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The state and rural credit markets in south India, 1930-1960

Nath, Maanik (2020) The state and rural credit markets in south India, 1930-1960. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004197


This thesis contributes to a central theme in the economic history of India: state intervention to protect peasants from market fluctuations, especially, interventions in the credit market. With novel material drawn from the Madras region in late-colonial and early post-colonial times, the thesis asks why unregulated credit markets did not supply enough credit and why regulations exacerbated the problem. Private moneylenders controlled the supply of rural credit in colonial India. Officials believed that rich moneylenders exploited poor peasants in non-competitive credit markets, raising borrowing costs and default rates, restricting investment and widening rural inequality. Based on that understanding, governments in the provinces enforced laws to protect borrowers. The government in Madras adopted two policy approaches to rural credit that were specific to the province. First, from 1904 it established cooperative banks to compete with private lenders. Second, from 1937 it enforced an artificial price ceiling on loans from moneylenders. This thesis aims to show that intervention failed owing to the nature of the agricultural economy and the political-economic ideology that privileged equity over efficiency. The first and second substantive chapters critically discuss the view, voiced by government officials and some historians, that exploitation drove high borrowing costs and defaults. By looking at the costs borne by the moneylender, the chapters show that the frequency of crop failure and inefficient courts explain restricted credit supply as well as default and interest rate patterns. The third chapter evaluates the impact of credit intervention and demonstrates that the price ceiling failed to deliver equity gains and triggered losses in market efficiency as credit supply contracted and moneylenders evaded the law. The outcome was limited credit supply and lending at illegal rates of interest. The fourth chapter analyses the performance of cooperative banks in rural Madras. The chapter shows that regulatory design explains the failure of the cooperative model. The rich refused to cooperate with the poor while bank managers embezzled and falsified accounts.

Item Type: Thesis (PhD)
Additional Information: © 2020 Maanik Nath
Library of Congress subject classification: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
J Political Science > JA Political science (General)
S Agriculture > S Agriculture (General)
Sets: Departments > Economic History
Supervisor: Roy, Tirthankar and Bakker, Gerben

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