The Circle of Fire: Issues and Debates in India…s Household Credit Market Since Independence with Special Reference to Non-Institutional Credit¹

The Indian credit market is characterized by a dual structure. On one hand, institutional credit operates within a regulated framework established by the central monetary authority, encompassing entities such as scheduled commercial banks, regional rural banks, non-banking financial companies, etc. On the other hand, non-institutional credit such as moneylenders, friends and relatives, landlords etc. functions outside of this regulatory framework. It is important to note that both rural and urban areas possess distinct institutional and noninstitutional credit markets, differing primarily in their structure and organization. Since 1951, comprehensive studies on credit markets in India have been conducted every decade. This paper aims to analyze the evolution of household credit across selected Indian states from 1951 to 2019, with a particular emphasis on non-institutional sources of credit. To achieve this, we employ Seemingly Unrelated Regression analysis to explore the relationships between various credit agencies. Our findings indicate that while bank nationalization and economic liberalization have increased the demand for institutional credit in urban areas, this trend is not mirrored in rural areas. Further, a close complementarity has been followed among various non-institutional credit sources.