Question

what is dept-trap?How does it affect the rural households?​

Answer 1

Extreme levels of household debt are common across the developing world. This is especially true in rural economies, where households face significant income volatility, but lack access to basic financial tools — such as insurance or futures contracts — that could reduce vulnerability to recurring income shocks.

Explanation:

please please click on the Brainliest answer

Answer 2

Explanation:

Extreme levels of household debt are common across the developing world. This is especially true in rural economies, where households face significant income volatility, but lack access to basic financial tools — such as insurance or futures contracts — that could reduce vulnerability to recurring income shocks.

In India, where over-indebtedness among rural households has been an important issue for decades, the government resorted to an unusually bold policy response. Prompted by a highly visible increase in farmer suicides, most notably in the Vidarbha region of Maharashtra, and a wave of defaults among microfinance borrowers, the Government of India embarked on what was perhaps the largest household level debt relief program in history. Announced in then finance minister Pranab Mukherjee’s budget speech on February 28, 2008 India’s Agricultural Debt Waiver and Debt Relief Program for Small and Marginal Farmers,cancelled the outstanding debts of 45 million rural households across the country, amounting to approximately 1.7% of India’s GDP.

While the benefit of debt relief programs to individual households can be substantial, their merit as a tool to improve household welfare in the long run remains highly controversial. Proponents of debt relief argue that extreme levels of household debt are likely to distort investment and production decisions, so that debt relief holds the promise of improving the productivity of beneficiary households. Critics of debt relief, on the other hand worry that it is difficult to “write off loans without also writing off a culture of prudent borrowing and repayment”1.