rural development as two distinct subjects. There is need to invent or
procure alternate sets of eco friendly technologies that lead to sustainable development
in different circumstances.

ADDITIONAL QUESTIONS:

1 MARK QUESTIONS

Q1) Define rural development.

Q2) What is the importance of credit in rural areas?

Q3) Write down the full form of NABARD.

Q4) In which state, white revolution was much successful?

Q5) What do you mean by ‘golden revolution’?

Q6) Define organic farming.

Q7) What do you mean by agricultural marketing?

Q8) What type of infrastructure does horticulture require for its development?

Q9) What is cooperative marketing?

Q10) Name any 3 institutional sources of credit in rural areas.

Q11) What is micro finance?

Q12) Why is MSP fixed by the government?

Q13) Why do people seek employment in non-farm sectors?

Q14) What is the share of total fish production in the total GDP?

3 OR 4 MARK QUESTIONS

Q1) What is the importance of credit in rural areas?

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Q2) Explain the non-institutional sources of credit in rural areas.

Q3) Write down a short note on NABARD.

Q4) Explain the role of SHG bank linkage programme for micro finance in rural credit.

Q5) What steps should be taken to improve the situation of rural banking system?

Q6) Why does cooperative marketing received a setback in recent years?

Q7) Why government intervention is needed to regulate the activities of private traders?

Q8) Why diversification of agricultural activities is necessary?

Q9) How many types of diversified agricultural activities are there?

Q10) Explain the concept of diversification of crop production.

Q11) Explain the concept of diversification of productive activities.

Q12) Write a short note on ‘operation flood’.

Q13) Write a short note on ‘golden revolution’.

Q14) What are the problems in fisheries sector?

Q15) Write a short note on WHITE REVOLUTION.

Q16) What are the benefits of organic farming?

Q17) What are the challenges before organic farming?

Q18) What are the objectives behind the establishment of “institutional sources of credit” by
the government?

Q19) “Use of chemical fertilizers, to compensate food shortage, gives good dividends at one
time in the form of increased production, but becomes a disaster later in the form of adverse
effects on health.” How can we overcome this problem?

Q20) What is the need of diversification of agricultural activities?

Q21) What are the obstacles that hinder the mechanism of agriculture marketing?

Q22) What are the alternative channels available for agricultural marketing? Give some
examples.

Q23) Explain the role of non-farm employment in promoting rural diversification.

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Q24) IT plays a very significant role in achieving sustainable development and food security.
Comment.

6 MARK QUESTIONS

Q1) What do you mean by rural development? Bring out the key issues in rural development.

Q2) Critically evaluate the role of rural banking system in the process of rural development in
India.

Q3) Explain the concept of diversification of agricultural activities.

Q4) Explain the institutional sources of credit in rural areas.

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