Rural credit

Farmers need credit at particular times, such as at sowing. There is a long gap (the gestation period) between spending on seeds, fertiliser and labour and getting any income from the harvest. In the past, they borrowed from moneylenders and traders, who charged very high interest and often trapped families in debt for generations.

The government built up formal sources of credit:

• In 1969, India adopted social banking: banks were nationalised and told to open branches in villages.
• NABARD (National Bank for Agriculture and Rural Development), set up in 1982, is the apex body that coordinates all institutions giving rural credit.
• Rural credit now comes from commercial banks, regional rural banks (RRBs), cooperatives and land development banks.

Self-help groups (SHGs) fill a gap. A small group of people, often women, each save a little regularly; the pooled savings are lent to members who need them. Such small loans are called micro-credit. By May 2019, nearly 6 crore women were members of about 54 lakh SHGs.

Appraisal: formal credit helped raise farm output and India's food security. But defaults (loans not repaid) have stayed high, and recovery is weak.

The Pradhan Mantri Jan-Dhan Yojana brought bank accounts to the poor: no minimum balance, accident insurance, an overdraft of up to ₹10,000, and direct transfer of government benefits into the account. More than 50 crore accounts have been opened.