Usurious moneylending prevails more in Gujarat than in other Indian states, suggests latest NSSO report

By Rajiv Shah
In a remarkable revelation, a new National Sample Survey Organization (NSSO) report, released early this month, has found that Gujarat has a higher proportion of indebted households which reported taking loan at very high interest rate – 25 per cent or more. Calculations, based on the data released by the NSSO, suggest that 64.6 per cent of the state’s indebted households took loan at such high rate – which can easily be interpreted to mean usurious moneylenders. Titled “Key Indicators of Debt and Investment in India”, the report has found that there is just one state of 21 whose indebted households may be depending so heavily on moneylenders – Jammu & Kashmir (69.3 per cent).
Based on NSSO’s 70th round, the data in the report say 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!”, says an analysis based on the NSSO report.

No doubt, the NSSO report suggests that there are several other states which reported higher proportion of indebted households than Gujarat. Two states top: There are 591 households per 1000 in Telangana and 541 households per 1000 in Andhra Pradesh which reported having 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 but natural for an economy in transformation -- especially the rural feudal seeking to become one with a strong capitalist agriculture based – for being dependent heavily on loan to substantially improve the economic status. Farmers would indeed need loan for necessary inputs like seeds, equipment, fertilizers, transportation, and so on.
But, it seems, the formal banking system has failed in this, one reason why a substantial percentage of indebted rural households reported taking at a rate of interest which is higher than 25 per cent.
The proportion of indebted households reporting outstanding loans at a very high rate (25 per cent or more) in Telangana and Andhra Pradesh 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.

Indeed, 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 on India 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.
A well known expert on the subject, 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.”
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 under Prime Minister Narendra Modi’s Jan Dhan scheme, analysts wonder: 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 article was first published HERE