Reading the Tea Leaves on Financial Inclusion

Understanding the extent of financial inclusion of rural labour households is important since in the intercensal period 2001-11, the proportion of agricultural labourers in the workforce increased by 3.5 percentage points. This paper examines progress in financial inclusion using information on indebtedness of rural labour households collected by the National Sample Survey Office as part of the surveys of employment and unemployment conducted in 2004-05 and 2009-10. It is estimated that 22.3 million out of the nearly 66 million rural labour households report being in debt in 2009-10. The share of formal institutions in the outstanding debt of rural labour households increased from 29% to 37% while the share of moneylenders decreased from 44% to 33% during this period. What is promising is that the reliance on institutional sources among rural labour households without cultivable land increased from 20.6% to 26%. The aggregate picture however masks large variations across the states and one does not observe any structural change in geographical distribution of flow of credit and share of outstanding advances to the landless.