Rural Development — Study Notes

1. Introduction

More than two-thirds of India's people live in rural areas, and agriculture is the mainstay of rural livelihood. Rural development is the process of improving the quality of life and economic well-being of people living in rural areas. It is not simply an increase in agricultural production; it encompasses the development of rural infrastructure, the diversification of the rural economy into non-farm activities, the creation of employment, the provision of credit and market facilities, and the improvement of education, health and the overall living conditions of the rural population.

Rural development is essential because the majority of the poor in India live in villages. Agriculture alone cannot absorb the growing rural workforce, so diversification into allied activities - animal husbandry, dairy, fisheries and horticulture - and into non-farm employment is necessary. The chapter on rural development thus deals with the credit system, the marketing of agricultural produce, diversification into allied and non-farm activities, and the recent initiatives and programmes for rural development.

In this chapter we study the meaning and significance of rural development, the rural credit system and the role of the institutional and non-institutional sources of credit, agricultural marketing and its problems, diversification of the rural economy, and the important programmes such as the Self-Help Groups (SHGs) and the organisations supporting rural development.

2. Meaning and Significance of Rural Development

Rural development is a comprehensive term. It means the overall development of rural areas - covering agriculture, credit, marketing, infrastructure, education, health and empowerment - so that the quality of life of the rural people improves. Its key elements are:

1. Development of the productive capacity of rural people.
2. Provision of basic amenities such as water, electricity, roads, education and health.
3. Reduction of poverty and unemployment in rural areas.
4. Reduction of regional and sectoral imbalances.
5. Development of human capital and social empowerment in rural areas.

Rural development matters because most of India's poor and a large part of its population live in villages, and because the rural economy supports agriculture, which is the largest source of livelihood. Sustainable rural development requires both the growth of agricultural output and the diversification of the rural economy.

3. Rural Credit: Need and Sources

Rural credit is needed by farmers for purchasing seeds, fertilisers, implements and for meeting expenses before the harvest. The demand for credit is high, but the supply depends on the sources of credit, which are of two types:

Non-institutional sources: These are the moneylenders, traders, landlords and relatives. The moneylenders and traders were the traditional sources of rural credit. Their lending was easy and quick, but they charged very high interest rates, exploited the farmers, and kept them in debt bondage. Landlords lent against the land and could appropriate the produce.

Institutional sources: These are the organised agencies - cooperative societies, commercial banks, the Regional Rural Banks (RRBs) and the National Bank for Agriculture and Rural Development (NABARD). Institutional credit is provided at low interest rates and without exploitation. NABARD, established in 1982, supervises and refinances the rural financial institutions.

Over time, the share of institutional credit has increased substantially, while the share of moneylenders has declined, though the moneylenders still matter in many areas. Institutional credit helps farmers escape exploitation and invest in better inputs and technology.

4. Agricultural Marketing

Agricultural marketing is the process that involves the assembling, grading, storage, processing and transportation of agricultural produce from the farmer to the consumer, and the sale of the produce at fair prices. The problems in agricultural marketing in India have been:

1. Multiple middlemen: Between the farmer and the consumer there are many intermediaries - the trader, the wholesaler and the retailer - who take away a large share of the price.
2. Exploitation of farmers: Farmers, often in debt, are forced to sell their produce immediately after harvest at low prices to moneylenders and traders.
3. Lack of storage facilities: Inadequate godowns and cold storage force farmers to sell immediately and lose value.
4. Lack of grading and standardisation: The absence of proper grading means farmers cannot get better prices for better quality.
5. Inadequate market information: Farmers lack information about prevailing prices, so they cannot bargain effectively.
6. Weak transport: Poor roads and transport limit the farmers' access to distant markets.

Measures to improve agricultural marketing: The government has set up regulated markets (mandis), provided storage facilities and warehousing, established institutions like the Agricultural Produce Market Committees, launched the electronic National Agriculture Market (e-NAM), and promoted cooperative marketing. The elimination of middlemen, better storage, price information and the Minimum Support Price (MSP) system help farmers get better returns.

5. Diversification of the Rural Economy

Diversification means the movement of resources and employment away from a single activity - crop production - into other productive activities. Diversification can be:

1. Into allied activities: Animal husbandry, poultry, dairy farming and fisheries, which provide additional income and employment to farm households and are more stable than crop income.
2. Into non-farm activities: Manufacturing, construction, trade, transport and services in rural areas, which absorb the surplus rural labour.

Diversification is essential because agriculture alone cannot provide year-round employment to the growing rural workforce, and because crop production is subject to the risk of weather and price fluctuations. The growth of rural non-farm employment also reduces the pressure of migration to cities. Diversification needs credit, infrastructure, skill development and marketing support.

6. Organisations Supporting Rural Development

Several institutions support rural development:

1. National Bank for Agriculture and Rural Development (NABARD): Established in 1982, it is the apex institution for agriculture and rural development finance, supervising and refinancing rural credit institutions.
2. Regional Rural Banks (RRBs): Established to serve rural areas, combining local feel with institutional discipline.
3. Cooperative societies: The cooperatives provide credit, inputs and marketing facilities to farmers at low cost.
4. Kisan Credit Card (KCC) scheme: Provides credit to farmers for cultivation needs.
5. Self-Help Groups (SHGs): Small voluntary groups of poor people, mostly women, who pool their savings and lend among themselves. SHGs have been very successful in providing micro-credit, empowering women, and linking the poor to banks (SHG-bank linkage programme).
6. Panchayati Raj institutions: The local self-government bodies that plan and implement rural development programmes.

7. Recent Initiatives for Rural Development

Several recent programmes have been launched for rural development:

1. MGNREGA: Provides 100 days of guaranteed wage employment in rural areas, building rural assets and providing a safety net.
2. Pradhan Mantri Awas Yojana (Gramin): Provides housing to the rural poor.
3. Deen Dayal Upadhyaya Grameen Kaushalya Yojana: Skill development of rural youth for employment.
4. Pradhan Mantri Gram Sadak Yojana (PMGSY): All-weather rural roads.
5. Bharat Nirman: Development of rural infrastructure - roads, housing, irrigation, drinking water, electrification and telephone connectivity.
6. Digital India and the e-NAM: Improving market access and transparency for farmers.

The appraisal of rural development programmes shows progress in infrastructure, credit and incomes, but the problems of inadequate credit coverage, poor marketing infrastructure, distress of small farmers, and slow diversification persist.

Quick Revision Tables

Mind Map

Important Diagrams (SVG)

Diagram 1: Sources of Rural Credit

Diagram 2: Diversification of the Rural Economy

Common Mistakes

1. Forgetting that rural development includes more than agriculture; it covers credit, marketing, diversification, infrastructure and social development.
2. Believing that non-institutional credit (moneylenders) is cheap; it is easy and quick but involves high interest and exploitation.
3. Confusing NABARD's role; NABARD is the apex institution for rural credit that supervises and refinances rural financial institutions.
4. Thinking diversification means only growing more crops; it includes allied activities and non-farm activities.
5. Overlooking the role of Self-Help Groups; SHGs provide micro-credit, empower women and link the poor to banks.
6. Believing agricultural marketing is only about selling produce; it includes assembling, grading, storage, processing and transportation.
7. Ignoring that farmers are often forced to sell at low prices immediately after harvest because of debt and lack of storage.

Exam Tips

1. Define rural development and list its key elements.
2. Distinguish institutional and non-institutional sources of rural credit with examples.
3. Explain the role of NABARD in rural credit.
4. Describe the problems of agricultural marketing and the measures to improve it.
5. Explain the concept and importance of diversification into allied and non-farm activities.
6. Describe the role of Self-Help Groups and the SHG-bank linkage programme.
7. List the recent rural development programmes such as MGNREGA, PMGSY and Bharat Nirman.

Conclusion

This chapter studied rural development, which touches the lives of the majority of India's people. We understood that rural development is a comprehensive process covering agriculture, credit, marketing, diversification, infrastructure and social development, and that it is essential because most of India's poor live in villages. We examined the rural credit system, distinguishing the exploitative non-institutional sources from the institutional sources led by NABARD, and saw the rising share of institutional credit. We studied the problems of agricultural marketing - middlemen, forced sales, poor storage and lack of information - and the measures to remedy them, including regulated markets, e-NAM and the Minimum Support Price. We learned the importance of diversification into allied and non-farm activities for absorbing the rural workforce and reducing risk, and reviewed the institutions and programmes supporting rural development, including Self-Help Groups, MGNREGA and PMGSY. The challenge of providing productive employment, both in rural and urban India, is the subject of the next chapter.