Question

(1) Festival Season

It is festival season two months from now and the shoe manufacturer, Salim, has received an order from a large trader in town for 3,000 pairs of shoes to be delivered in a month time. To complete production on time, Salim has to hire a few more workers for stitching and pasting work. He has to purchase the raw materials. To meet these expenses, Salim obtains loans from two sources. First, he asks the leather supplier to supply leather now and promises to pay him later. Second, he obtains loan in cash from the large trader as advance payment for 1000 pairs of shoes with a promise to deliver the whole order by the end of the month. At the end of the month, Salim is able to deliver the order, make a good profit, and repay the money that he had borrowed.

(2) Swapna’s Problem

Swapna, a small farmer, grows groundnut on her three acres of land. She takes a loan from the moneylender to meet the expenses of cultivation, hoping that her harvest would help repay the loan. Midway through the season the crop is hit by pests and the crop fails. Though Swapna sprays her crops with expensive pesticides, it makes little difference. She is unable to repay the moneylender and the debt grows over the year into a large amount. Next year, Swapna takes a fresh loan for cultivation. It is a normal crop this year. But the earnings are not enough to cover the old loan. She is caught in debt. She has to sell a part of the land to pay off the debt.

1. Fill the following table.
   

   	Salim	Swapna
   Why did they need credit?
   What was the risk?
   What was the outcome?

2. Supposing Salim continues to get orders from traders. What would be his position after 6 years?
3. What are the reasons that make Swapna’s situation so risky? Discuss factors - pesticides, role of moneylenders, and climate.

Answer 1

1. 	Salim	Swapna
   Why did they need credit?	To meet the working capital needs.	To meet the expenses of cultivation.
   What was the risk?	No or little unknown risk.	The crop could have been ruined.
   What was the outcome?	He made a good profit by supplying 3,000 pairs of shoes on time.	Swapna became trapped in debt as a result of the crop failure, as she was unable to return the loan on time. She had to sell a portion of his land to repay the loan.

2. If Salim continues to receive orders from traders, he will make a good profit, which will allow him to develop his firm. He may open new units, hire more people, and accept larger orders.
3. Many reasons contribute to the food crisis, including the invasion of pests on crops, exploitation by moneylenders, and extreme weather.
   1. Pesticides: Swapna gets a loan to buy pesticides. Because they are so expensive. Even after this, her groundnut crop is damaged owing to an insect infestation, and due to a lack of revenue, she is unable to return her old loans.
   2. Role of Moneylenders: Moneylenders enticed Swapna into debt by offering loans at high interest rates, forcing her to sell a portion of her land to service the loan. This severely depleted his agricultural holdings.
   3. Weather: Weather is an important part of agricultural production. Swapna's aspirations were dashed by bad weather, and she continued to fall into poverty; her situation did not improve.