Drivers and pattern of indebtedness among agricultural households in India: Insights from a largescale survey

AbstractAgricultural credit has an important role in meeting the financial needs of households for farm investment, consumption smoothing and risk mitigation. This study employs the unit level data from a large-scale survey of the NSS 77th round for exploring the determinants and patten of indebtedness among the agricultural households in India. It was found that 50 percent of the agricultural households in India were indebted. Rural financial inclusion programs seem to have been successful in extending the households’ access to institutional banking facilities in terms of access to a bank account. Institutional agencies were a major source of credit for the agricultural households especially, for meeting their farm investment needs. Non-farm financial needs such as medical expenditure, expenditure on housing, education and social ceremonies were also one of the major reasons for which the agricultural households borrowed funds, thus, leading to indebtedness. However, informal credit sources, like professional money lenders, friends and relatives played an important role in addressing these needs. Socially disadvantaged groups, households that are resource poor, those with an incidence of casual labour, experience of crop loss, and households having larger family size were more likely to be indebted. Social safety nets and risk reduction programs appeared to work in tandem with financial inclusion programs in reducing the extent of indebtedness and mitigating financial risks. The study recommends strengthening the outreach of KCC and extending institutional finance programmes for meeting consumption credit needs of the agricultural households.