One of the major objectives of bank nationalization was to enable small businesses and farmers to get bank loans. Forty years later, there’s no doubt there’s been enormous progress on this front. Inclusive growth continues to be the mantra of the United Progressive Alliance government and of the Reserve Bank of India (RBI). But has the growth in rural credit been more or less uniform throughout the country? Have the relatively backward parts of the country also benefited? Have the banks treated the states equally?
One way to answer such questions is to gauge rural credit outstanding per person in each state. To do that, I’ve taken the rural credit outstanding for each state as on 31 March 2008 from RBI data and divided it by the rural population in each state according to the 2001 census. Sure, that overstates rural credit per capita because the population must have grown since 2001. Nevertheless, because we don’t have reliable recent data on state-wise population since then, I’ve taken the 2001 data to arrive at the rural credit per head in each state. The idea is to look not so much at the absolute numbers, but to see the difference between the various states. Per capita bank credit for the states will obviously vary widely, given different degrees of industrialization. But surely rural India should be more egalitarian?
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Not at all, as the data in the accompanying chart shows. As you can see, rural credit per capita varies widely, from Rs10,266 in the Goan countryside to a low of Rs753 in rural Nagaland. These are, of course, extremes. Rural Goa is hardly representative of India, with its large tourist influx and small population. On the other hand, Nagaland, with its inaccessible hill villages and insurgency, is also not representative. Hill states such as Sikkim and Himachal Pradesh are also not typical, because most parts of the states are classified as rural and the populations are small. But there’s no denying the fact that while rural credit per capita is as high as Rs6,912 in Punjab, it’s as low as Rs833 in Bihar. Contrast Tamil Nadu, with credit per person in the rural areas at Rs4,624 and Chhattisgarh, at Rs1,309 or Jharkhand at Rs1,324. These areas are part of the mainstream and reflect the inequalities in rural development.
There are also many surprises. For example, rural credit per capita is Rs2,886 in Mizoram, much higher than Assam’s Rs1,365, or indeed, West Bengal’s Rs1,607. This could be a simple matter of arithmetic, because Mizoram’s population is so much smaller. The southern states in general have high bank credit per capita, but at Rs1,444 of credit outstanding per person in the rural areas, Kerala is clearly an outlier. Surprisingly Orissa, known to contain some of the nation’s famine spots, scores so much better than neighbouring West Bengal.
Graphics: Ahmed Raza Khan.
RBI data on rural credit outstanding is also available for each district in the country. The results are eye-popping. Although for Bihar as a whole rural credit outstanding per capita is Rs833, it’s as low as Rs371 per person in Madhubani district, Rs433 per capita in Darbhanga district and Rs443 in Sitamarhi. In other words, rural credit outstanding per person in Madhubani district is less than half of the average in Bihar and one-tenth of the average in Andhra Pradesh. Surely the microfinance people should be doing their bit for Bihar, instead of being concentrated in the south? In Nagaland’s Mon district, rural credit outstanding per head is as low as Rs225. In Manipur’s Ukhrul district, 140,000 people in the rural areas share the princely credit outstanding of Rs8 lakh.
There is wide variation within states. For example, while Saharanpur district in Uttar Pradesh has per capita rural credit outstanding of Rs3,387, that for Ghazipur, on its eastern border, is less than one-third of that, at Rs971. In Maharashtra, while the figure for Pune district is Rs3,031, that for extremist-hit Gadchiroli is Rs1,101. In Chhattisgarh, extremist-haunted Dantewada district has a per capita outstanding of Rs824 in rural credit. The country’s east gets far less rural credit.
The data shows gross inequalities in rural and farm credit in the country. Note also that these are averages—the poor will have far less access to credit than the rich farmers in every district. Is this the failure of the banks, a failure of governance or just uneven development in agriculture? It’s probably a mix of all three.
Manas Chakravarty takes a weekly look at trends and issues in the financial markets. Your comments are welcome at firstname.lastname@example.org