State intervention in markets is usually thought of as a post-independence phenomenon. However, this column demonstrates that extensive State intervention in land and credit transactions can be traced back to policies adopted by the British Raj in India, beginning in the late 19th century.
It is usually thought that extensive State intervention in market transactions is a post-independence phenomenon in India. Such intervention is closely identified with import-substitution, which was a strategy to promote industrialisation. But as liberalisation has proceeded we are increasingly aware that the State also heavily intervenes in markets in land, and, relatedly, private (non-bank) credit. What are the roots of these interventions? Should these also be traced back to the days of Jawaharlal Nehru and Indira Gandhi? After all, wasn’t the British Raj largely laissez-faire 1? The short answer is No. Despite lip-service to laissez-faire, the British Raj intervened extensively in land markets, and particularly in the relationship between land and credit transactions. This goes back to the 19th century. Independence marked a break in policies pertaining to trade and industry, but on land and non-bank
If we consider the land market in 1850 in (say) Bengal or the Bombay Deccan, there was little State intervention. The colonial State wanted its taxes and would seize the land if the owner did not pay. Barring this, owners were free to sell or mortgage their land. But this state of affairs did not last. When land is freely transferable, people will borrow against it. Some will default, and lose their land. Even when
British intervention in land markets in colonial India
The first major regulation to curb the power of lenders was the Deccan Agriculturists’ Relief Act of 1879. Some of the rules were innocuous: moneylenders had to be registered, and loans had to be documented. Others were more substantive – there were limits on the interest rate (usury laws), and even a ceiling on interest accumulation. Perhaps the most striking feature of this Act was the discretion it gave to judges to go “behind the bond”, to investigate the history of the transaction, and use their discretion to reduce the amount the borrower needed to repay.
A more radical approach was to make some land transfers illegal. Perhaps the most (in)famous of these policies was the Punjab Land Alienation Act of 1900, which disallowed the transfer of land from “agricultural tribes” to others. Land transfers were also restricted in numerous tribal areas around British
If the British Raj claimed to believe in free trade and laissez-faire, how did it justify these policies? The main reason was political. Especially after the “Mutiny” (1857)
The process which began in the 19th century intensified in the early 20th century. In 1918 the British-India-wide Usurious Loans Act was passed disallowing “excessive” rates of interest. In the 1930s a slew of provincial laws
Both types of regulation (curbs on lenders as well as restrictions on land transfer) have persisted in independent India. In 2007 the Reserve Bank of India (RBI) surveyed moneylending legislation in 22 states and found that interest rate ceilings were common. The Usurious Loans Act of 1918 was still in place. And most states allowed courts to reopen the history of transactions, just as the Deccan Agriculturists’ Relief Act had.
Restrictions on land transfer remain in place. The Fifth Schedule of the Indian constitution (Article 244, (1)) allowed the governor of a state to pass laws to prohibit transfers of tribal land in “Scheduled Areas”. Many states took the opportunity to pass such legislation. For instance, the Andhra Pradesh Scheduled Area Land Transfer Regulation (1 of 1959, amended in 1970) prohibited land transfer from a tribal to a non-tribal.
Tribal lands are often in areas which are rich in mineral deposits, and now corporations want to acquire this land. But the colonial-era concern persists. Will the tribals get a fair deal? Legal controversy has even extended to the government’s right to transfer its own land in a “Scheduled Area” to a non-tribal. This was the issue in a famous legal dispute, Samatha versus State of Andhra Pradesh and Others (1997), decided by the Supreme Court. In this
This column draws on chapter 4 of Roy and Swamy (forthcoming, August 2016). The research was undertaken as part of an IGC project.
- Laissez-faire refers to the theory or system of government that upholds the autonomous character of the economic order, believing that government should intervene as little as possible in the direction of economic affairs.
- The 1857 Mutiny refers to a rebellion in India against the rule of the British East India Company that ran from May 1857 to June 1858
- India (1898), ‘Selection of Papers on Agricultural Indebtedness and the Restriction of the Power to Alienate Interests in Land’, Vol. 3, Government Press, Simla.
- Kannabiran, K (2015), ‘Constitutional Conversations on Adivasi Rights’, The Hindu, 24 July 2015.
- Reserve Bank of India (2007), ‘Report of the Technical Group to Review
- Roy, T and A Swamy (2016), Law and the Economy in Colonial India, University of Chicago Press, Chicago, forthcoming.
- Tomlinson, BR (2013), The Economy of Modern India: From 1860 to the Twenty-First Century, Second edition, Cambridge University Press, New York.
- West, R (1873), ‘The Land and Law in India’, The Education Society’s Press, Bombay.