This paper examines risk and insurance in rural India, focusing on the effectiveness of local financial markets and institutions in mitigating risks such as erratic rainfall, crop failures, and income fluctuations. The study uses data from three villages in southern India to analyze consumption patterns and assess the role of various risk-sharing mechanisms. The research highlights the importance of understanding how households manage risk through diversification, storage, credit markets, and family networks. The paper develops a general equilibrium framework to evaluate the interactions between different risk-sharing mechanisms and their impact on consumption and labor supply. It finds that while local financial markets are functional, there are anomalies such as the limited impact of income on consumption and the influence of time-varying factors like land holdings on consumption. The study also explores the implications of these findings for policy reform and the design of effective risk management strategies in rural economies. The analysis is based on household data and includes a detailed examination of production, income, and risk in the villages, as well as the demographic and economic characteristics of the households. The paper concludes that a comprehensive understanding of risk-sharing mechanisms is essential for developing effective policies to support economic growth and stability in rural areas.This paper examines risk and insurance in rural India, focusing on the effectiveness of local financial markets and institutions in mitigating risks such as erratic rainfall, crop failures, and income fluctuations. The study uses data from three villages in southern India to analyze consumption patterns and assess the role of various risk-sharing mechanisms. The research highlights the importance of understanding how households manage risk through diversification, storage, credit markets, and family networks. The paper develops a general equilibrium framework to evaluate the interactions between different risk-sharing mechanisms and their impact on consumption and labor supply. It finds that while local financial markets are functional, there are anomalies such as the limited impact of income on consumption and the influence of time-varying factors like land holdings on consumption. The study also explores the implications of these findings for policy reform and the design of effective risk management strategies in rural economies. The analysis is based on household data and includes a detailed examination of production, income, and risk in the villages, as well as the demographic and economic characteristics of the households. The paper concludes that a comprehensive understanding of risk-sharing mechanisms is essential for developing effective policies to support economic growth and stability in rural areas.