With reference to the rural credit scenario at the time of independence, consider the following statements: 1. Commercial banks were the primary source of credit for small farmers. 2. Interest rates charged by moneylenders were often exorbitant. 3. Accounts were often manipulated to keep farmers in a debt trap. Which of the statements given above is/are correct?

Correct Option The correct option is 2 and 3 only. Explanation At the time of independence, the rural credit system in India was characterized by the overwhelming dominance of non-institutional sources. The formal banking sector had a negligible presence in rural areas, leaving small farmers dependent on informal lenders for their agricultural and consumption needs. Statement-wise Analysis - Statement 1 is Incorrect. Commercial banks were not the primary source of credit for small farmers at the time of independence. In the early 1950s, institutional credit (including government, cooperatives, and commercial banks) accounted for less than 10% of total rural credit. The primary sources were moneylenders, traders, and landlords. - Statement 2 is Correct. Due to the lack of formal credit options and the monopolistic position of village moneylenders, the interest rates charged were exorbitant. Farmers often had no choice but to accept these high rates to meet their immediate financial requirements. - Statement 3 is Correct. The relationship between the moneylender and the farmer was often exploitative. Moneylenders frequently manipulated accounts and forged signatures to inflate debt obligations, ensuring that farmers remained in a perpetual state of indebtedness, commonly referred to as a "debt trap." Key Takeaway The pre-independence rural credit landscape was dominated by exploitative informal sources like moneylenders. This structural deficiency necessitated post-independence reforms, including the nationalization of banks and the establishment of Regional Rural Banks (RRBs) and NABARD, to institutionalize rural credit.

With reference to the rural credit… - NCERT Class 11 Economics MCQ

NCERT Class 11 Economics — Chapter 6: Rural Development

mcqeasy

With reference to the rural credit scenario at the time of independence, consider the following statements:

Commercial banks were the primary source of credit for small farmers.
Interest rates charged by moneylenders were often exorbitant.
Accounts were often manipulated to keep farmers in a debt trap.

Which of the statements given above is/are correct?

NCERT textbook question

From NCERT Indian Economic Development · Page 77

Options

A2 only
B2 and 3 only
C1, 2 and 3
D1 and 2 only

Did you get this right?

Solution

Correct Option

The correct option is 2 and 3 only.

Explanation

At the time of independence, the rural credit system in India was characterized by the overwhelming dominance of non-institutional sources. The formal banking sector had a negligible presence in rural areas, leaving small farmers dependent on informal lenders for their agricultural and consumption needs.

Statement-wise Analysis

Statement 1 is Incorrect. Commercial banks were not the primary source of credit for small farmers at the time of independence. In the early 1950s, institutional credit (including government, cooperatives, and commercial banks) accounted for less than 10% of total rural credit. The primary sources were moneylenders, traders, and landlords.
Statement 2 is Correct. Due to the lack of formal credit options and the monopolistic position of village moneylenders, the interest rates charged were exorbitant. Farmers often had no choice but to accept these high rates to meet their immediate financial requirements.
Statement 3 is Correct. The relationship between the moneylender and the farmer was often exploitative. Moneylenders frequently manipulated accounts and forged signatures to inflate debt obligations, ensuring that farmers remained in a perpetual state of indebtedness, commonly referred to as a "debt trap."

Key Takeaway

The pre-independence rural credit landscape was dominated by exploitative informal sources like moneylenders. This structural deficiency necessitated post-independence reforms, including the nationalization of banks and the establishment of Regional Rural Banks (RRBs) and NABARD, to institutionalize rural credit.

Your note

More from Chapter 6: Rural Development

With reference to the horticulture sector in India, consider the following statements: 1. India is the largest producer of fruits and vegetables in the world. 2. It contributes nearly one-third of the value of agriculture output. 3. Flower harvesting is exclusively reserved for male workers in rural areas. Which of the statements given above is/are correct?

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What is the primary rationale for government intervention in agricultural marketing in India?

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Which of the following statements is correct regarding the labour requirement in organic farming?

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Why is diversification into productive activities essential for rural people? Statements: 1. To reduce the risk associated with the agriculture sector. 2. It aims to shift the entire rural population to urban industrial sectors. 3. To overcome the lack of gainful employment during the Rabi season in areas with inadequate irrigation. Which of the statements given above is/are correct?

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Which one of the following is often cited as a limitation of organic farming in its initial stages?

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Keep practising Chapter 6: Rural Development

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