Gujarat’s rural indebtedness: Prevalence of usurious moneylending vis-a-vis other states

By Rajiv Shah

A closer perusal of the new National Sample Survey Organization (NSSO) report, released this month, makes an interesting revelation. Titled “Key Indicators of Debt and Investment in India”, the report, based on NSSO’s 70th round, has found that there are 260 rural households in Gujarat out of every 1000 which reported outstanding cash loans. A breakup of the data suggest that there are 80 out every 1000 rural households which reported taking loan at an interest rate between 25 and 30 per cent, and another 88 out of 1000 which reported taking loan at an even higher rate of interest, i.e. 30 per cent and higher.
This would mean that there are 168 out of every 1000 households which reported taking loan at a very rate of interest. Considering that there are in all 260 indebted households which reported outstanding loans in Gujarat, this would mean that a whopping 64.6 per cent households (168 every 1000 households) which reported taking loan at such high rate of interest!
A comparative analysis with other states would suggest that the proportion of indebted households in Gujarat which reported cash loan at the rate of 25 per cent or higher is almost the highest in India. An analysis based on the NSSO data shows that there is just one state out of the 21 important ones which has a higher proportion of indebted rural households reporting cash loans at such high rates – Jammu & Kashmir (69.3 per cent).
No doubt, the NSSO report suggests that there are several states which reported higher proportion of indebted households than Gujarat. As the report shows, there are 591 households per 1000 in Telangana and 541 households per 1000 in Andhra Pradesh which reported having the highest proportion of rural households with outstanding cash loans. Other states whose households reported a higher proportion outstanding cash loans than Gujarat are Bihar (291 households), Karnataka (464 households), Kerala (495 households), Maharashtra (313 households), Punjab (331 households), Rajasthan (374 households), Tamil Nadu (397 households), and Uttar Pradesh (296 households).
However, clearly, being indebted is one thing, and being indebted at a very high rate of interest is totally another. It is natural for any economy in transformation — especially the rural feudal economy like that of India which is seeking to move into a capitalist framework — to depend heavily on loan to substantially improve the economic status.
Farmers would indeed require loan in order to better their economic status by improving the quality of their agricultural output by going in for necessary inputs such as seeds, equipment, fertilizers, transportation, and so on. However, in order to make this effective enough, the formal banking sector should work smoothly enough so that the farmer does not have to go to the usurious moneylender for loan at a very high rate.
A further analysis of the NSSO data would suggest that, in Telangana and Andhra Pradesh, the proportion of indebted households reporting outstanding loans with a very high rate of interest (25 per cent or more) is 30.8 per cent and 23.5 per cent, respectively, or less than half that of Gujarat. The all-India average comes to 40.1 per cent of the indebted households which reported taking loans at such high rates (households reporting outstanding cash loans were 314 out of 1000; 61 per 1000 reported taking loans at 25-30 per cent rate of interest, and 65 per 1000 reported taking loan at 30 per cent and above). Taking loan at a very high interest rate – almost double of what the formal banking sector offers – should mean the farmer is, apparently, dependent on the informal sector for loan, especially the usurious moneylender.
Basing on the NSSO report, a recent analysis of the country as a whole said, “Between 2002 and 2012, the number of rural households with bank accounts more than doubled in number. Yet, rural households increased their borrowings in a significant way from private moneylenders, and not the organized financial sector.” It added, despite a 120 per cent increase in rural households with bank accounts in the decade in question, “Indebtedness is more among poorer households, who borrow more from moneylenders and more for non-business use.” If this is true of India, it should be even truer of Gujarat.
Known to have expertise on these issues, an assistant professor at the Jawaharlal Nehru University, Himanshu, has been quoted as saying that the NSSO report is “a stark reminder that little has changed for farmers in the last decade. While formal credit flow has multiplied by four times in this period, small and marginal farmers have certainly not benefitted. The question is who has benefitted from this increased outflow to the agriculture sector.”
While Gujarat may have targeted around 1.02 crore households under the Prime Minister’s Jan Dhan project for opening bank accounts, the issue at stake is: How many of those who already had bank accounts were able to avail credit at rates offered at a normal, not to talk of subsidized, rate, which would be around 10-12 per cent per annum.
The NSSO report, prepared on the basis of the data collected in 2012-13, suggests that there were in all 76.5 per cent of the rural households in Gujarat with bank accounts, which is lower as many as nine major states of 21 – Haryana (84.3 per cent), Himachal Pradesh (95 per cent), Jammu & Kashmir (86.8 per cent), Kerala (89.8 per cent), Punjab (78.1 per cent), Rajasthan (77.3 per cent), Tamil Nadu (77.1 per cent), Uttaranchal (79.4 per cent), and Uttar Pradesh (77.9 per cent).
Even if Gujarat may have succeeded in improving upon its bank accounts, especially in the rural areas, following the time when the NSSO collected its data, there is reason to ask: How many of the account holders would be able to avail, if at all, loan to invest in agriculture?

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A version of this blog was first published in The Times of India

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