Rural Borrowings in COVID times: A Case from Purvanchal region of Uttar Pradesh

Updated: Jun 17, 2020

By S Saumya and Mohan Lal Gupta

As large number of migrant workers return to their villages in the midst of the pandemic, growing concerns over loss of employment and livelihoods are ever increasing. The loss of jobs in the urban informal sector cannot be met at the required scale at the local level, owing to factors stemming from a general lack of wealth and investment in rural areas. The disrupted chain of raw material used in construction work has hindered the possibility of any local construction to happen in rural or semi-urban areas. Also, the implementation of MGNREGA is facing the issues of delayed payment and discrepancies in allocation of jobs.

The blocks of Dudahi and Vishnupurain Uttar Pradesh’s Kushinagar district comprise a large population of vulnerable groups – low income and landless groups who are mostly from Scheduled Caste and Muslim communities (around 35% of total population in Dudahi and roughly 35-50% of total population in Vishnupura). Loss of livelihoods coupled with poor implementation of MGNREGA has resulted in an increase in people availing credit, particularly in rural areas of the blocks.

The increase in availing credit does not however, match up to the availability of credit. Moneylenders who are mostly large farmers have themselves become financially insecure because of lockdown and are not lending money fearing loan default. However, an increase has been witnessed in informal rural borrowings across these two blocks which can be understood in terms of phases guided by the reasons for these borrowings.

First Phase

The first phase of an increase in loans was seen in the initial weeks of lockdown, when families of migrant workers in the villages started borrowing money to transfer to their stranded relatives for the required transportation costs. This was around 3000-5000 Rupees per head (travel cost of one migrant worker). While seemingly average to most of us, this amount is more than the monthly income of many individuals from vulnerable groups in Kushinagar.

Second Phase

The second phase of rural borrowings started after the migrant workers returned to their villages and has been continuing till date. People are borrowing money to purchase food and other essential commodities from local markets. This highlights the glaring impact of losses in income and livelihood.

As per our survey findings from six blocks of Kushinagar district (Dudahi, Kasaya, Motichak, Padrauna, Sukrauli and Vishnupura), only 20-50% of returned migrants have some form of income source. Further, if we look at the income and job losses of various vulnerable sections in the blocks, non-agricultural wage labourers suffered incomes losses upwards of 80%, skilled craft workers and the self-employed saw income losses of more than 50% during the lockdown period.

The following graph shows the income losses of informal workers in the surveyed blocks of Kushinagar district. The scale ranges from 1 to 3, 1 representing low to 3 representing high. Most of the groups show an average between 2.5 and 3 indicating high income losses.

Figure 1. Income Loss of Informal Workers in surveyed blocks of Kushinagar

Further, the generation of employment under MGNREGA has been low, with job-card holders getting work on an average of 1-2 days per week both prior to and after the lock-down.

The following figure shows the average number of workdays per person per week under MGNREGA in surveyed blocks of Kushinagar district.

Figure 2. Workdays per person per week under MNREGA in surveyed blocks of Kushinagar

For food, most of the vulnerable families in Dudahi and Vishnupura blocks have access to the Public Distribution System (PDS). However, despite the access, the inadequacy of PDS shops to meet the food requirements of people and problems of under supply of ration continue to force some of these families (those who can either avail credit or use their savings) to depend upon private shops for purchasing essential commodities, which have also seen a price rise of close to 10-30% after the lockdown.

Amongst the six surveyed blocks of Kushinagar, four blocks showed more than 50% increase and 2 blocks showed 20-50% increase in prices of basic essential commodities.

Third Phase

The third phase of rural borrowings comes with the onset of the Kharif season and entails the small and marginal farming communities. The small and marginal farmers, in particular suffered income loss as the supply-chain of agricultural produce was adversely affected. Some of these farmers also lost their grain-crops because of excessive rains. Due to the income-losses and its subsequent impact on savings, small and marginal farmers shall now begin to borrow money for investment in agricultural inputs before the Kharif season (June – September) begins.

With regard to sources of credit in villages, loans are taken mostly from large farmers and sometimes from acquaintances, friends and relatives. Borrowing from friends and relatives, in no way implies that the terms of borrowing are relaxed. The rate of interest on the borrowings is decided mutually between the parties at the time of borrowing. The monthly interest rate on borrowings currently ranges between 5-15% .


Borrowing money to sustain has been a common plight of the vulnerable groups since much before Covid. However, the inclusion of relatively better off families into the nexus of rural borrowings coupled with income-losses due to lost livelihoods has exacerbated the situation in rural areas. The inability of MGNREGA to generate jobs and the inefficiency of PDS to supply adequate ration forces families from vulnerable groups to borrow money to make ends meet. Increased borrowings coupled with loss of livelihood opportunities will further put the vulnerable groups into the vicious cycle of indebtedness and poverty.

Further, increase in borrowings can lead to an increased trend of bonded labour. As the lockdown has crippled the functioning of schools, Anganwadis and Balwadis, borrowings can potentially lead to increase in families resorting to child-labour.

S Saumya is part of I-CARD and Mohan Lal Gupta is the Block Expert from Kushinagar.

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