Impact of informal debt retirement among short-term migrant labour with policy implications

Abstract

Malcolm Darling (British Indian Civil Officer) while studying the high indebtedness among farmers in Punjab said, the Indian peasants are born in debt, live in debt and die in debt (Darling, 1977). Rural India is marred with extreme poverty due to erratic income, defective agricultural structures and little to no savings. Thus, the rural population are forced to seasonally migrate for better work opportunities and borrow heavy amounts of money to meet basic production, consumption and social requirements. Majority of rural households are, thus, debt burdened. The lack of social security and formal financial services means that the majority of lending occurs through informal sources. Initially higher indebtedness was attributed to higher dependence on informal moneylenders, who work without paperwork and charge higher interest rates. Despite an increase in provision of institutional credit to rural households, almost 52% of rural households are still indebted (Ministry of Statistics and Programme Implementation, 2015).

Through a detailed survey and extensive case studies in southern Rajasthan this paper will explore how seasonal migrants and their families deal with informal debt. Qualitative and quantitative impact assessment will be conducted to find the effects of removal of debt from a migrant labourers' household. The role of targeted formal financial services will be analysed by trying to measure the social, financial and behavioural impact of removing informal debt through institutional credit. The last section of the paper will deal with the scope and analysis of the policy framework in order to improve access of institutional finance for the seasonal migrant labour.