10 October 2024, New Delhi: NABARD (National Bank for Agriculture and Rural Development) released the results of its second All India Rural Financial Inclusion Survey (NAFIS) for the agricultural year 2021-22. This survey, which examines various economic and financial indicators for rural households in India, offers critical insights into how the country’s rural economy has evolved in the post-COVID period. The findings are based on data from over 1 lakh rural households, providing a clear picture of the progress made since the first NAFIS survey for 2016-17, published in August 2018.
Context and Importance of NAFIS
Rural financial inclusion is a key driver of economic development, particularly in India, where the majority of the population lives in rural areas and relies on agriculture. In the wake of the COVID-19 pandemic, which severely disrupted livelihoods and economies, financial inclusion in rural areas has taken on new significance. Recognizing this, NABARD’s NAFIS 2021-22 helps assess the economic resilience of rural households and the effectiveness of government and financial policies in supporting rural prosperity.
The first NAFIS survey (2016-17) provided critical baseline data that helped shape policy and programs aimed at increasing financial inclusion and reducing poverty. Since then, India has faced several economic shocks, including the COVID-19 pandemic, inflationary pressures, and supply chain disruptions. The NAFIS 2021-22 survey allows policymakers and stakeholders to understand how these challenges have impacted rural households and to evaluate the success of various financial and agricultural reforms introduced in recent years.
Key Findings of NAFIS 2021-22
One of the most striking findings from the 2021-22 survey is the significant rise in the average monthly income of rural households. In 2016-17, the average income stood at ₹8,059, but by 2021-22, it had increased by 57.6% to ₹12,698. This growth represents a compound annual growth rate (CAGR) of 9.5%, which is slightly higher than India’s annual average nominal GDP growth of 9% during the same period.
Similarly, the average monthly expenditure of rural households increased from ₹6,646 in 2016-17 to ₹11,262 in 2021-22. Despite rising incomes and expenditures, rural households managed to save more. The average annual savings jumped from ₹9,104 in 2016-17 to ₹13,209 in 2021-22, with 66% of households reporting some form of savings, up from 50.6% in 2016-17. These figures suggest improved financial stability in rural households, which is critical for coping with unforeseen economic challenges.
Changing Consumption Patterns and Rising Indebtedness
A notable shift in the consumption patterns of rural households was also observed. The share of food in the consumption basket declined from 51% in 2016-17 to 47% in 2021-22, indicating that rural families are spending relatively more on non-food items such as education, healthcare, and utilities, which reflects a higher standard of living and improved economic mobility.
However, despite these positive developments, the NAFIS survey highlights an increase in household debt. The proportion of rural households with outstanding debt rose from 47.4% in 2016-17 to 52% in 2021-22. For agricultural households, institutional borrowing became more prevalent, with 75.5% of these households relying solely on institutional sources for credit, compared to 60.5% in 2016-17. This increase indicates the effectiveness of formal credit channels like banks and cooperatives in catering to rural financing needs, but it also suggests rising financial stress, especially among farming families.
The survey shows that the average borrowing from institutional sources increased from ₹25,576 in 2016-17 to ₹32,484 in 2021-22, while borrowing from non-institutional sources (such as moneylenders) decreased significantly from ₹11,335 to ₹4,759. This shift reflects improved access to formal financial services and credit, thanks to government initiatives such as the Pradhan Mantri Jan Dhan Yojana and the expansion of the Kisan Credit Card (KCC) scheme.
Role of Financial Inclusion Instruments
The KCC has emerged as one of the most successful tools for financial inclusion in the rural agricultural sector. Its coverage increased significantly, with 44.1% of agricultural households holding valid KCCs in 2021-22, up from just 10.5% in 2016-17. This increase is a testament to the government’s focus on expanding credit facilities to small and marginal farmers.
Insurance coverage also saw a dramatic rise. In 2016-17, only 25.5% of rural households had at least one member with any type of insurance. By 2021-22, this figure had surged to 80.3%, indicating a significant improvement in financial protection for rural families against life, health, and crop-related risks.
Furthermore, pension coverage increased from 18.9% in 2016-17 to 23.5% in 2021-22, reflecting the growing awareness and participation in social security schemes such as the Pradhan Mantri Shram Yogi Maandhan (PMSYM) and the Atal Pension Yojana (APY).
Financial Literacy and Behavior
An encouraging trend from the NAFIS 2021-22 survey is the improvement in financial literacy among rural households. The proportion of respondents indicating good financial literacy increased from 33.9% in 2016-17 to 51.3% in 2021-22. Additionally, the survey revealed better financial behavior, with more rural households demonstrating sound financial practices such as budgeting, saving, and timely loan repayments.
Declining Land Holding
Despite the positive findings, the survey also highlights some challenges. The average size of landholdings declined from 1.08 hectares in 2016-17 to 0.74 hectares in 2021-22, reflecting the growing fragmentation of agricultural land in India, which could pose long-term sustainability issues for small farmers.
While financial inclusion has improved, rising indebtedness remains a concern. Policymakers need to focus on ensuring that rural households have access to affordable credit and are not overburdened by debt.
The NAFIS 2021-22 survey presents a comprehensive picture of the evolving rural economy in India. While rural households have seen significant improvements in income, savings, and access to financial services, challenges such as rising debt and land fragmentation need to be addressed. As India continues to recover from the impact of the COVID-19 pandemic, the insights from this survey will be invaluable for policymakers, financial institutions, and development agencies working to enhance rural prosperity and financial inclusion.
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