Distortions in land markets and their implications for credit generation in India

Abstract

Data shows that land is collateral in a large proportion of loans in India. Yet, the several structural, regulatory, and information-driven distortions that afflict Indian land markets force lenders to adopt conservative policies ex ante, affecting both the availability of credit and the collateralisation of land. The paper examines some of these distortions and highlights their significance to the current debate on reforming bankruptcy framework in India. The first part of the paper discusses structural, regulatory, and informational gaps that limit lenders’ ability to lend against land as well as recovery after default. In the second part, some opportunistic and structural reforms in the land markets that could effectively monetise land in credit markets have been proposed.