Credit in agrarian India: narrative policy struggles over farmer surplus

Abstract

Debt is fundamental to agrarian life across the world. In India, over half of agricultural households are indebted and borrow from myriad credit sources. Formal institutional credit (e.g., bank loans) has historically, and up to the present day, been proposed as a tool for rural development and to eliminate exploitative informal moneylenders. This is true in India, where despite decades of state policies to displace informal lending using formal credit, informal lending persists and increasing debt is an ever-present symptom of the agrarian crisis. Informal lending made up 30% of farmers’ credit sources in 2019; for farmers who owned less than 0.01 ha of land, this was 71.8%. In this paper we provide an historical examination of the numerous state responses to the proliferation of agrarian debt, surveying lending policy as a state development tool in India. We analyze how moneylending has been treated in different historical periods and the increasing participation of the state (from colonial to present times) in agrarian debt and use a Narrative Policy Analysis to synthesize the underlying “narratives” that characterize evolving policy forms. In the process, we reveal not only a consistent narrative assuming the displacement of informal credit with formal credit, one contradicted by the situation on the ground: an absolute increasing trend in borrowing, and a crucial propagation of the number and variety of credit sources. This we observe to be precisely a result of the largely fruitless state effort to formalize credit and to eliminate informal lending. This persistent discourse that posits formality as a solution to informality, we further conclude, is not only a cultural project of the colonial, post-colonial, and modernization state, but one essential for the circulation and accumulation of capital, enhancing its urgency. The failed effort to eliminate informal lending has resulted, furthermore, in a decline in farmer autonomy and the creation of a state-underwritten struggle − between multiple actors in the credit sector − over the redistribution of agrarian surplus.