Rural

Development
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.

1. 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.

2. 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.

3. 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 development class 12 notes define rural credit as;

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

1. 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).

1. 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.

1. 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

1. 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.

2. 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.

(C) 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. Toshield the agricultural bad from clutches of non-

organization assets with the aid of offering a well-timed
credit score at an inexpensive rate.

2. Toincrease banking behavior among the various rural

people.

3. Toassist 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. Aneffective credit recovery mechanism should be

developed.

4. Creditfacilities should be granted to farmers on simple

terms.

5. Needsmore 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,

1. 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.

1. Lackof 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.

2. Lackof 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.

3. A Multiplicityof 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.

4. 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.

5. Lackof 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.

6. Malpracticesin 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.

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.

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

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

Rural development class 12 notes suggest the following ways

to improve the situation.

• 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

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
Rural development class 12 notes define diversification as;
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”.