One in every three rural households living in debt

Indebtedness in rural areas rising at faster pace than in urban ones

The ticket size may be different but more households in rural areas are taking loans than urban areas. The incidence of indebtedness in rural areas stands at 31 per cent, compared with 22 per cent in urban areas, according to the latest data on assets and liabilities of households released by National Sample Survey Organisation (NSSO). In 1991, rural and urban indebtedness stood at 23 per cent and 19 per cent, respectively.

While the overall rise in incidence of indebtedness has been identical at four percentage points in both rural and urban areas between 2002 and 2012, the pace of growth in villages of Karnataka, Andhra Pradesh, Kerala, Tamil Nadu, Uttar Pradesh and Bihar has been sharp in recent years.

"There are significant differences in the rate and pattern of change between rural and urban areas. In most cases, IOI (incidence of indebtedness) is lower in urban areas; the increase is also smaller overall. This generalised feature coexists with considerable inter-state variation. In southern states, the increase is markedly higher," the NSSO report says.

The same set of states reported very high debt-asset ratio in rural areas. Debt-asset ratio stands at 14.1 per cent in Andhra Pradesh, 6.5 per cent in Karnataka, 6.8 per cent in Tamil Nadu and 5.4 per cent in Kerala. Rural Haryana, on the other hand, has debt-asset ratio of just one per cent.

Among large states, debt-asset ratio rose sharply in Andhra Pradesh, Karnataka and Tamil Nadu between 2002 and 2012. However, it fell in Maharashtra during the same period.

Karnataka, Andhra Pradesh and Kerala, three states with high level of rural indebtedness and high debt-asset ratio, account for bulk of farmer suicides in the country. According to National Crime Record Bureau (NCRB) data, in 2013, nearly 64 per cent of all farmer suicides in the country took place in four states of Maharashtra, Andhra Pradesh, Karnataka and Kerala.

Is there any correlation between rising indebtedness and rural distress? "Rising indebtedness per se is not bad. It becomes a cause of concern when crops get affected due to a whole host of factors and farmers get less for what they produce," says Ajay Jakhar, chairman of Bharat Krishak Samaj.

Shridhar Kundu of Centre for Budget and Governance Accountability is of the view that "to make sense of rising rural indebtedness, we will have to see which segment of the population is borrowing more and what is the end use of the borrowed amount." Experts say that incidence of indebtedness could also be a function of access to credit.

Not only has the incidence of indebtedness increased, the average amount of debt has almost doubled between 2002 and 2012. During the same period, the average share of deposits in total assets has fallen from 2.3 per cent to 1.7 per cent. The fall in share of deposits in urban areas has been much sharper, from 9.7 per cent to 4.3 per cent.

For the first time, the NSSO collected data on ownership of bullion and ornaments. Not surprisingly, the fascination for bullion and ornaments cuts across state boundaries and ownership is evenly distributed in rural and urban areas.

According to the NSSO report, in rural area, 82 per cent households reported ownership of bullion and ornaments, whereas in urban area 81 per cent reported the same.

While in rural sector, six states had less proportion of bullion and ornaments than national average, in urban sector, seven states fell in the same category. Bihar, Jharkhand, Punjab and West Bengal are common for both the list.

Among rural households, ownership of bullion and ornaments is highest in Karnataka (94 per cent), followed by Tamil Nadu, Kerala and Uttar Pradesh. On the contrary, only little more than 50 per cent households in Bihar own bullion. Other than bullion, households in rural areas own very little and the contribution of land and building constitute nearly 90 per cent of their assets.