Trust in the time of crisis - Ramya Kannan

Trust in the time of crisis

• RAMYA KANNAN

Traders and vendors, who are used to cash transactions daily, have sought refuge in credit and trust, hoping the tide would turn again.

Many years ago, a man called Francis Fukuyama proposed an economic theory that rested on trust. He argued that economic development would be based on the amount of trust each society displayed in non-kin relationships.
In his 1996 publication, Trust , he said: “One of the most important lessons we can learn from an examination of economic life is that a nation’s well being, as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in the society.”

This past week, we’ve probably come out with flying colours in Fukuyama test. Since demonetisation reduced liquidity in the market, with limited sectors accepting Rs. 500 and Rs. 1,000 notes as legal tender, and the insufficiency of notes to replace the currency, this society has moved on, thanks largely to trust. At a micro level, people, traders and vendors who are used to cash transactions on a daily basis, sought refuge in credit and trust, hoping the tide would turn again. For autorickshaw drivers, watercan suppliers, milkmen, tea shops and small roadside eateries with their loyal clientele, it was easy to slip into credit mode.

Vanessa Peter, who often takes autorickshaws to commute to work, found it was exactly this which came to her rescue when she hailed an auto at the stand near her house in Kodambakkam, after the demonetisation drive left her short of change.
“The driver knows me well and I have taken his auto several times. I told him I did not have the money to pay for my ride that day and he readily agreed to take the money whenever I could pay him.” She later paid the fare two days later. She’s been lucky though. The vendor who supplies drinking water at her home also left behind three cans, though she could only pay for one at that time.

Some altruism
It is not all profit for Samivelu, a water bubble-top supplier in Madipakkam. He said all his customers had promptly made payments all these days, and he felt that water being an essential commodity, it was his duty to ensure they got the water, even if he had to supply it all on credit.
For more than half his life, 45-year-old jeweller S. Raman of Perambur has been travelling all over Chennai selling inexpensive costume jewellery made from beads and metal to homemakers and working women. Mr. Raman, called ‘manikaarar’, had to make adjustments after November 8. A client purchased jewels worth Rs. 6,500 but asked if he could wait until the first week of December for payment. “Don’t worry about it. I have earned your trust over the years and I need nothing more,” he replied.
In Coimbatore, several builders have requested the grocery outlets and tea stalls near their construction sites to give products on credit to their workers.
With a shortage in the availability of cash to pay weekly wages for the workers, they have only paid an advance amount to these workers. Dhanalakshmi, who has rented out two houses to workers, says her tenants were unable to pay the rent. “How can I ask them when they have not received their wages properly? I know they will pay up when they get money,” she says.

Owners of rice mandis, medical shops, local kirana stores and even water suppliers in Chennai knowing well the cap and difficulties in withdrawing cash are not pressuring their customers to pay immediately.
S. Anuradha, a resident of Annai Indira Nagar in Velachery, was apprehensive about what to do when she ran out of rice. She was pleasantly surprised when the owner of a rice mandi nearby offered to give her stocks, which she could pay for with a cheque.
Retail and wholesale trade

At Gandhi Market in Tiruchi, a major wholesale and retail market for the region, many traders have been extending credit lines over the past week. Not strictly due to generosity, but also out of necessity. “Seventy per cent of our business has been affected after demonetisation. Many of us are operating on credit transactions,” said A. Thangaraj, general secretary, Tiruchi Onion Commission Mandi Traders’ Association.

“Retail traders who purchase onions from us say they will pay after selling the produce. We realise their position and allow them to take the stocks on credit. We know we may have to wait for even up to a month to get the money,” he said. The same with suppliers. “While we are able to pay our suppliers from other states through bank transfers, we have to withhold cash payments to local farmers who supply us small onions,” he said. Most farmers accept this, but some have stopped bringing the produce to the market.
J. Madhavan, who runs a stationery shop in Madurai, said the daily sale of school and college notebooks and accounts books used to be around Rs. 25,000 a day but had plummeted to Rs. 2,000 a day since the announcement. Regular customers like representatives of educational institutions, who used to seek only discounts on notebooks, were now seeking credit for want of currency notes. He had no option but to oblige.
Petty shopkeepers too say that sales on credit are on the rise. “We allow most of our regular customers to pay later and allow credit for new customers. In some cases, I do not even make a note of the purchase when the crowd is heavy. Most people do not cheat and pay up in a day or two. Besides, I often find there is no change to give back if a customer produces a Rs.100 note for one tea. I have to ask him to pay later,” said Kumar, who runs a tea stall in Thennur.

Trust, a two-way street
There’s also trust from the other side. There are regular customers who pay up tea stalls and vegetable vendors larger notes and ask them to hold the change against future purchases. A bakery owner from Salem says he sells goods on credit only to known customers, and politely turns away others.

T. Arunkumar, an advocate at the Madras High Court, said stamp vendors from whom he regularly purchased stamp papers were now lending them on credit. “This is a great help. It is not that clients who approach us for registrations or for filing litigation are without money. They have cash but due to the demonetisation, there are practical problems in converting the old currencies with the prevailing day and weekly limits in force.”
Particularly, for any kind of registrations involving a immovable property, be it a settlement, gift or a release deed, one would require a minimum of Rs. 20,000 value stamp papers. The alternative is to pay by a DD demand draft, but again it is a time-consuming option given the rush in the banks to deposit old currencies. A vendor confirmed, “Yes, we do give them on credit but not for all. We can trust only those who are regularly doing business with us for years.”

But trust too seems to have a threshold level. With the situation not improving in the last week, and liquidity going from bad to worse, traders and vendors have begun to fret. “To avoid embarrassment, provisions are sold on credit to select customers. By and large, we turn away buyers seeking credit purchase,” Jebastin Solomon, a grocery shop owner at K.K.Nagar, said, adding that it is simply impossible to conduct business without even a minimal cash flow.

Clearly trust too is going to run out if liquidity does not improve. An addendum to Mr. Fukuyama’s theory will probably be written in this country.

( With inputs from Dennis S. Jesudasan, K.Manikandan, R. Srikanth, Sureshkumar in Chennai,
S. Ganesan in Tiruchi,
M. Soundariya Preetha in Coimbatore, Syed Muthahar Saqaf in Salem and
S. Sundar in Madurai )