In this article we will discuss about:- 1. Estimates of Rural Debt Prior to Independence 2. Debt Estimates in Post-Independence Era 3. Source 4. Causes 5. Evils 6. Role of the State in Relation to Debt Relief Measures 7. Debt Relief under 20 Point Programme.
Rural indebtedness has long been one of the most pressing problems of India. Rural people have been under heavy indebtedness of the village moneylenders and sahukars. The burden of this debt has been passed on from generation to generation in as much as the principal and interest went on increasing, for most of the debt has been unproductive. According to Wolf, “The country has been in the grip of mahajans. It is the bend of debt that has shackled agriculture.”
Estimates of Rural Debt Prior to Independence:
Estimates of Indian agricultural debts were made from time to time. No scientific and systematic treatment of the disease was attempted till the seventies of the last century when the indebtedness of the Deccan ryots, who had been the victims of great vicissitudes of famine almost since the conquest of the Deccan rose to such magnitude as to demand prompt legislative action.
The Deccan Ryots Commission in 1875, concluded that 1/3 of the occupants of Government land were in debt and that the average debt per occupant was Rs. 37. According to the Famine Commissions of 1880 and 1901, at least 4/5 of the cultivators were in debt, and were fast losing the possession of their lands. In 1911, Edward Maclagan estimated the total agricultural debt of British India at Rs. 300 crores, while in 1923 Mr. Darling estimated it at Rs. 600 crores.
On the basis of the estimates of the Provincial Banking Enquiry Committee, the Indian Central Banking Enquiry Committee in 1934 put the figure of total rural indebtedness of India at Rs. 900 crores. During the slump the burden of debt became twice as heavy as the cultivator’s income was reduced by half. Since then it has increased considerably and was estimated at Rs. 1,200 crores in 1935 by Dr. P.J. Thomas.
“If the total agricultural debt of British India was about Rs. 900 crores in 1929-30 it must have increased to about Rs. 2,220 crores by 1933, and the real burden must be tantamount to Rs. 2,220 crores, assuming that prices fell by 50 per cent (between 1929 and 1933), that no payments of the principal has been made and that interest payment is in arrears so that the debt has accumulated further.”
The immediate effect of agricultural depression of the early thirties was to intensify the burden of debt and to increase it not only in real terms but also in money-terms.
The Agricultural Credit Department of the Reserve Bank of India (in a survey of the position in 1937) noted that “the burden of indebtedness became really much more crushing than could be judged from comparison of the growth of its volume in rupees owing to the great depression (1929-32) attended with falling prices of agricultural produce. They put it at Rs. 1,800 and the annual interest on these on the lowest computation was to be above Rs. 100 crores. To these may be added canal rates (about 12 crores), central and provincial taxation (about 100 crores), local taxation (about 150 crores) and railway freight charges (Rs. 65 crores). Precious little is, therefore, left to feed the cultivators.”
During World War II, the substantial cultivators and big landlords everywhere repaid their old debts either in full or to a material extent. For India as a whole the real debts and also the total money burden became lighter during war years. The regions and classes that failed to profit from the unprecedented rise of prices of agricultural produce evidently did so because of structural defects in their economics such as uneconomic holdings.
It had been difficult to arrive at an estimate of the total all-India debt in view of different conditions prevailing in different States. But on the basis of Madras Enquiry made by Dr. Naidu, if the same proportion of debt is applied to the whole of the country on population basis, the total rural debt in 1945 worked out at Rs. 1,300 crores and if an allowance was made for the loss of area to Pakistan and difference in conditions of different States were ignored, the estimates for the whole of Indian dominion would be round about Rs. 1,100 crores.
The First Report of the National Income Committee estimated the rural debt at Rs. 915 crores, of which about 83 per cent was non-productive and only 5 per cent of which was supplied by cooperative societies. The interest on this debt was estimated at Rs. 86.5 crores, S. Thirumalai put the amount of debt roughly at Rs. 1,800 crores.
Debt Estimates in Post-Independence Era:
The Rural Credit Survey of the R.B.I. undertook an enquiry in 1951-52, which provided some interesting data.
The highlights of this survey were:
(i) The proportion of borrowing families among the rural families was 51.7 per cent. The proportion of borrowing families was larger among cultivators than among the non-cultivators.
(ii) About 63 per cent of the rural families were in debt, and the average amount of debt per family was Rs. 283.
(iii) The burden of debt was much higher on cultivators with smaller holdings as compared to cultivators with larger holdings.
(iv) The average amount of outstanding debt per family varied from Rs. 29 to Rs. 1,200.
The rural Credit Follow up Survey (1965-67) concluded that the data revealed “the general trend of an increase in the volume of debt during the year covered by the investigation.”
According to the All India Rural Debt and Investment Survey, the average debt per household for the country as a whole was about Rs. 654, the incidence being more among cultivators (Rs. 719 per household) as compared to non-cultivators (Rs. 429 per household). The level of debt per household was markedly high in Punjab, Rajasthan, Gujarat, Andhra Pradesh, Tamil Nadu and Karnataka, and relatively low in Bengal, Kerala, Orissa, Assam and J. and K. Barring a few States the level of debt per household was lower among non-cultivators than among cultivators.
The Reserve Bank conduced an All India Rural Debt and Investment Survey (AIRDIS) in 1961-62, nearly 10 years after the All-India Rural Credit Survey (AIRCS). According to the Reserve Bank’s surveys, during the decade ended 1961-62, the percentage of indebted households to total households in rural India did not show any sizeable variation; it remained between 67 to 69 for cultivators and 52 for non-cultivators.
The average debt for an indebted household recorded an increase from Rs. 447 in 1951-52 to Rs. 647 in 1961-62, nearly 46 per cent rise. While the average loan for cultivator household increased from Rs. 526 in 1951-52 to Rs. 708 in 1961-62 (by about 15 per cent), that in the case of a non-cultivator household increased from Rs. 249 to 430 during the period or by about 73 per cent.
The incident of outstanding debt, measured in relation to the value of recorded assets, was less than 50% of the assets in Assam, Orissa, Jammu and Kashmir and Kerala. In Tamil Nadu, Rajasthan, Karnataka and Punjab, the proportion even exceeded 70%. The proportion was higher among cultivators than among non-cultivators in all states.
Thus, it is striking to note that the indebtedness of the peasantry in spite of great improvements in communication, trade irrigation and maintenance of peace and security rather increased than decreased and it apparently seems paradoxical to say that peasants had become prosperous prior to recent depression than before, but as history reveals indebtedness and prosperity are not necessarily inconsistent, the only explanation of this phenomenon is that indebtedness still exist in rural India not in spite of these improvements but just because of them.
It is no wonder that the small rural farmer is in on better position today financially than he was before the war, despite the steep rise in agricultural prices, but alongwith the rise in prices there has also been a rise in the price of consumers’ good and also in the cost of cultivation including wages, price of cattle implements, etc. Moreover, not all the benefits of rising prices has gone to the cultivator.
The debt of farmer households gradually increased. Report of Situation Assessment Survey of Farmers, National Sample Survey, 59th Round 2003 estimated the extent of farmer indebtedness in detail. It was estimated that out of 89.4 million total No. of farmer households about 43.4 million households were indebted. Thus, about 48.6 per cent of the farmer households were indebted. The average outstanding loan amount was Rs. 12,585.
The table given below shows the indebtedness of farmer households:
It was also observed that incidence of indebtedness was very high in major states such as Uttar Pradesh, Maharashtra, Madhya Pradesh, Rajasthan, Karnataka, Andhra Pradesh, Bihar, West Bengal, Punjab and Orissa. These accounted for 76 per cent of the total indebtedness. Share of these states in total foodgrain production is about 78.7 per cent.
The table given below shows-the incidence of indebtedness in major states of the country:
Marginal and small farmer constitute the majority of total farmer households. It has been estimated that more than 80 per cent holdings are below 2.0 hectares. The incidence of indebtedness is very high in marginal and small farmers. It has been observed that marginal farmers households having upto 1.0 hectare of land are highly indebted. According to 59th round of NSSO report 61 per cent of household of marginal farmer households were indebted in 2003 and 18.9 per cent household of small farmer households were indebted. While only 1.2 per cent household of large farmer households were indebted.
The table given below shows the incidence of indebtedness based on size of land possessed:
Source of Rural Debt:
Without doubt the village money-lender is still the most important source of borrowing, and even though sometimes he has proved to be a dangerous necessity he has been and still is, an inescapable necessity. According to the findings of the Rural Credit Survey Committee, the amount of debt owed to the agriculturist and professional money-lenders 24.9 and 44.8 per cent respectively of total debts, Relatives land-lords, traders and commission agents accounted for 14.2%, 1.5% and 5.5% respectively.
Debt owed to the Government and co-operative formed hardly 3.3 and 3.1 per cent respectively. The Follow-up Survey confirmed these trends as it was found that the borrowing from private agencies, which was nearly 92% during the earlier survey ranged, in 1956-57, from 49% to 99%, while the proportion of outstanding debt to those agencies to total debt was equally high.
The role played by different agencies in supplying loans to the cultivators is brought out in the table below:
The recent UNI survey (1975) has shown that while cooperative credit organisations and commercial banks have been making considerable headway in providing institutional credit to agriculturists private money-lenders and traders still continue to provide about 70% of the credit requirements in villages. Further, a change has been noticed that the professional money-lenders have been replaced by agriculturist money-lenders and traders. In several villages, rich farmers are the principal money-lenders.
The largest simple purpose of loans was- household expenditure representing 49.2% for cultivators (63.6% for non-cultivators). Other purposes in order were capital expenditure in farm business 26.8% (6.9% current expenditure in farm business 9.8% (1.8); repayment of debt 5(4.4), current expenditure in non-farm business 2.1 (16.7), expenditure on litigation 1.8(1.0), capital expenditure in non-farm business 1.4 (0.5); more than one purpose 3.0 (1.2) and purpose not specified.
An important aspect of rural indebtedness is its use. According to the All-India Rural Credit Survey Committee, 56.3% of the debt is for unproductive use. In case of farming households alone, it has been estimated at 53.4%. For non-farming households this percentage has been put at 74.
It is important to note that the All-India Debt Investment Survey (1971-72) puts the annual credit needs for unproductive purposes at Rs. 340 crores for the poorest slabs comprising landless labourers, rural artisan and small farmers with holdings upto half an acre, and Rs. 250 crores for marginal farmers’ holdings from 1/2 to 5 acres.
The Sivaraman Committee, 1976, consisting these estimating on the high side. It puts them at Rs. 170 crores and Rs. 125 crores for the respectively slabs.
Thus, it should be noted that:
(i) Majority of the rural households are under debt.
(ii) There has been an increase in rural indebtedness.
(iii) Substantial part of the debt is used for unproductive purposes.
(iv) The poorest section of the rural population is severely hit by debt.
Causes of Rural Indebtedness:
1. The Ancestral Debt:
The most important and the chief cause of the existing indebtedness in the ancestral debt, which is handed over from father to the son generation after generation without any equitable restrictions. Children born in debt are found making very feasible efforts to pay the debt of their fathers and forefathers. They are probably ignorant of the law that the debt of the deceased pass on to the heir only to the extent of the property inherited by the latter, and if no property is inherited there is no liability to pay the debt but a pious obligation.
The only existing facilities for the redemption of this debt is the borrowing of money, from one money-lender to pay off another and, thus, increase the debt. Many agriculturists start their career with a heavy burden of ancestral debt and drag the loan for the whole of their lives, taking it to be a religious and social obligation, with the result that the burden goes on increasing and becomes hereditary.
As the Royal Commission on Agriculture remarked, “The Indian peasant is born in debt, lives in debt, dies in debt and bequeaths debt.” Thus, an Indian cultivator takes birth as a debtor, lives as a debtor and dies as a debtor. In fact, the people are so accustomed to take it over from their fathers and to pass it on to their sons, that they accept indebtedness as a settled fact and a natural state of life.
2. Sub-Division and Fragmentation of Holdings:
When the holdings are small, the cultivation ceases to be economical even in the best of years and the yield from land becomes insufficient for the maintenance of the farmer and his family. On account of this reason either the farmer must go in debt or must be very industrious or must have any other source of income.
In this connection it would be interesting to quote Mr. Darling who remarked, “That to support a family upon a few acres without getting into debt requires a love of skill, industry and thrift seldom attained in a hot country. Undoubtedly it can be done just as a small sailing boat weathers a storm of the Atlantic, but unless the boat is both well found and well manned it will assuredly sink.”
The holdings are so small and the margin of safety so narrow that, any misfortune may plunge the peasant into debt from which he can never extricate himself. A series of bad years, the death of cattle or mere carelessness may lead to debt while in best years the surplus produce is so small that the interest is paid with difficulty and for the principal there is no scope. Indeed, life is hard and bitter to the cultivator who has to depend on his few acres to support himself and his family.
3. Vagaries of the Climatic Condition and Other Calamities:
India is subject to frequent failure of rains and the resultant famines. The various of monsoon are proverbial. This makes agriculture extremely precarious industry and makes the budget of the Government a virtual gamble in rains. The frequency of failure of crops due to drought or floods, hailstorms, conflagration, the uncontrollable swarms of locust all these damage agriculture and show poor results, which cause endless miseries to the cultivator, having no reserve to fall back upon in times of distress, and, hence, he becomes the prey of moneylender who exploits him according to his will.
It is only in good year that the ordinary small holder can possibly keep himself out of debt. To a farmer there is no calamity greater or more severe than the total on partial failure of crops. When the rain fails there is nothing but complete bankruptcy in store, in the bad years he will borrow for nearly everything he wants, for seed, for cattle, clothing and even for his food.
4. Ignorance and Illiteracy of the Cultivator:
To make the matter worse, ignorance and illiteracy easily gives way to the multiplication of procreative processes and, thus, the population goes on increasing without a corresponding increase in the means of subsistence. Hence, to secure a minimum subsistence for himself and his family, the cultivator borrows.
Prof. Wadia says, “Having no additional source of income the ryot continues to borrow in and out of the season thinking to mitigate the heavy load of indebtedness. As a consequence the increase in rural indebtedness has been parallel to the growing loss of economic equilibrium brought about by the pressure of population on the land and decline of subsidiary occupation.”
Illiteracy forms one of the principal obstacles to his progress. He easily falls into the clutches of the shrewd and intelligent moneylenders owing to his simplicity and ignorance. It has been said, “The moneylender tempts him to borrow, the lawyer to quarrel and the trader to waste.”
5. Failure to Provide for Deficiency:
Agriculture is subject to the Law of Diminishing Return and in absence of modern inputs the produce of land goes on decreasing. The extreme poverty of the cultivator and low yield of his tiny plot prevents him from providing against the depreciation because it is difficult to put aside funds for depreciation of cattle and improved seeds when so desirable things are lacking in the household.
In fact, taking into account uncertainties of weather, the frequency of cattle mortality, and the fickleness of prices, agriculture, especially cereal growing, is not a paying business and if the Indian ryot sticks to it, it is not because it is profitable but because it is a mode of life with him.
6. Low Income of the Cultivator:
Poverty and lack of capital are the twin evils from which the entire rural economy suffers. A large number of Farm Management Studies undertaken in India have clearly revealed that the net income of the farmer is very low in all the size groups, the recorded farm business income is insufficient to cover domestic expenditure. With this low income the cultivator finds it difficult to satisfy his consumption and production needs. He is underfed under-clad, under-nurtured and leads from hand to mouth existence.
The physical deficiency, resulting from such conditions, make him an easy prey to epidemic diseases which sap his vitality and stamina and this enforced illness and weakness compel him to borrow.
7. The Money-Lender and His Vicious System of Money-Lending:
The agricultural capital is supplied at present mostly by the village money-lender, mahajans and sahukars. A large number of cultivators appears to have a running account with the Mahajan. He advances them loans and seeds giving one seer less than the market price. When the tenant falls on evil day he would advance rent to save him from ejectments.
He also lends money for the inevitable marriage and for equally inevitable law suits. He is in fact, at all times, the resource to which the needy agriculturists go for relief, and the consequence is that he is never out of mahajans grip, i.e., they are almost the only basis of thrift in the vast desert of extravagance and destitution and the only source from which the credit can be had, so that he is always in the clutches of the money-lender.
8. High Rates of Interest:
The high rates of interest also compel the cultivators to borrow. The rates vary from State to State and on account of the weakness of the peasant’s economic position the interest accumulates every year. The rates varied from 9 to 12% in Tamil Nadu on secured and from 18 to 24 per cent unsecured loans; 25 to 50 per cent in Bihar, Orissa and Assam.
The Bombay Enquiry Committee gave the sowcar’s rates for different tracts in Maharashtra (irrigation tracts) 12 to 34 per cent; Maharashtra (famine tract) 18 ¾ to 36 per cent; Gujarat 9 to 18 per cent. The common rates on secured and unsecured loans in Bihar and M.P. are 15 to 18 per cent and 10 to 15 per cent respectively. According to U.P. Committee the rate for secured loans varies from 6 to 18 per cent (12 per cent being the most common figures) and for unsecured loan vary from 18 to 37 ½ per cent (the most common rate being 24 per cent).
Frequently, the loans advanced are in kind either for food or for seed usually on sawai or deorha rates and if unfortunately the crop fails to give the normal yield then the cultivator has to face starvation because he has to satisfy the mahajan’s claim in full as prearranged. But if he does not do that, then the loan shall go on accumulating on compound interest and become hereditary for the interest is 25 to 50 per cent or even 100 per cent sometimes.
9. Extravagant and Improvident Borrowing:
The improvident borrowing is another fruitful cause of his indebtedness. Although the Indian peasant lives normally a most frugal and abstentious life, he is undoubtedly apt to carry on his expenditure to extravagant limits. The methods in which the peasant spends his money are extremely unmethodical and baneful. He squanders his money extravagantly in unproductive consumption like social ceremonies, upon marriage, ornaments, funeral rite, sradh ceremonies of ancestors, etc., which is often beyond the means of the cultivator.
The long series of seasonal feasts, religious observances as kathas, as well as caste dinners on auspicious occasions have stimulated family extravagance. The absence of self-help and thrift, and abundant harvests have produced the habit of wasting long periods in gossips and encourage thriftlessness. All these have played an important part in fostering improvement in the amount of debt.
10. Litigation:
In places where there are great fluctuation of harvest every lawyer knows that his income will contract or expand in relation to the quality of the harvest; which is a sign that the villager is quick to go off to the courts when he has spare cash in his pocket.
Mr. Calvert estimated that 2½ million persons attended the courts every year, either as parties or as witnesses and that three or four crores were wasted in the process. In these connections not only the pleaders have to be engaged and stamp duty and process-fees to be paid, but petty officials have to be propitiated, witnesses may have to be hired; as much to prove what is true as to establish what is false, and perhaps the support of an influential neighbour has to be gained, all of which consumers both time and money.
Really speaking, the passion for litigation is another undesirable trait of Indian peasant which adds to his poverty and unproductive debt. It is not uncommon to hear of suits dealing with the minutest fraction of an acre being fought upto the High Court and of criminal cases involving the expenditure of thousands of rupees.
11. The Absence of Adequate Marketing Facilities:
The money economy and higher prices ruling in the market tempts the peasant to dispose of all his produce without any reserve at a cheaper price and in a restricted market, and the poor fellow has to borrow or to buy his food in times of need at a very high price. The untimely revenue demand and constant harassing of the mahajan for payment of interest just at the time of harvest when alone the cultivator is in a position to pay, oblige the peasant to add fuel to the fire by bringing his produce for sale to an already glutted or flooded market at the end of the harvest and spell his own disaster.
The Agricultural Finance Sub-Committee has concluded, from the sample data of the debt surveys in the past, as follows:
(1) Repayment of old debt is everywhere, an important factor in the contraction of new debts.
(2) A large part is played by unproductive debt. Everywhere social and ceremonial expenditure is seen to be responsible for a considerable percentage of debt.
(3) Consumers needs and ‘distress circumstances’ are seen to assume an important role in adding to total debt.
(4) Debt for improvement purposes is almost everywhere of an insignificant proportion.
Thus, it may be said that the large volume of rural indebtedness has not been the result of any single factor but has been brought about by a variety of cause. At the root of the evil is uneconomic and unproductive borrowing often made inescapable by the absence of adequate institutional credit.
“If the debts of the rural population were incurred primarily for the purpose of improving agricultural productivity, the growth and extensiveness of rural indebtedness would give no cause for alarm. In many countries, however, the heavy rural debts have accumulated chiefly as a result of borrowing to finance consumption.”
Evils of Rural Indebtedness:
The evils resulting from indebtedness may be enumerated as follows:
(1) The chronic state of indebtedness has influenced the cultivators in many undesirable ways. Much of the evils from which they suffer are the results of the indebtedness. The low standard of living and income and the indigence and poverty of the cultivating classes are due to it.
The Central Banking Enquiry Committee writes, “Among the classes responsible for the low standard of living of the agriculturist and the continuous impoverishment of this class, even in areas which are blessed with good season and normal crops, indebtedness must be given a high place. This low scale of income and poverty tends to lower the physical and mental vitality of the cultivators, and causes the decay and weakening of the normal fibre of the society. All these lead to agricultural inefficiency and indebtedness coming in the wake of these evils, aggravate them.”
(2) Debt also prevent the orderly and profitable marketing of agricultural produce. The defective system of rural finance in which, the moneylender is both creditor and village trader leads to unorderly and unprofitable marketing. The indebtedness of the peasant to the moneylender compels him to sell his produce at a pre- arranged price and in a closed and isolated market lacking in competition.
(3) When large sums of money are borrowed for capital improvements or payments of old debts the period of repayment fixed in the bonds is not very long. The result is that the income of the cultivators is utilized more for the payment of debt that is desirable or possible and the cultivator is left with very meager income even for his subsistence. This leads to unproductive cultivation and is very detrimental to the growth of national wealth.
(4) The indebtedness causes a loss of property and transfer of land from cultivators to non-cultivators, which is fraught with grave economic and social consequence for the future of the country. The area held by non-agriculturists have shown an increase in recent years.
(5) The worst social and moral effect of the indebtedness is that it results in the servitude of the debtor if the money-lender is an influential person and particularly so if he is also a landowner. The borrower has to be free service for him when called upon to do so. In many places money is borrowed by the cultivators with the condition that they would undertake to repay or perform labour on farm and in the houses of the money-lenders until the debts are cleared, and after their death sons are bound by the same agreements to serve.
The poor debtors are not allowed to serve anybody so long as work on the money-lender’s farm is necessary. In return for those service they get a customary allowance of a few chips per day, coarse food, old clothes and now and then new cloths and rewards on auspicious occasions. Their wives and children are required also to serve the money-lender for a pittance.
The moral integrity and probity of the Indian farmer is tottering under the growing weight of indebtedness. For the inevitability of indebtedness, from which he has not even a remote hope of escape, turns him into a dishonest debtor and inefficient farmer, thriftiness head of the family and an irresponsible citizen.
Role of the State in Relation to Debt Relief Measures:
Since earlier times, State has taken measures to relieve the distressed debtors. Legal rates of interest were fixed and concessions were offered for higher classes. It was also provided that the amount of interest paid should not exceed double the principal. During the Muslim period, loans were advanced from the State exchange to the agriculturists in time of drought and pestilence.
Many money-lenders also came forward to advance money with the sole purpose of appropriating land of the borrower. The Government had, therefore, to come forward to give protection to the agriculturists.
It attempted through the following measures:
(a) It Tried to Remove the Need of Borrowing:
(i) Through reducing the effective burden of land revenue, and making its payment convenient through greater elasticity in its administration and collection;
(ii) Through increasing facilities so that the dependence on the vagaries of the monsoon were reduced thereby increasing the average production and the income of the cultivator;
(iii) Through improving means of communication and transportation and marketing facilities so as to enable the cultivator to obtain a better price for his produce.
(b) It attempted to protect the assets of the agriculturist from passing into the hands of the non-agricultural money-lenders through Land Alienation Acts (such as that of Punjab in 1990) and earlier acts like the Encumbered Estate Relief Act of 1876, e.g., Chota Nagpur Encumbered Estates Act, 1872; The Jhansi Encumbered Estates Act of 1882; The Sind Encumbered Estates Act of 1896; Bundelkhand Encumbered Estates Act of 1903.
These Acts provided for the judicial determination of original principal and allowed only a reasonable rate of interest. They also restricted credit on the mortgage of land. But the money-lenders were prompt to break the regulations of the Act and therefore, the Acts had to be amended with a view to limit the period of mortgage, declare benami transactions inoperative; prohibit moneylenders to purchase land of their debtors within 3 years of the final settlement or repayment of the debt.
Acts similar to that of Punjab were also passed in Bombay, M.P., Hyderabad and other States. The Act, however did not achieve much success, though some beneficial results do seem to have followed from restriction on transfers on land to non- agriculturists.
(c) It took measures to attack directly the power of the money-lender and regulate his activities.
Some of the important of these measures were:
(i) Under the Deccan Agricultural Act of 1879, subsequent amendments in the Act were made in 1882, 1886, 1895, 1907, 1910, 1911 and 1912; the Courts were allowed to go behind the contract of debt and to modify it in favour of the borrower so as to reduce an oppressive rate of interest, to prevent sale of land, unless specifically pledged and to restore the land to the cultivator even when there was a sale deed between the two parties.
Safeguards to prevent frauds in money-lending, setting up of special machinery to render cheap and summary justice to the ryot and the provision of conciliating the debts in the village courts were some of the other features of the Act.
(ii) Usurious Loans Act of 1918 (amended in 1946) tried to improve the legal position of the borrower. Unfortunately this Act did not prove very successful, as the Congress Agrarian Reforms Committee observed in 1948. It said, “Laws for restricting the operations of money-lenders have completely failed.”
As late as 1957, even the Follow-up Rural Survey reported that quite large borrowings were made at rates even higher than 50 per cent. The incidence of the burden of interest was heavier on medium and small cultivators, especially the latter group, than on big and large cultivators.
(iii) Regulation of Account Act:
This act was passed in 1930 in Punjab and later on these were enacted in various States with a view to protect the debtor from manipulated accounts by prescribing forms of accounts, and insisting on the debtor being supplied with these regular. It also laid down that principal and interest, must be shown separately so as to enable easier assessment of rates of interest charged.
(iv) To reduce the excessive rates of interest, maximum rates of interest chargeable were fixed through the Punjab Relief of Indebtedness Act of 1934. This Act drew a distinction between secured and unsecured loans for purpose of rates of interest fixing a maximum rate of interest for each category.
(v) Licensing and Registration of Money-Lenders:
Various Acts like the C.P. Money-lenders’ Amendment Act of 1956, the Punjab Registration of Money-lenders’ Act. 1938, the Bengal Money-lenders’ Bill of 1938, the Bihar Money-lenders’ Bill of 1931; the U.P. Money-lenders Bill of 1939, and the Bombay Moneylenders’ Bill of 1938 provided for the registration and licensing of money-lenders. Money-lending without licence was made an offence.
(vi) Voluntary reduction of debts was undertaken in the first instance through the setting up of Debt Conciliation Boards in various States but substantially when it was realised that voluntary conciliations were not having much effect more drastic measures were undertaken. These resulted in the passage of Acts like the Punjab Debtor’s Protection and the Punjab Restoration of Mortgaged Lands Act. The former exempted ancestral property from attachment as also standing crops, while the latter provided for restoration of mortgaged lands on payment of nominal compensation.
It is doubtful whether such measures proved to be beneficial to the cultivators.
The Rural Credit Survey Committee held the view that there is large scale and country-wide evasion of the restrictions imposed on moneylenders. The modes of evasion reported are as numerous as they are ingenious.
Some of them are:
(a) Obtaining a pronote for a large amount of principal than that actually lent.
(b) Interest computed at illegal rate and deducted in advance from the amount lent.
(c) The making of a separate pronote (besides the main one) in the name of a servant or relative of the moneylender to cover the extra interest.
(d) Forward purchase, together with false evaluation of the debtor’s produce.
(e) Conditional sale.
(f) Unobjectionable sale deed for purposes of the law and illegal, if informal, understanding so as to the real substance of the contract.
(g) Taking over of the debtor’s land of usufructuary mortgage on terms which in effect imply the charging of illegal interest or taking on mortgage the milch cattle of the debtor on a similar basis.
It was rightly asserted that “Although legislation for the regulation of money lending has been enacted and enforced in most of the States, in practically none of them has any adequate machinery been set up for the specific purpose of ensuring an effective implementation of various measures.”
“Because of the inadequacy of the supervising machinery, absence of an alternative source of credit and the compelling nature of the borrower’s requirements, the money-lenders are able to evade almost all important provisions of these enactments without much difficulty.”
Debt Relief under 20 Point Programme:
As a consequence of the 20 point programme in July, 1975, it has been accepted that “the moratorium on rural debt to be put and measures should be undertaken for redemption of debts in case of the very poor and liquidation of rural indebtedness by stages in the case of others among the weaker sections.”
In the case of small farmers owning unirrigated land more than one but upto two hectare, the debts would be scaled down in accordance with certain norms for which the repaying capacity of the other would need to be determined.
After taking into account the consumption requirements and commitments for meeting farm investments and loans taken for production purposes and the present high cost of inputs, the Group felt that 40 per cent of the gross value of the agricultural produce of small farmers may be required for meeting his consumption needs, another 40 per cent, for meeting fresh commitments such as farm investments and repayment of production loans.
Repayment of the scaled down debt would have to come from the remaining 20 per cent of the gross value of the produce. The period of repayment of debts may be reckoned upto 7 years. The debt will, therefore, be scaled down to fit in with the above formula. There will be no recovery of amount in excess of the debt scaled down, and portion of the debt in excess shall be extinguished.
The interest payable on debts that are to be settled shall be calculated at the rate applicable to debt under the law, custom, or contrast or at 6 per cent per annum, whichever is less and credit shall be given for all sums paid or credited first towards outstanding interest, and the balance, if any, would be credited towards repayment of the principal. The principal and the interest outstanding thus calculated will be considered as the net outstanding debts on the prescribed date for the purpose of scaling down.
To avoid cumbersome procedures and eliminate all possible delays, it is suggested that jurisdiction of civil courts in respect of any settlement regarding scaling down of debts may be barred. To cut down delays, summary procedures may be adopted by the officers for this purpose.
For the proposed legislation, it has been suggested that a landless labourer be defined as “one who does not hold any agricultural land and whose principal means of livelihood is manual labour on agricultural land,” a marginal farmer as “a farmer who owns land measuring not more than one hectare of unirrigated land and who cultivates personally such land and also a farmer who cultivates as a tenant or share cropper, land measuring not more than one hectare of unirrigated land.”
A small farmer may be defined “as a farmer who owns land measuring more than one but less than two hectares of unirrigated land and also a farmer who cultivates as a tenant or share cropper land measuring more than one but less than two hectares of unirrigated land.”
A rural artisan may be defined as “a person who does not have any agricultural land and whose principal means of livelihood is production or repair of traditional tools, implements and other articles or things used for agriculture or purposes ancillary thereto and also a person who normally earns his livelihood by practicing a craft either by his own labour or by the labour of the number of his family in a rural areas.”
Conclusion:
The Sivaraman Committee (1976) has offered the following recommendation for the grant of consumption loans to effect the elimination of the institutions of moneylenders:
(i) Grant of consumption loans for purposes like marriages, religious ceremonies, education and medical expenses estimated at Rs. 170 crores annually, should be given to the poorest of the rural population (i.e., the landless labourers, rural artisans and small farmers with holdings of less than half an acre). Such loans should be given by the Co-operative Banks and the Government.
(ii) Grants of loans of similar purposes to marginal farmers holdings half an acre to 5 acres of land, estimated at Rs. 125 crores annually, should be arranged by the Cooperative and Scheduled Banks.
(iii) In order to enable the poorer borrowers, to return these loans the States should work out schemes for their employment.
In sum, it may be stated that the debt of the cultivating classes is the symptom of a deeply rooted disease. The legislation may be regarded as of the nature of ambulance work, stopping the bleeding and the source of further infiltration of the disease, by applying antiseptics and bandaging without leaving untouched the roots of the disease.
Legislation for scaling down the debt or restricting activities of the moneylenders will not cure the disease; nor will the fixation of a maximum rate of interest, or a system of registration and compulsory keeping of accounts touch the roots; an effective cooperative movement reaching every village in its activities and backed by such financial resources as the total national assets of the country can provide, may be capable of solving the immediate problem.
In this connection, the observation of the Central Banking Committee deserves special mention. It stated, “……………. a real and lasting solution can only be found by the spread of education, the extension of co-operative and joint stock banking and by the training of the borrower in habits of thrift and saving.”
We may add that apart from making provision for cheap credit, the solution must be sought of the difficult problem of how agriculture can be made to pay by consolidation of holdings, by insurance of cattle against disease and deaths, by the establishment of subsidiary occupations, in short, by a many-sided and simultaneous attack on all the factors connected with the poverty of the rural masses.