‘The ground is rich in everything although the waters are bad because the area is entirely covered in swampland. Very long crescent shaped lakes stretch between the palm groves, and all along the shores of these lakes there are houses whose doors open onto the water’ Bouchon, Genevieve and Thomaz, Luis Filipe, ‘Voyage dans les deltas du Gauge et de I'lrraoaddy 1521', Fondation Calouste Gulbenkian, Paris, 1988: 316)

Unities of Time and Space: The Place of Bengal in the History of South Asia

This passage evokes the sense of a littoral land, something we discussed right at the beginning. A land of marshes, salt seas and swamps; Bengal's topography is unique in South Asia. We have already underlined the distinctiveness of her landscape.

We examined the place of Bengal within the overall debate on the eighteenth century in South Asia, and noted that the eighteenth century debate has concerned itself mainly with territorial South Asia. While Bengal's primacy in the eighteenth century is unquestioned readings of the commercial history of Bengal in earlier periods suggest a different engagement with the major trade networks emanating from the ancient period.

How then, did Bengal achieve this pre-eminent economic postion in the eighteenth century? Part of this has already been answered. It was its cheap prices and lack of control over its own resources. But what facilitated the entry of the Europeans into Bengal?

Strange Riches was originally the introductory draft of the work that emerges from the thesis I presented at the E.H.E.S.S., Paris, in the summer of 1985. The introduction formed a composite whole by itself; and it developed further as my interest in Bengal's early commercial history grew.

The time span from the tenth century to the eighteenth century has been highlighted in this look. This covers both of what are termed conventionally the ‘ancient’ and the ‘early medieval’ in Bengal's history and the book thus talks of Bengal's mercantile history for three hundred years before the Turko Afghans came to Bengal and continues through the Ilyas Shahi, Abyssinian, Husain Shahi, Afghan, Mughal and Nawabi periods in Bengal's history. However, this volume does not take the thirteenth century (the coming of Islam etcetera) as the starting point for a discussion of Bengal's mercantile history in medieval times as has been the conventional practice. The arguments presented here range from as early as the fourth century of the Christian Era; and the conclusion presents data as recently as 2003.

The area covered in the book is the whole of ‘Bengal’ during these periods; however the east and the north east of the region have been emphasised, for reasons that will become clear as the reader progresses through the book. If you consider the geographic space from Dhaka and deltaic Sunderbans in the centre and the south (most now in present day Bangladesh), Comilla in the centre, Tripura, Kamrup and Assam in the north east and Chattagram and Arakan in the south east you get a good idea of a real emphasis of Strange Riches.

Towards Growth with Equity

Growth with equity – the larger mandate of Social Banking – continues to be our goal. Banks can leverage their financial strength to extend credit and their network of branches can reach out to micro-finance clients.

Increasingly, micro-credit institutions are being considered as an alternative to government intervention in rural credit. The substitution of the existing rural credit system with a microcredit-based system is being recommended. In India, two-thirds of the population is still engaged in agriculture or related activities. As the distribution of land is skewed due to adverse land-person ratios, the majority of farmers have an inadequate resource base for production. Hence, small, marginal, landless or near-landless rural population depend on credit for their livelihood. Keeping the importance of credit for agricultural development and alleviation of poverty in view, Social Banking was adopted in 1969. Social Banking has been described as “the reservation of entitlements for previously disadvantaged groups”. As per the philosophy of Social Banking, the initiation and direct involvement of the banks is central to the strengthening of the credit delivery system for agriculture and poverty alleviation. These policies to some extent led to an improvement in the access of bank credit to the rural poor on concessional rates. On the whole, the impact was not as great as envisaged. Firstly, efforts aimed at improving the distribution of formal credit and increasing access to the poorest of the poor and the landless to credit were defeated as credit remained concentrated in the hands of the mid-level cultivator and the landed population.

Planning: A Historical Perspective

The early 1950s marked the inception of Planning in India, with the objective of translating the aspirations of a newly-independent nation into achievements. The foundation of post-Independence economic planning was laid in the pre-Independence era, predominantly by the National Planning Committee of the Indian National Congress, and also by other individuals and groups. The first attempt at formulating a plan for India's development was made by Sir M. Visveswaraya in 1934. He identified the lack of industrialization in India as the cause of India's under-development, and proposed doubling the national income in 10 years. The National Planning Committee constituted in 1938 under the chairmanship of Pandit Jawaharlal Nehru laid down the overarching objective of planning, which was “to ensure an adequate standard of living for the masses, in other words, to get rid of the appalling poverty of the people’. The Committee laid down the principles governing land and credit stating that “We, or some of us at any rate, hoped to evolve a specialized system of credit. If banks, insurances etcetera were not to be nationalized they should at least be under the control of the State, thus leading to a state regulation of capital and credit.”

The People's Plan of the Indian Federation of Labour (1944) identified “the central problem of the Indian economy as the problem of poverty”. It also stated that “In order that the plan may be successfully implemented and may attain its objectives, it will also be necessary for the state to exercise an effective control over banking and other financial institutions in the country.’

Poverty is defined as the deprivation of basic capabilities. Over the past few years India has focused on efforts at scaling up and mainstreaming microfinance by harnessing the resources of the formal financial sector to expand poor people's access to savings and credit.

The supply-led models of development and credit-delivery are now giving way to models of participatory development focusing on demand-led growth. There is growing evidence that micro-finance programmes have the potential of assuring equitable and sustainable development. The real challenge lies in mainstreaming microfinance through the banks to ensure that outreach and sustainability grow in tandem. Institutional self-sufficiency and economic viability are synonymous. Both can be assured through banks. The focus today is on expanding access to growing numbers of low-income borrowers and savers and harnessing the resources of the formal financial structure to that end.

Challenges of Rural Finance Intermediation

Several challenges still confront rural financial intermediation; challenges of selecting the set of institutional design and policy alternatives that will prove to be most effective in different socio-economic environments. These challenges include:

• refraining from utilising subsidy and concessional interest rate driven models as the only vehicles for service delivery to the poor

• encouraging financial service provision for the poor, through both rural and urban operations, as opposed to an exclusive focus on the delivery of supply-led agricultural credit or subsidy-driven credit for input provision

• providing savings services and not merely credit services

• […]

Economic growth is a necessary but not a sufficient condition for the alleviation of poverty. Inclusive paradigms of growth are a necessity. The composition of growth is as relevant as the rate of growth. Growth in the primary sector serves to ratchet economic growth. For increasing opportunities for employment and for ensuring food security, it is necessary to focus on agricultural productivity. Economic growth with equity or distributive justice is not an either-or choice but is mutually reinforcing. High growth is necessarily linked to agricultural dynamism. Agriculture is the major employer as 65% of our people are still engaged either in direct agriculture or in activities related to agriculture. We cannot afford jobless economic growth. The poor are more vulnerable to inflation. Hence, it is necessary to ensure inflation control. To promote ready access of the poor to institutional sources of credit, financial deepening was promoted through the nationalisation of banks. Banks have been engaged in Social Banking since 1969. There is a policy space to pursue pro-poor growth. This book recognises the importance of institutional microfinance, i.e., microfinance extended by Self-help groups (SHGs) linked to banks. The SHGs generate employment opportunities; they enable the banks to locate and focus on rural or backward areas and pay attention to the endowments of the poor, i.e., labour. Economic policy must focus on provision of basic goods and services. Social capital of groups can be utilised by banks to channelise credit to the poorest of the poor. An ‘inclusive’ paradigm of development is realised in this way.

Background to the Establishment of Cooperative Banks

The cooperative movement in the country originated as a measure against rural poverty, aggravated by the chronic indebtedness of the farmers and practice of usury at its worst by the moneylenders. Agriculture had largely been capital-starved and was exposed to the exploitative tendency of usurious moneylenders. There was an urgent need to evolve a systematic mechanism for enhancing the credit flow to agriculture. Agrarian disturbances in 1875 in the Deccan against moneylenders necessitated the enactment of Taccavi Legislation by the Government, and also led to the concept of the cooperative approach. The Northern India Taccavi Loan Act, 1875, the Land Improvement Loans Act, 1883, the Agriculturist Loans Act, 1884 etcetera were all enacted to facilitate the availability of credit to farmers. In 1892, Sir Federick Nicholson recommended the establishment of rural cooperative credit societies on the German pattern.The Famine Commission (1901) recommended the introduction of cooperatives in the country. In 1904, the Cooperative Credit Societies Act was enacted by the Imperial Government to facilitate the organisation of credit cooperatives and confer upon them special privileges and facilities, the scope of which was subsequently enlarged by the more comprehensive Cooperative Societies Act of 1912. Under the Government of India Act, 1919, the subject of cooperation was transferred to the then provinces, which were authorized to enact their own cooperative laws. Under the Government of India Act, 1935, cooperatives remained a provincial subject.

To ensure the success of the developmental initiatives adopted in the first 25 years of independence it was felt, in the early 1970s, that despite the wide banking network, a critical gap still exists in rural areas, particularly in meeting the credit needs of the rural poor. To find a solution for this, the Government of India established Regional Rural Banks (RRBs) through the Regional Rural Banks Act of 1976 to bridge the gap in the flow of credit to the rural poor. Despite the various measures taken by the Government and the RBI through social control and the nationalisation of 14 major commercial banks, a large proportion of the rural poor remained outside the banking fold. The Government of India appointed a working group on rural credit (popularly known as the Narsimham Committee) in July 1975. The Narsimham Committee observed that the cost of structure of commercial banks, the attitudes of their employees and the lack of a professional banking approach in the cooperative credit structure were the true difficulties in rural credit. It also observed that the deposits collected by banks in rural areas was not totally deployed in the rural areas. Keeping this in view, the Narsimham Committee recommended the creation of a new set of regionally-oriented rural banks which would combine the local feel and familiarity with problems of cooperative banks with the business acumen of commercial banks.

At the beginning of the twenty-first century, India emerged as one of the fastest growing economies in the world. There is a widely shared view that by 2025 India will be the third largest economy in the world (after the United States and China). At the same time, despite its high growth potential, India also continues to have the largest number of persons below the poverty line in the world. As many as 350 million Indians do not earn enough to ensure the minimum intake of food and nutrition. The conditions prevailing in a few of India's urban slums and rural areas are among the worst in the world.

Among the developing countries, India was a pioneer in development planning with the proclaimed objective of removing poverty within a reasonable period after its independence from colonial rule in 1947. India was also among the early proponents of Social Banking as a vital instrument for increasing agricultural productivity and generating employment opportunities. With this specific purpose in view, all large commercial banks were nationalised in 1969 and brought under direct government ownership and control. And yet, the results on the ground have not lived up to the early expectations of the country's planners and decision-makers.

The dichotomy between a ‘shining’ fast-growing India and its persistent poverty is a puzzle which has baffled economists and policy makers. In her new book on Social Banking, Dr Deepali Pant Joshi has attempted to find some answers to this puzzle and outline a programme for the future.

Indian Agriculture

The agricultural crisis of the mid-1960s triggered by the severe droughts of 1965–6 and 1966–7 compelled policy makers to appreciate the strategic significance of agriculture in a poor industrialising economy. The need to assure food security led to the stress on agricultural growth, which was also seen as a means to remove poverty and ensure growth with social justice. There were still other concerns. Public investment is required to realise these aims. Public investment supplies the necessary infrastructure, including irrigation, research and extension, power, and transportation, to mobilise the growth potential of the agriculture sector. From the Fourth Five-Year Plan there was an emphasis on the Green Revolution, a technology-led growth process with an emphasis on the adoption of high-yielding varieties of wheat and rice with price subsidies and investment policies. A separate sub-strategy of institutionalising credit support through the banks to support the agricultural growth strategy was a critical plank of this policy. The insufficiency of resources devoted to agricultural growth in the first three Plans came into sharp focus with the food crises and dependence on US PL 480 imports. The focus of the new agricultural strategy changed to a concentration on increasing the use of new inputs, supported by subsidised finance through the banking system and procurement prices.

Centrality of Agriculture in the Indian Economy

The Indian economy is largely agrarian; the importance of agriculture hardly needs to be emphasised.

Evolution of the Banking System: First Phase

India had a fairly well-developed commercial banking system in existence at the time of independence in 1947. The RBI was established in 1935. While the RBI became a state-owned institution from 1 January 1949, the Banking Regulation Act was enacted in 1949 providing a framework for regulation and supervision of commercial banking activity.

The first step towards the nationalisation of commercial banks was the result of a report (under the aegis of the RBI) by the Committee of Direction of All India Rural Credit Survey, 1951, which is the locus classicus on the subject till date. The Committee recommended one strong integrated State-partnered commercial banking institution to stimulate banking development in general and rural credit in particular. Thus, the Imperial Bank was taken over by the Government and renamed the State Bank of India (SBI) on 1 July 1955, with the RBI acquiring the overriding substantial holding of shares. A number of erstwhile banks owned by princely states were made subsidiaries of the SBI in 1959 as a result of the reorganisation of the princely states. Thus, the beginning of the Plan era also saw the emergence of public ownership of one of the most prominent of the commercial banks. In 1962, the Deposit Insurance Guarantee Corporation was established to provide insurance cover to bank depositors.

The second evaluation of the role of banking in India was undertaken during 1966 as the private banks were still not providing the required support in the form of credit disbursal, more particularly in the unorganised sector.

We called this book ‘Our Indian Railway’ as a deliberate echo of a term used in 1847 by R.M. Stephenson, the famous railway builder and entrepreneur when reviewing a series of reports arguing for the development of railways in India. His use of the possessive pronoun, used almost as an endearment, might seem odd but not unusual for something as prosaic as a structure made of mortar and steel, since it is true that railways have often evoked strong emotions of possession and affection. At the time that Stephenson wrote of ‘Our Indian Railway’ the project to unite what would be the largest territory of the empire with a railway system was certainly a notion dear to his heart, both as a creative engineer and businessman, but also as a man who shared imperial ambitions about India. In 1847, the Indian railway system was still only an idea, at a time when the idea of ‘India’ as an integrated political unit also remained very much an imaginary notion. But when India did eventually take shape as a definable political unit under the British Crown and then in 1947 as an independent republic, it was really the railway that bound the country together. Railways made India a working and recognizable structure and political and economic entity, at a time when many other forces militated against unity. Through their own internal logic, their transformation of speed and the new dynamic of the economic changes they made possible, the railways definitively altered the Indian way of life, irrespective of the plans of politicians or the ambitions of entrepreneurs.

Writing about issues connected to a railway system like Indian Railways is not easy as it has long before crossed the boundaries of a machine system to a domain that is human. That is where the railway now dwells amidst memories of Mahatma Gandhi, the killings during Partition, the uncalled for stoppages in times of agitation, and the present day role of companion, relief and relaxation, business accomplice and friend. It is a system that is as much loved by its people as it is abused. The ‘150th Year of Railways in India’ deserved a book and so it was proposed and so it was decided by the Railway Board.

Considering the intricate complexities of the railway system in India, its strengths and weaknesses, we decided to indulge in a study of the related academic and social magnetic field that is active around the railway. Documenting history would not have been as difficult a proposition as this. For here are the influences of the railway, those that grew into the community as catalysts of change in social and cultural life. The railway ran its miles; life its generations.

What began as a tiny scratch upon the face of western India grew into a colossal network in 150 years binding India socially, connecting culturally, strengthening India economically and changing India forever. Here was a powerful force that cut into the rigid caste system of India more incisively than any political doctor. It gave the Indian citizen the anonymity he deserved, away from the distinctive paste of caste worn on the forehead. It gave the village the opportunity it desired to bond with the city.