Explain the position of informal institutions as a source of credit in rural India. "Dr. Khurana, a dentist, ran his clinic in an economically backward area. He was earning a comparatively low income. So, he decided to move to a city and spent a huge amount for the same." Identify and explain the type of expenditure incurred by Dr. Khurana, which directly contributed to the process of human capital formation.

Question

Accepted Answer

Position of informal institutions as source of credit in rural India:

1. Moneylenders:
- Traditional source of credit
- Charge high interest rates
- Manipulate accounts
- Exploit farmers

2. Relatives:
- Interest-free loans
- Available in emergencies
- Limited amounts
- Informal arrangements

3. Traders and Commission Agents:
- Provide crop loans
- Charge high interest
- Force distress sales
- Exploit farmers

4. Rich Landlords:
- Provide loans to tenants
- Charge exorbitant rates
- Create debt trap
- Exploit small farmers

Dr. Khurana's case:
1. Low income in backward area
2. Difficulty in accessing formal credit
3. Dependence on informal sources
4. Need for financial inclusion

Informal sources dominate rural credit but lead to exploitation and debt trap.