This paper analyzes some policy issues on rural credit against the backdrop of the International Monetary Fund (IMF)-World Bank directed market economic reform that the Indian agriculture witnessed during the 1990s. Two Committees appointed by the Government of India recommended for liberalization of the rural credit market. Following the recommendations, the share of priority sector and agriculture were slashed down. The main empirical part of this paper is based on a primary field survey conducted in two agro-ecological regions of West Bengal. The central hypothesis of the market reformers that there must be a negative association between default of credit and the ascending status of households, has not been approved by the survey findings. A big section of households are denied credit while the other sections of households voluntarily avoid banking habits. A greater proportion of the households are involved in the Integrated Rural Development Program (IRDP) loan that they think as a kind of dole, while comparatively a lower proportion of households are involved in crop loan. This is due to the dismal state of cooperative movement in West Bengal as well as at the all India level. Panchayat or local self-government is also partially responsible as they failed to inculcate banking habits among the poor people. This study reveals that poor people have themselves formed credit cooperatives, but this initiative is not integrated with any formal network.

In this paper we attempt to explore the process of a complicated interaction between the policies of market reform in rural credit market on the one hand and interventionist institutions like Panchayat or Cooperative on the other. The nationalization of the major commercial banks in India took place in 1969 and rural banking was promoted with the objective of agricultural growth and alleviation of rural poverty. Since the nationalization of banks, India witnessed a growth in the big rural banking structure, which in terms of `both geographical spread and functional reach' was `unparalleled in the financial history of the world' (Shetty, 1997, p. 253). However, since the early 1990s making a radical departure to its past state interventionist development, India entered into the market economic regime directed by the structural adjustment program of the International Monetary Fund (IMF)-World Bank and a phase of withdrawal of state began.