Extreme levels of household debt are common across the developing world. This is especially true in rural economies, where households face significant income volatility, but lack access to basic financial tools — such as insurance or futures contracts — that could reduce vulnerability to recurring income shocks.
In India, where over-indebtedness among rural households has been an important issue for decades, the government resorted to an unusually bold policy response. Prompted by a highly visible increase in farmer suicides, most notably in the Vidarbha region of Maharashtra, and a wave of defaults among microfinance borrowers, the Government of India embarked on what was perhaps the largest household level debt relief program in history. Announced in then finance minister Pranab Mukherjee’s budget speech on February 28, 2008 India’s Agricultural Debt Waiver and Debt Relief Program for Small and Marginal Farmers, cancelled the outstanding debts of 45 million rural households across the country, amounting to approximately 1.7% of India’s GDP.