Question 12 of 29intermediate🔍 AnalyzeLong Answer5 marks

Compare the terms of credit for the small farmer, the medium farmer and the landless agricultural worker in Sonpur.

Correct Answer

The terms of credit vary significantly among the small farmer, medium farmer, and landless agricultural worker in Sonpur.

Arun, the medium farmer, owns seven acres of land and is one of the few persons in Sonpur to receive a bank loan for cultivation. The interest rate on his loan is 8.5 per cent per annum, which is relatively low. He can repay the loan anytime within three years. Arun plans to repay after harvest by selling part of his crop and can also apply for a fresh loan against cold storage receipts.

Shyamal, the small farmer, faces more difficulty in accessing formal credit. Since Arun is described as "one of the few persons" to get a bank loan, it indicates that small farmers like Shyamal have limited access to institutional credit and likely depend on informal sources.

Rama, the landless agricultural worker, has no access to formal credit. She depends entirely on her employer, a medium landowner, for loans. The landowner charges a very high interest rate of 5 per cent per month (60 per cent per annum). She repays by working for the landowner and often takes fresh loans before repaying previous ones, falling into a debt trap.

Thus, while medium farmers get affordable bank loans, landless workers face exploitation through high-interest informal credit.

Exercise: LET'S WORK THESE OUT | Q: 3 | (Page Page 10)
For More Understanding

Explanation

The textbook illustrates how credit terms vary based on economic status. Medium farmers like Arun with land as collateral can access cheap bank loans (8.5% annually). Small farmers have limited access to formal credit. Landless workers like Rama are the worst affected—they depend on employers who charge 5% monthly (60% annually), leading to debt traps. This comparison highlights how the poor are excluded from formal credit systems.

Solution Steps

  1. Step 1: Identify credit terms for medium farmer (Arun) - bank loan at 8.5% p.a., 3-year repayment

  2. Step 2: Identify credit terms for landless worker (Rama) - employer loan at 5% per month, repaid through labour

  3. Step 3: Infer small farmer's situation from context - limited bank access as Arun is 'one of the few'

  4. Step 4: Compare interest rates, sources, and repayment conditions across all three categories

PreviousNext