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Paper short abstract

Political alignment causally reshapes agricultural credit in India. Using a regression discontinuity design, I show large reallocations through state banks without expanding total credit—evidence of conditional development under structural constraints.

Paper long abstract

Is development still possible under contemporary globalization marked by financialization and persistent structural asymmetries? This paper revisits this question by examining how domestic political incentives shape state-led finance in a Global South context. Focusing on India, it estimates the causal effect of political alignment between elected representatives and ruling parties on the allocation of agricultural credit by state-owned banks.

The study exploits close electoral contests to implement a Regression Discontinuity Design, using narrow victory margins as a quasi-random source of political alignment. By linking constituency-level electoral outcomes to district-level banking data, the analysis identifies the local average treatment effect of political alignment on agricultural credit flows. The results reveal large but highly concentrated effects. Political alignment increases agricultural credit disbursed by Regional Rural Banks by roughly 400 percent, equivalent to an increase of about ₹1,220 crore relative to a baseline mean of ₹305 crore in aligned districts.

Importantly, this increase does not reflect an expansion of aggregate agricultural credit. Instead, credit is reallocated across banking institutions and spatial contexts, with gains concentrated in rural areas and specific public banking channels, while other segments of the banking system exhibit muted or offsetting responses. Political alignment therefore reshapes the composition of credit rather than relaxing overall financial constraints.

These findings contribute to debates between dependency and developmental state scholarship. They suggest that development under contemporary globalization is conditional and selective, operating through politically mediated reallocations within structurally constrained financial systems rather than broad-based transformation.