Question

What is rural indebtedness? How does it affect the farmers?

Answer 1

As a result of debts, the income of the farmers is mostly spent for repayment and agricultural improvements tend to get neglected. ... Rural indebtedness is, therefore, the causes as well as the effect of the growing poverty of the Indian farmers.

Answer 2

The Indian Farmer borrows year after year but he is
not in a position to clear off the loans, either
because the loans are larger or because his
agricultural output is not large enough to pay off his
debt. Therefore, the debt of the farmer goes on
increasing and this is what is known as rural
indebtedness. there is a well known saying in the
country "The Indian Farmer is born in debt, lives in
debt and dies in debt."
Incurring debt for agricultural production is
not bad. In fact it is a necessary element of the
proper conduct of agricultural operations. Even in
advanced countries, agriculturists take loan to
carry on their work. Such a debt can be repaid out
of the income generated from production. But
India's agriculturists undergo debts also for non-
productive purposes. They contract loans to meet
such consumption needs as family expenditure on
consumption performance of social functions
connected with marriage, birth and death, litigation
etc. Since these loans contribute nothing to
production, it becomes impossible to provide their
payment. As a result, such debts go on increasing
from generation to generation. Agricultural
production in the case of many farmers is so small
that they are not able to provide for such productive
expenditure. Being backward, agriculture in India
for most cultivators is a deficit economiy, i.e. their
expenditure exceeds their income. During such
circumstances they find no escape from the burden
of unproductive debts.
A serious aspect of this problem is
that it is by and large a problem of small farmers.
These farmers are people of small means. They
cultivate tiny pieces of land. Their production is
small. The surplus with them, if any, is still
smaller. But their needs of credit for agricultural
operations and household needs are comparatively
greater. To meet their requirements they take loans
mostly from moneylenders for high rate of interest
which then are not able to return. As a result the
dead weight of debt sits heavily on their heads.