Social Science — CBSE Class 10 board question

Importance of Credit in Economic Development:

1. Meets production needs: Credit helps producers like small manufacturers meet working capital needs — purchasing raw materials, hiring labour — enabling them to complete orders, earn profits, and expand output.

1. Supports agriculture: Farmers need crop loans for seeds, fertilisers, pesticides, and equipment. Since 3–4 months pass between sowing and harvest, credit bridges this gap and sustains agricultural production.

1. Enables entrepreneurship: Cheap and affordable credit allows people to set up small-scale industries, trade in goods, and start new enterprises, directly contributing to development.

1. Risk of debt-trap: In high-risk situations (e.g., crop failure), credit can push borrowers into a debt-trap, making them worse off. Hence, the terms of credit matter greatly.

1. Need to expand formal credit: Formal sector credit (banks, cooperatives) carries low interest; informal credit is costly. Expanding formal credit reduces dependence on moneylenders and ensures higher income remains with borrowers, boosting overall development.

Source: Chapter 3 — Money and Credit, Formal Sector Credit in India / Two Different Credit Situations

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• Examiners expect both the positive role (production, agriculture, entrepreneurship) and the negative aspect (debt-trap) — covering both sides earns full marks.
• Always mention formal vs. informal credit distinction and why expanding formal credit matters.
• Use textbook examples (Salim, Swapna) as evidence — they show two contrasting outcomes of credit.
• Five points for a 5-mark question is ideal; keep each point concise (1–2 lines).