The question of traders as credit agents in India

From the time of the 1943 Foodgrains Policy Committees which advised on the necessity of state trading, until recently, policymakers in India have clung to an orthodoxy that private traders, especially agricultural traders, are inefficient and/or exploitative, prone to cheat, hoard and speculate. Generation upon generation of interventions in agricultural markets has used the need to “crush the middleman ” (FCI 1980; UCO Bank 1989; GOI 1992) as their stated and ostensible justification. State trading had the stated objective of crushing mercan-tile power and of regulating and controlling international trade as well. Cooperative marketing was aimed at eradicating middlemen “where they are exploitative”. Regulated marketing sought to reduce transactions costs to codify transactional practice and reduce the power of merchants by making private agricultural markets more open and competitive. Storage and anti-hoarding laws had the purpose of reducing price fluctuations caused by mercantile speculation, as did controls over futures trading contracts. State storage schemes were intended to reduce the concentrated control of inventory by merchants. None of these interventions was meant to benefit merchants (Harriss 1984). It is entirely consistent with this orthodoxy that public sector credit should be lent to traders only under the strictest conditions. The Reserve Bank of India (RBI) curtails loans to private trade by nationalized and state-owned banks in three ways. One is exhortatory. Banks were “advised to keep a strict vigilance on advances an