Formal Credit and Rural Occupational Diversification: Recent Experience in India

During the past two decades, India has been acclaimed as one of the fastest growing economies in the world. But the pace of growth is not reflected in the expansion of employment opportunities, especially in rural areas. Vast majority of labour force in rural areas are concentrated in agriculture and other low productive activities. The kind of diversification in rural employment witnessed as a part of development process in rural South East Asia is hardly in evidence in India. This article analyzes the experience of promotion of rural occupational diversification with reference to credit flow with particular reference to the Swarnajayanti Gram Swarojgari Yojana (SGSY). The article discusses the growing demographic pressure in rural areas and the crowding of workforce in the agriculture sector and analyzes broadly the role of non-farm sector in rural occupational diversification and discusses the state of rural non-farm sector and non-farm enterprises in India. It goes on to analyze the credit related problems of micro and small enterprises and concludes by referring to the need for not only improving the supply of credit flow to rural households for income generating activities but also strengthening the demand side by strengthening the capabilities of the rural household through capacity building and appropriate institutional arrangements.