Page 68 - Understanding Economics for Class 10

 For cultivation, Swapna takes a fresh loan next year. Crops are normal this year but the
earnings are not enough to repay the old loan.
 She is caught in debt trap and has to sell a part of the land to pay off the debt.
In rural areas, Credit is mainly required for crop production which involves considerable costs
Goyal Brothers Prakashan
on seeds, fertilisers, pesticides, water, electricity, repair of equipment, etc. Minimum of 3-4
months stretch is there between the time when the farmers buy these inputs and when they
sell the crop. Loan is usually taken at the beginning of the season and repayment is done after
harvest. Repaying of loan is mainly dependent on the income from farming.
 In Swapna’s case, she is unable to repay the loan due to failure of crops. This forced her
to sell a part of her land. So, instead of improving earnings, credit left her worse off.
 This is called as debt-trap. Credit in this case pushes the borrower into a situation from
which them around is extremely difficult.
In one situation, credit helps in increasing the earnings, thereby making a person better off than
before while in another situation a person is made worse off because of the failure of crops and
hence, the inability to pay back loan which further pushes the person in a debt trap. To repay
the loan, she sold a part of her land. This made her even worse off than before.
Therefore, whether credit would be useful or not, depends on the risks involved in the
situation and whether there is some support, in case of loss.

Let's work these out (Page No. 44)
1. Fill the following table.
Salim Swapna
Why did they need credit?
What was the risk?
What was the outcome?

Ans. Salim Swapna
Why did they need credit? He got a big order for She is involved in the
shoes and to complete the cultivation of groundnuts.
production on time he hired To meet the expenses of
extra labour, purchased raw cultivation she needed credit.
material. So, to meet these
expenses he needed credit
What was the risk? Risk involved was, if he Risk involved was, if crops
was not able to complete are hit by pests it will lead
the production on time to failure of crops. It actually
due to reasons like strike happened in Swapna’s case.
by workers, machines get
damaged or problem can arise
at the time of delivery as well
like theft can happen.
What was the outcome? Since, Salim was able to Because of the crop failure, she
complete and deliver the was unable to repay the loan,
order on time, he made good next year also crop was normal
profit and repaid the loan. but she was caught in the debt
Credit made him better off. trap. She sold a part of her land.
Credit made her worse off.

Economics Class X E-59