Rural Credit in India: Issues and Concerns

Abstract

At the outset, I would like to thank the Indian Society of Agricultural Economics for giving me an opportunity to address this esteemed gathering of academics and professionals. I am humbled at the thought that my predecessors have, without exception been economists and thinkers of great eminence. And therefore I, a career banker, whose only qualification is a passion for the subject, have no option but to approach my address in a spirit of awe and humility. Describing India, the All-India Rural Credit Survey (AIRCS) had said, “India is essentially Rural India and Rural India is virtually the cultivator, the village handicraftsman and the agricultural labourer.” Rural India, where 70 per cent of all Indians live, still depends heavily on agriculture. However, it is increasingly becoming diversified market with a strong demand for credit for agriculture and nonagricultural purposes, savings, insurance and money transfers. I will endeavour to trace the sequence of events – both policy and institutional – during preand postreform periods; dwell on the concerns relating to financial exclusion and touch upon the SHG-Bank Linkage model, which is a meaningful “inclusive response” to this concern. In the development strategy adopted by independent India, the primary focus was growth with equity. Given an understanding of the seasonal credit requirements of farm operations, institutional credit was perceived fairly early in the development process as a powerful tool for enhancing production and productivity and for poverty alleviation. The debates surrounding these issues, as also the suggested policy directions were clearly spelt out in the report of the All India Credit Survey Committee 1952. To achieve the objectives of production and productivity, the stance of policy towards rural credit was to ensure provision of sufficient and timely credit at reasonable rates of interest to as large a segment of the rural population as possible. The strategy devised for the purpose rested on three pillars: expansion of the