Plus One Economics Chapter 6
Plus One Economics Chapter 6

Plus One Economics Chapter 6

Chapter 6:-

Rural Development.

Plus One Economics Chapter 6


Mahatma Gandhi said ‘ India lives in villages’. In 1951, 82.7% of Indian population was living in rural areas and it has declined to 72.2% in 2001. India, a land of villages, has more than six lakh villages. Majority of the people still live in villages. Around two-third of our people still depend on agriculture for their living. Many of them are very poor. If their economic condition is to improve, rural development is necessary.

What is Rural Development ?

Rural development aims at developing backward rural areas through governmental action plans. It is to be achieved through:

  • Development of human resources: It includes literacy, (especially female literacy), education, skill development, public health, Sanitation etc.

  • Land reforms

  • Development of productive resources of rural areas.

  • Infrastructure development: It includes electricity, irrigation, marketing, transport facilities (village roads and feeder roads to highways), facilities for agriculture research and extension, and information dissemination.

  • Employment generation and poverty alleviation programmes for the poor.

After the new economic reforms, economic growth rate in India improved substantially. But, the benefits of growth are not reaching majority of the. people. The rural population has not benefited much from growth. The growth rate of agriculture. sector declined to about 3 per cent per annum during 1991 to 2012. Population dependent on this sector did not show any significant change.

Farmers and the agricultural community face problems like:

  • Indebtedness to village money lenders.

  • Low prices of agricultural product.

  • High cost of agricultural inputs like fertilizers, insecticides, etc.

  • Poor storage and transportation facilities for agricultural products.

  • Lack of non-farm employment opportunities.

  • Casualisation of employment.

Table 6.1 Contribution of Agricultural Sector in GDP
Year Contribution of Agricultural Sector in GDP (in %)
1950 – 51 55.4
1980 – 81 38.0
2010 – 12 14.5

The table shows that contribution from the agriculture sector to GDP continuously declined mainly due to inadequate infrastructure, increasing casualisation of employment, lack of alternate employment opportunities in the industry or service sector, etc.

Credit and Marketing in Rural Areas

Availability of credit and marketing facilities are very important in agriculture.


In India majority of farmers are small and marginal. Their income is low and they are in debt. In agriculture there is a time gap between sowing and harvesting. This forces farmers to borrow not only for meeting farming expenses but also for their consumption expenditure. Therefore, farmers’ welfare depends to a large extent on timely and low cost credit. Village moneylenders have been the most important source of credit to farmers for a long time. At the time of independence and for many years following it, they exploited small and marginal farmers by charging high rates of interest.

The credit situation has changed for the better following major government initiatives. They were:

  • Nationalization of 14 commercial banks in 1969.

  • Setting up of NABARD in 1982.

  • Expanding the co-operative credit system.

  • Priority sector lending.

  • Green Revolution: Diversification of rural credit for production- oriented lending through Green Revolution.

Multi-Agency Rural Credit Structure

Presently, India has a multi-dimensional rural credit structure. Important institutions in this credit structure are:

  • NABARD (National Bank for Agriculture and Rural Development).

  • Commercial banks.

  • Regional Rural Banks (RRBs).

  • Co-operative credit institutions.

  • Land development banks, and

  • Self Help Groups (Micro credit).


In 1982 NABARD was set up. It is the apex bank that co-ordinates lending activities of all institutions involved in rural credit.

Commercial Banks

Nationalization of 14 commercial banks in 1969 led to social banking. Bank branches increased sharply. Many bank branches were opened in rural areas. Banks earmarked a part of their lending to the priority sector which included agriculture. Regional Rural Banks (RRB)

Regional Rural Banks (RRB)

Regional Rural Banks form part of the 20-point programme declared by our former Prime Minister late Smt. Indira Gandhi. It provides better service and finance at reduced rates of interest under easy conditions to small and medium scale farmers, skilled craftsmen and small entrepreneurs in rural areas. Five rural regional banks were established in 1975 for this purpose. A few districts of the state formed the service area of the rural banks. South Malabar Gramin Bank sponsored by Canara Bank and North Malabar Gramin Bank sponsored by the Syndicate Bank were the regional rural banks functioning in Kerala. Now they have become Kerala Gramin Banks.

Co-operative Credit Societies

Co-operative credit societies provide short term loans at low rates of interest to low income people including poor peasants.

Land Development Banks

Land development banks, have been established to cater to the rural people for their long term loans at low interest rates. To purchase agricultural assets in rural areas, small farmers require loans at low rates of interest and conditions. These loans can be effectively utilised to develop the agricultural land already in their possession. Land development banks provide assistance to cultivate the arid lands and turn them into. fertile areas. The farmers use these loans to improve their methods of cultivation and use high yield variety seeds. They were earlier called Land Mortgage Banks.

Self Help Groups (SHG)

Self Help Groups, as the name implies, form a group of members who help each other and thereby themselves. SHG emerged to bridge a major gap in the formal credit system, viz., non-availability of credit at affordable rates to the poor.

The formal credit system demanded collateral. security from the poor. But the poor did not have any collateral. Also, the formal credit system is very complex and procedure driven. SHG emerged to fill this gap.

SHGs are small groups of persons, normally, say 10 to 25. They mobilise money with contributions from each member. Thus, they encourage thrift and saving habit among members. The money thus mobilised is lent to members at low rates of interest, Since members are known to each other, wilful default on loans do not happen. SHGs also take up group economic activities. There are many successful examples of SHGs running profitable economic activities like contract farming, production of organic fertilisers, waste recycling, food processing, running hotels and canteens etc.

There are large number of micro finance institutions in India today. Some of them like ESAF, Ujjivan Financial Services, etc., have given huge amount of credit to thousands of SHGs. Since many SHGs are women only groups, they can also be seen as symbols of women’s empowerment.


Kudumbasree is a successful women’s empowerment program in Kerala based on the SHG model. It is a poverty eradication mission launched in 1998, inaugurated by the then prime minister Atal Bihari Vajpay. Kudumbasree is built on neighbourhood groups (ayalkootams). Kudumbasree aims at liberating women from poverty, not by giving them aid, but by promoting their entrepreneurial skills. Kerala’s kudumbasree program has a large number of successful projects implemented by women.

Rural Banking — A Critical Appraisal

Many initiatives taken by the government for strengthening the rural credit system have benefited farmers. Yet, it is a fact that all credit requirements of farmers are not fully met. Many small and marginal farmers are still at the mercy of cut-throat village moneylenders.

Also, the rural credit system is not functioning effectively. There are big defaults by farmers. Studies have shown that around 50 per cent of defaults are wilful defaults. The culture of savings, credit and prompt repayment has to be encouraged. More farmers have to be freed from the clutches of village money lenders. They have to be brought under institutional credit system.

Agricultural Market System

Supermarkets sell cabbage, cauliflower and tomato from Tamil Nadu, apples from Kashmir, grapes from. Nasik or Karnataka and many other fruits and vegetables from different parts of the country. There is a marketing network that facilitates the movement of agricultural produce from the fields to the shops. This agricultural marketing network is very important in agriculture.

Agricultural marketing is the process that includes procuring, storing, processing, packaging, grading, transportation and distribution of agricultural commodities from the field to the consumer.

A major problem in agriculture is the low prices for the produce. Low prices are mainly caused by the nature of supply of agricultural products. Unlike industrial products, agricultural produce come to the market together at the same time. This brings down the prices. Farmers do not have the financial -capacity to wait for better prices. Also, they do not have storage facilities for storing the produce. This compels them to sell their produce at low prices immediately. Therefore, improving agricultural marketing can be highly beneficial to farmers.

Measures Taken by the Government to Improve Agricultural Marketing

Important measures taken by the Government to improve agricultural marketing are:

  • Provision of infrastructure facilities like roads, railways, ware houses, godowns, cold storages and processing.

  • Establishment of regulated markets.

  • Co-operative marketing. Co-operatives avoid middle men and bring substantial benefits to farmers. AMUL (Anand Milk Union Ltd.) in Gujarat is a great marketing co-operative success story.

  • Providing price supports. Assurances of minimum support prices (MSP) for farm produce.

  • Providing credit facilities at low interest rates.

The above measures along with the distribution system (PDS) provide food grains at reason-able prices to the poor. For the PDS, the government maintains a buffer Stock of food grains. Still the present infrastructure facilities are inadequate.

Emerging Alternative Marketing Channels

Both farmers and consumers will benefit if the middlemen are removed. Many new markets where farmers sell directly to consumers have emerged. Some examples are:

  • Apni Mandi (Punjab, Haryana and Rajasthan)

  • Hadaspar Mandi (Pune)

  • Rythu Bazars (Vegetable and fruit markets in Andhra Pradesh and Telengana)

  • Uzhavar Sandies (Farmers’ markets in Tamil Nadu)

Large retail chains like Big Bazaar, Reliance Fresh, Spencers, More for You, etc., directly procure from the farmers and sell to the consumers.


The farming sector needs diversification. Three forms of diversification are desirable:

  • Diversification in crops (This will reduce the dependence on a single crop).

  • Diversification to allied activities like livestock, poultry, fisheries, etc.

  • Diversification to non-farm jobs.

Agriculture-related non-farm jobs have great employment potential. Food processing as well as processing of fruits, vegetables, milk, etc. into value added products is emerging as a major industry with great employment potential.

Animal Husbandry

Livestock rearing is an important source of livelihood for the rural community. Indian rural community uses mixed crop livestock farming system. They rear mixed livestock like cattle, goat and fowl. Livestock farming is a source of alternate livelihood to 70 million rural people including small and marginal farmers, agricultural labourers and other rural people. The important benefits of livestock farming are:

  • Alternate livelihood

  • Stability in income

  • Food security

  • Nutrition for family

  • Fertiliser for farming

  • Fuel for cooking

A landmark in India’s livestock rearing has been the implementation of ‘Operation Flood’ (1966). Just as the new agricultural strategy led to Green Revolution, operation flood led to White Revolution. Milk production rose by more than 5 times between 1960 and 2012. This was made possible because of the successful implementation of Operation Flood.

Under this system, all farmers pool their milk produced (with different grading) and is processed and marketed to urban centres through co-operatives. By doing so, farmers are assured of fair prices and income. Gujarat state is held as a success story which has been emulated by many states later on.


Fishing is the source of livelihood for lakhs of people in Kerala, Tamil Nadu, West Bengal, Andhra Pradesh, Maharashtra and Gujarat. Today total fish production accounts for 0.8 per cent of the total GDP. Around 64 per cent comes from inland water bodies like rivers, ponds, lakes and fields. 36 per cent comes from seas and oceans. Fishermen community is socially and economically backward. They face problems such as:

  • Underemployment

  • Low income

  • Illiteracy

  • Indebtedness

  • Low occupational mobility


India has a rich and diverse soil and climatic condition. This diversity enables us to produce a large variety of fruits, vegetables, medicinal and aromatic plants, spices, plantation crops and flowers. India is the second largest producer of fruits and vegetables in the world. It contributes \(\frac{1}{3}\)rd of the value of agricultural output and 6% of GDP. Like Green Revolution in agriculture and White Revolution in milk, Golden Revolution in horticulture improved productivity in many horticultural produce. Horticulture has emerged as a major employment generator in recent times. Flower production, nurseries, tissue culture, fruit processing, etc., employ women in large numbers.

Green Revolution – Food Production

White Revolution – Milk

Golden Revolution – Horticulture

Silver Revolution – Egg

Grey Revolution – Fertilisers

Blue Revolution – Fish

Black Revolution – Petroleum, Crude Oil

Yellow Revolution – Oil Seeds

Other Alternate Livelihood Options

A major alternate livelihood is IT. IT/ITES have been the fastest growing service in India during 1995 to 2015. It has created millions of jobs in the economy. Even though IT/ITES companies are mainly concentrated in cities and urban areas, it has slowly started spreading to smaller towns. IT, ITES industry benefits agriculture and the rural community in many ways:

  • Providing information to farmers on agricultural prices.

  • Providing information regarding weather.

  • Providing information about agricultural inputs.

IT/ITES are being used by companies to forge relationship with farmers. ITC (Indian Tobacco Company) has set up hundreds of E choupals (an initiative to link directly with rural farmers via internet) in several states Partnering farmers. Large number of IT training centres, hardware service centres, CAD (Computer Aided Designs) centres, web design institutes, internet cafes, etc., have come up even in small towns. This is slowly spreading even to rural areas. Many of these centres employ women. IT/ITES, therefore, are emerging as a major alternate livelihood option.

Sustainable Development and Organic Farming

The Green Revolution gave India self sufficiency in food grains. But, it also created a problem. The new agricultural strategy uses chemical fertilisers, pesticides, insecticides, etc, Excessive use of chemical fertilisers and pesticides leads to:

  • Loss of soil fertility

  • Poisoning of soil and water

  • Contamination of food produce with pesticides

  • Destruction of friendly pests and insects

  • Damaging the ecosystem

If development is to be sustainable, farming has to be eco-friendly (friendly to the ecology). Organic farming uses only organic fertilisers. It avoids chemical pesticides, Organic farming is eco-friendly. It restores, maintains and enhances ecological balance.

Benefits of Organic Farming

Benefits of organic farming are:

  • Organic food has high nutritional value.

  • It is labour intensive. It generates more employment.

  • Organic food has huge international market. Higher incomes can be earned through exports.

  • It is eco-friendly and sustainable.

Organic food has become popular now. Organic food is the food produced through organic farming. Many modern supermarkets sell organic food.

Limitations of Organic Farming

  • Inadequate infrastructure and marketing problems.

  • Less awareness about organic farming.

  • Reluctance of farmers to implement organic farming.

  • Yield from organic farming is less than modern farming.

  • Organic products have shorter life.

Government Initiative in the Agricultural Sector

  • 1. Kissan Credit Card (KCC)

    This is a good measure taken by the government to provide short-term loans to farmers. With this card every farmer is given a passbook with cash-credit facility.

  • 2. Rehabilitation package

    This was introduced to rehabilitate the dependents of farmers who were driven to suicide. The package was first implemented in 31 districts in India. Kerala, Andhra Pradesh, Karnataka and Maharashtra are the states where it was first implemented.

  • 3. Low interest rates for agricultural loans

    This project was implemented during 2007-08 period. Those farmers who repaid their agricultural loans within the due dates got reduction in the interest amounts through this programme.

  • 4. Loans written off

    Both the central and the state governments took steps to write off bad debts of farmers who had no means of repayment. This helped the farmers who were on the verge of suicide as they had no way of paying back both the loan and the interest.


Rural sector can grow through diversification and infrastructure development. The Government should come forward with better plans and programmes for rural development. Investment in education, improvement of rural infrastructure and non-farm employment should be given top priority.

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