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Distortions in Land Markets and Their Implications for Credit Generation in India
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.
The authors would like to thank Ajay Shah, Susan Thomas and participants of the Bankruptcy Law Reforms Committee Conference for comments and suggestions. The views expressed in this paper are those of the authors and do not refl ect the views of the institutions that they are affi liated to.
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