RNS FIRST GRADE COLLEGE AUTONOMOUS

(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

UNIT 1
Chapter 1: Introduction to Rural Economy: Meaning and Objectives of Rural economy
Characteristics of Rural Economy Indicators of Rural Development Concepts of inclusive and
sustainable development
Chapter 2: Approaches to Rural Development: Gandhian Model Community Development
Approach, Minimum Needs Approach, Integrated Rural Development and Inclusive Growth
Approach.
Chapter 3: Poverty and Unemployment in Rural India: Meaning and Measurement of
Poverty Causes of Poverty Farm and Non-farm employment Measurement and Types
employment, Review of Poverty Alleviation and Employment Generation Programmes in
India.
UNIT 2
Chapter 4: Rural Enterprises: Meaning and Importance, Classification of MSME Progress and
Problems of MSME, Khadi and Village Industries
Chapter 5: Rural Banking and Finance, Credit Co-operative Societies, Regional Rural Banks
Role of NABARD, Microfinance Institutions
Chapter 6: Rural Infrastructure: Educational and Health Infrastructure, Housing and
Sanitation Drinking Water, Supply Rural Transport and Communication, Rural Electrification
UNIT 3
Chapter 7: Rural Development Programmes: Wage Employment Programmes Self-
employment and Entrepreneurship Development Programmes Rural Housing Programmes
Rural Sanitation Programmes
Chapter 8: Rural Markets: Meaning and Types of Rural Markets Defects and Government
Measures for Removal of Defects in rural markets Co-operative Marketing Societies
Meaning and Importance of Regulated Markets Digital Marketing(e-NAM)
Chapter 9: Rural Governance: Legislations powers, Functions, and sources of revenue of
Panchayat Raj Institutions, Role of NGOs in rural development People's participation in rural
development

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

UNIT 1

CHAPTER 1: INTRODUCTION TO RURAL ECONOMY

MEANING OF ECONOMICS:

the state of a country or region in terms of the production and

consumption of goods and services and the supply of money.

MEANING OF RURAL ECONOMY:

it describes the economic activity in which a person living in

rural area gain an income and well being generated with those income.

OBJECTIVES OF RURAL ECONOMY:

1. To improve productivity and wages of rural people

2. To guarantee increased and quick employment possibilities

3. To demolish unemployment and bring a notable decline in underemployment

4. To guarantee an increase in the standard of living of the underprivileged

population

5. To provide the basic needs: elementary education, healthcare, clean drinking

water, rural roads, etc

CHARACTERISTICS OF RURAL ECONOMY:

1. Village is an Institution:

The Village is a primary institution and it satisfies almost all the needs of the rural community. The rural people
have a feeling of belongingness and a sense of unity towards each other.

2. Dependence on Agriculture:

The rural economy depends much on nature and agricultural activities. Agriculture and allied activities are the
main occupation in rural areas.

3. Life of Rural People:

Lifestyles in villages are very simple. Public services like

education, housing, health and sanitation, transport and communication,

banking, roads and markets are limited and unavailable. Rural people rely

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

much on faith, superstitions and traditional cultural practices. The standards of living of majority of rural
people are poor and pitiable. In terms of methods of production, social organization and political mobilization,
rural sector is extremely backward and weak. In recent years, the incidence of alcohol drinking has gone up.

4. Population Density:

Population density, measured by number of persons living per sq. km is very low and houses are scattered in
the entire villages.

5. Employment:

There exists unemployment,seasonalunemployment and underemployment in rural areas. Unemployment

refers to the situation of people with willingness and ability to work but is not getting employed.
Underemployment also called disguised unemployment is the situation of people employed in excess, over
and above the requirement. Disguised unemployment is a situation Where people work but no increase in
production. Both the situations are common in rural areas.

6. Poverty:

Poverty is a condition where the basic needs of the people like food, clothing and shelter are not being met.
According to the 2011-12 estimates, About 22 crores of people in rural areas are poor and live below the
poverty line.

7. Indebtedness:

People in rural areas are highly indebted owing to poverty and underemployment, lack of farm and non-farm
employment opportunities, low wage employment, seasonality in production, poor marketing network etc. A
famous British writer Sir Malcolm Darling (1925) stated that ‘An Indian farmer is born in debt, lives in debt,
dies in debt and bequeaths debt’. Since formal loan facilities are not available to the villagers, they depend on
local money lenders who, like a parasite, squeeze the villagers. Hence the villagers commit suicide frequently.

8. Rural Income:

The income of the rural people is constrained as the rural economy is not sufficiently vibrant to provide them
with jobs or self – employment opportunities.Large proportion of labourers and skilled persons are
underemployed and the scope for increasing their income is limited.

9. Dependency:

Rural households are largely dependent on social grants and remittances from family members working in
urban areas and cities.

10. Dualism:

Dualism means the co existence of two exteremely different features like developed and underdeveloped,
organised and unorganised, traditional and modern, regulated and unregulated, poor and rich, skilled and
unskilled and similar contradicting situations in a region. These characteristics are very common in rural areas.

11.Inequality:

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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The distributions of income, wealth and assets are highly skewed among rural people. There are number of
historical, social, economic and political reasons behind the existence of inequality. Landlords and landowners
dominate the rural activities. Land, livestock and other assets are owned by a few people.

12. Migration: Rural people are forced to migrate from villages to urban areas in order to seek gainful
employment for their livelihood. This character of the development gives rise to the formation of cities. Enmity
and Lack of basic amenities in rural areas also push the people to migrate to urban areas. This is called’ double
poisoning’ by Schumacher, one side villages are empty, on the other side towns are congested. His book is ‘’
Small is Beautiful “describes the dangers of the present kind of development.

KEY INDICATORS OF ECONOMICAL DEVELOPMENT:

These indicators help in understanding the level of development,comparisons

with other countries, or different time periods.These indicators help in better

planning towards achieving economic development.

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The indicators of economic development are:

1.Growth rate of National Income:

In this indicator real income is calculated on constant prices If there is rise in

national income, this indicates economic development.When there is high rate of

national income, development rate is high and vice versa

2.Per Capita Income (PCI):

The average income of the people living in the country is the per capita income.A

rise in PCI is an important indicator of economic development.The rise in PCI

indicates economic welfare of the country

3.Per Capita Consumption (PCC):

The increase in consumption of goods and services by the people is measured in

PCC.Example clothing, food, education, health etc.An increase in PCC shows

better quality of life of people and higher economic development of the country.

4. Physical Quality Life Index (PQLI) and Human Development Index (HDI):

PQLI is the overall welfare of the people in life expectancy, infant mortality rate,

standard of living.HDI measures life expectancy, education and standard of

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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living.A rise in PQLI and HDI shows an improvement in quality of life of people

and therefore economic development.

5.Industrial progress:

Industrial progress is an important indicator of the economic development of a

country. It helps to increase per capita income and the national output of the

country.

6.Capital formation:

It means investing in transport, irrigation, roads, electricity, technology etc. higher

capital formation will lead to higher economic development.The indicators under

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economic development are more towards the qualitative improvement of people in

the country.A higher rate of these indicators shows a higher level of economic

development.

INCLUSIVE AND SUSTAINABLE DEVELOPMENT

The conditions must be created to allow people to have quality

jobs that stimulate the economy while not harming the environment.

Elements of inclusive growth:

1. Poverty Reduction

2. Employment generation and Increase in quantity & quality of employment.

3. Agriculture Development

4. Industrial Development

5. Social Sector Development

6. Reduction in regional disparities

7. Protecting the environment.

8. Equal distribution of income

9. Major elements of Inclusive Growth

10. Agriculture Development

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

11. Industrial Development

12. Environment

13. Protection

14. Poverty Reduction

15. Employment Generation

SUSTAINABLE DEVELOPMENT GOALS

CHAPTER 2: APPROACHES TO RURAL DEVELOPMENT

GANDHIAN MODEL:

is a partnership model that significantly believes in

inclusion as well as the development with dignity.

FEATURES OF GANDHIAN MODEL:

1.Gandhian theory of an economy is related to the development of society, people

etc that are from the rural background.

2.It was depending on the combination of truth and nonviolence, corporations’

sacrifices and the selfless services.

3.The principle of Gandhian economy is based on the Trusteeship. The Gandhian

model is a partnership model that significantly believes in inclusion as well as the

development with dignity.

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
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4.In this respect everyone should be treated equally and everyone should get

benefits from it

5.Trusteeship is one of the features of the Gandhian principle means in this all the

business model is based on the trust basis.

OBJECTIVES OF GANDHIAN MODEL:

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1.The Gandhian Model's main goal is to enhance the masses' material and cultural

levels to provide a basic standard of living.

2.It placed a strong emphasis on agricultural research and development, as well as

the rapid growth of cottage and village businesses.

Which Five-Year Plan is Known as the Gandhian Model?

The Third Five-Year Plan can be referred to as the Gandhian Model. It commenced

from 1961-1966 under the leadership of Pandit Jawaharlal Nehru. The major

objectives of the Third five-year plan were the establishment of an independent

economy. Such an economy was based on the idea of establishing a self-reliant and

self-generating economy, enhancement of agriculture and improvement in the

production of wheat. This plan was also known as the Gadgil Yojana. D.R. Gadgil

was the Deputy Chairman of the Planning commission during the tenure of this

five-year plan.

OBJECTIVES OF THIRD FIVE YEAR PLAN:

1. Establishment of larger equality of opportunity

2. A yearly rise in national income of more than 5%.

3. The established investment strategy must be able to maintain this growth

rate over the coming years.

4. Expansion of basic industries.

5. Maximising the nation’s human capital.

6. Reduction in disparities observed in terms of income as well as a wealth

7. Better distribution of economic resources.

8. Achieving self-sufficiency in terms of food grains.

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9. To increase agricultural production

10.Fully utilising the manpower resources for better economic opportunities.

VARIOUS APPROACHES OF COMMUNITY DEVELOPMENT

1.The needs-based approach:

focuses on the community's needs, deficiencies and problems. It focuses on

identifying needs in a deteriorating community and creating external inputs to meet those needs. as a traditional
approach, is generally understood as a deficit model which focuses on the community's needs, deficiencies and
problems.

2.The problem solving approach :

focuses on different methods approaches that can be used in creating

different solution for the problems that are faced by communities.

3.Participatory approach:

focuses on ensuring that people are educated and encouraged to

participate in the development process. People should participate in every

step from initiation to evaluation on every development project and programme.

4.The asset Based Community Development:

is an approach to sustainable community-driven

development. Asset Based Community Development's basis is that communities

can drive the development process themselves by identifying and mobilizing

existing, but often unrecognized assets.

5.The power conflict approach:

concentrates on creating a peaceful community. The process deals

with solution that will deal with conflicts that slow the progress and

hamper development process

6. Welfare approach:

Is an approach that deals with working communities to build their

capacity that improves their wellbeing, happiness and eventually their prosperity

7.Right based approach:

focused on ensuring that people human rights are by themselves and the

leaders. The process deals with human rights abuses which especially have kept

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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people in suffering and poverty.

MINIMUM NEED APPROACH

The Minimum Needs Programme was introduces in the fifth Five-Year Plan (FYP)

to provide certain basic minimum needs to people and imporve the standard of

living. India was among the pioneers who recognised that through public

expenditures on social consumption needs, (foodgrains at subsidised rates,

education, health, water supply and sanitation) people's living standards should be improved. Three major
programmes that aim at improving the food and nutritional

status of poor are:-

(i) Public Distribution System

(ii) Integrated Child Development Scheme

(iii) Midday Meal Scheme

AIM: to improve the living condition of poor also promote their education and health

INTEGRATED RURAL DEVELOPMENT PROGRAMME{IRDP}

The Integrated Rural Development Program (IRDP) was launched by the

Government of India during 1978 and implemented in 1980 and continued till

1999. After that, IRDP, along with 5 other schemes, was rebranded as the

Swarnjayanti Gram Swarozgar Yojana. It is aimed at the self-employment of the

rural poor.

The beneficiaries of IRDP are:

1. Rural poor

2. Artisans

3. Marginal farmers

4. Schedule castes

5. Schedule tribes

6. Backward classes with an average income of less than Rs. 11,000.

Elements of the IRDP Programme

1. A 5-year development program was drawn up for each district.

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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2. Eradicate poverty, hunger, and unemployment from rural India.

3. Provide self-employment opportunities.

4. Take up measures for poultry and livestock development.

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5. Promote cottage industries in the villages.

Problems with IRDP

1. The resources provided were inadequate.

2. There was large number of over dues.

3. Poor quality of assets provided to the beneficiaries.

4. The follow up of the beneficiaries was inadequate.

5. Lack of training facilities to s-mall and marginal farmers.

SUBSIDARIES OF IRDP:

1. Financial institutions provide a 25% subsidy to the first target category of

small farmers.

2. The second target category, rural craftsmen, marginal farmers, and

agricultural laborers, receives a subsidy of 33.5 percent.

3. Finally, these financial institutions subsidize the SC/ST and physically

handicapped groups by 50%.

4. The ceiling for SC/ST and differently-abled group subsidies has been set at

Rs.6000. For now, DPAP and non-DDP localities will be charged Rs.4000,

while DPAP and DDP localities will be charged Rs.5000.

5. Guaranteed subsidies of 50%, 40%, and 3% are available to SC/ST, women,

and differently-abled people, respectively. Priority is always given to groups

with a limit excess, as well as Green Card holders, under free bonded worker

and family assistance programs.

OBJECTIVES OF IRDP:

The main objectives are creating assets, employment, increased income

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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removal of poverty and minimizing in equality

IMPLEMENTATION OF IRDP:

1. The district rural development agency (DRDA) was created to function at

the district level as a single agency for the implementation of IRDP, DPAP,

DPP etc., to implement integrated rural development.

2. Funds for the programme are released to DRDA’s on the stipulation that

expenditure should be equally shared by the centre and the state.

SD|24192196

INCLUSIVE GROWTH APPROACHES

Inclusive growth approaches recognise that high levels of inequality

weaken economic performance.

FEATURES OF INCLUSIVE GROWTH:

1. Address the constraints of the excluded and marginalised.

2. Participation from all sections of society

3. Reduction in disparities among per capita incomes between:

i. Different sectors of economy

ii. Different Sections of society

iii. Rural And Urban Areas

iv. Different genders

4. Non – discriminatory

5. Higher potential of poverty reduction

6. Ensure access of people to basic infrastructure and basic services/capabilities

such as basic health and education. This access should include not only the

quantity, but also quality of these basic services.

7. Include poor, lagging socio – economic groups and lagging regions as well

as they are partners in this growth.

ELEMENTS OF INCLUSIVE GROWTH:

1.Skill Development:

Harnessing the demographic dividend will depend upon the

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employability of the working age population, their health, education, vocational

training and skills. Skill development plays a key role here. India is facing a

dual challenge in skill development:

There is a paucity of highly trained workforce

There is non-employment of conventionally trained youths

According to the Economic Survey 2017, over 30% of youth in India are NEET

(Not in education, employment or training).

2.Financial Inclusion:

Financial Inclusion is the process of ensuring access to financial services

to vulnerable groups at affordable costs.Financial inclusion is necessary for

inclusive growth as it leads to the culture of saving, which initiates a virtuous

cycle of economic development.

3.Technological Advancement:

The world is moving towards an era of Industrial Revolution

4.0. These technological advancements have capabilities to either decrease or

increase the inequality depending on the way these are being used. Several

initiatives have been taken by the government, e.g. Digital India Mission, so

that a digitally literate population can leverage technology for endless

possibilities. Technology can help to combat other challenges too.

4.Economic Growth:

India is among the fastest-growing major economies in the world.

However, currently Indian economy is facing slowdown due to both cyclic and

structural challenges. However, the target of becoming a $ 5 trillion economy

by 2024-25 can allow India to reduce inequality, increase social expenditure

and provide employment to all.

5.Social Development:

It means the empowerment of all marginalised sections of the

population like SC/ST/OBC/Minorities, women and transgender. Empowerment

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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can be done by improving institutions of the social structure i.e. hospitals

especially primary care in the rural areas, schools, universities, etc. Investment

in social structures will not only boost growth (by fiscal stimulus) but will also

create a healthy and capable generation to handle future work.

CHALLENGES OF INCLUSIVE GROWTH

1. Poverty

According to the 2018 Multidimensional Poverty Index (MPI), India moved

271 million people out of poverty between 2005-06 and 2015-16, with the poorest 6 regions, groups, and
children experiencing the most rapid reduction in poverty. At the subnational level, India has the most obvious
pro-poor tendency.

Still, despite the huge gains, 373 million Indians continue to face terrible

deprivations. In addition, 8.8 percent of the population lives in severe

multidimensional poverty and 19.3 percent are at risk of multidimensional poverty.

2. Unemployment

According to the NSSO’s Periodic Labour Force Survey (PLFS), the urban

unemployment rate was 7.8 percent, while the rural unemployment rate was 5.3

percent, bringing the total unemployment rate to 6.1 percent.Due to illiteracy and an excessive reliance on
agriculture, the quality and quantity of employment in India are low.As more than 80 percent of people labour in
the informal economy without social protection, employment quality is problematic.

3. Agriculture Backwardness

Around 44 percent of Indians are employed in agriculture, yet agriculture’s

contribution to India’s GDP is just 16.5 percent, resulting in widespread poverty.

The following are agriculture-related issues:

i. Declining per capita land availability

ii. A gradual decline in the employment rate

iii. Low labour efficiency

iv. Decrease in agricultural output due to climate change, soil degradation, and

water scarcity

v. Disparities in regional and crop growth

4. Problems in Social Development

Social development is one of the most important aspects of inclusive

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
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growth. However, it faces obstacles such as:

i. Significant geographical, social and gender differences

ii. Low level and sluggish growth of public expenditures, especially in the

health and education sectors

iii. The substandard delivery system

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iv. Social factors are significantly less favourable for OBC, SC, ST, and

Muslims

v. Child malnutrition — India ranks 102nd on the Global Hunger Index

5. Regional Disparities

Regional imbalances are a serious concern for India. Regional inequalities are

created by factors such as the caste system, the divide between affluent and poor,

etc., which lead to a system in which certain groups have greater privileges than

others.

CHAPTER 3: POVERTY AND UNEMPLOYMENT IN RURAL INDIA.

POVERTY:

Meaning

Poverty is defined as a state or circumstance in which an individual or a group lacks the financial means
and necessities for a basic level of living. It can also be defined as a situation in which one's earnings from
work are insufficient to meet fundamental human requirements.

World Bank: "Poverty is defined as deprivation in well-being and comprises many dimensions. It includes
low incomes and the inability to acquire the basic goods and services necessary for survival with dignity.

United Nations: "Fundamentally, poverty is a denial of choices and opportunities, a violation of human
dignity. It means a lack of basic capacity to participate effectively in society.

Measurement of Poverty in India

1. Absolute Measurement of Poverty

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Absolute Poverty: According to United Nations World Summit for Economic development, absolute
poverty is a condition characterised by severe deprivation of basic human needs, including food, safe
drinking water, sanitation facilities, health, shelter, education and information. It depends not only on
income but also on access to social services.

Poverty Threshold: The poverty threshold in absolute measurement of poverty is set using the monetary
value of the basket of essential products (required for basic needs) and every household whose income is
less than this value will be classified as poor.

Limited Scope: Absolute measurements of poverty, used by the World Bank and

developing countries like India, rely on a poverty line which remains constant across

geographies and over time.

criticism: Absolute measurement of poverty overlooks deprivation within countries or the higher cost of
living in developed countries.

2. Relative Measurement of Poverty

Relative Poverty: It is present when a household income is lower than the median income in a particular
country and is used mainly by the developed countries.

Those who fall into the category of relative poverty are not necessarily deprived of all basic needs, but
may not experience the same standard of living as the majority of society or in other words, they are
relatively deprived.

Poverty Threshold: In this method certain percentage of economically bottom population is always
considered below the poverty line.

criticism: This approach, though, ignores the importance of the absolute standard of living and assumes
that relative income is all that matters for welfare.

3. Data Collection Methods

Uniform Resource Period (URP): Up until 1993-94, the poverty line was based on URP data, which
involved asking people about their consumption expenditure across a 30-day recall period that is the
information was based on the recall of consumption expenditure in the previous 30 days.

Mixed Reference Period (MRP): From 1999-2000 onwards, the NSSO switched to an MRP method which
measures consumption of five low-frequency items (clothing, footwear, durables, education and
institutional health expenditure) over the previous year, and all other items over the previous 30 days.

That is to say, for the five items, survey respondents are asked about consumption

in the previous one year. For the remaining items, they are asked about consumption in the previous 30
days.

Pre-Independence Poverty Estimation

Dadabhai Naoroji through his book, "Poverty and Unbritish Rule in India" made the earliest estimation of
poverty line (16 to 35 per capita per year).

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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The poverty line proposed by him was based on the cost of a subsistence or minimum basic diet (rice or
flour, dal, mutton, vegetables, ghee, vegetable oil, and salt).

National Planning Committee's (1938) poverty line (ranging from 15 to 20 per capita per month) was
also based on a minimum standard of living perspective in which nutritional requirements were implicit.

In 1938, the National Planning Committee was set up by Subhash Chandra Bose under the chairmanship
of Jawaharlal Nehru for the purpose of drawing up an economic plan with the fundamental aim to ensure
an adequate standard of living for the masses.

The Bombay Plan (1944) proponents had suggested a poverty line of ₹75 per capita per year.

The Bombay Plan was a set of a proposal of a small group of influential business leaders in Bombay for
the development of the post-independence economy of India.

Post-Independence Poverty Estimation

Planning Commission Expert Group (1962), working group constituted by the Planning Commission
formulated the separate poverty lines for

0 VM Dandekar and N Rath (1971), made the first systematic assessment of poverty in India, based on
National Sample Survey (NSS) data.

Unlike previous scholars who had considered subsistence living or basic minimum needs criteria as the
measure of poverty line, VM Dandekar and N Rath were of the view that poverty line must be derived
from the expenditure that was adequate to provide 2250 calories per day in both rural and urban areas.

Expenditure based Poverty line estimation, generated a debate on minimum calorie consumption norms.

Alagh Committee (1979): Task force constituted by the Planning Commission under the chairmanship of
YK Alagh, constructed a poverty line for rural and urban areas on the basis of nutritional requirements
and related consumption expenditure.

Poverty estimates for subsequent years were to be calculated by adjusting the price level for inflation.

Lakdawala Committee (1993): Task Force chaired by DT Lakdawala, based on the assumption that the
basket of goods and services used to calculate Consumer Price Index- Industrial Workers (CPI-IW) and
Consumer Price Index-Agricultural Labourers (CPI-AL) reflect the consumption patterns of the poor,
made the following suggestions:

Consumption expenditure should be calculated based on calorie consumption as earlier.

State specific poverty lines should be constructed and these should be updated using the CPI-IW in urban
areas and CPI-AL in rural areas.

Discontinuation of scaling of poverty estimates based on National Accounts Statistics.

Tendulkar Committee (2009)

Expert group constituted by the Planning Commission and, chaired by Suresh Tendulkar, was constituted
to review methodology for poverty estimation and to address the following shortcomings of the previous
methods:
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Obsolete Consumption Pattern: Consumption patterns were linked to the 1973- 74 poverty line baskets
(PLBs) of goods and services, whereas there were significant changes in the consumption patterns of the
poor since that time, which were not reflected in the poverty estimates.

Inflation Adjustment: There were issues with the adjustment of prices for inflation, both spatially (across
regions) and temporally (across time).

Health and Education Expenditure: Earlier poverty lines assumed that health and education would be
provided by the state and formulated poverty lines accordingly.

Causes of poverty

The causes of poverty are multidimensional and they can be categorised as:

Economic Causes

Poor economic growth and development: Poverty is widespread in countries with slow economic growth
as a result of faulty government policy. Poverty is also caused by stagnant or slow-moving economic
progress.

Increasing unemployment: An imbalanced population-to-jobs ratio can result in mass unemployment,

which is a significant source of poverty. Increased and uncontrolled population is the most serious threat
to unemployment-related poverty in any country.

Reduced agricultural output: Unpredictable weather patterns may be to blame. Inflationary pressures are
exacerbated by lower agricultural output. Without a solid agricultural backbone, no country can achieve
economic equilibrium. Agriculture accounts for a large portion of a country's economy, and it must be in
surplus to keep poverty at bay.

Inadequate infrastructure; Infrastructural development promotes economic growth and, as a result,

determines a place's poor position.

Inadequate industrialisation in some areas: Industries generate jobs for the people who live in the area.
Concentration of industries in a single state or location boosts employment in that area, but
disadvantaged areas suffer from severe poverty. Inadequate industrialisation leads to poverty since work
prospects in that location are restricted. When compared to part-time occupations, industries also
provide higher- paying opportunities.

Inadequate production of basic essentials: Any insufficiency in the production of basic necessities results
in poverty across the country. To avoid poverty, food and non-food necessary production must always be
sufficient.

Resource deprivation: Natural resource deprivation, as well as imposed or situational deprivation, can
result in poverty. People are deprived of their desired lifestyle and work possibilities due to a lack of
enough resources and opportunity, which pushes them into poverty.

Uneven distribution of wealth and resources: A country with an uneven distribution of wealth and
resources is more likely to be poor than one with a uniform distribution. Uneven concentration results in
an extreme situation in which people are either neo-rich or poor. The whole economy and growth of a
country are harmed by this imbalance.

Natural resources that are underutilised: Natural resources are a gift from God,and a location with
abundant natural resources is blessed. As a result, every location's natural resources must be fully
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

explored and exploited in order to reap the full economic value. This should be a government initiative to
ensure that no one suffers from poverty as a result of under-utilisation of natural resources in any
location.

Inflationary economics: Inflationary economics impacts not only the impoverished but even the middle
class of socie society. This means that more people are living on the edge of poverty. Economic inflation is
tremendously harmful to a country's economy and affects people from all walks of life. A country's
economy may also take a long time to recover from economic inflation, resulting in years of hardship.

Social causes

Untouchability: is an unfair social practise in certain of the country's most backward areas that denies
individuals of the lower castes their democratic rights. They are rejected by society and forced into
poverty. They are not permitted to seek general employment and are compelled to work in low-wage
jobs.

Unethical abuse of authority: When power is abused, it has a skewed perspective and never aids the poor
and disadvantaged. A corrupt administration would constantly seek to maintain the status quo in order to
maintain greater influence over the populace.

Another major source of poverty in corrupt countries is this.

Ignorance and illiteracy are widespread: Illiteracy is another important source of poverty. People who are
uneducated are unable to realise their full potential, and as a result, their earning opportunities are
limited. They are unable to compete with their educated counterparts in a competitive culture, and as a
result, they remain poor. People's ignorance is also caused by illiteracy. They are completely uninformed
of all of the possibilities that modern civilisation has to offer, and they live their lives in ignorance.

Densely populated areas: Densely populated areas boost competition in the labour market. As a result,
poverty emerges in any overcrowded area as competition rises and opportunities decline.

Using the caste system: The caste system divides people in society (depending on their occupation) and
prevents them from seeking work outside of their caste. A person from a lower caste, for example, will not
be permitted to work as a businessman or dealer. The poor become poorer as a result of this system,
while the wealthy become wealthier. Another major source of poverty is an imbalanced and unfair
system.

High divorce rates and feminisation of poverty: To eliminate feminisation of poverty, the female gender in
society should be given equal employment chances. Furthermore, high divorce rates result in poverty for
women who are unable to sustain themselves due to gender inequity.

Inequality of accessible opportunities: Poverty can be caused by societal inequality

Geographical Factors

Population density: The poverty graph of a location is also determined by the population density of the
area. When it comes to poverty, densely populated areas turn a bright red.

Selective soil fertility: Soil fertility varies from place to place and is not the same in every region of a
country. While the fertile parts have abundant agricultural produce, the infertile lands are naturally
forced into poverty.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Uneven distribution of fertile land: Fertile lands are spread unevenly around the globe, which is a major
cause of poverty in naturally unfertile areas. Local people benefit from fertile grounds since they can
work in agriculture and do not have to look for work to make a living. Unfertile lands cut off the locals'
access to the agricultural sector and eliminate this source of work, which is one of the most popular
among the village's ignorant residents.

Varying farm output: Farm output changes from year to year and from season to season. A good year will
yield a lot of fruit, but droughts and other natural disasters might limit the harvest. In difficult times, this
variability also leads to poverty.

Differences between rural and urban poverty: There are numerous differences between rural and urban
poverty. The disparity between rural and urban lifestyles has various consequences in terms of poverty.
For example, due to the high cost of living under the latter scenario, poor people are more likely to
survive in rural areas than in metropolitan ones.

Environmental and climatic factors

Land flooding: Natural disasters such as floods can entirely devastate farms and have a negative impact
on agricultural output. This will result in unwelcome poverty that a government will rarely be able to
address.

Droughts: Drought is another climatic hardship that leads to poverty. Droughts last for long periods of
time, wreaking havoc on farms and agricultural productivity. Droughts are a constant source of poverty in
the majority of countries.

Inadequate seasonal rainfall: Any irregularities in seasonal rainfall might lead to major poverty issues.
Due to the lack of forecasted rainfall, agricultural produce is disrupted, resulting in inflation-related
poverty.

Poverty is a condition or state in which a person or a community lacks the financial resources and
necessities to maintain a minimum standard of living. Poverty is defined as a situation in which one's
earnings from work are insufficient to meet fundamental human requirements. The main reasons for
poverty are accelerating population growth, declining agriculture output and inefficiently used resources.
Economic progress at a snail's pace, Price rises steadily, Unemployment, In the absence of sufficient
finance and qualified entrepreneurship, Factors such as social, political, and economic are all important.

FARM AND NON-FARM EMPLOYMENT

3.3.1. Farm Employment

Though the share of agriculture in the aggregate economy has declined rapidly during the planned
development of the country, it assumes a pivotal role in the rural economy. The NSS quinquennial surveys
on employment show a decline in the share of agriculture and an increase in the share of non-agricultural
sector in aggregate employment. Such a structural shift though expected in a developing economy, has
been slower in the Indian economy. This process is even slower in the rural economy. Nevertheless, in
rural India the growth rate of employment in the non-agricultural sector has been far short of the
increase in the rural workforce. As a consequence, the incidence of rural unemployment on the basis of
current daily status (CDS) is as high as seven per cent in the year 1999-00. There is no evidence to
suggest improvement in the quality of rural employment, which is generally associated with the
structural changes of employment. In this context employment in agriculture remains important. The
recent NSS quinquennial survey on employment shows that the number of agricultural workers has
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

almost stagnated. Agricultural income during the '90s has however grown at an impressive rate. Does this
suggest jobless growth in agriculture as well? The association between employment and income in
agriculture needs to be investigated.

Farm employment is characterised by seasonal labour peaks, where large numbers of workers may be
hired for relatively short periods. With 1.3 billion people employed in the sector, agriculture is the second
greatest source of employment worldwide after services and it accounts 28% of global employment.

The latest PLFS report shows a sharp increase in employment in agriculture from 42.5% of the total
employment in 2018-19 to 45.6% in 2019-20. "While PLFS records a 3.1 percentage point increase in
labour into agriculture, CPHS estimates a much smaller increase of 1.9 percentage points," it said.

CMIE data from the consumer pyramid household survey shows the share of agriculture in total
employment has gone up from 35.3% in 2017-18 to 36.1% in 2018-19 and then to 38% in 2019-20.
Worst still, CPHS data shows reverse migration to agriculture continues even in 2020-

Characteristics of Farm employment in India

attached labourers are those workers who are attached to some other farmer households on the basis of
a written or oral agreement.

landless labourers who exclusively work for others. tenants who work on leased land but work most of
the time on the land of others;

sharecroppers who also work as agricultural labourers. Measurement of Farm labours: They remain
largely unorganised, and as a result their economic exploitation continues. Their level of income, standard
of living and the rate of wages have remained abnormally low.

Farm Wages and Income: In India, the farm wages are very low. The First Agricultural Labour Enquiry
Committee in its report mentioned that the per capita annual income of agricultural labour families was
as poor as Rs 10,000 in 2020-21 and the annual average income of the household was Rs 15,000.in rural
area. After the introduction of improved farming methods and mechanisation of the level of income of
middle and rich farmers increased but at the same time due to fall in the demand for labour real wages
declined.

Employment and Other Working Conditions: In India the agricultural labourers are facing severe
unemployment and underemployment problem as there is no alternative sources of employment.
Although the system of bonded labour is abolished but according to NSS (32 round) about 3.5 lakh
bonded labourers still exist in India.

Factors Responsible for the Poor Conditions of Farm labour:

(i) Unorganised: Agricultural labourers in India are totally unorganised as they are ignorant, illiterate and
widely scattered. Thus, the farm workers have no capacity to bargain for securing a fair wage level.

(ii) Low Social Status: Farm workers mostly belong to depressed classes and thus they are lacking the
courage to assert their basic rights.

(iii) Seasonal Unemployment: As the agricultural operations are seasonal thus the farm workers are often
facing the problem of seasonal unemployment and underemployment. Farm workers on an average get
employment for about 200 days in a year.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

(iv) Absence of Alternative Occupations: In the absence of alternative occupation in the rural areas the
farm workers are not getting alternative jobs when they suffer from seasonal unemployment.

(v) Growing Indebtedness: Agricultural labourers in India are highly indebted. As the level of wages is
very poor thus the farm workers have been borrowing from landlords and become bonded labourers
ultimately.

Thus, considering these above factors it can be said that the agricultural labourers in India are living in
inhurnan conditions and in the absence of organised status they are deprived of all the basic amenities of
life.

Measures Adopted by the Government to Improve the Conditions of Farm labour

In order to improve the conditions of agricultural labourers in India both the Central as well as the state
Governments have taken various steps since independence. These measures are as follows:

(i) Abolition of Bonded Labour: In order to remove agrarian slavery after independence Indian
constitution has undertaken legislative measures to abolish the practice of bonded labour. Accordingly,
the Bonded Labour System (Abolition) Act 1976 was passed and about 2.51 lakh bonded labourers were
identified and freed in different parts of the country.

(ii) Minimum Wages Act: In 1948, the Minimum Wages Act was passed and the state Governments was
advised to fix the minimum wages accordingly. But due to some practical difficulties most of the states
could not fix minimum wages till 1974.

(iii) Distribution of Landless Labourers: After passing legislation for fixing ceiling on land holdings, state
Government acquired surplus lands and distributed it among the landless labourers. About 74 lakh acres
of land were acquired as surplus land and out of which 45 lakh acres were distributed among 41.5 lakh
landless labourers. But most of these lands distributed are found unsuitable for cultivation.

(iv) Provision for Housing Sites: Various states have passed necessary legislations for providing housing
sites to agricultural labourers. The Second and Fourth Plans have undertaken various steps for this
purpose.

(v) Various Employment Schemes: For providing alternative source of employment among the
agricultural labourer's various schemes have already been launched by both the Central and the state
Governments. These schemes include:

Rural Works Programme (RWP),

Crash Scheme for Rural Employment (CSRE),

Employment Guarantee Scheme (EGS) by the Government of Maharashtra,

Food for Work Programme (FWP),

National Rural Employment Programme (NREP),

Rural Landless Employment Guarantee Programme (RLEGP),

Jawahar Rozgar Yojana (JRY) etc.

(vi) Special Agencies: During the Fourth Plan two special agencies - Small Farmers Development Agency
(SFDA)
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Marginal Farmers and Agricultural Labourers Development Agency (MFALA) were developed for
conducting Various works like irrigation, land leveling, soil conservation, dairy development, piggery
development, poultry breeding etc. During the Fifth Plan both agencies were merged into a single
programme.

(vii) 20-Point Programme: The Government introduced the 20-point economic programme in July 1975
in which steps were taken to improve the economic condition of landless- workers and other weaker
sections of the society in the rural areas. These steps include speedy implementation of ceiling laws and
then distribute the surplus land among the landless, making provision for housing sites for landless
labourers, abolition of bonded labour, liquidation of rural indebtedness.

Suggestions for Improving the Conditions of Agricultural Labourers:

Implement the Minimum Wage Act seriously

By improve their bargaining power

Create alternative sources of employment by developing small scale and cottage industries in the rural
areas.

Improve the conditions of agriculture by adopting improved intensive methods an

multiple cropping.

Improve the working conditions of agricultural labourers.

Promote cooperative farming.

To introduce social security measures for the agricultural workers.

Introduce compulsory insurance on marginal contribution.

Institute old age pension schemes for the agricultural workers by the government.

3.3.2 Non-Farm employment in India

Employment in the informal economy as a percentage of total non-agricultural employment. It basically

includes all jobs in unregistered and/or small-scale private unincorporated enterprises that produce
goods or services meant for sale or barter.

The non-farm "sector" includes all economic activities in rural areas except agriculture, livestock, fishing
and hunting. Since it is defined negatively, as non-agriculture, it is not in any sense a homogeneous sector.

This sector includes economic activities like household and non-household manufacturing, handicrafts,
processing, repairs, …

The market for buying and selling products and services is expanding.

Good roads and communication help to set up more engagement in the non-farming activities.

Importance: The non-farming activities thus, play a vital role in providing employment facilities to small-
scale farm household or to the rural-urban migrating population. Studies show that the productivity of
farming activities has been seen considerably reducing in the contemporary times.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Rural non-farming activities have become of primary importance in the changing contemporary times,
because of many reasons. The reason being, the employment growth of the farm sector has not been
consistent or of a reliable outcome, wherein rural non-farming activities play a major role in creating
employment in the population.

Secondly, if properly strategised, non-farming activities may prevent the migration of many rural people
from rural to urban spaces, due to lack of employment opportunity.

Thirdly, when employment opportunities go beyond the quintessential agricultural economy, it helps to
bridge the urban-rural economic lacuna.

Fourth, rural non-farm activities incur less capital and employ a larger percentage of manpower/labour.
Further, rural industrialisation, (falling under the category of non-farming activities) indirectly has ways
to spin-off agricultural industries too.

Finally, the rural spaces having the rural non-farming industries are seen to have much lesser unequal
income distribution, compared to rural areas with the facility of non- farming industries.

(i) The non-farm production activities help in establishing a market in the village.

(ii) They act as the source of income for the farmers.

(iii) They provide employment to landless workers. Every village in India is surveyed once in ten years
during the Census and some of details are presented in the following format.

Classification of Non-Farming Employment

One can classify non-farming activities into three broad categories, namely regular employment, self-
employment and casual employment. Studies show that the status was around 27 million people were
underemployed in the organised sector in 2003. However, this percentage has been seen rapidly
decreasing since the year 1998. Studies further reveal that 92% of Indian workers are employed in the
unorganised sector while the organised sector constitutes about 8% of the populous. It is, therefore, this
informal trend of farming and non-farming activities is a huge cause of the existence of the unorganized
sector in India. Thus a keen study of the non- farming activities in the rural area would reveal how with
time, it has evolved into a steady means of rural employment, acting as an alternative to farming activities
and creating better employment opportunities in the rural sector as well.

Some non-farming activities that are carried out in a modern village are: Activities car include various
ventures like handicrafts, household as well as non-household small-scale manufacturing, construction,
mining, quarrying, repair, transport, community service etc., but of course in the designated rural areas.

Dairy: People involve themselves in feeding their cattle with various kinds of grass and sell milk in the
nearby villages....
Small Scale Industries: ...
Transport:
Shop Keeping:

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Cottage industries:
Tailoring:
teaching:
Communication:
TYPES OF EMPLOYMENT

1.Full-Time Employment:

The most typical employment type is full-time work. Employees who are

employed full-time have set hours and full leave privileges. Depending on who you

ask, full-time employment can mean different things. For many employers, full

time employment often entails a workweek of at least 40 hours. Yet, the following,

as relevant to an employer, limit normal working hours to nine hours each day and

a max of 48 hours per week:The state-specific Shops and Establishment Act, which

applies to establishments other than factories,and the Factories Act of 1948, which

pertains to factories.The number of working hours is often decided jointly by the

employer and the employee. Full-time employees are entitled to paid holidays if a

public holiday falls on a typical workday. They are open-ended contracts as

agreements with employees are undefined and only terminate when either the

employee or the company chooses to. Employers anticipate regular attendance at

work from their full-time staff members as well as advance notification of absences

and contract termination. In exchange, companies must provide a warning before

terminating a full-time employee unless a full-time employee violates the terms of

their contract. Employers may provide redundancy compensation or payout notice

periods to dismissed full-time workers.

2.Part-Time Employment

Part-time employees often work for a company for less than

30 hours per week. They share the same rights and obligations as full-time

employees. Additionally, they put in fewer regular hours than full-time workers do.

They might work irregular shifts or consistently on fixed days of the week, like

part-time nurses and shop employees. Parents, students, and anyone with health

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

issues that make the full-time job difficult should frequently consider part-time

work. According to the total hours they serve, part-time employees earn paid leave on a pro-rata basis
and are entitled to the same unpaid leave as full-time

workers.Part-time workers are not specifically covered by any laws. Regular

employees normally have the same privileges as part-timers; the only distinction is that part-timers
receive proportionate benefits.

The Industrial Disputes Act of 1947

recognises fixed-term contracts for workers as an exception to the definition of

retrenchment (termination in the broad sense), and as such, they are acceptable as

long as they are not used to avoid or deny regular employment.Additionally,

employers anticipate part-time workers to show up to work on time, plan their time

off, and give notice before quitting. In exchange, businesses must provide

information before firing a part-time worker. Part-time workers who have contracts

that are terminated may get comparable amounts.

3.Casual Employment

Casual employees put in irregular hours by the demands of the

company. Students who prefer working around their academic and social

obligations will frequently find this employment type ideal. Checking their rosters,

working their assigned shifts, or exchanging them with another employee are all

responsibilities of casual employees.When the business is crowded, or other

employees are ill, their employers may ask them to fill in for shifts outside of their

rostered job. Casual workers have the option to accept or reject these shifts. Casual

workers may be eligible for long service and parental leave after a year with one

employer. Employees who meet the pay and workload standards additionally

receive pro-rata superannuation based on the number of hours they put in. They do,

however, take unpaid vacations and sick days. To cover up these, casual workers

are also paid a simple loading in addition to their regular hourly wage. They can

also take vacations and terminate their work at any time, without giving notice,

provided their award or contract of employment says otherwise.

4.Contract Employment

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Due to the fixed-term contract involved, contract employment, also

called fixed-term employment, refers to individuals who work for an employer for

a predetermined amount of time. These contracts feature dates for both the

beginning and finish. Businesses frequently use contractors to carry out certain

duties or complete specific projects. Additionally, they might engage them to

increase staff numbers during busy times or to fill in for absent workers. The

employer and contractor may decide to cut ties after the contract expires or agree

to new terms. If the person has shown they are a valued asset, they may receive an

open-ended full-time or part-time contract rather than another fixed-term one.

Contractors can work full-time, part-time, or temporary employees during their

agreement. Employees anticipate that their contractors will complete the entirety of

their agreement. Contractors are allowed to take time off, but many choose to wait

until the conclusion of their contracts to avoid upsetting their employers.

5.Apprenticeship

Apprentices are the newcomers to the trade sectors. While pursuing their

vocational certifications, people might get experience in their chosen trades

through this form of job. Skilled and certified artisans supervise apprentices. Over

time, they frequently assume increasing duties. They are entitled to the same leave

and superannuation as average craftsmen. To ensure that their labour contributes

toward their certifications, businesses must adequately register their apprenticeship

programmes.Apprentices are paid at the rates specified in registered agreements or

awarded by employees. These rates are based on the duration of the apprenticeship.

However, payroll taxes are not deducted from employees' apprentice wages. An

internship is a fixed-term commitment that lasts for the time of obtaining the

apprentice's credentials. After receiving their credentials, the most competent and

dependable apprentices generally sign full-time employment contracts with their

trained businesses.

6.Traineeship

Trainees are unfamiliar with non-trade sectors like the media, finance,

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

and advertising. While pursuing a qualification, trainees, like apprentices, gain

hands-on experience in the field of their choice. Employers frequently monitor

trainees, especially at the beginning of their internships. Typically, traineeships are

registered.Trainees also receive regular employee benefits, including leave and

award earnings. Businesses frequently convert their top trainees to permanent

employees.

7.Employment on Commission

People who work on a single task are employed in commission-based

jobs, commonly known as piece rate jobs. For instance, a council might

commission a mural to be painted on a public wall. Instead of receiving an hourly

or weekly income for the time they spent creating it, the artist is paid a

predetermined agreed-upon sum for each work of art they produce. A commission

is a contract with a set duration only valid for the specified project. However, the

person who placed the order may place additional orders if they are pleased with

the work performed. Flexible working circumstances are available to commission

based employees. They can choose their hours as long as they do the requested

work by the established deadline. Instead of depending on employee contributions,

they fund their superannuation. Also, they take unpaid time off.

8.Probation

People frequently begin their employment with a corporation on probation.

Depending on the employer, probation is a brief period ranging from a few weeks

to a few months. Employees become acquainted with the company and their new

function while on probation. Depending on their chosen job, they might work full

time, part-time, or occasionally. If the employee is qualified, the employer

additionally covers superannuation.If an employer feels the situation isn't working

out, they have the right to cancel an employee's probationary contract anytime and

without explanation. Although it rarely happens, an employee, in this employment

type, may leave the organisation during this time without giving the notice to

explore other professional opportunities.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

REVIEW OF POVERTY ALLEVIATION

Alleviation of poverty remains a major challenge of planned economic development. Experiences of

different states with economic growth and poverty reduction have been so varied that it is difficult to
offer any general policy prescription. There are states that followed the path of high agricultural growth
and succeeded in reducing poverty (Punjab and Haryana) and states that focused on human resource
development and reduced poverty (Kerala). There have been states that implemented land reforms with
vigour, empowered the panchayats, mobilised the poor and implemented poverty-alleviation
programmes effectively (West Bengal) and states that brought about reduction in poverty by direct public
intervention in the form of public distribution of foodgrains (Andhra Pradesh). poverty had declined
substantially in 1980s. However, recent estimates suggest that projections on reduction of proportion
and number of people below poverty line made in the Ninth Plan have not been realised in the first two
years of the plan period. While this calls for a much more rigorous analysis, the possible factors that
might have contributed to this could be: fiscal crisis faced by State Governments resulting in lower
spending on social sectors, slowing down of and less dispersed agricultural growth, especially foodgrains,
decline in employment intensity in the agricultural sector with a small increase in real wages, failure of
Targeted Public Distribution System (TPDS) to reach the poorest in northern and eastern states, a
negligible expansion in the non-farm sector, and indifferent functioning of the poverty alleviation and
watershed development schemes.

Given the enormity and complexity of the task, the Ninth Five Year Plan envisaged a multi- pronged
approach. Besides recognising the role of high economic growth in tackling poverty, the strategy
comprised creation of entitlements (through self-employment and wage-employment schemes, food
security and social security) and building up of capabilities (through basic minimum services like
education, health and housing). The issues of governance also engaged the attention of the Plan, which
envisaged greater participation of the Panchayati Raj Institutions as the most effective delivery
mechanism for poverty reduction.

1. Integrated Rural Development Programme: The Integrated Rural Development Programme (IRDP) was
started in 1980-81 in all blocks of the country and continued as a major self-employment scheme till April
1, 1999. Then, it was restructured as the Swarnjayanti Gram Swarozgar Yojana (SGSY) which aimed at
self-employment of the rural poor. The objective will be achieved through acquisition of productive assets
or appropriate skills that would generate an additional income on a sustained basis to enable them to
cross poverty line. Rural poor families have remained constant in number at 55 million in the last 20
years despite high growth and high investment in IRDP and wage-giving programmes. Since the inception
of the programme till 1998-99, 53.50 million families have been covered under IRDP at an expenditure of
₹13,700 crore. During first two years of the Ninth Plan (1997-98 and 1998-99), about 3.37 million
families are reported to have been covered of which 46 per cent were Scheduled Castes/Scheduled Tribes
and 35 per cent women. The total investment during this period has been ₹6,431 crore including a
subsidy of Rs 2,266 crore.

2. IRDP has been extensively evaluated by researchers, scholars, various national institutions and
international organisations. They have all pointed out several conceptual and administrative problems
with it. IRDP has several allied programmes like Training of Rural Youth for Self-Employment (TRYSEM),
Development of Women and Children in Rural Areas (DWCRA), Ganga Kalyan Yojana (GKY), Million Wells
Scheme (MWS) and Supply of Improved Toolkits to Rural Artisans (SITRA). Together, they presented a
matrix of multiple programmes without desired linkages. These were implemented as separate

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

programmes without keeping in mind the overall objective of generating sustainable incomes. For
instance, only 3 per cent of IRDP beneficiaries received training under TRYSEM and only 23 per cent of
those trained thus were assisted under IRDP.

3. Not only are there no linkages between different programmes, there has been lack of coordination with
other departments as well. IRDP and the allied ones are not sufficiently enmeshed in the overall strategy
of sustainable agricultural development or rural industrialisations trategy or with the resource-base of
the area. In fact very few loans have been given for buying land. This absence of integration together with
lack of technological and institutional capabilities puts a question mark on the very strategy and design of
the programmes.

4. The average investment per family remained at sub-critical levels, too inadequate to erate income of
₹2,000 per family per month as the programmes had set out to do. Such generate investment at the
beginning of the Eighth Plan was ₹7,889. Even the investment at the beginning of Ninth Plan of 16,753
was not much higher in real terms. Such low per-family investment in the face of inflationary trends and
rising cost of assets cannot finance viable projects to offer adequate incomes on a sustained basis.

5. The management of such inherently unviable projects was in the hands of often illiterate and unskilled
beneficiaries with little or no past experience of managing an enterprise. There was however, an implicit
assumption that the prospective beneficiaries possessed information and skills to choose viable options,
had access to raw materials and were aware of nature of the product and factor markets. This was not the
case. IRDP did not take into account the disabilities from which the poor suffer, notably their exclusion
from the community decision-making. As a result, many beneficiaries could not retain the asset for long,
for some who did retain it the income generated was not enough to cross the poverty line. On the
contrary, where infrastructure was in place and markets were well developed, IRDP met with greater
success. These were the regions where many people even without the subsidy would have taken to
entrepreneurial activities.

6. The delivery of credit by banks has also been a constraint. The fear of default meant that banks lent to
the better-off applicants who could make their projects work, or to the unscrupulous who would pocket
the subsidy element and repay the loan in connivance with the bank. Furthermore, the bureaucratic
procedures were also too complex and beyond the comprehension of beneficiaries.

7. Lack of imagination and planning led to overcrowding of lending for certain projects. For quite
sometime, IRDP was seen as a scheme for distributing milch animals without any concern whether so
much of feed and fodder and veterinary care would be available or not and whether there was any
demand or market for the products. As a result, the same cattle changed hands several times with the
involvement of banks, block officials and the beneficiaries in collecting the subsidy. Situation has changed;
now there is greater emphasis on secondary and tertiary sector activities. However, the profitable
activities in these sectors get saturated very fast as a result of over-lending. The basic problems of lack of
demand analysis and availability of inputs remain.

8. IRDP has been a poorly targeted programme notwithstanding the elabourate criteria of identification of
'below poverty line (BPL)' families by the Gram Panchayat. Instances of non- poor getting selected and
the poor being left out have not been infrequent.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

9. Leakages, misappropriation of funds, violation of programme guidelines, selection of the non-poor as

target group, absence of proper maintenance of accounts and poor quality of assets- all these have been
documented in various studies.

10. A disturbing feature of IRDP in several states has been the rising indebtedness of its beneficiaries. In
many cases, the beneficiaries have had to borrow money at much higher interest to repay the IRDP loan
and avoid legal action. This unintended outcome of IRDP has raised serious doubts about the projects'
ability to lift the beneficiary above the poverty line.

11. The rise in indebtedness has two reasons.

Firstly, the programme overlooks consumption requirements of the beneficiaries; this leads to diversion
of the project loan for consumption needs. Secondly, once micro-enterprises are established there is no
mechanism to look at how these enterprises tackle problems of marketing or working capital. As a result,
many of these units become unviable and leave the beneficiary in debt.

12. The scope of poverty reduction through IRDP is limited both by debt-capacity of the poor and by the
high cost of appraising, monitoring and enforcing small loan agreements. The first limitation is in theory
offset by subsidy, but it attracts rich borrowers to the scheme and thus raises political and administrative
problems. The subsidy element has led to large scale

POVERTY AND UNEMPLOYMENT IN RURAL INDIA

corruption, it is reported, on the part of lower-level functionaries (who certify that beneficiaries are
below the poverty line), by bank staff and by borrowers themselves. Some of the borrowers sell off their
assets and pocket the subsidy and others borrow by proxy for target group borrowers.

13. Large numbers of milch animals are often bought for beneficiaries at the same time in cattle fairs,
pushing up their price. The difference in the price and quality of financed assets over their market price,
along with cost of time, out-of-pocket expenses and payments to middlemen raises transaction cost to the
borrower by an estimated 20 per cent. Thus, although the interest rate on bank loans under the
programme is 12 per cent, the effective rate is between 30 per cent and 35 per cent. This entirely nullifies
benefits of average subsidy amount of one-third.

14. Failure by the poor to use assets profitably stems from several factors, of which control over markets
is an important factor. The poor are not able to secure economies of scale because of indivisibilities in
marketing costs and in insurance opportunities. Low price received by the poor for their products is also
because of interlocked output and capital markets, lack of value addition technologies, poor
organisational base and at times government policies which adversely affect the poor. These problems
need to be addressed by making concerted efforts to involve all stakeholders including nongovernmental
organisations.

15. Most poor people operate in very limited segments of highly segmented product and labour markets,
and therefore, the demand for their products gets saturated fats. The programme had better success in
infrastructure-rich regions and for economically better-off people.

16. On the whole, the basic concept of IRDP remains flawed. The massive amount spent on subsidies
which have by and large not accrued to beneficiaries would be much better spent on watershed
development, rural infrastructure and social security. Growth in first two of these is an essential
concomitant of credit and the third an alternative to credit for those who for reasons of old age or
disability have few if any productive micro-enterprise opportunities.
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

IRDP suffers from the basic misconception that provision of credit is one-time event rather than a
continuing relationship between lender and borrower. It is unrealistic to expect the larger share of
borrowers to "graduate" just on the basis of an "injection" of credit (the medical terminology is
significant). Unlike IRDP, in Gramin Bank, most loanees start with small loans and as the relationship with
it improves, the Bank hands out more loan to the same person recovery oft goes hand in hand with fresh
loans. This practice also improves capability of the poor to utilise the loan profitably. His stake in
repayment becomes higher.

There is still an under-emphasis on activities which require no fixed assets such as trading, service and
even simple processing activities. Unlike India, other large micro-enterprise programmes in Bangladesh,
the Philippines and Nepal finance a much larger component of petty trading and service activities. Such
mix of activities suitable to the poorest of the poor is discouraged in India because of an obsession with
asset formation. The Indian practice has restricted the type of livelihood activities that can be financed
(milch animals, for instance) making these overcrowded. Instead of responding to a demand-led pattern
of lending opportunities, banks are still restricted to a list of "approved" activities. On the demand side,
certain profitable enterprises quickly saturate because of too many loans. In U.P. a bank gave 20 loans for
setting up shops in a village of 143 households.

IRDP totally neglects savings on the mistaken belief that the poor cannot save at all. The distinction by
banks between acceptable use of credit for productive purposes and its unacceptable use in consumption
is artificial one in the context of poverty. About two-thirds of the borrowing of the Indian poor is for
consumption purposes (all of it from the informal sector) of which three-quarters is for illnesses and
household needs in the lean season. In the absence of any system for encouraging even minuscule savings
a great deal of IRDP credit gets diverted to emergency consumption needs. 20. Fifth, IRDP does not look
into problems of already established microenterprises. How can one enthuse the rural poor to become
tailors, weavers, shopkeepers, or cattle owners if problems faced by owners of those existing assets are
ignored? Rather than give subsidy to new enterprises, it would be far better to help the existing units
tackle their problems, be they in design, marketing or working capital.

IRDP totally lacks "social intermediation," a process by which poor borrowers are encouraged to organise
themselves into groups, are given awareness training on the importance of regular savings and credit
discipline and are instilled a sense of self- confidence. This function is conducted by the bank itself in
several countries as Grameen Bank and some co-operative banks do in India and by intermediating Non-
Governmental Organisations (NGOs). In India the self-help group (SHG) movement is seeking to provide
social intermediation through th Rashtriya Mahila Kosh (RMK) and Women's Development Corporations,
though they are still small compared to IRDP.

17. While some poor may have made moderate gains, not more than one in five have succeeded in
crossing the poverty line as a direct result of IRDP. Although 5 million cattle were distributed during the
Sixth Plan period, this did not get reflected in cattle census numbers. Little attention has been paid to
main issues in cattle programme: adequate protection from inclement weather, poor access to grazing
lands and veterinary services. These problems can be minimised by group lending which will raise debt-
capacity and cut transaction costs. Intermediation by voluntary agencies may also help.

18. Despite attempts to expand public participation in identification of beneficiaries, IRDP remains a
highly bureaucratic programme. Benefits could be made far more cost-effective by reforming regular
credit delivery system on the one hand and by strengthening credit reception systems through the SHG
movement on the other.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

19. IRDP has expanded on a scale which has outstripped the capacity of government and banks to
implement it. The administrative machinery to monitor local physical investment opportunities against
which credit disbursement targets can be fixed simply does not exist. There is consequently over-
investment and recycling of dairy animals. Inadequate appraisal and reported political interference
contribute to poor recovery and high rates of default. To lift profitability of rural banking in India, there
have been suggestions that the power over loan disbursement vest in local banks, free from influence by
government and politicians.

20. Because of a distortion of objectives, IRDP's lending policy has tended to be driven by availability of
subsidised funds rather than any effective demand for credit. Indicators for monitoring are based on
target; they are not achievement-based. In the event, retention and profitability of assets purchased are
never monitored.

Conclusion: Over 6 lakh families have benefited from the IRDP in the 44 years since it was launched, with
60 per cent coming from scheduled castes and scheduled tribes. The main purpose of such a programme
is to promote equality and diversity in society. The Indian government has been working on IRDP in
stages. Despite criticism for its poor execution on the ground, the initiative has been mainly successful in
eliminating poverty. As a result, it has played a significant role in lowering poverty levels.

EMPLOYMENT GENERATTION POGRAMMES IN INDIA

1. Nehru Rozgar Yojana: NRY was the urban version of JRY was implemented on April 1. 1989 by the then
Prime Minister of the country, Rajiv Gandhi with the primary objective to generate additional
employment opportunities for the under developed part of the population. It was formed by merging
National Rural Employment programme and Rural Landless Employment Guarantee Program. It basically
aimed at offering employment guarantee per person for 90 to 100 days mainly in the backward and
underdeveloped areas of the country. The Yojana was fairly comprehensive covering almost all villages
through Panchayat institutionalisation.

2. National Food for Work Programme 2004: was launched by minister of rural development, Central
government on 14 November 2004 in 150 of the most backward districts of India with the objective of
generating supplementary wage employment. The programme is open for all Indian poor who are ready
to do manual unskilled labour work and are in the need of wage employment. It is implemented as a
centrally-sponsored scheme. Food grains are provided to the States free of cost. The transportation cost,
handling charges, and taxes on food grains will, however, be the responsibility of the States. It has always
been better to supply food grains free of cost instead of distributing money among them. The eligibility
criteria were relaxed to provide for both below poverty line (BPL) and above poverty line (APL) families.
This is one of a number of schemes built on the food for work concept.

The collector is the primary or nodal officer at the district level and has overall responsibility for
planning, implementation, coordination, monitoring and supervision. For 2004- 2005, ₹2,020 crore
(US$250 million) have been allocated for the programme in addition to 18 million tonnes of food grains.

Meal is provided at workplaces and also the wages are paid on daily bases.

The programme has since been subsumed in National Rural Employment Guarantee Act (NREGA) of 2005
which has come in force in 200 identified districts of the country including 150 NFFWP districts.
MGNREGA is now the chief right-based employment guarantee scheme.

3. Training of Rural Youth for Self-employment: National scheme for training rural youth for self-
employment. To provide rural youth (18-35 years) from families below the poverty line with training and
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

technical skills to enable them to take up self-employment in agriculture, industry, services and business
activities. Training is perceived not only in terms of provision of physical skills. But also change in
attitude, enhancement of motivation and skills in human relations etc., are also ought to be imparted. Self-
employment is defined as gainful employment on a full time basis which results in income which is
sufficient for the family of the youth to cross the poverty line.

4. Rural Landless Employment Guarantee Programme: RLEGP was introduced on August 15, 1983, with
the objective of (a) improving and expanding employment opportunities for the rural landless with a
view to providing guarantee of employment to at least one member of every landless household up to 100
days in a year and (b) creating durable assets for strengthening the infrastructure so as to meet the
growing requirements of the rural economy. An outlay of 500 crores to be fully financed by the Central
Government was provided under this programme in the sixth Plan. The implementation of the
programme was entrusted to the states and union territories, but they were required to prepare specific
projects for approval by a central committee.

5. Jawahar Rozgar Yojana: Jawahar Rozgar Yojana was launched on 1st April 1989 in the Seventh Five
Year Plan by the veteran Prime Minister Lt. Atal Bihari Vajpayee. It was established by merging the
National Rural Employment Programme and Rural Landless

Employment Guarantee Programme. The main objective of this initiative was to provide

additional employment in rural areas.

Objectives of Jawahar Rozgar Yojana: The objectives of the Jawahar Rozgar Yojana are as follows:

The fundamental objective was to create extra productive work for the jobless and the underemployed in
common areas. The discretionary objectives were to make valuable neighbourhoods for prompt and
continuing benefits to needy individuals and build up a natural monetary and social system that would
incite fast improvement of the common economy and likewise further foster the compensation levels of
needy individuals. It also aimed to accomplish redesigns in the overall individual fulfilment in common
locales.

6. Prime Minister's Rozgar Yojana: For Educated Unemployed Youth: The Prime Minister's, Rozgar Yojana
(PMRY) has been designed to provide employment to educated unemployed youth by setting up of
microenterprises by the educated unemployed poor. It relates to the setting up of the self-employment
ventures for industries, services and business. The scheme covers whole of the country.

7. Swarna Jayanti Shahari Rozgar Yojana: Swarna Jayanti Shahari Rozgar Yojana (SJSRY) in India is a
Centrally Sponsored Scheme which came into effect on 1 December 1997. The scheme strives to provide
gainful employment to the urban unemployed and underemployed poor, through encouraging the setting
up of self-employment ventures or provision of wage employment.

The SJSRY scheme is being implemented on a cost-sharing basis between the Centre and the States in the
ratio of 75:25. Given the low allocations for the scheme, only about 2 lakh urban poor under skill
development and 50,000 under self-employment are being benefited under SJSRY annually. The target
under skill development of the urban poor is very small considering that the number of urban poor was
estimated at 81 million in 2004-05 and that nationally a target of 500 million persons to be skill-trained
by 2022 has been fixed by the National Council on Skill Development.

In 2013, the SJSRY was replaced by the National Urban Livelihood Mission (NULM), which is now
Deendayal Antyodaya Yojana National Urban Livelihoods Mission (DAY- NULM). Both are simply
Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

employment schemes for self-employment and wage-employment of urban poors. As of 2022, no

employment guarantee scheme is present for urban areas on the lines of MGNREGA in rural areas.

8. Swarnjayanti Gram Swarozgar Yojana: Swarnajayanti Gram Swarojgar Yojana (SGSY) was introduced
from 1-April-1999. Since its inception DRDC (District rurai Development Cell) is now giving more
emphasis on Self Help Groups (SHGs) which has been found to be more feasible and acceptable in the
rural areas of West Bengal because of its stress in community participation for removing poverty
alleviation and social injustices. It is iterated that the Block and Panchayats should give more attention
towards the formation of self-help groups and strengthening of the existing groups, i.e., DWCRA groups. It
has been experienced that the groups are more susceptible to the elements of finance management then
the individual. Further, seeing the huge number of families under operational list (BPL).

9. Sampoorna Grameen Rozgar Yojana: The Sampoorna Grameen Rozgar Yojana is a scheme launched by
the Government of India to gain the objective of providing gainful employment for the rural poor. From
21 February 2003, EAS became an allocation-based scheme. The programme was implemented through
the Panchayati Raj institutions. The Sampoorna Grameen Rozgar Yojana was launched on 25 September
2001 by merging the provisions of Employment Assurance Scheme (EAS) and Jawahar Gram Samridhi
Yojana (JGSY). The programme is self-targeting in nature and aims to provide employment and food to
people in rural areas who lived below the poverty line.

10. National Rural Employment Guarantee Scheme: The Government of India passed the Mahatma Gandhi
National Rural Employment Guarantee Act, 2005 in September, 2005. The Act gives legal guarantee of a
hundred days of wage employment in a financial year to adult members of a rural household who demand
employment and are willing to do unskilled manual work.

11. Employment Assurance Scheme: The Employment Assurance Scheme was launched on 2nd October,
1993 in 1778 identified backward blocks situated in drought prone, desert, tribal and hill areas where the
revamped public distribution system was in operation. During 1994-95, the scheme was extended to 409
additional blocks which included the newly identified blocks under Drought Prone Areas Programme
(DPAP), Desert Development Programme (DDP) and Modified Area Development Approach (MADA,
having a larger concentration of tribal population). Subsequently, the scheme was extended to cover all
the blocks by April 1997. The different blocks under EAS are categorised as A, B and C-type for the
purpose of release of funds. This categorisation, to a large extent, reflects the degree of backwardness and
the relative needs for generation of wage employment in different blocks.

12. Deen Dayal Upadhyaya Grameen Kaushalya Yojana: Deen Dayal Upadhyaya Grameen Kaushalya
Yojana (DDU-GKY) aims to skill rural youth who are poor and provide them with jobs having regular
monthly wages or above the minimum wages. It is one of the cluster of initiatives of the Ministry of Rural
Development, Government of India that seeks to promote rural livelihoods 13-May-2016. Deen Dayal
Antyodaya Yojana - National Urban Livelihoods Mission (DAY-NULM):

13. National Urban Livelihoods Mission (NULM) is renamed as Deen Dayal Antyoday Yojana-(DAY-NULM)
and in Hindi as - Rashtriya Shahri Aajeevika Mission. Under the scheme urban areas extends the coverage
to all the 4041 statutory cities and towns, thereby covering almost the entire urban population. To reduce
poverty and vulnerability of the urban poom households by enabling them to access gainful self-
employment and skilled wage employment opportunities, resulting in an appreciable improvement in
their livelihoods on a sustainable basis, through building strong grassroots level institutions of the poor.
The mission would aim at providing shelters equipped with essential services to the urban homeless in a
phased manner. In addition, the mission would also address livelihood concerns of the urban street

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

vendors by facilitating access to suitable spaces, institutional credit, social security and skills to the urban
street vendors for accessing emerging market opportunities.

14. Pradhan Mantri Kaushal Vikas Yojana (PMKVY): Pradhan Mantri Kaushal Vikas Yojana (PMKVY) is the
flagship scheme of the Ministry of Skill Development & Entrepreneurship (MSDE). The objective of this
Skill Certification Scheme is to enable a large number of Indian youths to take up industry-relevant skill
training that will help them in securing a better livelihood.

Unit 2

Chapter 4 - Rural enterprise

Meaning of Rural enterprise

Rural Enterprise means a group of people with common economic interests (i.e., farmers, fisherfolk, agro-
processors, tour guides, craft makers, etc.), who have formed a legally recognised organisation to carry
out business activities. Rural enterprises refer to establishing industrial and business units in rural areas.
It is entrepreneurship emerging in rural areas. Rural entrepreneurs are those who carry out
entrepreneurial activities in rural areas. Rural areas are characterised by unemployment and poverty.

Importance

Rural entrepreneurs play a vital role in the overall economic development of the country. The growth and
development of rural industries facilitate self-employment, results in wider dispersal of economic and
industrial activities and helps in the maximum utilisation of locally available raw materials and labour.

Rural enterprises play a vital role in the overall economic development of the country. The growth and
development of rural industries facilitate self-employment, results in wider dispersal of economic and
industrial activities and helps in the maximum utilisation of locally available raw materials and labour.
Following are some of the important role which rural industries play in ameliorating the socio-economic
conditions of the rural people in particular and the country in general.

1. Proper utilisation of local resources: Rural industries help in the proper utilisation of local resources
like raw materials and labour for productive purposes and thus increases productivity. They can also
mobilise rural savings which help in increase of rural funds.

2. Employment generation: Rural industries create large-scale employment opportunities for the rural
people. The basic problem of large-scale unemployment and underemployment of rural India can be
effectively tackled through rural industrialisation.

3. Prevents rural exodus: Lack of employment opportunities, heavy population pressure and poverty
forced the rural people to move to urban areas for livelihood. It creates rural urban imbalance. Under
these circumstances, rural industries help in reducing disparities in income between rural and urban
people and acts as a potential source of gainful employment. This prevents rural people to migrate to
urban areas.

4. Fosters economic development: Rural industrialisation fosters economic development of rural areas.
This curbs rural urban migration on the one hand and also reduces disproportionate growth of towns and
cities, growth of slums, social tensions and environmental pollutions etc. on the other.

5. Earnings of foreign exchange: Rural industries play an important role in increasing the foreign
exchange earnings of the country through export of their produce.

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

6. Producers goods of consumers' choice: Rural industries including village and cottage industries
produce goods of individual consumers' choice and taste. Jewellery, sarees, artistic products are produced
to cater to and choice. the needs of different consumers according to their taste, design

7. Entrepreneurial development: Rural industries promote entrepreneurial development in the rural

sector. It encourages young and promising entrepreneurs to develop and carry out entrepreneurial
activities in the rural sector which finally facilitate the development of the rural areas.

Classification of MSME

Classification of enterprises into micro small and medium enterprises

Kind of enterprise Manufacturing sector Service sector All enterprises Annual

Investment towards Investment towards turnover
plant & machinery equipment

Micro 25 lacs 10lacs 5cr

Small 25lacs to 5cr 10lacs to 2cr 5cr to 75cr

Medium 5ccr to 10cr 2cr to 5cr 75cr to 250cr

Highlights of new MSMEs

Atma Nirbhar Bharat Abhiyan' or the Self-Reliant India Scheme of 2020 by the Government of India has
given a new definition for MSMEs.

Following are a few highlighting features of new MSMES

1. A provision of Collateral Free Loans to MSMEs

2. An arrangement of loans to MSMEs worth of 3 lac crores 3. An offer for MSMEs to get a Moratorium
period of 12 months

4. Consideration of Manufacturing and Service MSMEs as the same entities

5. MSM is a granted a repayment Tenure of 48 months.

6. MSMEs are assured a 100% Credit Guarantee

RURAL ECONOMICS

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

94

7. Reclassification of MSMEs will benefit approximately 45 Lac units.

Following are some of the essential elements of MSMES -

1. MSMEs work for the welfare of the workers and artisans. They help them by giving employment and by
providing loans and other services.

2. MSMEs provide credit limit or funding support to banks.

3. They promote the development of entrepreneurship as well as upgradation of skills by launching

specialised training centres for the same.

4. They support the upgrading of developmental technology, infrastructure development, and the
modernisation of the sector as a whole. are known to provide reasonable assistance for improved access
to the Year

5. MSMEs domestic as well as export markets.

6. They also offer modern testing facilities and quality certification services.

7. Following the recent trends, MSMEs now support product development, design innovation,
intervention, and packaging.

Progress of MSME

MSMEs employ about 12 crore people, making them the second-largest source of jobs after agriculture.

It contributes about 6.11% of GDP from manufacturing and 24.63% of GDP from service activities, with
about 45 lakh units across the country.

As India strives to become a $5 trillion economy, the MSME ministry aims to raise its contribution to GDP
by up to 50% by 2025.

They account for approximately 45% of India's total exports. MSMEs promote inclusive growth by
creating job opportunities, especially for people from lower socioeconomic backgrounds in rural areas.

MSMEs in tier-2 and tier-3 cities contribute to the creation of opportunities for people to use banking
services and goods, which can result in the final accounting of MSMEs' contribution to the economy.

MSMEs encourage creativity by assisting aspiring entrepreneurs in developing innovative goods, thereby
increasing market competitiveness and fuelling growth. The new wave of MSME needs certain measures
to lead the growth in the economy.

Problems

Assistant professor

Bhargavi.s
 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Multiple Constraints faced by MSMEs, their impact on MSMEs growth Although the MSME sector has been
growing at a faster rate than the overall industrial sector, MSMEs experience multiple constraints that
threaten to derail the sector's growth trajectory. Some of major that MSMEs face are highlighted.

1. Inadequate market linkages: MSMEs tend to have poor market access, except in the case of cluster-
linked and ancillary MSMEs that have natural linkages with large enterprises. The non-clustered MSMEs
are fragmented, and as a result, are unable to organise in order to reduce the procurement cost from large
enterprises or streamline the output supply chain. In the absence of adequate market linkages, any
demand disruption in the supply chain can severely impact on their operations because the enterprise
capital of these industries tends to be locked in illiquid inventory and receivables.

2. Lack of infrastructure: Limited access to infrastructure facilities such as power, water and roads
increases operational costs for MSMEs and makes their dealings uncompetitive. Inadequate access to
support infrastructure discourages these industrial units from adopting new technologies where ever
available. In addition, poor infrastructure forces small and medium businesses to operate in selected
geographical areas, by increasing the demand for natural resources in that region.

3. Inadequate finance: This is the biggest challenge before the MSMEs. These enterprises consider it as
one of the biggest constraints in growth. A study on the MSME sector also suggests that the multiple
growth constraints like those mentioned above can be largely linked to inadequate access to finance. The
Report of Working Group on Rehabilitation of Sick MSMEs by RBI also finds lack of adequate and timely
access to working capital finance is one of the key reasons for sickness in the sector. The 2007 MSME
Census indicated that only 5 per cent of enterprises in the sector had access to some form of formal
finance, while over 92 per cent of the units lacked access to any form of institutional finance. Studies on
financing pattern in the sector and the MSME census suggest that MSMEs prefer self-financing, which not
just includes the savings of the entrepreneurs, but also the finance availed from friends, family and
relatives.

4. Lack of managerial competence: Micro and small enterprises in particular largely comprise first-
generation entrepreneurs, who have had a limited structured training on resource planning, capital
management and labour management. As a result, lack of managerial competence often shows in poor
book-keeping and a limited knowledge of formal financial institutions, which further inhibits their growth
process.

5. Obsolete technology: These industries do possess the obsolete and outdated technology. While
industries such as automotive, forging, software development sector require advanced technologies in
operations, the majority of the small and medium enterprises do not have that kind of technological edge.
A low technological base results in low productivity, which makes these enterprises uncompetitive. These
enterprises too have limited awareness about new technologies, or the technology financing schemes.

Major challenges faced by Msme

(1) Financial issues: In the Indian economy, access to finance has always been an issue for smaller firms
and businesses. This is a major hindrance for businesses as well as the MSME sector. However, the most
disturbing fact about it is that only 16% of SMEs get access to timely finance, resulting in small and
medium firms being forced to rely on their own resources. It is not just small firms that face this problem,
but larger firms do as well because even those bigger players face significant difficulties in accessing
cheaper credit from formal banks.

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

(2) Regulatory issues: Several regulatory issues have been identified over time, including problems like
tax compliance and changes to labour laws which have ended up costing the MSME sector dearly. In an
attempt to make this sector more competitive among others, certain labour reforms were attempted
some years back. Still, they failed to make any dent in improving things for MSMEs despite making them
more competitive than larger firms. As a result, it has become very difficult for MSMEs to comply with
these regulations and register for tax compliance, which has resulted in many operating on low capital or
even shutting shops.

(3) Infrastructure: In India, the infrastructure sector is extremely important because we are often
referred to as the 'world's back-office because so many works in this sector are carried out overseas.
Applications such as eCommerce and BPO have created more jobs in low-wage countries like India.

(4) Low productivity: MSMEs are not necessarily very productive, but they perform certain tasks that
emit more value than they produce. Retailers sell consumer goods to end-users at relatively lower prices.
In fact, MSMEs may be very productive only when it comes to being cost-efficient and are capable of
creating high volume at very low costs. But given that their production is on a small scale with low
margins, low productivity can put them at a disadvantage, especially when compared with larger firms.

(5) Lack of innovation: Indian MSMEs are not very innovative, and the majority of the products that they
produce are based on outdated technologies. There is a severe lack of entrepreneurs in this sector, which
has prevented it from adopting new technologies and tools which have brought about significant changes
in other sectors like eCommerce and call centres, etc. As a result, MSMEs have had to struggle with
outdated technology as well as low levels of productivity, especially when compared with larger firms.

(6) Technical changes: There has been no dearth of technical changes over time, and most industries have
undergone some form of change in order to remain competitive. As a result, Indian MSMEs have had to
deal with some very important changes which have affected their growth potential. At first, there was a
change in the ownership right of land, which has made the sector more prone to mismanagement and,
with it, a fall in productivity.

(7) Competition: Due to various factors, such as the rise of eCommerce and the advent of globalisation,
bigger firms have forced MSMEs out of their markets. However, this is not new because MSMEs were
facing competition from year one, but they could fight it off successfully compared to professional firms.
In fact, MSMEs continue to face competition in many areas, including agricultural machinery, garments,
and tourism.

(8) Skills: When it comes to skills, Indian MSMEs are far behind their counterparts in other countries
because they depend heavily on the help of informal workers, who are not paid well and lack the technical
skills which can help enhance productivity. As a result, smaller firms are forced to take up jobs that
require low levels of skill and expertise, which further affects their growth prospects in the long term.

(9) Lack of professionalism: A majority of Indian MSMEs lack professionalism despite being vital for
larger industries' growth. As a result, they are highly prone to corruption and abuse of power, which has a
huge impact on the productivity of their businesses.

(10) Lack of standardised policies: There are very few MSME policies in India. As a result, there is no
consistency when it comes to MSME development as well as entrepreneurship promotion programmes.
However, positive progress has been made in Delhi over the years, but this needs to be done on a national
level so that Indian firms can become more competitive across the world for global companies and
investors.

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Policy support in the above area will make MSMEs as engines of growth for New India, after all a resilient
and healthy MSMEs sector is essential for achieving the goal of self-reliant India.

Khadi and village industries

Objectives of Khadi and village industries in India

1. To generate sustainable employment ensuring minimum wages to 10,000 artisans per district directly
District Rural developmat agency - whe toles Carat post

2. To forge linkages with DRDAs, Banks and other agencies to integrate the scheme into the overall
employment generation programme for the districts;

3. To ensure that employment opportunities in adequate number is created for the weaker sections,
particularly SC, ST and women; and

4. To provide marketing support for the products made under the programme in order to sustain the
production activities.

5. To attempt at generation of additional employment for 7000 to 10,000 persons in an identified district
and 1000 persons in a block in nonfarming sector in rural areas of the country. The tenure of the
programme is 3 years.

6. To help to improve regional imbalance in the industrial growth of the country.

7. To help upliftment of the people living below the poverty line.

8. To upgrade the skills of the rural artisans in order to transform them into an economic asset and
thereby ensure better living standards.

9. To make coordinated efforts for pooling together the resources of KVIC, DRDA, financial institutions,
public organisations, etc. engaged in rural developments for successful implementation of the
programme.

Khadi and Village Industries Commission

Khadi and Village Industries Commission (KVIC) plans, promotes, organises, and implements
programmes for the development of Khadi and other village industries in rural areas, nationwide. KVIC
also helps in building up the reserve of raw materials for supply to producers. The commission focuses on
the creation of common service facilities for the processing of raw materials, such as semi-finished goods.
KVIC has also helped in the creation of employment in the Khadi industry.

Objectives of KVIC

The broad objectives of the Khadi Village and Industries Commission encompassing self- reliance and
sustainability are:

1. To boost employment in the country.

2.To promote the promotion and sale of Khadi articles

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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3. To cater to the self-reliance doctrine of the country by empowering underprivileged and rural sections
of the society.

Functions of KVIC

The following are the functions of Khadi Village and Industries Commission:

1. It plans, promotes, organises, and implements programmes for the development of Khadi and Village
Industries (KVI).

2. It coordinates with multiple agencies that are engaged in rural development for several initiatives w.r.t
Khadi and village industries in rural areas.

3. It maintains a reserve of raw materials that can be further promoted in the supply-chain.

4. It aids in creating common service facilities that help in processing of raw materials.

5. It aids the marketing of KVI products through artisans and other avenues.

6. It creates linkages with multiple marketing agencies for the promotion and sale of KVI products.

7. It encourages and promotes research and development in the KVI sector.

8. It brings solutions to the problems associated with the KVI products by promoting research study and
enhancing competitive capacity.

9. It also helps in providing financial assistance to the individuals and institutions related to the Khadi and
village industries.

10. It enforces guidelines to comply with the product standards to eliminate the production of ingenuine
products.

11. It is empowered to bring projects, programmes, schemes in relation to Khadi and village industries'
development.

Features of KVIC

3. Interest Rate: Depends on the applicant's profile and business requirements

4. Loans offered are directed and governed by PMEGP under which is below-mentioned criteria for
specific MSMEs:

5. * Loan Amount for Manufacturing Sector: Maximum 50 lakh

6. Loan Amount for Business and Service Sector: Maximum 20 lakh

7. Funding Pattern: Mentioned below in PMEGP Scheme

8. Repayment Tenure: From 3 years-7 years, including 6 months of the moratorium period

9. Income Capping: No criteria

10. Margin: Lock-in for 3 years in separate account later adjusted with KVIC loan

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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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The following are the schemes covered under the Khadi and Village Industries Commission

Prime Minister's Employment Generation Programme (PMEGP)

Market Promotion Development Assistance (MPDA)

Interest Subsidy Eligibility Certificate (ISEC)

Work shed Scheme for Khadi Artisans

Strengthening the infrastructure of existing weak Khadi institutions and assistance for marketing
infrastructure

Khadi Reform and Development Programme (KRDP)

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

Honey Mission

Some important highlights taken from the KVIC report regarding the Khadi and Village industries
and the commission are:

The Prime Minister of India, Narendra, Modi quotes, "Earlier it was Khadi for the nation, Khadi for
fashion, now it is becoming Khadi for transformation."

2. The Mission Solar Charkha has empowered women by bringing self-esteem and self-reliance among
them. The significant transformation both in Khadi production and Khadi sales are mentioned from the
figures below:

The average Khadi production has grown from 6.52 per cent in 2004-14 to 26.43 per cent in 2015-18.

The average Khadi sales grew from 6.62 per cent in 2004-14 to 31 per cent in 2015-18.

The number of Khadi sales outlets funded for modernisations tands at 728 between 2015-2018. There
were no outlets reported between 2004-2014. 400 computers, hardware and software have been
supplied to Khadi institutions for digitalisation between 2015 and 2018.

4. Khaadi Hant was set up for the first time in 2018 in New Delhi.

5. Digital India Pavilion was established by KVIC in India International Trade Fair.

6. A larger steel charkha at East Champaran was inaugurated in April 2018 to commemorate the visit of
Mahatma Gandhi.

7. KVIC gifted Gandhi Charkha to Uganda which was unveiled on the international day of non-violence.
(Read about important national and international dates for UPSC from the linked article.)

8. KVIC envisages an artisan-centric vision for the transformation in Khadi and Village industries.

9. The five organs of the KVIC are mentioned in the report:

Organisation

Community

Village Industry
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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
Vishnuvardhan Road, Channasandra, R R Nagara, Bengaluru - 560 098

Market

Heritage

Challenges for Khadi and Village Industry

In spite of the huge spending by the government of India on Khadi sector, there had been a decline in the
production and sales of Khadi and the employment generated by the sector in the last few decades.
Moreover, the huge amount spent for the economic empowerment of the poor artisans is not reaching
their hands.

The statistics provided by the annual reports of Ministry of Small and Medium Enterprises (MSME)
showed that a rise in the plan and non-plan amount spent on Khadi sector during 1994- 95 to 2014-15.
But, the Comptroller and Auditor General of India (CAG) Audit report on KVIC also reveals that KVIC is
ineffective in utilising the plan and non-plan funds for the Khadi sector promotion, clearly indicating the
wastage of public monies.

According to the regulations of the MSME, only KVIC and KVIC certified institutions are allowed to
produce khadi, creating significant entry barriers. The certification process of Khadi is imposed by the
government to protect the industry is not market friendly and does not cater to the interests and tastes of
the customers.

Many weaving units, however, emerged only for getting KVIC rebates and other benefits but have not
produced any Khadi product. At the same time, this has also resulted in many piracy 6 problems
associated with Khadi industry like producing spurious products in the name of Khadi through unofficial
channels.

7 Khadi fabrics are available mostly in KVIC certified stores only, restricting the availability of Khadi
products to the consumers. In addition to this, in the Khadi retail outlets, the working times are the
government office timings in India, from 10 am to 5 pm. When the whole marketing is going e-commerce
line 24×7 these days, the stereotypes in Khadi sector are not doing anything good for the marketing of
Khadi products. The marketing of Khadi is mainly done by Khadi institutions.

Khadi sector is an over-regulated one in India, where the entire production process, sales, distribution,
and marketing is majorly regulated by the government through KVIC. The restrictive practices adopted by
the government implemented through KVIC, have resulted in making the Khadi industry ineffective,
inefficient along with failing to deliver economic empowerment to the poor artisans working in the
sector.

Chapter 5 Rural Banking and Finance

Credit co-operative society

A credit cooperative society is a society which takes care of the welfare of society. These societies
are there to help you out with financial support. The primary role played by the credit cooperative society is that
it safeguards the rights of producers and consumers in Rural areas. They acquire deposits from the members of
the society and remove any middlemen making profits in business and trade.
There are primarily three Credit Cooperative Society that is
 Primary Credit Cooperative Society
 Central Credit Cooperative Society
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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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 State Credit Cooperative Society

 Primary Credit Cooperative Society

The Primary Credit Cooperative Society are organizations that are borrowers and non-borrowers working for a
specific locality. Membership for the residents helps in business affairs of the society.

 Central Credit Cooperative Society Banks

Members of bank unions taking care of the primary resources of societies comprise of Central Credit
Cooperative Society. People from Central co-operative banks can become a part of credit co-operative society.

 State Credit Co-operative Society Banks

State credit Co-operative Bank society is formed for saving deposits with the help of the contribution of wealthy
urbans. They are middlemen between the joint-stock banks and the cooperative associations.

Functions of cooperative credit society:

a) A cooperative credit society aims at providing goods and services like loans, goods at discounted
prices, and so on, at an affordable rate to its members.
b) Another main function of such societies is to eliminate any middlemen by providing goods and services
directly.
c) These societies also serve the function of preventing the exploitation of the weaker members of society.
d) Such societies also protect the rights of producers as well as the consumers by keeping a track of the
prices of all goods and consumers.
e) They also aim to create a more sustainable food system.
f.) Housing societies also serve the purpose of empowering the vulnerable section of society by offering
houses at affordable rates.
g.) They function by keeping the environment in mind.

Advantages of credit co-operative society:

 Membership of the co-operative society is open to all, who have a common object of providing
service without expecting returns on it.
 Capital Invested for the society is contributed by the member and various grants and subsidies
are received from the government for the smooth processing of business.
 A cooperative society is registered under the Cooperative Societies Act, it is a separate legal
entity where the liability of its member is limited. It can run the business under its name.
 A Credit Co-operative Society is a group of individuals coming together to promote economic
welfare and to promote the requirement of self-sufficiency in the society.

Regional Rural Banks (RRBs)

Introduction

Regional Rural Banks are government owned scheduled commercial banks of India that operate at regional level
in different states of India.
The RBBs Act has made various provisions regarding the incorporation, regulation and working of RRBs.
According to this Act, the RRBs are to be set-up mainly with a view to develop rural economy by providing
credit facilities for the purpose of development of agriculture, trade, commerce, industry and other productive
activities in the rural areas.

Objectives
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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
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The objective of regional rural banks is to develop the rural economy by providing credit and other facilities for
agriculture and other productive activities in rural areas.

The objectives of RRBs can be summarized as follows:

 To provide loan for backward class public
 To opening branches of bank in rural areas.
 To save the rural poor from the moneylenders.
 To cultivate the banking habits among the rural people and mobilize savings for the economic
development of rural areas.
 To increase employment opportunities by encouraging trade and commerce in rural areas.
 To encourage entrepreneurship in rural areas.
 To cater to the needs of the backward areas which are not covered by the other efforts of the
Government
 To develop underdeveloped regions and thereby strive to remove economic disparity between regions.
 To increase employment opportunities by encouraging trade and commerce in rural areas.
 Making backward and tribal areas economically better by opening new branches and extending micro
credit facilities and operating the scheme of inclusion.

Features

The Features of RRBs can be summarized as follows:

 The area of operation of a rural bank is limited to a specified region which comprises of one or more
districts.
 These banks cannot have a lending rate which is higher than the prevailing lending rate of cooperative
credit societies in any particular state.
 It grants loans and advance only to the small and marginal farmers, agricultural labourer’s, small traders\
entrepreneurs.
 This is sponsored bank. It is sponsored by a scheduled commercial bank.
Importance of Regional Rural Banks

1. Reduce rural and urban gap by mobilising financial resources and services to rural regions.
2. Regional Rural Banks pave the way for inclusion of the marginal population like small
farmers, Below Poverty Line (BPL) farmers and workers, small entrepreneurs, artisans,
women, etc.
3. Regional Rural Banks assist rural businesses by providing them short- term loans, insurance
facilities, etc., and help to improve the role of entrepreneurship in rural areas.
4. Providing assistance like loans, advances, insurance to agriculturists for farming inputs,
equipment, processing, marketing activities, and cooperative societies helps in the growth of
agriculture and the advancement of farmers.
5. Many public and private sector banks do not deal with farmers and rural section due to their
small financial needs, fewer incomes, etc. In such a case, there is a need for a separate banking
system to protect the interests of these sectors.
6. The RRBs look forward to covering underserved rural areas in terms of financial services
and extending credit assistance.
7. Help in the growth of cooperative societies, agricultural societies, etc.
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 RNS FIRST GRADE COLLEGE AUTONOMOUS
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8. RRBs reduce farmers’ and the weaker sections’ dependence on traditional sources like
moneylenders who exploited them with a high rate of interests on loans.

National Bank for Agriculture and Rural Development (NABARD)

NABARD is India’s apex development bank – National Bank for Agriculture and Rural
Development. With headquarters in Mumbai. It was formed by a special parliamentary act. The chief focus of
the organisation was the advancement of rural India by enhancing the flow of credit for the upliftment of
agriculture as well as the rural non-agricultural sector.

Functions of NABARD
The functions of NABARD are described below.
1. NABARD provides refinancing facilities to Commercial banks, State co-operative banks, Central Co-
operative banks, Regional rural banks and Land Development banks.

2. It provides refinancing to agriculture, small scale industries and other village and cottage industries by
lending to commercial banks.
3. It promotes rural industries, small scale and cottage industries including tiny sectors by providing
loans to commercial and co-operative banks.

4. Special assistance is given by the bank for the promotion of small scale, cottage and village industries
under service area approach.
5. The bills of commercial and co-operative banks are discounted to enable them to finance for
agricultural operations.
6. The bank provides funds to State governments for undertaking developmental and promotional
activities in rural areas.
7. Towards long-term loan, the bank is providing loans to institutions involved in long-term
agricultural loan against guarantee of State government.
8. The bank is also financing research and development of agricultural and rural industries.
9. The bank implements the policy of the Central Government and the RBI with regard to agricultural
credit.
10. Provides finance for promoting non-form activities and employment in non-farm sectors for the
purpose of reducing rural unemployment.

11. It strengthens the co-operative structure in the States by providing loans to both State co-operative
banks and also to Land Development Banks.
12. It promotes minor irrigation projects by financing State Government’s sponsored irrigation projects.
13. The bank is undertaking inspection work of Co-operative banks and Regional rural banks.

14. The bank has opened branches at all District headquarters by which it co-ordinates the District
development programmes along with the district officials.
15. The bank also helps in the annual credit plan of the commercial banks and co-ordinates the activities of
commercial and co-operative banks at the district level.
16. During natural calamities, such as droughts, crop failure and floods, the bank helps by refinancing
commercial and cooperative banks so that the farmers tide over their difficult period.

Thus, the bank is providing short-term, medium term and long-term loans for agriculture and rural
development
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 RNS FIRST GRADE COLLEGE AUTONOMOUS
(Affiliated to Bangalore University and NAAC Accredited with 'A' Grade) Dr.
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Micro Finance - Micro Finance in India

Microfinance is a basis of financial services for entrepreneurs and small businesses deficient in contact with
banking and associated services. Similar to banking operation traditions, microfinance entities are supposed to
charge their lender’s interests on loans.

Benefits of Microfinance

 As per the World Bank estimates, more than 500 million people have improved their economic
conditions via microfinance-related entities.
 Also, the International Finance Corporation (IFC) estimated that, as of 2014, over 130 million people
were directly benefited from the microfinance-related operations.
 But, approximately only 20% of the three billion people who fall under the category of the world’s
poor can avail these microfinance operations.
 IFC also helped in establishing or improving the credit reporting bureaus in 30 developing nations.
 Microfinance is also a source of capital for the people. It also empowers women in particular, which
may lead to more stability and prosperity for families.
Micro Finance Associated Challenges

 Inadequate Data: While overall loan accounts have been increasing the actual impact of these loans
on the poverty-level of clients is sketchy as data on the relative poverty-level improvement of MFI
clients is fragmented.
 Impact of COVID-19: It has impacted the MFI sector, with collections having taken an initial hit and
disbursals yet to observe any meaningful thrust.
 Social Objective Overlooked: In their quest for growth and profitability, the social objective of MFIs
—to bring in improvement in the lives of the marginalized sections of the society—seems to have been
gradually eroding.
 Loans for Conspicuous Consumption: The proportion of loans utilized for non-income generating
purposes could be much higher than what is stipulated by RBI. These loans are short-tenured and given
the economic profile of the customers, it is likely that they soon find themselves in the vicious debt trap
of having to take another loan to pay off the first.

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