RURAL DEVELOPMENT

(notes)
Definition of Rural Development:

Rural development is a complete and perpetual process that focuses broadly on the social and monetary
improvement of rural areas lagging behind in overall development. It aims at improving the social and
economic conditions of people living in rural areas.

Need for rural development

• During the period 1950-90, the growth rate of agriculture was 2.7% per annum and after
the economic reforms of 1991, the growth rate declined/ decreased to 2.3% due to a fall in
public investment.
• About 69% of the overall populace resides in rural regions and agriculture is a chief supply
of livelihood wherein three-fourth of the overall workforce in rural regions is employed.
• Inappropriate infrastructure services and fewer alternative employment opportunities.
• Almost 75% of the total poor reside in rural regions.
• Agriculture provides food grains and plays an important role in the development of the
industrial sector.
Thus, it is essential to develop rural areas or it is essential to pay attention to rural development.

Major concerns of rural development

The major concerns related to rural development are;

1. Infrastructural advancement- Infrastructure refers to all facilities which play an important

role in social and economic development like rural credit, irrigation, rural marketing, means
for transport, power/ electricity, agriculture research, means of communication, etc.

2. Land reforms: Land reforms refer to change in ownership of landholdings. It is concerned

with reforms in the land tenure system and size in holdings: It includes:
• Abolition of the zamindari system and elimination of exploitation.
• Land ceiling.
• Protection of the right of tillers.
• Consolidation of landholdings.

3. Human capital formation: it is the process of acquiring and increasing the number of
persons, who have the skills and expertise, which are important for social and economic
development. It focuses on literacy, education, skill development, better health facilities
including sanitation and drinking water, etc.

4. Poverty alleviation: -Around 30% of the total population is still below the poverty line and
about 75% of the total poor (about 27.82 crores) lives in rural areas. Special measures/
schemes for alleviation of poverty must be undertaken.

5. Development of productive resources:-Productive resources of each locality in the rural

areas is to be identified and developed so that available resources can be utilized optimally
and opportunities for investment and employment in farm and non-farm areas can be
enhanced.
RURAL CREDIT

Rural credit refers to credit for rural people, especially for farming families or farmers.

Need of rural credit

• Most Indian farmers are marginalized smallholder farmers who produce sufficient to
support themselves only and have no surplus to invest in.
• The gestation period between sowing and harvesting (earning income after the sale) is quite
long. As a result, Farmers must borrow from numerous assets to cover their primary
investments in seeds, fertilizer, buying extra land, devices and tools, and previous debts, for
different family charges which include marriage, death, spiritual ceremonies, etc. (effective
and non-effective charges).
Thus, rural credit is the lifeline for farming activities and the growth of the rural economy depends on the
timely infusion of capital to realize higher productivity in agriculture and non-agriculture sectors.

Classification of rural credit

(A) According to time

• Short time credit:-These are required to meet short-term needs or to purchase inputs like seeds,
tools, fertilizers, payment of wages, payment of electricity bill, etc. These loans are for 6-12months
and are generally payable after harvesting and marketing (sale).
• Medium-term credit: These are required to meet medium-term needs or for purchasing machinery,
constructing fences, digging wells, purchasing animals and pump sets, constructing cattle sheds,
etc. These loans are generally for about one year to five years.
• Long-term credit: These are required to meet the long-term needs or for making permanent
improvements, for purchasing additional land, for purchasing tractors and heavy machinery, etc.
The duration of these loans is generally about 5 years to 20 years.
(B) According to purpose

• Productive credit: These are required to meet production needs/ purposes or for purchasing seeds,
tools, fertilizers, payment of wages, payment of electricity bill machinery, constructing a fence,
digging well, purchasing animals and pump sets, constructing cattle sheds, making permanent
improvement, for purchasing additional land, for purchasing tractors and heavy machinery, etc.
• Unproductive credit:-These are required to meet unproductive needs/ purposes or consumption
expenditure like marriages and other social and religious functions.

Sources of rural credit

Sources of rural credit are broadly classified as:

(A) Non-institutional source (informal).

It consists of cash lenders, investors and free agents, landlords, family, and friends. Traditionally or in the
past, most credit needs of farmers were satisfied/ fulfilled by non-institutional sources because of their
easier procedure of lending and their readiness to lend even for unproductive purposes. However, they
were unable to meet their medium and long term needs/ requirements due to their limited resources but
they accounted for approximately 93% of the full credit score requirement of the agricultural people in
1950-51, however, currently, it accounts for 30% of the most effective credit score requirement.

They used to exploit small and marginal farmers by charging high rates of interest and by manipulating
accounts to keep them in a debt trap.

(B) Institutional sources (formal)

It consists of the government, cooperatives society, rural local financial institutions, industrial financial
institutions, etc. At the start of the primary 5 years plan (in 1950-51), it accounted for the most effective
7% of general credit score requirement, however, currently, it is owed for approximately 70%. In 1904
cooperative credit societies Act was adopted and the cooperatives society was established which played a
major role in the expansion and diversification of credit in rural areas. But a major change occurred after
1969 when India adopted a social banking and multi-agency approach to meet rural credit needs. Under
this approach,

1. In July 1969 14 major commercial banks were nationalized and further in April 1980, 6 more
commercial banks were nationalized.
2. Rural regional banks were established in 1976.
3. NABARD, the apex bank was established in July 1982 to coordinate activities of various
financial institutions involved in providing rural credit

The important goals of formal sources are the following.

1. To shield the agricultural bad from clutches of non-organization assets with the aid of
offering a well-timed credit score at an inexpensive rate.
2. To increase banking behavior among the various rural people.
3. To assist in increasing employment possibilities in rural areas.

NABARD

National financial institution for agriculture and rural development was installed on July 12, 1982, primarily
based totally on recommendations of a committee appointed through RBI in 1979 for reorganizing and
strengthening the rural credit. It is an apex body that coordinates the activities of all financial institutions
involved in the rural financial system or credit.

Functions of NABARD

• To facilitate short, medium, and long-term credits to all financial institutions involved in
rural credit and approved by the RBI.
• To coordinate the functioning of different financial institutions involved in rural credit.
• To adopt inspection of exceptional economic establishments concerned with rural credit.
• To promote studies in agriculture and rural development
• To give loans to the approved institutions to invest in securities or to contribute to the
share capital of institutions entrusted in agriculture and rural development.
• Sanction credit limits and refinance exceptional economic institutions that are involved in
rural solvency (agriculture and non-agriculture purpose).
A self-help group (SHG)

• Self-help groups and microcredit programs are emerging phenomena in the context of rural
credit. Self-help groups have emerged to overcome the limitations of the formal credit
system. The microcredit scheme was launched in 1992 and further extended to the poor
through self-help groups and non-government organizations. It consists of rural loans up to
Rs. 25000.
• These self-help groups promote thrift in small proportions by a minimum contribution from
each member, from pooled money, credit/ loan requirements/ needs of different members
are fulfilled.
• These credits are given without any security at a reasonable rate of interest which has been
repaid in small installments. Such credit provision by SHG is generally known as a micro-
credit program. These credit/ loan/ borrowings are mainly for consumption purposes. These
micro credits have also helped in women’s empowerment.
• NABARD has played a major role in the development of SHG and other microfinance
institutions and in providing refinance at a special rate. At present (on March 331, 2011
about 74.62 lakhs SHG have been operated in India,
• A self-help group (SHG) is a village-based financial intermediary committee usually
composed of 10-20 local women or men… Most self-help groups are located in India, though
SHGS can also be found in other countries, especially in South Asia and Southeast Asia.

RURAL BANKING/CREDIT A CRITICAL EVALUATION

Since 1969, after the adoption of social banking and multi-agency approach, the rapid expansion of the
banking sector in India played a positive role as follow:

1. Helps in reducing the number of informal sources of credit and protects rural people from
the clutches by providing credit facilities at cheaper rates of interest.
2. Helps in raising farm and non-farm output and income especially afterward the green
revolution because credit facilities helped farmers to avails a variety of loans for meeting
their production needs and we have achieved self-sufficiency/ food security in food grains.
3. Increase employment opportunities in rural areas by creating credit lines for the self-
employed and non-agricultural activities. Instead of playing important role in rural credit,
there are various followings problems of rural credit structure in India:
4. Insufficiency: The sources of institution financing or volume of rural credit are
insufficient/inadequate to meet the agriculture credit requirement/ demand. So, farmers
still depend on money lenders for their credit needs
5. Institutional credit sources are suffering from the problems of large unpaid loans because
the loan default rate is chronically high and about 50% of defaulters are “willful defaulters”.
So recovery of agricultural loans has become a serious problem in the functioning of rural
banking institutions.
6. Commercial banks follow a cautious approach while lending to rural poor and always
collateral. So small and marginal farmers receive only a very small portion of total rural
credit and a large portion has been appropriated by rich farmers due to better
creditworthiness.
7. Owing to political populism, the government shows leniency to some extent while
recovering the loan. As a result, the default rate tends to rise over time.
8. Most financial institutions have failed to develop habits of saving among farming families.
9. Besides it, the expansion and promotion of rural banking have taken a backseat or have
become sluggish after economic reforms in 1991.
Measure to improve the situation

1. Need to shift focus from pure lender to relationship building with borrowers.
2. Need to encourage farmers to use resources sparingly and efficiently.
3. An effective credit recovery mechanism should be developed.
4. Credit facilities should be granted to farmers on simple terms.
5. Needs more attention to meet the credit needs of rural and backward areas.

AGRICULTURAL MARKETING

Agricultural Marketing is a manner that entails the collection, storage, processing, transportation,
packaging, class and distribution of numerous agricultural merchandise all through the country.

Problems of agricultural marketing in India

1. Lack of storage facilities: The government has opened very few warehouses with scientific
techniques for storing agricultural products. So, farmers do not have proper and adequate
storage facilities to store their produce
As a result,

a) They have to store their produce in pits, mud vessels, gunny bags, kutcha storehouses. These are
unscientific methods of storing which leads to wastage of produce to the extent of 10% because the
produce gets rotten or is eaten by rats and pests and thus becomes unfit for human consumption.

(b) They have to sell their produce immediately after harvesting at a lower price.

2. Lack of transportation: Transport facilities in rural areas are not only inadequate but also
defective. Many villages are connected with pakka roads but most of the village roads are
not suitable/ fit for transportation, especially in the rainy season. So, Due to the lack/
absence of transport facilities, the farmers cannot reach nearby markets to sell their
produce at fair prices and have to sell it to local traders at a lower price.
3. Lack of market information: The farmers ordinarily do not have the necessary/ required
information regarding prices prevailing in different markets of agricultural products and
mostly depend on hearsay or reports received from local traders. As a result, they have to
sell their produce at a lower price or fail to get a fair price.

4. A Multiplicity of middlemen: In India, there are a large number of middlemen between

cultivators and farmers. These middlemen indulge in malpractices (wrong practices) to earn
profit and exploit/ cheat both farmers as well consumers. On average, an Indian farmer
receives just 60% of the price paid by the final consumer and the remaining 40%
appropriated by middlemen.

5. Lack of adequate finance: Institutional sources like cooperative societies, commercial

banks, etc are not able to fulfill the credit requirements/needs of farmers. Farmers are
forced to borrow from money lenders and traders to meet their credit needs for production
and consumption purposes. As a result, to pay off their old debts/ dues, they have to sell
their produce to money lenders or traders at a lower price.
 6. Lack of grading and standardization: In the international market, goods are valued based on
their grading and standardization. It helps farmers to fetch/ get reasonable/ fair prices for
their products. But Indian farmers do not give importance to grading their products which
means the process of separating good quality products from bad/ poor quality products.
Therefore, they fail to get a fair price.

7. Malpractices in unregulated markets: By the end of March 2010, about 7157 regulated
markets were functioning in India but about 27000 markets are unregulated: A large
number of malpractices prevailing in these unregulated markets like faulty weighing, lack of
grading and standardization, manipulation of account, etc.

Measures to improve agricultural marketing

After independence, our government initiated/ adopted the following measures to improve the system of
agricultural marketing.

1. Regulation of markets

• The first measure was the regulation of markets to create systematic and transparent
marketing conditions. Regulated markets have been set up/ organized to protect the
farmers as well as consumers from the malpractices of sellers and brokers or commission
agents.
• The State Agricultural Produce Marketing (Development and Regulation) Act, 2003.
• Under this act, the market committee manages the markets constituted by the state
government for a specific period. These committees have representatives of the state
government, traders, and farmers. This committee has strict vigil on all practices undertaken
in markets.

Functions of the marketing committee

• Enforcing the use of standard weight.

• Fixation of charges, fees, brokerage, etc.
• A Prevention of unauthorized/ unlawful deduction and control of wrong
• middlemen/ commission agents.
• Providing reliable marketing information
• Settling the disputes.

Advantage of regulated markets

• Farmers can get fair/ reasonable prices for their product

• Consumers also get a regular supply of food grains at reasonable prices.
• It promotes the commercialization of agriculture.
• Banking facilities, storage facilities, etc. have grown.

2. Provision of infrastructure facilities

 • Infrastructure refers to all facilities/ elements/ changes that serve them as the foundation
for the social and economic development of an economy/ country. It includes banking,
communication, transportation, electricity/power, irrigation, storage, health, education, etc.
In absence of infrastructure facilities like transportation, storage, communication, etc.
farmers are not able to get a fair/ reasonable price for their products.
• The second step/ measure initiated/ taken by the government was the provision of physical
infrastructure facilities like roads, railways, warehouses, godowns, cold storage, processing
units, dissemination of information, etc.
• A) Storage facilities:-Many godowns and warehouses have been built at the
village and mandi town level Government is offering storage facilities to the
farmers to avoid distress sales (sale just after harvesting the crops) and enhance
their bargaining power.
• B) Transport facilities: During the last three-five years plans, the government
launched various schemes/projects like the Bharat Nirman scheme, Pradhan
Mantri Gram Sadak Yojana, etc. to develop transport facilities and to provide all-
weather road connectivity to rural areas. Besides it, the government is also
offering subsidized railways transport facilities to farmers to bring their produce
to the urban markets.
• C) Electronic media and print media are actively engaged in offering market-
related information to the farmers, especially the price of produce. It helps
farmers in making decisions as to what to produce, how much to produce, how
much to sell, when and where to sell it, and also helps in getting a fair price.
• D) Government has also taken steps to promote the facilities of standardization
and grading for agricultural products so that farmers can get a fair reasonable
price for their products. Like AGMARK

3. Encourage cooperative marketing

Cooperative marketing has become very important for India. The success of milk cooperatives in Gujarat is
testimony/ evidence to the role of the cooperative which transformed the social and economic landscape
and played a key role in bringing a white revolution in the country.

The third step/ measure taken/ initiated by the government is to encourage the formation of cooperative
marketing societies. In this system, farmers come together and form marketing companies to sell products
collectively and take advantage of collective bargaining to ensure better prices for their products.

Advantages of cooperative marketing societies

1. increases the bargaining power of farmers and helps in realizing the better price of their
product
2. It provides infrastructure facilities:
3. It establishes linkage between credit, processing, and farming
4. It supplies agriculture inputs and consumer goods to farmers at
a cheaper rate.

Other important policy instruments or measures to safeguard.

The government has also developed/ initiated some instruments/ measures to safeguard the interest of
the farmers as well consumers.

These are:

(A) Policy of fixing MSP- It is an important step initiated by the government to improve agricultural
markets.

• The MSP is an assurance to the farmers that their products would be purchased by the
government at prefixed/ announced price Farmers are free to sell their produce at the price
higher than MSP (To safeguard the interest of farmers or to avoid the risk of fluctuation or
to stabilize the income, at present government fixes/announces prices of 24 agricultural
products
(B) Maintenance of buffer stock: Fixation of MSP helps the government in maintaining buffer stock
because the government buys/purchases excess supply of food grains through The Food Corporation of
India (FCI) at MSP and uses it during the period of emergencies. It also helps to ensure regularity in supply
and stability in prices.

(C) Public distribution system-These buffer stock (maintained by the government) is used primarily for
public distribution systems (PDS), besides to meet urgent needs during periods of low output and scarcity.

• PDS Implies the distribution of food grains through a network of ration shops and fair price
shops at subsidized prices (at lower than market price) to the weaker section of society.

Suggestions to improve agricultural marketing

• Need to develop about 27000 rural periodic markets as regulated markets so that the full potential
of rural markets can be realized/ utilized.
• Infrastructural facilities should be increased to prevent the farmers from distress sales like
warehouses, cold storage, etc.
• Intermediaries who exploit farmers needs to be abolished
• The provision of standardization and grading should be modernized to make them
comparable and competitive.
• Information related to markets needs to be circulated properly and regularly to make
farmers aware of current market conditions
• Farmers should be encouraged to establish cooperative marketing societies and existing
should be improved
• Expansion of banking facilities and the process of providing credit should be made easy/
simplified
• Government intervention should be increased in markets predominated by private traders.
• In the era of globalization, there is a tremendous opportunity for the value addition of agro-
based products through processing. So there is a need to train farmers and to create
awareness in them.

OTHER MARKETING CHANNEL

Other emerging marketing channels are;

Emerging alternative agricultural marketing channels are the only hope to small and marginal farmers who
have been exploited by the Intermediaries. It is realized that if farmers sell their produce directly to
consumers, farmers can increase their share in the price paid by the consumers.

Some examples of this channel are:

• Apni mandi (Punjab, Haryana, and Rajasthan).

• Hadapsar Mandi (Pune).
• Rythu Mandi (Vegetable and Fruit mandi in Andhra Pradesh).
• Uzhavar mandi (Tamil Nadu).

Besides it, several national and international fast-food chains and hotels are increasingly also entering into
contracts with the farmers. They encourage farmers to grow crops of desired quality by providing them not
only seeds and other inputs but also assured procurement of the produce at pre-decided prices.

Such agreements help in reducing the price risk of farmers and expand the market of farm agriculture
product

DIVERSIFICATION IN AGRICULTURE

It has two aspects

1. Diversification in crop production

This is the shift from a single cropping system to a multi-cropping system or a shift from subsistence
farming to commercial farming.

2. Diversification of productive activities/ employment.

It refers to the shift of the workforce from agriculture activities to non-farm sector/activities Allied
activities consist of animal husbandry, poultry, fisheries, horticulture, etc.

Non-farming activities include

• Dynamic sectors like agro-processing industries, food processing industries, industry,

tourism, etc.
• Traditional home-based industries like poultry, handloom, craft, etc.
Significance of diversification

• Reducing the labor load on agriculture.

• Reduce risk by relying solely on agriculture for your livelihood
• Provide sustainable livelihood options for rural residents.
• Reduce risk arising from price fluctuations and failure of seasons/bad weather conditions
• Increase/raise income and raise the living standard of people. Therefore it helps in
eradicating/ reducing poverty.
3. Horticulture

• The period of 1991-2003 is known as the “Golden Revolution”.

 • This sector employs about 19% of the total labor force and flower harvesting, nursery
maintenance, hybrid seeds production, tissue culture, propagation of fruits and flowers, and
food processing are highly remunerative employment options for women in rural areas.
4. Animal husbandry

• In India, farming communities use mixed farming systems: cattle, goats, and poultry are the
most widespread species.
• This system provides greater stability in terms of income, food security, transportation, fuel,
and family nutrition without interfering with other food production activities.
• Currently, the livestock sector alone offers alternative livelihood options to more than 70
million marginalized smallholders, including landless workers.
• Poultry accounts for the largest share i.e.42% of the total livestock in India.
• Domestic milk production more than quadrupled between 1960 and 2002.
• Meat, eggs, wool, and other by-products are also emerging as important productive sectors
for diversification.
5. Fisheries

• Fishing communities regard water bodies as “mother” or “suppliers”. The body of water
consists of seas, oceans, rivers, lakes, natural water ponds, rivers, etc.
• Currently, fish production from inland sources accounts for around 49 percent of total fish
production and the remaining 51 percent comes from the marine sector (sea and ocean).
Currently, total fish production represents 1.4 percent of total GDP.
• Among the states, Kerala, Gujarat, Maharashtra, and Tamil Nadu are the main producers of
marine products

6. Other employment option-information technology

Information technology (IT) refers to that branch of engineering that deals with the use of
computers and telecommunication to retrieve, store and disseminate information.

• IT has revolutionized many sectors in the Indian economy and played a vital role in
achieving sustainable development and food security.
• Government can predict areas prone to food insecurity and vulnerability by using
appropriate information and software tools so that action/ steps can be taken to prevent/
reduce the likelihood of an emergency.
• It has a positive impact on agriculture because it can disseminate information regarding
emerging technology and its applications, prices, weather, soil conditions for growing
different crops, etc.
• It has ushered in a knowledge economy that is a thousand times more powerful than the
industrial revolution.
• It has potential for employment generation in rural areas.
For example; M.S. Swaminathan Research Foundation, with support from Sri Ratan Tata Trust, established
“Jamshedji Tata National Virtual Academy” for the rural areas. It provides training rural people to run their
own “info-kiosks”.

Organic farming is a system of farming that maintains, enhances and restores the ecological balance. It
helps in sustainable development of the agricultural sector, In organic forming, farmers use organic
manure, bio fertilizers and organic pesticides.
Advantages of organic farming:
(i) Inexpensive process.
(ii) Generates income.
(iii) Healthier and tastier food.
(iv) Solves unemployment problem.
(v) Environment friendly.

Limitation of Organic farming:

(i) Yields from organic farming is less than modern agricultural farming in initial years.
(ii) Organic produce have shorter shelf life than sprayed produce.
(iii) Choice in production of off-season crops is quite limited in organic farming.

Organic farming involves labour-intensive process of production of labour so India has comparative
advantage in organic farming.

Operation Flood
It is a system of milk co-operatives, launched on 13 January 1970. This system emphasised the pooling of
milk by farmers through co-operatives societies.
This increased the quantum of sale as well the market value of product. The production in milk increased
four-fold. This system if commonly called operation flood.
Note-
• Operation flood is also known as White Revolution.
• Father of White Revolution in India is Dr. Verghese Kurien.
• Operation Flood's objectives included: -
i. Increase in milk production
ii. Augmented rural incomes
iii. Fair prices for consumers
iv. Increased income and reduced poverty among participating farmers while ensuring
steady supply of milk in return

Labour force: It refers to actual member of people available for work.

Non-farm sector: It refers to jobs in govt. manufacturing, services, construction, mining, retail, etc.

Labour intensive Process: It refers to the process or industry that requires a large amount of labour to
produce its goods.