Correct Option
The correct option is (c) 2 and 3 only.
Explanation
A debt trap occurs when a borrower is forced to incur new debt to service existing obligations or meet essential survival needs, leading to a spiraling cycle of indebtedness. In the agricultural sector, this is often precipitated by the high risk associated with farming, including weather dependence and market volatility.
Statement-wise Analysis
- Statement 1 is Incorrect. Crop failure is a primary cause of loan default among farmers. While government initiatives like the Pradhan Mantri Fasal Bima Yojana (PMFBY) provide insurance, coverage is not universal, and claim settlements can be delayed or insufficient. Therefore, it is factually incorrect to state that crops are "fully insured" or that crop failure is "rarely" a cause of non-repayment.
- Statement 2 is Correct. Small farmers typically lack savings to cushion against income shocks. When they cannot repay an original loan due to crop loss or low prices, they are often compelled to borrow additional funds-frequently from informal sources at high interest rates-to sustain their families and invest in the next cropping season.
- Statement 3 is Correct. Indebtedness is a documented cause of agrarian distress. Reports from the National Crime Records Bureau (NCRB) and various government commissions acknowledge that the inability to repay debts has been a significant factor driving farmer suicides in several states.
Key Takeaway: The agricultural debt trap is characterized by the accumulation of debt due to production risks (crop failure) and economic vulnerability, where fresh borrowing becomes necessary for survival rather than investment.