November 17, 2016

Demonetisation: How the cash crisis can be used to tame rural commercial capital

Written by Pravesh Sharma

This post originally appeared on The Indian Express.

These enterprises — whom she broadly categorises as ‘rural commercial capital’ — enjoy privileged access to formal credit networks.

In her insightful study of the working of agricultural markets in West Bengal, British development studies scholar Barbara Harris-White has documented in detail how trade in farm produce is controlled through a web of rural and semi-urban agro commercial enterprises.
These enterprises — whom she broadly categorises as ‘rural commercial capital’ — enjoy privileged access to formal credit networks. The monies borrowed from banks and other financial institutions they use for on-lending to farmers against future deliveries of produce. They also control the functioning of agriculture produce market committees — which oversee the operations of regulated mandis — through cornering of trading licenses and restricting new entrants. Further, they ensure all official procurement of wheat and rice undertaken by the Food Corporation of India and state government agencies is channelised through them, thereby guaranteeing both assured business and almost complete elimination of market risk. Through these economic means, apart from ability to court political patronage, rural commercial capital has managed to squeeze out all potential competition in agricultural produce markets, including from petty traders who can never achieve the same size and volume.

While Harris-White’s work, based on field studies stretching over a decade, has focused on West Bengal, its findings characterise the behaviour of rural commercial capital in other parts of the country as well. Moreover, they continue to hold good even a decade after being published in the form of a book (Rural Commercial Capital: Agricultural Markets in West Bengal, Oxford University Press 2008). Only around 60 per cent of farm households in India today have access to institutional finance. Even among this 60 per cent, a majority has to supplement bank loans with borrowings from moneylenders and other informal sources. The numbers are worse for small and marginal farmers, where barely 15 per cent can even obtain loans from banks, leaving them almost entirely at the mercy of rural commercial capital.

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