Bengaluru: Barely one in 10 rural households in India had any investible surplus in 2015-16, says the Nabard All India Rural Financial Inclusion Survey 2016-17 (NAFIS), published recently.Those who invested did so largely in physical assets, while less than 3% invested in financial instruments. (charts 1a and 1b)
Just over half (51%) of the households reportedly saved some money during the year.
Only 2.3% of households invested any money in the form of term deposits or long-term bank deposits, according to the survey.
“The figure of investment in bank deposits is absurdly low and it shows that rural households do not have finances to make long-term investments,” said Madhura Swaminathan, professor of economics at the Indian Statistical Institute, Bangalore. “This shows the situation of distress in rural India.”
The NAFIS report says: “Given their low income, a few individuals have savings that would allow them to tide over contingencies and difficult circumstances.”
Disaggregated survey data accessed from Nabard by Mint showed that among investor agricultural households owning more than two hectares of land, a large share of investments were made in livestock (34%), new houses (20%), and on farm machine and irrigation equipment (16%). For the smallest land-holding class among agricultural households who made investments, almost half the amount was invested in bank deposits or post office deposits. (chart 2)
It is worth noting that the data pertains to only those households which made investments, and might not be fully representative of the land class, especially small land-owners. Also, as an earlier Plain Facts column had pointed out, the results of the survey must be interpreted with caution as 2015-16 saw one of the worst droughts in recent years. Nevertheless, the survey does tell us that mere penetration of bank accounts does not imply higher savings or investments.
While nearly nine in 10 rural households reported having a bank account in 2015-16, only a minuscule minority invests in bank deposits. Also, a significant portion of rural households continues to rely on informal sources for loans. The survey shows that nearly one-third (32%) of rural households, who took any loan, did so from non-institutional sources, while another 9% relied on both formal and informal sources.
Thus, 41% of rural households who borrowed in 2015-16, borrowed from informal sources, such as moneylenders, local landlords, friends and relatives. This is lower than the 60% of rural households, who reported being indebted to informal lenders in 2012, according to the All-India Debt and Investment Survey (AlDlS) of the National Sample Survey Office (NSSO).
While the NAFIS survey suggests towards an improvement on this front compared to the year 2012, the scale of improvement maybe overstated since the NAFIS survey is based on a wider definition of rural areas compared to the AIDIS survey.
For small land-owners, access to formal credit is still a challenge, the survey data reveals. (chart 3)
With a major share (67%) of agriculture households owning up to one hectare of land, this implies that majority of agricultural households had low access to formal credit. About 76% of respondents who sought loans from non-institutional sources did so because of ease in availability of loans.
The survey results suggest that those owning more land have more access to formal credit at relatively lower interest rates, which perpetuates inequality in the countryside. Large land-owners are able to invest much more in productive assets, such as farm equipment or livestock, further gaining in income.
The inequalities between the land-owning classes is also reflected in the stark differences in the degree of indebtedness among different income groups. The AIDIS data showed that poorer households in rural India have a far worse debt-to-asset ratio compared to the richer classes, even though the richer classes exhibit higher incidence of indebtedness in absolute terms.