1.3.5. Credit dries up

While the boom lasted, cotton merchants in India had visions of capturing the world market in raw cotton, permanently displacing America. The editor of the Bombay Gazette had asked in 1861, “What can prevent India from supplanting the Slave States (of U.S.A.) as the feeder of Lancashire?” By 1865 these dreams were over. As the Civil War ended, cotton production in America revived and Indian cotton exports to Britain steadily declined.

During the period of the cotton boom, merchants in India were optimistic about replacing American cotton due to high demand from British industries. This was a significant moment when Indian cotton was seen as a reliable source, especially during the American Civil War when the U.S. cotton supply was disrupted. However, once the Civil War concluded, America resumed its cotton production, leading to a sharp decline in Indian cotton exports, disappointing many Indian merchants who had hoped for long-term prosperity.

Imagine a small business owner who invests heavily in a product they believe will become the next big trend. While initial sales soar, a competitor suddenly releases a similar, better product. The initial excitement quickly fades as customers flock back to the competitor, leaving the owner with unsold inventory and significant losses.

Export merchants and sahukars in Maharashtra were no longer keen on extending long-term credit. They could see the demand for Indian cotton fall and cotton prices slide downwards. So they decided to close down their operations, restrict their advances to peasants, and demand repayment of outstanding debts.

As the demand for Indian cotton dwindled, merchants and moneylenders (sahukars) became reluctant to continue offering loans or credit to farmers. The decreased demand meant less profit, leading to a tightening of financial resources. Consequently, these lenders began to demand repayments on existing debts, increasing financial pressure on the already struggling ryots (farmers). This shift from providing support to demanding repayment represents a significant change in the economic landscape for farmers.

Think of a lending library that stops lending books because they are no longer popular and many books remain unread. The library begins to demand overdue fees from patrons, making it harder for them to return books and discouraging reading rather than promoting it.

While credit dried up, the revenue demand increased. The first revenue settlement, as we have seen, was in the 1820s and 1830s. Now it was time for the next. And in the new settlement, the demand was increased dramatically: from 50 to 100 per cent.

Amidst the financial troubles faced by peasants, the government increased the revenue required from them, significantly raising the economic burden. This meant that while farmers were struggling to survive without credit, they now faced a harsher reality with higher taxes, exacerbating their difficulties. Such an increase in financial obligations during a time of economic decline highlights the oppressive nature of colonial revenue policies where the state prioritized its income over the stability of the agrarian economy.

Imagine a school charging students more fees during a year when families are already struggling financially. Instead of providing assistance or reducing fees to help families cope, the school increases the pressure on parents, leading to widespread discontent and potential dropout rates.

How could ryots pay this inflated demand at a time when prices were falling and cotton fields disappearing? Yet again they had to turn to the moneylender. But the moneylender now refused their loans. He no longer had confidence in the ryots’ capacity to repay.

As cotton prices fell and fields became less productive, farmers (ryots) found themselves trapped in a cycle of debt. With rising tax demands and less income, they turned to moneylenders for assistance, but the lenders were increasingly unwilling to extend credit due to the farmers' inability to repay loans. This situation created a deepening crisis, as farmers were stuck in a financial quagmire without the support they needed to recover.

Consider someone who continuously borrows money from a credit card to pay off old debts. Each month they owe more, and if their income drops, banks may stop giving them new credit, leading to a situation where they can neither repay old debts nor stand on their own financially.

The refusal of moneylenders to extend loans enraged the ryots. What infuriated them was not simply that they had got deeper and deeper into debt, or that they were utterly dependent on the moneylender for survival, but that moneylenders were being insensitive to their plight. The moneylenders were violating the customary norms of the countryside.

The relationship between ryots and moneylenders was traditionally governed by norms and expectations of fairness. However, as financial pressure increased, moneylenders exploited the situation, disregarding these norms and charging exorbitant interest rates. This insensitivity to the hardships faced by farmers led to widespread anger and frustration, as many felt trapped and betrayed by a system they had depended upon.

Think of a longstanding friendship strained by financial dealings. One friend begins charging excessively for small loans or disregarding previous deals made in good faith. This breach of trust can cause deep resentment, leading the friend asking for help to feel deceived and betrayed.

In petition after petition, ryots complained of the injustice of such exactions and the violation of custom. One general norm was that the interest charged could not be more than the principal. This was meant to limit the moneylender’s exactions and defined what could be counted as “fair interest.” Under colonial rule this norm broke down.

The growing evidence of exploitation and the collapse of traditional lending norms painted a bleak picture for ryots. As custom was overshadowed by colonial regulation and harsh economic realities, the legal frameworks meant to protect farmers transformed into tools for exploitation. This breakdown led to an environment where agrarian revolt became increasingly likely as the ryots sought justice against oppressive economic conditions.

Imagine a community member who used to lend items freely, believing in sharing and mutual support. If they begin to charge exorbitant prices for borrowed items, erasing the underlying spirit of help, it can lead to community unrest and calls for reform to restore fairness and equity.

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