Rural dept trap

The All-India Debt and Investment Surveys (AIDIS), carried out by the National Statistical Office (NSO) are among the most important nationally representative data sources on the rural credit market in India.

AIDIS report reveals that non-institutional sources have a strong presence in the rural credit market, notwithstanding the high costs involved in borrowing from them. Inadequate access to affordable credit lies at the heart of rural distress.

Important findings of the report

• The average debt per household in rural India is Rs 59,748, nearly half the average debt per household in urban India.
• incidence of indebtedness (IOI) is 35% in rural India — 17.8% of rural households are indebted to institutional credit agencies, 10.2% to non-institutional agencies and 7% to both.



What is incidence of indebtedness? - it is the proportion of households having outstanding loans.

Reasons for rural dept trap

• Use of Credit for Household Purposes: Institutional credit is taken mainly for farm business and housing in rural India.
• Lack of assets for collateral: Access to institutional credit is largely determined by the ability of households to furnish assets as collateral. 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.

Way forward

• Improve the reach of institutional credit. For that governments have to complete the digitisation process and updation of land records in a time bound manner.
• Credit Guarantee Scheme for Agriculture sector.
• Achieve Financial Inclusion