Development in Post-liberalization India: Marketization, Decentralization and Informalization in Gujarat

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Development practice in post-liberalization India: State marketization, decentralization

and informalization in Gujarat

Dolly Daftary

Pre-print version of article published in the European Journal of Development Research. The

publisher-authenticated version: Daftary, D. (2015). "Development in Post-liberalization India:

Marketization, Decentralization and Informalization in Gujarat." European Journal of

Development Research.10.1057/ejdr.2015.42" is available at:

http://www.palgrave-journals.com/ejdr/journal/vaop/ncurrent/abs/ejdr201542a.html

Abstract: This article discusses the transformation of development practice following

market reforms in developing countries through a study in Gujarat, western India. It draws upon

ethnographic fieldwork on market-driven development in India’s flagship state of neoliberal

reforms, and the strategy’s delivery of state-sponsored microcredit. The article discusses the rise

of profit-maximizing priorities in government-owned rural banks, the state’s deployment of

contracting and subcontracting to implement development policy, and the devolution of micro-

level policy implementation to elected local bodies, which led to the responsibility for local

development being tacitly shifted to an ungoverned space in the locality. The article discusses

how these changes reveal marketization, decentralization and informalization to be crucial

features of the nature and practices of the post-liberalization state.

Keywords: economic liberalization, neoliberal development, India, Gujarat, panchayats,

contracting, microcredit, democratic decentralization, informality

Introduction

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While scholars agree that economic reforms have transformed the state in developing

countries, the nature and practices of the post-liberalization state need greater investigation. This

article attempts that task through a scrutiny of development in India- a state-initiated process of

social and economic change. This article draws upon the state-in-society analytical approach

which emphasizes that the state is not an entity that stands above society but is influenced by

social, economic and political forces that leave their impress on the state (Gupta, 1998; Migdal,

1994; Sivaramakrishnan, 1996) to explore changes in the nature and practices of the state after

market reforms. The article identifies three characteristics and practices of the post-liberalization

state- namely, marketization, decentralization, and informalization, each of which I elaborate

further.

Pro-market reforms in India since the 2000s have produced a ‘business at the center’

(Mosse, 2013) development approach including emphasis on market-centered approaches to

poverty alleviation; the use of development as an instrument for market-driven production in

rural areas; and the shift from labor-intensive to capital-intensive technologies of improvement

that require producers to buy market inputs (Daftary, 2014). Economic reforms have also shifted

state ideology from intervention for human well-being to linking the poor to markets to improve

their well-being. Economic liberalization has led to the marketization of the state- the ascendance

of the ideology, tropes and practices of markets becoming the principles governing government

entities, a theme that will recur in my discussion of contracting below.

Pro-market reforms have led to pressures to weaken state regulation of the economy,

create conditions to expand private capital and markets, and downsize government (Kohli, 2012).

Hardt and Negri (2000) lend the insight that late capitalism is characterized by the intensification

of the state’s diffusion of regulation to the social sphere so that the state governs more by

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governing less. Neoliberal reforms have led to the state’s decline as an employment provider and

the tacit delegation of government functions to civil society actors, actors in political society-

that sphere which arises from civil society and consists of all actors and associations concerned

with capturing state power (Cohen & Arato, 1992), and market actors. Government downsizing

has led the state to employ contracting- a market mechanism- to hire NGOs and contingent

workers to implement development in communities. Ethnographic fieldwork in western India

reveals that with the withdrawal of government institutions to implement ground-level

development, contract workers with high work burdens built informal partnerships with elected

leaders in communities to implement development. The rise of informalization of governance

will recur in my discussion of decentralization as a nature of contemporary state practice.

Economic liberalization has been followed closely by political decentralization across

developing- and post-socialist countries. While democratic decentralization- the transfer of

resources and power from higher to lower levels of government has been understood

normatively- as a process of deepening democracy, I argue that decentralization urgently needs

to be understood in relation to economic restructuring. Decentralization involves the spatial

reorganization of governance, enabling rule through finer channels, at the same time that

economic liberalization has taken place, which has facilitated the movement of capital to

economic margins. The Indian state enacted Panchayati Raj Institutions in 1994, devolving the

power and resources for local governance and community development to elected local bodies

called panchayats. This article draws upon fieldwork on Hariyali (Greenery), the Indian state’s

largest development strategy for semi-arid areas called watersheds- sloping lands from which

rainwater drains to low-lying valleys to illuminate the deployment of decentralization for

development. From 2003 to 2008, Hariyali was implemented by panchayat leaders called

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sarpanches (GOI, 2003). Insights from a case study in Gujarat, India’s flagship state of market

reforms reveal that implementation by panchayats embodies a ‘limited’ state delegating its

functions to under-resourced local bodies.

The article discusses the provisional mechanisms through which panchayat leaders

enacted development. Panchayat leaders called sarpanches carried out development in the realm

of informality, collaborating with informal local leaders who resolved interpersonal disputes,

were involved in local governance, and familiar with government agents. The devolution of

development to sarpanches tacitly vested the power of governance in informal governmental

actors who enforced informal rules governing land, natural resources and property. Mirroring

what Blundo (2006) documents in Senegal, delegation led to powerful communal leaders taking

charge of local development, signifying the “institutionalization of the ‘informal’ as a

management mode” (Blundo, 2006) of the neoliberal state. The changes in the practices of the

post-reform state discussed in this article emerge from transformations within the state itself.

Hariyali is administered by the Department of Land Resources of the central state’s

Ministry of Rural Development. The policy is jointly administered by the District Rural

Development Agency (henceforth DRDA) and an NGO which appoints contract-workers who

implement the policy in communities. At every block comprising a cluster of 20-30 villages,

contract-workers form watershed development teams. Each team comprises an agriculture

specialist, a social worker and a civil engineer. The team delivers inputs and training to

communities in its block. At the community level, Hariyali is implemented by a village

watershed development committee headed by the sarpanch who is elected by the entire electorate

of a panchayat. The panchayat includes ward members who are elected from each electoral ward

overlapping with hamlet boundaries, comprising 300-400 people. The watershed committee

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includes a representative from among ward members, and a representative each from farmers’

groups, SHGs and user-groups of natural resources.

Watershed development is situated within the emphasis of Indian agricultural policy on

value-generation following liberalization (Chandrasekhar & Ghosh, 2002), including the

cultivation of high-value crops in the drylands (Taylor, 2011). Initiated in 2003, the strategy

builds check-dams and delivers commercial seed-kits to water-rich cultivators. Cash-crop

production increases cultivator dependence on input- and output-markets, and Hariyali delivers

microcredit sponsored by government-owned banks through the Swarnajayanti Gram Swarozgar

Yojana (henceforth SGSY) so that cultivators can buy commercial inputs for cash-crop

agriculture. SGSY is based on the self-help group approach wherein borrowers form self-help

groups of 10-20 members and members themselves sanction and monitor one another to ensure

loan repayment.

Fieldwork for the larger project in which this study is located, on the political economy of

market-driven development, was conducted from August 2006 to January 2008 and was

grounded in Dahod in eastern Gujarat. I analyzed policy guidelines, circulars, press releases and

technical reports; and conducted participant observation and interviews with the DRDA, its

partner-NGO and contract-workers. Over a nine-month stay in Mahipura village in Limkheda

block, facilitated by my having conducted previous fieldwork there and Hariyali unfolding there

in the course of my fieldwork, I observed self-help group (SHG) meetings and panchayat

meetings, read SHGs’ registers and panchayat records, and interviewed panchayat leaders (N=3),

village leaders (N=10), SHG leaders (N=10) and SHG members (N=33). Household surveys

(N=123) measuring education, subsistence production, market participation, migration, wealth

and participation in village organizations were gathered. A list of all the households in the village

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was built from Mahipura’s voters’ list, with a household defined as that entity which had a

common kitchen. Data were entered in SPSS Version 17.0 and statistical analysis was conducted

in SAS V.9.1.

Government-owned Banks and State Marketization

The expansion of microcredit in rural India is linked to financial sector reforms that have

impelled state-owned banks to generate financial returns (GOI, 2007; Kochar, 2011). India’s

central bank, the Reserve Bank of India (RBI) began linking government-owned banks to self-

help groups in 1996 (Aiyar, Narayan, & Raju, 2007). The Bank incorporated microfinance in the

lending portfolios of all the banks it governs (GOI, 2007). For this, the RBI received financial

support from the World Bank from the 2000s onwards (Mader, 2013).

Initiated in 1999, SGSY is a major program for rural credit delivery. It now emphasizes

repeated and diversified credit to earn returns, rather than a one-time credit injection for income

generation (e.g. GOG, 2007). SGSY guidelines specify that SHGs secure a ‘continuous line of

credit’ (GOI, 2011, p. 13) and access multiple ‘doses’ (GOI, 2011, p. 13) of loans. The scheme

now delivers large loans to recover costs of lending, an emergent feature of the

commercialization of microfinance (Hermes, Lensink, & Meesters, 2011). To illustrate, policy

texts of the government of Gujarat state: “Within a few years, the quantum of credit must

increase and borrowers should take larger loans” (GOG, 2007).

Government-owned banks have had a mandatory saving period of 6-12 months for SHGs

(Lejano & Shankar, 2013). This helps build a corpus of funds in the SHG’s bank account and

aids banks in recovering lending costs (Bateman, 2010). However, SGSY has raised the saving

period to 18 months, effectively raising the interest on loans. The program has also scaled back

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subsidies. Guidelines underscore that SGSY is “a loan-cum-assistance program, but the loan

component is far and away the more important…. assistance is a minor component to gain

acceptance for the program” (GOG, 2007, p. 5).

SGSY has also scaled back capacity-building to lower costs of lending. SHGs in Dahod

received only a brief orientation and their leaders received just a day-long training. SHG leaders,

rather than bank staff or NGOs assisting banks perform critical banking functions. These include

maintaining individual members’ and the group’s records, calculating monthly deposits,

estimating individual and group savings, enumerating interest rates and loan repayments, and

traveling to the bank to conduct transactions. Group leaders also have to sanction deviant

members, facilitate group meetings and gather information on schemes. While the rise of profit-

driven priorities in state-owned banks reveals a substantive shift in development policy,

specifically its market-driven turn, in the next section I focus on a procedural shift, i.e. a change

in how development policy is implemented.

Contracting, subcontracting and informal partnerships

Watershed development reveals the state’s delegation of implementation to non-state

actors including NGOs and contract workers to carry out its work. The DRDA hires a “lead”

NGO to administer Hariyali. The lead NGO in turn hires contract-workers for community-level

implementation. The strategy’s guidelines mandate that ‘only that NGO which has implemented

30 or more watershed development projects or crafted 100 or more SHGs, has a turnover in

excess of 3,000,000 rupees the previous year, and at least five field staff working in the district’

(GOG, 2004) may be selected as a lead NGO. Large-scale technocratic NGOs that have

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organizational capacities and visions aligned with governmental agencies are overwhelmingly

selected as lead NGOs.

Dahod’s lead NGO from 2006-2008 was Gramin Vikas Trust, a government-owned NGO

that extends hybrid seeds, fertilizer and improved livestock breeds to dryland households. From

2004-2006, Sadguru, a non-profit established by the textile corporation Mafatlal (reflected in its

sprawling office complex in Dahod), which extends capital to middle farmers for cash-crop

production was the lead NGO. The contract governs the relationship between the DRDA and

lead-NGO, with the NGO hired on a two-year contract and labeled a ‘service provider’ (GOG,

2004). NGOs are treated very much as a vendor ‘of goods and services on the basis of a

contract’, which Gordenker & Weiss (1997) characterized as the relationshp between multi-

lateral organizations and NGOs carrying out their work during the 1990s.

Contracts are infused across scales within government agencies. The contracted NGO in

turn works as a subcontractor that hires contract-workers to implement the strategy in

communities. The lead-NGO serves as an intermediary that creates legal distance between the

DRDA and contract-workers. This ensures that workers cannot litigate against the state to be

treated as government employees with long-term employment and benefits (see GOG, 2005).

The lead-NGO rather than the DRDA issues newspaper advertisements, administers written

examinations to candidates and conducts interviews along with DRDA bureaucrats. The lead-

NGO rather than the DRDA signs contract-workers’ appointment letters. Tellingly, bureaucrats

stipulate: ‘The advertisement should be issued not by DRDA but by (the) lead-NGO….. the

appointment letter should be signed and issued by (the) NGO…’ (GOG, 2005).

NGOs’ performance of ‘services’ for government agencies as business vendors and their

functioning as subcontractors breaks down the boundary between civil society and market. It

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challenges the idea of civil society as a realm standing between the state and market. While the

global celebration of civil society in the 1990s opened spaces for NGOs to increase state

accountability and social inclusion, NGOs serving as contractors for a neoliberalizing state raises

questions about the capacity for civil society to challenge distributionally skewed development

policy.

Apart from NGOs, short-term contracts, hitherto understood as a feature of private sector

liberalization in India (e.g. Fernandes, 2000), also govern the largest share of Hariyali’s

workforce, one-third of which delivers microcredit. Contract workers are in fact hired on even

shorter terms than NGOs, consisting of 12 months. These contingent workers’ responsibilities

display the intensification of work characteristic of front-line workers in a restructuring

economy. Contract workers deliver inputs and training to scores of village watershed

development committees; and to multiple irrigator groups, pastoralist groups, consumer groups

and self-help groups in each village. Contract workers have to report on progress to the Block

Development Officer and the Director and Deputy Director of the DRDA, and compile block-

level data for higher-level agencies such as the Department of Land Resources. Contracting

mirrors another feature of labor market restructuring- the linking of job security to productivity

(Fernandes, 2000). Hariyali’s guidelines stipulate a ten per cent annual wage-cut for microcredit

workers if less than twenty SHGs attain eligibility for loans within eighteen months (GOG,

2003). With disproportionate work burdens, steep work targets linked to wages, and punitive

measures for not attaining targets, contingent workers relied heavily on sarpanches to enact

watershed development. Workers counted on sarpanches’ knowledge and networks for the

delivery of inputs and formation of SHGs. Under pressure to execute projects along monthly

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timelines driven by their annual contracts, contract-workers formed tacit partnerships with

sarpanches who headed village watershed development committees.

Participant observation of a new self-help group’s orientation by a member of Hariyali’s

district-level ‘multi-disciplinary team’ which supervises contract workers illuminated the

exchanges between contract workers and sarpanches that helped precariously employed contract-

workers meet targets. On a crisp morning in early winter, I traveled to Motipur village in Dahod

block in Dahod district with Hariyali’s district-level trainer Pradeep, who was going to conduct a

training session of a new self-help group. Pradeep parked his motorcycle at the edge of the

hamlet adjoining the main road when we reached, evoking the ‘development advantage’ that

hamlets proximate to roads enjoy. We stepped into the verandah of a mud-walled house with

elegant wooden beams, our eyes alighting on a wooden table and chair- artifacts of government

offices- set in the center of the verandah. They informed the visitor of it inhabitants’ familiarity

with government actors, NGOs and the external world. Plastic chairs were laid out expectantly

for us. The SHG’s members trickled in slowly- women of all age-cohorts dressed in the formal

attire of polyester saris, and sat down on a mat spread on the ground for them.

After introductions, Pradeep began describing the benefits of SHGs and strategies that

group members should practice to ensure group leaders’ accountability. Presently, a middle-aged

man arrived and sat at the wooden table in the verandah. While Pradeep explained SHGs’ rules,

this man assured Pradeep that the women would follow the rules. I read this simply as a display

of patriarchal power wherein men enter women’ spaces and appropriate their interactions with

development actors. But Pradeep seemed to take this man’s presence as self-evident. The rest of

the meeting was conducted increasingly between the two of them, with this man even censuring

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the SHG members and remarking on their foibles along the way. The meeting ended with

Pradeep and him promising to be in touch for the next meeting.

Puzzled by what I had understood as a training session for a women’s SHG being

appropriated by an unknown man and Pradeep implicating himself in it, I queried Pradeep about

the stranger’s role in the proceedings. Pradeep explained that that man was in fact the SHG’s

leader- a ward-member (panchayat representative) of the Motipur panchayat, he had done the

groundwork for crafting the SHG. This man had talked to his kin and neighbors, shared

information on microcredit, mobilized kinswomen, completed the necessary paperwork, and

gathered SHG members for the training at his house. All these tasks would otherwise have fallen

to the block-level contract-worker and have taken several months to accomplish. My attempt

through this incident is to show that state attenuation and contracting led contract workers to

collaborate with panchayat representatives to enact development. With the rolling back of the

rural development bureaucracy, powerful panchayat members who bridged the gap between

contract workers and development subjects organized people, deploying their authority to form

self-help groups.

Economic Change through Decentralization

Decentralization signifies ‘state capacities being reorganized territorially and functionally

on sub-national levels’ (Jessop, 1997). The central state’s Ministry of Panchayati Raj was created

in 2004 during a new wave of market reforms in India. The analysis of bureaucrats’ and

ministers’ oral and written discursive practices reveal that the state envisages a critical role for

panchayats in providing businesses with information on rural markets; giving firms permission to

extract natural resources; mediating disputes between corporations and rural communities; and

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serving as repositories of information on people, land and resources for higher-level government

agencies (see GOI, 2006). I suggest that panchayats are new forms of economic and spatial

governance in rainfed areas, and panchayats have emerged as critical tools of market-led

development.

Since the 2000s, the implementation of a range of development schemes and public

service provision has been delegated to panchayats. Insights from political geography underscore

the critical relevance of space and scale for social science research (Kennedy, 2014). A process

that has reorganized governance spatially, the Panchayati Raj system comprises more than three

million elected representatives- the world’s largest experiment in grassroots democratization-

that a leaner state can utilize as an auxiliary of market-driven development. Reflecting this,

SGSY guidelines specify that contract-workers ‘talk with as many sarpanches as possible’ (GOI,

2011, p. 2) and elected local bodies be ‘an integral part of’ (GOI, 2011, p. 4) self-help groups’

functioning.

In Gujarat, a panchayat comprises approximately 1,500 people. Larger villages have a

panchayat of their own while smaller villages have two-three contiguous villages sharing a

panchayat. Sarpanches facilitated what Bob Jessop calls ‘the organization of the self-

organization of partnerships’ (Jessop, 1997) between banks and rural borrowers. Sarpanches

have legal authority and are information-brokers who have intimate knowledge of households’

economic circumstances, which is a key ingredient for success in microcredit. In Mahipura, the

sarpanch conducted three community meetings for Limkheda’s contract worker to share

information on microcredit. Sarpanches were cultural brokers between bank officials and

borrowers when officials traveled to communities to assess borrowers’ repayment capacity. Bank

managers are usually from urban backgrounds and lack understanding of dryland property

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systems wherein land records reflect undivided holdings and have several inheritors’ names on a

single title (Trivedi, 1998). Sarpanches helped bank officers assess individual wealth on the basis

of their knowledge of kin relations. Watershed development guidelines mandate that loan monies

be released through both the bank officer and sarpanch’s signatures1. In case borrowers failed to

repay their loans, banks could count on the backing of the sarpanch’s authority to re-claim assets.

Panchayat leaders are powerful political actors. However, panchayats lack adequate

powers of taxation and are administratively and financially weak (Oommen, 1999). Kalirajan and

Otsuka (2012) point out that the decentering of resources from the central state to regional states

has been far more extensive than that from regional states to local governments. Therefore

sarpanches may demand bribes from self-help groups to arrange meetings with contract workers

or bank managers, or testify to bank officers about borrowers’ financial stability. Self-help

groups’ ability to get the sarpanch’s cooperation was crucial for them to get loans. Through a

case study of five groups in Mahipura, I show how decentralization to panchayats led to local

leaders who shared reciprocity with the sarpanch to monopolize the crafting of self-help groups.

The retreat of the state and the devolution of development to under-resourced panchayat also

constituted the tacit delegation of governance to an informal realm in the locality, in that

informal leaders stepped in to fill the chasm created by state withdrawal and craft self-help

groups.

Delegating Governance to an Informal Realm in the Locality

Social organization in eastern Gujarat is based on the lineage whose members trace their

descent from a common male ancestor (Mosse et al., 2002). The lineage is the basis for

cooperation, identity and political mobilization. Each lineage is governed by one or more lineage

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leaders who resolve conflicts over marriage, violence and property. Lineage leaders are wealthier

than most households in their lineage and wealth gives them the power to sanction lineage

members. Lineage leaders comprise a network of dispute-resolving actors called the panch

(Daftary, 2011). Disputants avoid going to the police and courts because the police may take

bribes, and the courts involve traveling to district headquarters and delays due to a backlog of

cases (Krishna, 2002). The panch involves two or more lineage-leaders hearing each disputant’s

account and giving a judgment.

The sarpanch is a community-wide dispute-mediator who investigates murder, grievous

harm and conflicts over natural resources. Lineage leaders and the sarpanch share reciprocity

wherein lineage leaders rely on the sarpanch to resolve serious disputes, and the sarpanch counts

on lineage leaders’ backing to support his judgment. Lineage leaders influence their members’

voting patterns in panchayat elections, and broker resources from the sarpanch by promising him

their lineage’s votes in exchange for development goods (Daftary, 2010). Lineage leaders often

contest panchayat elections and win as ward-members. Lineage leaders and the sarpanch

comprise what Ong (2006) calls ‘flexible and fluctuating networks’ for implementing

development. Lineage leaders have the capacity for governance- what one leader referred to as

control over authority (hoddo) and the law (kaaydo) in the locality. As development agents who

travel to government offices to get information on schemes and are familiar with government

actors, co-govern with panchayat leaders, sanction lineage members, and have the wealth to meet

the transactions costs of profit-driven microcredit, lineage leaders assumed the vacuum created

by a scarce state.

Of eight self-help groups formed in Mahipura from 2003 to 2006 comprising 80

members, only five survived in August 2007, those led by lineage leaders who governed

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informally through the panch and were situated within the panchayat were best able to craft

viable microcredit groups. Formed in April 2003 (N=1), early 2006 (N=3) and late 2006 (N=1),

four of these were women’s groups and one a disability group.

Wealth and lineage leaders’ control. SGSY delivers subsidized bank-credit to self-help groups

consisting of 10-20 members who deposit 30-50 rupees each over eighteen months, withdrawing

their savings after twelve months and returning this ‘internal loan’ along with their regular

payment to become eligible for individual loans. Lineage leaders were wealthier than most

households in their lineage, and were better able to meet the costs of microfinance. To put

SGSY’s monthly deposit in perspective, Dahod’s agricultural wage in 2007 was 35 rupees per

day, and agricultural employment in Mahipura averaged just nine days per household. SGSY’s

monthly deposits put a significant financial burden on most borrowers, and with members having

to repay their internal loan along with monthly deposits, payments rose steeply in the last six

months, ranging from 150-250 rupees. Furthermore, with banks increasing the mandatory

savings period to 18 months, the economic burden on self-help groups was onerous. Wealthier

lineage leaders eased the financial burden for members, meeting a member’s shortfall when the

member’s seasonal income stream dwindled. Their power ensured lineage leaders of repayment

when the member’s cash-flow improved. Table 1 outlines the wealth of Mahipura’s lineage-

leaders in terms of wells, irrigation motors and livestock2; the bases of accumulation in eastern

Gujarat. The average asset levels for each lineage appear in brackets against the lineage leader’s

asset level.

With banks shifting the cost of banking to self-help groups, SHG leaders now have to

meet travel costs because state-owned banks insist that clients visit their branches at specified

hours during the day for bank transactions (Lejano & Shankar, 2013). A round trip to the Bank

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of Baroda’s Bandibar branch in Bandibar- a market town fifteen kilometers from Mahipura

where groups had their bank accounts, cost ten rupees, totaling 180 rupees over 18 months- a

member’s six months’ savings. Wealthy lineage-leaders traveled to the bank themselves or paid

for the president or secretary of the group to travel.

Transactions with the panchayat secretary. Four out of five of Mahipura’s lineage-leaders who

formed successful SHGs were ward members who were involved with the panchayat. The

panchayat secretary- the lowest-level representative of the state who collects taxes and prepares

landholding documents, also makes the affidavits that borrowers have to submit to banks in order

to get loans. While the panchayat secretary is regarded as one of the most extractive state actors

in rural India (Gupta, 2005), powerful ward-members ensured that the secretary processed their

forms without demanding bribes.

Transactions with the sarpanch. Sarpanches may demand bribes from SHGs to arrange meetings

with contract workers and attend meetings with bank officers to testify on borrowers’ financial

stability. Lineage leaders ensured that the sarpanch cooperated with them based on their

influence over votes in panchayat elections and joint control over dispute resolution. The

sarpanch often cooperates with lineage leaders to deliver developmental goods because lineage

leaders may retaliate by rejecting the sarpanch’s judgment in a particular case, re-opening an old

case by saying that the sarpanch misjudged it, or withdrawing electoral support.

Transactions with contract workers. The contract worker evaluates SHGs for group cohesion,

financial soundness and procedural regularities to determine if groups are eligible to advance to

loan-taking (GOI, 2011, p. 10). This involves observing groups’ meetings and examining their

records. Lineage leaders traveled to Limkheda’s Block Development Office to meet contract

workers to understand the criteria of these evaluations. While SHG members grappled with

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meeting monthly deposits, lineage leaders strategized to make the group eligible for a future loan

by periodically gathering information. Proactive leaders used contract workers’ scarce visits to

demonstrate their groups’ soundness, quickly gathering members in their home.

Sanctioning members. Leaders emphasized that the internal costs of managing their group were

far more than costs incurred in transacting with the bank, and lineage leaders acted upon SHG

members’ ‘will and circumstances’ (Miller & Rose, 2008). Leaders governed access to jointly

held wells, threshing grounds, cattle passes and fuelwood; and sanctioned tardy depositors by

curtailing their access to these resources. This ensured that members deposited their monies.

Bharat, a younger Patel leader required members to deposit cash at his house on a designated

date. Veera, an older Patel leader paid his members a ‘reminder visit’ so that they were ready

with cash the day he went to the bank.

Social forms of power and exclusion

While lineage leaders met banking costs and negotiated with the sarpanch, panchayat

secretary and contract worker to obtain their cooperation for loan-taking; they also crafted

groups on the basis of norms of inclusion and exclusion governed by wealth, identity and

reciprocity, which I discuss below.

Selecting the better-off. Ghosh (2012) underscores that microcredit is often successful because of

the group lending approach. Banks no longer have to sort more and less reliable borrowers

because borrowers themselves make sure that no potential member defaults. Lineage leaders

‘sorted’ self-help group members by selecting better-off kin. Self-help group membership had a

significant correlation with a household’s ownership of an irrigation motor, an indicator of

access to perennial irrigation and signifier of wealth (F=4.14, df=1, p=.04, R-square= .03,

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N=122). Self-help group membership was also significantly correlated with livestock wealth

(F=12.61, df=1, p=.0006, R-square=.93, N=122). SHG membership was also significantly

correlated with household wage-earnings from high-wage migration - SHG members were

higher-paid workers in the construction sector rather than low-paid workers in the agricultural

sector (F=4.2, df=1, p=.04, R-square=.05, N=122).

Disproportionate representation of dominant social groups. Dahod is inhabited by Bhils,

western India’s largest tribe, and Kolis- cultivator-castes who consider themselves hierarchically

superior to Bhils. Mahipura is dominated by Kolis while Adivasis are in a minority. Kolis have

controlled Mahipura’s panchayat, and Mahipura’s lineage leaders are exclusively Koli.

Mahipura’s Koli sarpanch collaborated with Koli lineage leaders to craft SHGs that were largely

Koli. While forty-three per cent of all Kolis (N=45) were included in an SHG, only twelve per

cent of Adivasis (N=2) were (χ2 =5.9724, df=1, p= .014).

Selection based on spatial proximity to lineage leaders. Settlement in eastern Gujarat is

dispersed, with houses set amidst their fields and separated by tracts of land. To lower their

transactions costs for gathering monthly deposits, conducting meetings and sharing new

information with members, leaders selected kin living in close proximity. Leaders also cut down

on group size, forming groups with no more than 10-11 members rather than 20 as permitted by

SGSY. SHG-membership was systematically linked to a household’s proximity to a lineage

leader; with a proxy measure being distance from the hamlet’s handpump which each of

Mahipura’s lineage leaders had made the sarpanch install in their homesteads. ‘SHG

membership’ and ‘drinking water access’- often to a handpump outside a lineage leader’s

dwelling- were correlated, with eighty-three per cent SHG members having high scores on the

drinking water index3 and only sixty-five per cent of those excluded from SHGs having it. Face-

19

to-face interaction and reciprocity based in proximate habitation deepened relations of trust, and

lineage leaders selected those living in closest proximity, who were often their nearest kin.

Group scribes and collusion with lineage leaders. Mahipura’s Koli lineages comprise Chauhan,

Baria, Patel and Bhabhor. Viable SHGs were formed by the Chauhans, Patels and Barias.

Lineage leaders were men in older age-cohorts that had lower levels of literacy. Lineage leaders

appointed younger age-cohorts’ educated lineage members as scribes of their SHGs, nominating

them as SHGs’ president and secretary. With the responsibility for record-keeping and

accounting being transferred to SHGs themselves, highly educated members were selected as

group scribes. Mean educational attainment was 9.5 years for Baria SHG leaders while only 2.31

for ordinary SHG members, and 12 years for Chauhan SHG leaders but only 2.25 years for SHG

members. Lineage leaders rewarded the paper leaders with larger loans for their work of

calculating and recording group activities.

Through a case study of the Saraswati self-help group, I discuss how, with the

governance of development being devolved to social forms of power delinked from state

modalities of justice, and in the absence of overarching governmental institutions to which

development subjects could take recourse; lineage leaders, scribes and their closest kin colluded

to appropriate a disproportionate share of loans, leaving other members worse-off than when

they joined the self-help group. Mahipura is part of a three-village panchayat along with its

neighboring villages Himmatpur and Limdi. The sarpanch’s seat has been alternately won by

Mahipura and Himmatpur- the larger villages’ candidates. While Mahipura’s Koli lineages

include Chauhan, Patel, Baria and Bhabhor; Adivasi lineages include Nayak and Taaviad.

Shankar, the Chauhan leader has dominated panchayat politics and won the panchayat election

twice since 1994, the second time being in 2002-2006. Hariyali was implemented in Mahipura in

20

2003, and Shankar formed the community’s first SHG Saraswati in 2006, designating his

nephew’s college-educated wife Geeta as its president.

Saraswati comprised well-off Chauhans comprising Shankar’s kin- both close and

distant, and a few well-off Barias inhabiting the Chauhan hamlet, who took great pride in their

spatial proximity to the sarpanch. The Chauhan hamlet is richly endowed, adjoining the village

road and cheek by jowl with the village school. Saraswati had all the qualities of a group bound

for success: well-connected to the panchayat, comprising the better-off, with members inhabiting

a single hamlet, adjoining the main road which increased the amenability of contract workers to

visit the SHG, and with a group president who was Mahipura’s most educated woman. Saraswati

consisted of an ‘inner-circle’ of Chauhans living nearest to Shankar, comprising his closest kin.

With the sarpanch, these kin shared an irrigation-well, childcare burdens, occasional meals and

confidences. Sociality with the sarpanch’s family constituted infrastructure for the rest of the

inner-circle members like the economic infrastructure of roads, bridges and telecommunications

(Elyachar, 2010). The ‘outer-circle’ comprises three Baria families and more dispersed Chauhans

inhabiting the edges of the Chauhan hamlet, including my host Saroda.

To get a loan, self-help group members have to demonstrate financial discipline by

saving and depositing their monthly contribution to the group’s bank account for 18 months.

After one year, members withdraw their deposit which is denoted an ‘internal loan’, and use it to

make a significant purchase. Upon finishing 12 months of saving, members are also rewarded

with fertilizer and commercial seed-kits. They then return this ‘internal loan’ over the final six

months along with their monthly deposit. When Saraswati’s members completed 12 months of

saving, the inner-circle members including Geeta the group leader, Shankar’s wife Charu,

Shankar’s brother’s daughter-in-law Savita and their immediate neighbors traveled to the

21

Limkheda office to get their share of seed kits from the contract worker. The commercial price of

a seed kit is 600 rupees, and SHG members obtained discounted kits for 300 rupees.

Additionally, Charu and Geeta- the group leader got fertilizer loans by usurping outer-

circle members’ loan quotas. The outer-circle members were informed neither about the seed kits

that they were entitled to receive nor fertilizer loans, and learnt about this trip only when the

inner-circle members returned from their visit to Limkheda. This soured relations between the

outer-circle and inner-circle members. Many outer-circle members were also Shankar’s kin,

albeit not his immediate neighbors, and assisted Shankar’s family in its annual rice

transplantation and wedding feasts, and periodically cast their vote for him. Therefore the outer-

circle members demanded a record of their deposits and their passbooks from Geeta. When

Radha, an outer-circle Baria who had deposited a total of 1,050 rupees asked Geeta for an

account, Geeta told her that her savings amounted to just about 800 rupees. Radha recounted,

‘My money hasn’t grown, it has depleted in the self-help group (juth). It would have been better

kept in a tin can an stored in the kitchen.’

Angered by Geeta’s cavalier attitude; Radha, Saroda- my host, Saroda’s Chauhan

neighbor Kamla and others demanded that Geeta give them their passbooks back. Geeta told

them that their passbooks had gone missing. This amounted to a total loss of monies. When SHG

members subsequently withdrew their savings for internal lending, the outer-circle members

retaliated by returning only 200-300 rupees of the 500 rupees each withdrew. Saroda- my host,

Kamla- her neighbor, and Radha- a Baria outer-circle member- stopped making deposits from

May 2006 onwards, impressing upon Geeta and Charu- Shankar’s wife that they would not

contribute if they did not get a record of their deposits. This paradoxically terminated these

22

members’ ability to make further claims on the group, and Shankar started depositing monies on

the outer-circle members’ behalf.

When the time for loan-taking approached, Shankar decided that buying loan-buffalos

would be the best approach for the group. Group members’ husbands were to travel to Mehsana

district, famous for its buffalo markets, to buy the livestock. A week before the expedition,

Shankar told Saroda, Radha and Kamla that they needed to make a down-payment of 5,000

rupees each for sundry expenses and fees. This was a quarter of the price for a buffalo. Given

that the livestock-loan was to cover all expenses, the three women declined to give such a large

sum. Shankar returned the next day with a reduced quote of 3,000 rupees, and on the eve of the

Mehsana trip, whittled the sum down to 1,000 rupees. Shankar did not demand monies from

inner-circle Chauhans and their neighboring wealthier Barias, and he appeared to want to

discourage outer-circle women from buying buffalos. Disgruntled, Saroda and Radha withdrew

from the scheme, and Kamla handed Shankar 1,000 rupees for her buffalo but stopped

socializing with the SHG’s inner-circle members after the men returned from Mehsana.

Rather than one buffalo that he was entitled to, Shankar obtained four buffaloes by using

Radha, Saroda and another member’s loan quotas. In return for documenting the SHG’s

meetings, deposits and loans in ways that concealed the appropriation of outer-circle members’

loans, monies and seed-kits, Geeta’s household was rewarded with the finest buffalo of the pick.

Geeta recounted, with an embarrassed laugh, that while Shankar was the village’s biggest cash-

milk farmer with a cattle-shed full of buffaloes, it was Geeta’s buffalo that yielded the most milk

in the village, twice as much as Shankar’s best-yielding buffalo. Table 2 outlines the distribution

of loans within Saraswati. My aim through this account is to show that with the state’s informal

delegation of the governance of microcredit to the locality, powerful lineage leaders- informal

23

local leaders who could both meet the transactions costs of marketized microcredit, and were

institutionally decoupled from countervailing supervision mechanisms in an era of a ‘limited’

state, formed SHGs.

Conclusion

Market reforms have changed the state fundamentally, but this phenomenon is explored

less than the change market reforms have wrought on society. This article contributed to filling

that gap by discussing how market reforms have changed the internal structure of the state and its

relationship with society. I identified three characteristics of state-transformation in post-

liberalization in India- marketization, decentralization and informalization. I drew upon

ethnographic fieldwork on market-driven development in western India, and its delivery of

microcredit sponsored by government-owned rural banks.

The state’s marketization is evident in the rise of profit-making rationalities in state-

owned banks; and the state’s use of market instruments such as contracting and sub-contracting

to administer development- a practice that signifies the growing informalization of labor,

indexing the rise of informality in state practice more broadly. Microfinance has ascended as a

development strategy precisely during the erosion of the postcolonial socialist state marked by

the fraying of safety nets, and the informalization of work. Taylor (2011) points out that both

state-sponsored and private microfinance schemes are succeeding because rural households are

turning to debt to meet the needs of social reproduction in the wake of economic distress due to

growing rural inequality, the decline of state investment in agriculture, and the depletion of

natural resources.

24

Although financial sector reforms by national governments have led to growing

privatization of the banking sector, state-owned banks perform important development functions

that private banks do not. Marois (2013) points out that state-owned banks are often better

operated than private banks, make less risky investments, and can better serve the needs of

smaller clients. Particularly since the financial crisis of 2008-2009, state ownership of banks

rather than the state simply ‘regulating’ a privatized banking sector has gained serious traction as

a policy alternative (Marois, 2013), and needs to be considered.

Decentralization is revealed to be another key feature of an attenuated state’s practice;

evident in the massive devolution of policy-implementation to leaders of under-funded elected

local bodies. At a larger level, decentralization is a manifestation of the neoliberal state

increasingly partnering with non-state actors in civil society, the market, and political society to

achieve state ends. This article identifies the deployment of grassroots democratic bodies to

deepen market penetration as a key element of economic transformation. Devolution to elected

local bodies combined with the stripping down of the rural development bureaucracy means that

development subjects cannot appeal to supervisory institutions above panchayats in the event of

distributional injustice or procedural irregularities. At the same time, decentralization of

responsibility to panchayats without the provision of commensurate resources to them can allow

the central state to blame local actors for adverse policy outcomes.

This article identified informalization as a key characteristic of the neoliberal state’s

practice. The institutionalization of the informal as the mode of governance is evident in the

devolution of policy implementation to panchayats without the devolution of resources to them,

leading to sarpanches forming contingent partnerships with informal leaders to extend

microcredit in the community. Development was enacted also through state non-intervention- the

25

state tacitly delegating grassroots development to an informal sphere in the locality, resulting in

informal leaders enacting development through social forms of power. With the tacit delegation

of the responsibility for development to an informal realm, local leaders who collaborated with

panchayat leaders for community-level governance improvised development. The state’s

delegation of governance to informal leaders was casual, remaining unstated in programmatic

guidelines. Findings indicate the rise of a ‘limited state’ which forms alliances with political

actors, such that local vectors of power, especially the ability to govern microstructures shapes

control over development. Emerging from transformations within the state itself, these practices

index pivotal shifts in the nature of the state and of state-society relations.

1 Interview with Limkheda’s contract-worker on 7

th June 2007

2 Well-ownership (Table 1, column one) was measured in terms of household rights to draw water from wells which

are owned and inherited jointly by kin. Wells were classified into perennial, late-winter and mid-winter wells.

Perennial wells hold water all year round and enable three-four annual sowings, late-winter wells dry up in March

and allow two-three sowings, and mid-winter wells dry up in January and permit one-two sowings. Irrigation

requires the conjunctive use of wells and motors which pump water to fields through pipes, therefore motor-rights

(column two) were an important form of wealth. A household with exclusive ownership of a diesel or electric motor

was allotted full motor rights (‘1’) while a household sharing a motor with another kin was assigned .5 motor rights

and so on. Livestock (column three) are a critical form of wealth because they are used for plowing, milk, gifting,

and sale for cash. Livestock wealth was measured in terms of per capita livestock per household. Bulls were

assigned a weight of 1.25 because of their centrality for plowing, milk cattle a weight of 1, calves a weight of .5 and

goats a weight of .25. The total number of each livestock type was multiplied by its weight and this figure was added

across livestock types to measure overall livestock wealth. Per capita livestock was measured by dividing each

household’s livestock by the number of household members using the adult equivalent scale which is often

calibrated based on nutritional requirements for individuals by age and gender. I used the adult equivalent scale

described by Deaton and Muellbauer (1980) which assigns a weight of 0.2 to children aged 0-6, 0.3 to children aged

7-12, 0.5 to children aged 13-18 and 1.0 to those aged 18 and over. This formula was used to convert the number of

individuals in the household to the adult equivalent by multiplying the total members in each age category by the

category’s weight, and adding the figures across age groups. This figure was used to divide household livestock to

obtain per capita values. 3The index was based on cumulative scores combining source type (e.g. ‘hand pump’ or ‘well’), number of sources

and seasonal duration of each; and ranged from zero to seven towards higher water security.

26

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Appendix: Tables

Table 1 Lineage Leaders’ Assets Compared to the Average for their Lineage

Group leader Wells owned Motor rights Per capita livestock

Shankar 2 perennial (1 late-winter) 1 (0.31) 1.77 (1.04)

Paaru 1 perennial (1 mid-winter) 0.33 (0.42) 1.12 (1.08)

Bharat 3 perennial (1 late-winter) 2 (0.55) 2.67 (1.28)

Veera 1 perennial (1 late-winter) 1(0.55) 1 (1.28)

Source: Household surveys conducted by the author in 2007. Figures in brackets are average

values for the lineage

Table 1 Loan-Taking by Saraswati Self-Help Group Members, 2004-2005

Loan-taker Loan purpose Amount

(with subsidy)

Charu Seeds, fertilizer, 4 buffaloes 74,000

Savita Seeds, fertilizer, buffalo 19,500

Geeta Seeds, buffalo 19,000

Inner-circle Chauhan Seeds, buffalo 19,000

Inner-circle Chauhan Buffalo 18,000

Outer-circle Chauhan Buffalo 18,000

Outer-circle Chauhan Buffalo 18,000

Kamla Buffalo 18,000

Baria Neighbor - -

Saroda - -

Radha - -

Source: Household surveys conducted by the author in 2007