| Summary: |
In this thesis I seek to analyse some major characteristics of the Indian rural money market between the early 1950's and late 1960's. The Indian rural money market is distinguished by its duality, with the unorganized sector largely dominating the supply of funds even to-day. On the demand side, the pattern of debt and borrrowing has remained roughly the same during the period studied. Capital expenditure rather than family expenditure seemed to be the more significant variable affecting credit demand. This is reflected in the correlation found between higher levels of debt/borrowing and larger capital expenditure. The most important form of security against which loans were either borrowed or outstanding was personal. Seasonality was observed in debt and borrowing. The modal range of rural interest rates in India was found to be between 18 and 25 per cent, (which is considerably less than many commentators have implied). Rural interest rates are largely explained by risk and uncertainty rather than by the monopoly power of money-lenders, though monopoly profit may have existed in some cases. Statistical tests showed positive correlation between income of farmers and re-payments and negative correlation between the interest rate, on the one hand, and income, repayments and monetization on the other. A rise in farm income, thus, may reduce the risk-premium and, therefore, rural rates. In the organized sector, the primary credit co-operative societies mostly fail to satisfy the various criteria of financial viability, though in some states their progress was not unsatisfactory. The major defects in their working were poor quality of loan administration leading to rising overdues, bad management and failure to mobilise rural savings and link credit to marketing. The total size of the two sectors of the rural money market and the links between them were difficult to measure in the absence of reliable data. Rough estimates tentatively suggested a slow fall in the size of the unorganized market and tenuous but perhaps slowly growing links between the sectors. For example, bazaar rates were found to be influenced by lagged Bank Rate. The existing policies for developing these links are criticised and some methods are suggested for further integration. These include the development of co-operative paper, improving the quality of hundis, and the development of a multi-agency approach which would foster productive use of loans. Successful prosecution of these policies would lend to a rise in farm incomes. It may be suggested that this will reduce the rural interest rate.
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