Rural Development and Sustainable Development — Credit, Markets, Diversification and the Environment

Most of India's people still live in villages, and most of the poor are rural, so rural development — improving the economic and social conditions of village life — is central to development as a whole. It depends on four things the book examines in turn: credit to finance farming and rural enterprise, marketing so that farmers get a fair price, diversification into activities beyond crop farming, and practices such as organic farming that keep the land productive. That last point leads into the second half of the chapter: the environment as the base every economy rests on, the ways growth can exceed what the environment can bear, and the idea of sustainable development that answers it.

Rural Credit — from Moneylenders to NABARD and Self-Help Groups

Farming has a long gap between sowing and the sale of the harvest, so farmers need credit for seed, fertiliser and equipment, and often for family needs as well. At independence the main lenders were moneylenders and traders, who charged high interest and often manipulated accounts, keeping small farmers in debt. Policy since then has replaced them with a multi-agency system of institutional credit: cooperative credit societies, commercial banks (whose rural branches expanded greatly after the nationalisation of banks in 1969), regional rural banks and land development banks.

  • NABARD — the National Bank for Agriculture and Rural Development, set up in 1982 as the apex body to coordinate the activities of all institutions financing the rural economy.
  • Self-help groups (SHGs) — small groups, mostly of rural women, who pool regular small savings and lend to members at reasonable interest; many are linked to banks, which lend to the group as a whole. Lending of this kind is called microcredit, and it reaches people who have no collateral to offer a bank.
  • The remaining weaknesses — institutional credit has not fully displaced moneylenders, much of it has gone to larger farmers, and overdue loans have weakened many rural lenders.

Agricultural Marketing and Diversification

Agricultural marketing covers everything that happens to produce after harvest — assembling, storing, processing, transporting, grading, packing and selling. Without organised markets farmers sold to traders at low prices, with faulty weights and poor storage forcing distress sales. The state stepped in on four fronts: regulated markets with orderly and transparent sales; physical infrastructure — roads, storage and cold chains; cooperative marketing so that farmers sell together and get a better price; and price policy — minimum support prices (MSP), procurement and buffer stocks held by the Food Corporation of India, and distribution of food grains through the public distribution system (PDS).

Farmers have also built alternative marketing channels that let them sell directly to consumers and keep the trader's margin. The book's examples are Apni Mandi (Punjab, Haryana and Rajasthan), Hadaspar Mandi (Pune), Rythu Bazars (vegetable and fruit markets in Andhra Pradesh and Telangana) and Uzhavar Sandies (farmers' markets in Tamil Nadu); some food-processing companies also contract directly with farmers.

Diversification — reducing the risk of depending on crops alone
ActivityWhat the book stresses
Animal husbandryCattle, goats and poultry give a steadier income than crops; Operation Flood, a cooperative dairy programme, made milk production a rural success story, with Gujarat's milk cooperatives the leading example
FisheriesInland and marine fishing support many coastal and riverine households
HorticultureFruits, vegetables, flowers and spices earn more per hectare and employ more people, especially women
Non-farm activitiesAgro-processing, food processing, leather, tourism, handicrafts — and information technology, which can spread knowledge of prices, weather and techniques
ℹ️ Organic farming
Organic farming grows crops without chemical fertilisers and pesticides, relying on natural inputs such as compost and bio-pest control to maintain the soil. Its benefits are that it substitutes cheaper local inputs for costly chemicals, produces food without chemical residues, can earn more from exports, and is suited to small farmers because it is labour-intensive. Its limitations are that yields can be lower in the early years, it needs more knowledge and marketing support, and organic produce can have a shorter shelf life.

The Environment — Four Functions and the Limits of Carrying Capacity

The environment is the total planetary inheritance — all the biotic (living) and abiotic (non-living) factors that influence one another. It performs four functions: it supplies resources, both renewable (trees, fish) and non-renewable (fossil fuels, minerals); it assimilates waste; it sustains life by providing genetic and biodiversity; and it provides aesthetic services such as scenery.

The environment can perform these functions without interruption only as long as demand on it stays within its carrying capacity. That requires two conditions: resources must be extracted no faster than they regenerate, and waste must be generated no faster than the environment's absorptive capacity can take it in. When either is breached, the result is an environmental crisis — resources run out, pollution builds up, and the cost of restoring the environment rises. Global problems the book names include global warming, caused by greenhouse gases such as carbon dioxide and methane, and ozone depletion, caused mainly by chlorofluorocarbons (CFCs); the Montreal Protocol (1987) was the international agreement to phase out ozone-depleting substances.

In India the pressures the book lists are land degradation, loss of biodiversity, air pollution (especially in cities, from vehicles and industry), water contamination, and the management of fresh water and solid waste. The Central Pollution Control Board, set up in 1974, monitors and works to prevent and control air and water pollution.

Sustainable Development — the Definition, Daly's Rules and Indian Strategies

The World Commission on Environment and Development — the Brundtland Commission — defined sustainable development in its report of 1987 as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. The idea is a duty to the future: to hand on a stock of resources and an environment at least as good as the one inherited.

  1. Limit the human population to a level within the environment's carrying capacity.
  2. Technological progress should be input-efficient, not input-consuming.
  3. Renewable resources should be extracted on a sustainable basis — no faster than they regenerate.
  4. Non-renewable resources should be depleted no faster than renewable substitutes are created.
  5. Inefficiencies arising from pollution should be corrected.

Those five rules are Herman Daly's conditions for sustainable development. The strategies the book suggests for India follow from them: non-conventional energy — solar power and wind power; LPG and gobar gas in rural areas in place of firewood and dung cakes; CNG in urban public transport, as in Delhi, to cut air pollution; mini-hydel plants in mountain areas; traditional knowledge and practices in agriculture, health and housing; bio-composting in place of chemical fertilisers; and bio-pest control. People's movements such as the Chipko movement in the Himalayan forests and the Appiko movement in Karnataka, both to protect trees from felling, show the same concern from below.

⚠️ Sustainable development does not mean no development
Options sometimes describe sustainable development as stopping growth, or as conserving every resource untouched. Neither is the definition: it allows present needs to be met and resources to be used, on the condition that the capacity of future generations to meet their needs is not reduced. Daly's rule on non-renewables makes the point exactly — they may be used, but no faster than renewable substitutes are created.

Key takeaways

  • Rural credit moved from moneylenders to a multi-agency institutional system; NABARD, set up in 1982, coordinates it.
  • Self-help groups pool members' small savings and give microcredit to people with no collateral.
  • Marketing reforms: regulated markets, infrastructure, cooperative marketing, MSP, buffer stocks and the PDS; Apni Mandi, Rythu Bazars and Uzhavar Sandies are alternative channels.
  • Diversification into animal husbandry, fisheries, horticulture and non-farm work reduces risk; Operation Flood transformed dairying.
  • The environment supplies resources, assimilates waste, sustains life and provides aesthetic services.
  • Within carrying capacity, extraction stays below regeneration and waste below absorptive capacity; breaching either causes environmental crisis.
  • Sustainable development (Brundtland, 1987) meets present needs without compromising future generations' ability to meet theirs.
  • Daly: non-renewables should be depleted no faster than renewable substitutes are created; technology should be input-efficient.

Practice questions (8)

Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.

  1. The apex institution set up in 1982 to coordinate the activities of all institutions involved in financing the rural economy is:

    1. The Reserve Bank of India
    2. The State Bank of India
    3. NABARD
    4. The Food Corporation of India
    Show answer

    Answer: C — NABARD

    NABARD, the National Bank for Agriculture and Rural Development, was created in 1982 as the apex body for rural credit. The RBI is the central bank for the whole economy and long predates 1982, and the Food Corporation of India deals with procurement and buffer stocks of food grains, not with credit.

  2. Self-help groups help the rural poor mainly by:

    1. Pooling members' savings and lending without collateral
    2. Fixing the minimum support prices of crops
    3. Running the public distribution system
    4. Providing large loans to big farmers for buying farm machinery
    Show answer

    Answer: A — Pooling members' savings and lending without collateral

    An SHG collects regular small savings from its members, lends from that pool, and is often linked to a bank that lends to the group — microcredit that reaches people who cannot offer collateral. MSPs are set by the government and the PDS is a state system, and SHGs exist precisely for the small borrowers that large loans to big farmers leave out.

  3. Operation Flood is associated with:

    1. Flood control along the Ganga
    2. Expansion of fish farming
    3. Irrigation through canals
    4. Dairy cooperatives and milk
    Show answer

    Answer: D — Dairy cooperatives and milk

    Operation Flood was a cooperative dairy programme, and the "flood" is of milk — it organised producers into cooperatives and linked them to urban markets, with Gujarat's milk cooperatives as the model. The name tempts towards flood control and irrigation, which have nothing to do with it.

  4. Rythu Bazars in Andhra Pradesh and Telangana and Uzhavar Sandies in Tamil Nadu are examples of:

    1. Regional rural banks
    2. Farmers' markets selling direct to consumers
    3. Buffer stocks held by the Food Corporation of India
    4. Organic farming certification bodies
    Show answer

    Answer: B — Farmers' markets selling direct to consumers

    Both are farmers' markets where growers sell straight to consumers, cutting out the trader's margin — the book's examples of alternative marketing channels, along with Apni Mandi and Hadaspar Mandi. They are not credit institutions, and they are run by farmers rather than being part of the state's procurement and buffer-stock system.

  5. Sustainable development, as defined by the Brundtland Commission, is development that:

    1. Stops economic growth to protect the environment
    2. Maximises the present generation's use of resources
    3. Meets the needs of the present generation without compromising the ability of future generations to meet their own needs
    4. Uses only renewable resources and no non-renewable ones
    Show answer

    Answer: C — Meets the needs of the present generation without compromising the ability of future generations to meet their own needs

    The Brundtland Commission's 1987 definition balances present needs against those of future generations. It does not require growth to stop, and it does not ban non-renewable resources — Daly's rule allows their use as long as depletion does not outrun the creation of renewable substitutes. Maximising present use is exactly what the definition rules out.

  6. The environment can continue performing its functions only if:

    1. All mining and quarrying is banned across the world
    2. Extraction stays below regeneration, and waste below absorptive capacity
    3. Population growth is zero everywhere
    4. Only the developed countries cut their pollution, while others grow freely
    Show answer

    Answer: B — Extraction stays below regeneration, and waste below absorptive capacity

    This is the meaning of staying within carrying capacity: resources must not be used up faster than they regenerate, and waste must not pile up faster than the environment can absorb it. A total mining ban or zero population growth goes further than the condition requires, and pollution anywhere adds to the global load.

  7. Which of the following is NOT one of the four functions of the environment described in the book?

    1. Supplying renewable and non-renewable resources
    2. Assimilating waste
    3. Sustaining life through genetic and biodiversity
    4. Setting the market prices of natural resources
    Show answer

    Answer: D — Setting the market prices of natural resources

    The four functions are supplying resources, assimilating waste, sustaining life and providing aesthetic services. Prices are set by markets and governments, not by the environment — and the fact that environmental services are often unpriced is part of why they are overused.

  8. According to Herman Daly, for development to be sustainable, non-renewable resources should be:

    1. Used no faster than renewable substitutes are created
    2. Left entirely unused for future generations
    3. Used up as fast as possible while they are still cheap
    4. Replaced immediately by imports
    Show answer

    Answer: A — Used no faster than renewable substitutes are created

    Daly's rule permits the use of non-renewables but ties the pace of depletion to the pace at which renewable substitutes are created, so the total capacity handed to the future does not shrink. Leaving them wholly unused goes beyond the rule, and using them as fast as possible is the opposite of it.