DMPQ- Covid pandemic has pushed rural Indians into debt trap. Discuss the causes of it . Also mention the measures to solve the problem.

. The All-India Debt and Investment Surveys (AIDIS), carried out by the National Statistical Office are among the most important nationally representative data sources on the rural credit market in India. Easy, timely access to formal-sector credit enables households to invest in income-generating activities. In its absence, non-institutional sources help meet short-term consumption needs. The AIDIS report published this month reveals that non-institutional sources have a strong presence in the rural credit market, notwithstanding the high costs involved in borrowing from them.

Causes For Rural Debt Trap


  • Use of Credit For Household Purposes: To know how socio-economic inequality shapes household indebtedness, the purpose of borrowing must be examined. Institutional credit is taken mainly for farm business and housing in rural India. €A significant portion of debt from non-institutional sources is used for other household expenditures. The data indicates that better-off households have greater access to formal-sector credit and use it for more income-generating purposes.
  • Factor of Social Identities: Access to credit is complicated by the interplay of social identities. The average asset ownership of Scheduled Caste and Scheduled Tribe households in rural areas is one-third as compared to upper-caste households.
  • Inadequate access to affordable credit lies at the heart of the rural distress. Lack of marketable collateral, credit demand for consumption purposes and informational constraints have been the primary reasons for a large proportion of the rural population being excluded from institutional finance.

Measures need to be taken

  • Increasing Credit Flow to Allied Activities: Government should set separate targets for working capital and term loan towards allied activities.
  • Land Consolidation: State governments should promote and conduct awareness drives for land consolidation so that the farmers can achieve economies of scale and have the incentive to make long term investments.
  • Agricultural Loans against Gold as Collateral: Presently such loans are not separately flagged in core banking solution (CBS) platform of banks.
  • Farm Loan Waivers: Government of India and state governments should undertake a holistic review of the agricultural policies and their implementation, as well as evaluate the effectiveness of current subsidy policies with regard to agri inputs and credit in a manner which will improve the overall viability of agriculture in a sustainable manner.
APPSC GROUP 1 Notes brings Prelims and Mains programs for APPSC GROUP 1 Prelims and APPSC GROUP 1 Mains Exam preparation. Various Programs initiated by APPSC GROUP 1 Notes are as follows:- For any doubt, Just leave us a Chat or Fill us a querry––
error: Content is protected !!