Chapter 6

RURAL
DEVELOPMENT
1. Rural Development: Meaning and
Significance
1. Rural Development: Meaning and
Significance
2. Lingering Challenges of Rural
Development: Rural Credit and
Agricultural Marketing
1. Rural Development: Meaning and
Significance
2. Lingering Challenges of Rural
Development: Rural Credit and
Agricultural Marketing
3. Emerging Challenges of Rural
Development: Diversification of
Productive Activities and Organic
Farming
FOCUS

The chapter focuses on rural development in

terms of social and economic growth of rural
areas. It highlights the significance of rural
development in the context of overall
development of the economy. Rural credit
and agricultural marketing are discussed as
the lingering challenges of the rural economy.
Diversification of production activity and
organic farming are discussed as the
emerging challenges. Unless the lingering
and emerging challenges of the rural
economy are systematically addressed,
rural development and consequently
economic development cannot be free of
shackles (hurdles).
1. RURAL DEVELOPMENT:
MEANING
 1. RURAL DEVELOPMENT:
MEANING

"Rural development means

an 'action-plan' for the
social and economic growth
of the rural areas."
Lingering and Emerging Challenges

There are certain lingering and

emerging challenges in the context of
rural development in India.

Two principal lingering challenges are:

(i) Rural credit, and (ii) Rural marketing.
Two principal emerging challenges
include:
(i) Diversification of productive
activities, and
(ii) Organic farming.


It needs to be noted that these
four challenges (two lingering
and two emerging as notable
above are the core elements of
the action-plan of rural
development.
Significance of Rural
Development
1. Improves Standard of Living –
Provides better housing, health,
sanitation, and education facilities to
rural people.
2. Employment Generation – Creates
more job opportunities in agriculture,
non-farm activities, and rural
industries.
3. Reduction of Poverty – Helps in
removing poverty by providing income
sources and social security.
4. Agricultural Growth – Ensures better
irrigation, modern technology, credit facilities,
and infrastructure for farmers.

5. Check Migration – Reduces excessive

migration from rural to urban areas by
creating opportunities in villages.

6. Balanced Regional Development –

Narrows the gap between rural and urban
areas.
2. LINGERING CHALLENGES OF
RURAL DEVELOPMENT: RURAL
CREDIT AND AGRICULTURAL
MARKETING
(A) Rural Credit

Rural credit or agricultural credit

means credit for farming.
Credit is the lifeline of farming
activity in rural areas. This is
because of two reasons:
(i) Most farming families in India
are small and marginal holders,
producing just enough for
subsistence. They seldom generate
surplus for further investment. The
need for credit, therefore, is
unavoidable, and
(ii) The gestation lag between sowing
and harvesting of the crops is quite
long. This compounds the need for
credit to meet the initial investment
on seeds, fertilizers, implements and
some family expenses like marriage,
death, birth, or other religious
ceremonies.
Credit needs of the typical
Indian farmer are broadly
classified into three categories
as under:


(1) Short-term Credit: Short-term
credit is basically required for the
purchase of inputs like seeds,
fertilizers, pesticides and
insecticides etc These loans are
raised generally for a period ranging
between 6 to 12 months.
(2) Medium-term Credit: Medium-
term

credit is required for (i) the purchase

of machinery, (ii) construction of
fences, and (iii) digging the wells.
Such loans are raised generally for a
period ranging between 12 months to
5 years.
(3) Long-term Credit: Long-term
credit is required for i) the
purchas of additional land or (ii)
for carrying out permanent
improvements on the existing
land. The period of such loans
ranges betwees 5 to 20 years.

The credit requirement of the
farmers may also be classified as
productive and unproductive. The
productive requirement of credit
relates to production activity (like
purchase of inputs). The
unproductive requirement of credis
relates to consumption activity (like
expenses on ceremonies, or
personal expenses).
Sources of Rural Credit

Sources of rural or agricultural credit

are broadly classified (i) Institutional,
and (ii) Non-institutional. Of the two,
non-institutiond sources are the
conventional/traditional sources,
while the institutional sources are
modern/emerging sources.
Non-institutional Sources

(i) Landlords, (ii) Village traders, and

(iii) Moneylenders are the three
important sources of non-
institutional rural credit in India.


Non-institutional sources accounted
for 93 per cent of the total borrowing
of the farmers in the beginning of
First Five Year Plan.

But by 1981, the institutional sources

emerged as the principal channel of
rural credit.
Institutional Sources

(i) government,(ii) cooperatives,(iii)

commercial banks, and (iv) the regional
rural banks(RRBs).

Together, they accounted for only 7 per

cent of the credit needs of the farmers in
the beginning of First Five Year Plan, but
presently their share has increased to over
66 per cent.
Out of total institutional credit,
cooperative credit contributes nearly 15
per cent and commercial banks about
75 per cent.
Some important institutional
agencies offering rural credit in
India:
(1) Cooperative Credit Societies:

The cooperative credit societies provide

adequate credit to the farmers at
reasonable rate of interest.

These societies also provide guidance in

diverse agricultural operations with a view
to raising crop productivity.

Currently, cooperatives account for 16-17

per cent of rural credit flow.
These societies are to ensure:

(i) timely and rapid flow of credit to the

farmers.

(ii) elimination of the moneylenders as credit
agencies.

(iii) spread credit facilities across all regions
of the country.

(iv) provision of adequate credit in 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 government realised that rural credit

needs could not be met by the cooperative
credit societies alone, and that commercial
banks should play an important role.
(3) Regional Rural Banks (RRBs) and Land
Development Banks:
RRBs and Land Development Banks were
set-up to promote credit supplies,
particularly in the remote rural areas and
backward districts. These banks operate
at the district level and are under
obligation to focus on credit need of
weaker sections of the rural population.
(4) National Bank for Agricultural
and Rural Development (NABARD):
NABARD is an apex institution
handling policy, planning and
operations in the field of rural credit
and related economic activities. It
was set-up in 1982. Its main
functions are as these:
i) To serve as an apex funding agency
for the institutions providing credit in
rural areas.

(ii) To take appropriate measures to

improve the credit delivery system. The
bank was to focus on restructuring of
credit institutions and training of
personnel.


(iii) To coordinate the rural financing
activities of all credit institutions and
maintain liaison with Government of
India, State Government, Reserve Bank,
and other national level institutions
concerned with policy formulation.

(iv) To undertake monitoring and

evaluation of projects refinanced by it.
 RBI and Rural Credit

Since its beginning in 1935, the

Reserve Bank of lindia has been
playing an important role in Rural
Credit Program.
It focuses on:

(i)short-term refinance facilities for agriculture an

allied activities,

(ii) development of cooperative credit institutions,

(iii) expansion of the sources of funds for short-

term and long-term wings of the cooperative credi
system

(viii) guidance to all concerned on matters relating

to rural credit.
, (iv) provision of long-term funds to bring
about state partnership in cooperative credit
agencies,

(v) training and professionalisation of

cooperatives


, (vi) conducting rural credit surveys to
determine the coverage of rural households
by credit Institutions,

(vii) helping bank-branch expansion

programme to provide cheaper remittance
facilities for banks operating in rural areas,
and
Micro Credit Programmes

Meaning: Micro credit refers to small

loans given to the rural poor, especially
landless labourers, small farmers, and
women, who usually do not have
access to formal banking.
Objective: To provide them with
money for productive activities
(like farming, animal husbandry,
handicrafts, or small businesses)
without depending on
moneylenders who charge high
interest.