Question

Discuss the importance of credit in rural development.

Answer 1

Finance and credit are the two essential requirements for rural development. The rural areas often suffer from low income, leading to a low rate of savings. Farmers find it very difficult to increase their productivity by investing in their farmland. Further, the limited number of banks that are available in the rural areas prefer to forward credit to the farmers with large landholdings. Getting credit from banks being difficult, the small and marginal farmers fall easy prey to the money lenders. The infusion of credit is essential for the growth of the agricultural sector, leading to rural economic development. The importance of credit in rural development is highlighted in the following points:

1. Credit helps farmers to commercialise their farming. In other words, commercial farming requires funds that are provided via credit. As the small and marginal farmers produce only for their subsistence, they fail to generate sufficient surplus to reinvest in their lands, leading to the degradation of the land.
2. Secondly, given the long gestation period between sowing and harvesting of the crops, credit is extended to the farmers for meeting their initial requirements of farm inputs like seeds, fertilisers, etc.
3. Credit saves the farmers from the vicious circle of poverty. The farmers require funds for meeting their general and specific needs. These needs are to be fulfilled via credit.
4. Lastly, agriculture has always been dependent on the vagaries of the climate. In the absence of a good monsoon or crop failure, farmers are the worst hurt. Thus, in order to save them from such tragedy, crop insurance and farm credit play a vital role.

Answer 2

The importance of credit in rural development are as follows:

1. Credit for production: This includes all kinds of loans taken for farming activities, such as purchasing seeds, fertilizers, irrigation facilities, and fodder. Farmers also borrow money to pay land rent, wages of labourers, government taxes, etc. Since these expenses are directly related to production, the loans taken for such purposes are called productive credit.
2. Credit for consumption: Farmers in India do not borrow only for productive purposes but also for personal consumption. In this, the credit is received for the following objectives:
   1. For marriage and death.
   2. To repay the old debts.
   3. For the repair, construction, and purchase of houses.
   4. For irrigation.