The following points highlight the nine main causes of rural indebtedness. The causes are: 1. Better Position to Borrow 2. Farmer’s Increased Credit 3. Un-Remunerative Farming 4. Heaviness of Land Revenue 5. Increased Standard of Living 6. Conditions Necessary to Induce the Money Lenders to Lend 7. Improvident Expenditure 8. Ancestral Debts 9. Questionable Practices of Money-Lenders.
Cause # 1. Better Position to Borrow:
The rights of the land holders have been really ascertained as a result of land settlement policy of the Government and consequent upon the various improvements, the value of land increased as a form of security. The farmer’s credit was more definite and of greater value. He was in a better position to borrow and because of ignorance and extravagance he did borrow the maximum that he could.
Cause # 2. Farmer’s Increased Credit:
The farmer’s credit increased due to rise in agricultural prices, rents and land values. This, in turn was the result of stable rule, the new transport and the growth of towns. British law also gave the peasant the rights of absolute ownership and free transfer of land.
Cause # 3. Un-Remunerative Farming:
The excessive pressure of population on the land and the consequent sub-division and fragmentation of land; the decay of cottage industries and the lack of subsidiary occupations to supplement farm income; the ill-health and inefficiency of the farmers; the insecurity of the crops and the loss of cattle through famine and disease- all these made farming un-remunerative. The peasant, therefore, was forced to borrow.
Cause # 4. Heaviness of Land Revenue:
According to R.C. Dutt the heaviness of land revenue with the rigidity of its collection was one of the causes of rural indebtedness. Even in periods of famines and depression there was little or no remission of land revenue.
Cause # 5. Increased Standard of Living:
There has been a change the standard of living of the peasant. There was a general rise in the standard of living of the farmer without corresponding increase in their purchasing power. Hence they resorted to borrowing.
Cause # 6. Conditions Necessary to Induce the Money Lenders to Lend:
The establishment of a strong and centralised rule and new judicial system by the British created the condition necessary to induce the money-lenders to give, loans against proper security and get high rates of inter est.
Moneylenders could get the debtors arrested or get their properties attached. Earlier it was not customary for the creditor to seize the land of his debtor. But with the steady rise in land values and with the facilities available for the transfer of land, it became profitable and easy for the moneylender to lend and realise.
Cause # 7. Improvident Expenditure:
Another cause of rural indebtedness was traditional social expenses on wedding, deaths, dinners, etc. The peasants had also to borrow for cultivation expenses and even for domestic expenses, which went up during temporary prosperity and remained high even bad times.
Cause # 8. Ancestral Debts:
It may also be pointed out that the debt is ancestral. As it is said the Indian farmer is born in debt, lives in debt and dies in debt leaving behind debt.
Cause # 9. Questionable Practices of Money-Lenders:
To these may be added the questionable practices of the money-lenders. The money lenders followed many questionable practices like deducing advance interest, getting gifts for doing business, liking of thumb impression on blank paper, manipulating accounts, executing documents for larger sums than those actually given, taking of conditional sale deed, etc. The rates obtained by the moneylender were high.
Conclusion of Royal Commission:
We may quote the conclusion of the Royal Commission on Indian Agriculture on the subject. “The general expansion of the credit of the land-holder, his illiteracy and the temptation he has to relieve present necessities by mortgaging his future income and even his capital, have on the one hand, led to the increased indebtedness, while on the other hand, the position of the money-lender has been strengthened by the rapid development of commerce and trade, the introduction of established law and permanent Civil Courts and the enactment of such measures as the Contract Act.”