Impact of information asymmetry on market efficiency: An Indian case study

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In the context of rural economy, it is indeed true that the rural producers are owners of unique knowledge pertaining to their produce. But their physical and virtual distance from the market has prevented them from using their informational resource for profitable returns. It is only after the producers have become marketable actors — by gaining access to the adequate informational resource and developing skills to process acquired informational resources for practical benefits - that market efficiencies can be enhanced through improved transaction patterns in a market. In this context, it is important to articulate that we are not reading informational asymmetry solely along theoretical lines. We have tried to substantiate our theoretical propositions by citing a qualitative case study conducted among Indian rural producers. The hindrances faced by them due to the information asymmetry they experience with different agents have been practically validated in this section by justifying the theoretical formulations with the experiential accounts of rural producers. The reality of rural producers has been captured by conducting a qualitative survey among 70 such producers located across the Indian state of West Bengal.


The following study, undertaken to assess rural producers from the angle of information asymmetry, is based on in-depth qualitative interactions with selected crafts producers coming from Birbhum, Bankura, Coochbehar, Dinaj- pur (Uttar and Dakshin), Medinipur (Purba and Paschim), Bishnupur, 24 Par- ganas (Uttar and Dakshin), Bardhaman, Murshidabad, Alipurduar and Hooghly districts of West Bengal. The number of respondents interviewed totalled 70 rural crafts producers or rural artisans. With the help of the qualitative survey we have tried to record and subsequently analyse the experiential accounts of the rural Indian artisans to understand the hindrances they face in the course of production.

In the qualitative research conducted, artisans interviewed from different locales recorded different types of hindrances they face in the course of their production. Though each one of their experiential accounts considerably differed from the others, by critically and contextually reading individual experience in relation to the group experience we have tried to arrive at an understanding of collective reality. A contextual reading of the experience has been particularly insightful from our research standpoint. Although mainstream economics’ reading of asymmetrical information primarily assumes sellers to be in a privileged position, the differential situation among the Indian crafts producers compels us to read information asymmetry recorded by the community as mainly leading to market inefficiency, instead of providing market opportunities to rural artisans. It is through the contextual reading of experiential accounts of rural artisans that we can trace the role of informational asymmetry and subsequently analyse how it impacts the process of rural production.


In the following sections we will break up the entire production process into multiple levels and talk about the challenges artisans face in each level due to asymmetric informational relationship with other agents. We will conclude this section by illustrating a way forward to address this issue by inducing purposive intra- and inter-communitarian exchange within rural community.

4.2.1 Inability to produce in accordance with market demands

The majority of the artisans with whom we interacted can be categorized as non-farm producers; crafts producers to be specific. In the process of making aesthetic craft items they stated that they conceptualize or innovate newer designs. But the rural orientation of the artisans prevents them coming up with appropriate items to satisfy the hunger of the ever-changing urban market. The example of the works of a Birbhum-based kantha artist can shed light in this context. Although the stitching done by the artisan is intricate and flawless, the colour combination opted for is often considered to be a mismatch for urban tastes and preferences, thereby reducing the market value of the product. In some cases, design catalogues and the internet act as bridging mediums, feeding the artisans with relevant information, which subsequently results in improved production. This additional exposure, initiated by some NGOs, has thrown open the door to information to some selected artisans, whose knowledge-wise upliftment and empowerment have helped secure a stable position in the market for these artisans. However, most of the artisans are unaware of the urban fashion trends and demands due to lack of formal/informal communication channels. The impact of disrupted communication in aggravating inefficiency in rural production is manifested in the remark of a Murshidabad-based self- help group producer specializing in stitching. In an interview conducted at Kandi, Murshidabad, in October 2017, she said, “... Since we do not have proper linkage with urban crowd, we, the rural producers, often produce designs, some of which are considered outdated by urban tastes.” The experiential account of our respondent suggests how informational poverty plays a decisive role in determining the market performance of rural producers. Although, in most of the cases, the skill set of the rural producers is intricate, their lack of necessary market-related information often demerits their position and performance in the urban economy.

4.2.2 Issues pertaining to agents dealing with raw materials

Unavailability of appropriate and affordable raw materials both in quality and quantity often poses a hindrance in the rural production process. However, in some places, where there are a considerable number of artisans engaged in the production of similar objects, some of the raw materials required are available locally. For instance, artisans from Birbhum and Pingla, who engage in the production of similar art forms in bulk, such as Kantha stitching and Potochitro painting respectively, reported local availability of essential raw materials. However, in most other cases rural producers stated multi-faceted obstructions limiting availability of affordable raw materials. A Dinajpur-based rural producer engaged in woodwork recorded the hindrance pertaining to availability of raw materials. He narrated travelling to three locations, namely Siliguri, Khairibari and Khidirpur dock in Kolkata, to procure raw wood. Since wood is a heavy material, transporting it from such far locations incurred additional travelling cost, which the rural producer is compelled to bear. Travelling long distances not only incurs additional cost but also demands time investment, which can be immensely problematic for the rural producers. Artisans’ lack of information regarding alternative raw material procuring channels make the hindrances pertaining to procurement of raw materials more pronounced. Since the rural producers lack information about region-wise availability of raw materials at affordable prices, they are not motivated or equipped to search for newer channels. Some of the rural producers we interacted with explicitly stated the reasons behind preferring known shops to buy the raw materials. Since financial crunch is a perennial problem faced by the Indian artisans, a Birbhum-based artisan, who passionately helps his mother on her self-help group-related activities, recorded the reason for such a preference. He said that most of the time, though they buy the raw materials with their own investment, purchasing it from known shops fosters trust and keeps open the provision for buying on credit, if need be. It is precisely because of the lack of information that such micro-level benefits assume greater status and direct the rural production process by demotivating producers to venture out for better opportunities, thereby restricting them to the already-known parasitic channels.

4.2.3 Issues pertaining to agents dealing with logistics support

Both procurement of raw materials and delivery of finished products to buyers require transportation of goods at bulk. Though most of the artisans with whom we interacted stated how such logistics are handled mostly via informal personal contacts, lack of information often impedes the upgrading of such crowd-sharing activities to an organized activity. For example, the majority of the self-help group women residing in the countryside of Bengal with whom our research group interacted recorded a preference for sharing rides with other producers to go to nearby urban sites, both for procurement of raw materials and delivery of finished products. Such activities allow them to save time and money. But since, in some cases, location and other details of people having similar procurement and delivery requirements remain unknown, they at times are compelled to bear the whole transportation cost, which often is a burden, given their financially insecure status. An elderly self-help group producer recorded immense difficulty in sustaining her small-scale jute business due to the additional factors intrinsic to rural production. Having no one to help her in her business, the rural producer narrated how transporting the produced good to urban customers is problematic at her age. In this context, even though the rural producer showed artistic capability, issues pertaining to logistics and her lack of alternative channels to transport her goods to urban customers primarily contribute to poor sale.

4.2.4 Issues pertaining to procurement of orders and sale of products

Sixty-five of the 70 rural non-farm producers (even the micro-entrepreneurs) interviewed identified state fairs as the primary site for selling their produce.

Most of them said they received their major orders from the contacts obtained by attending such fairs. However, since these marginalized producers are completely isolated from the market, they are compelled to rely on local-level government offices to obtain necessary and relevant information pertaining to such fairs. A considerable number of artisans, while complaining about the inefficiency of local government agencies, stated that because of the resultant discrimination they often miss out on important dates pertaining to the fairs. Even in cases where they are successful in acquiring the relevant information, we must remember that fairs are seasonal in nature and hence these fairs offer little scope for financial stability throughout the year. However, even though the supply pattern in the Indian crafts sector is more often than not erratic in nature, it undoubtedly has a perennial market demand. Hence it is necessary, amidst the backdrop of asymmetrical information, to investigate the alternate avenues of sale and study how rural producers can strike business in those avenues.

Although the Indian government has come up with multiple retail brands — such as Bangasree, Manjusha, Khadi, Biswabangla, etc. — who buy directly from the rural producers, an in-depth interaction with the rural target group revealed how such an exposure offers opportunity to only a select few. Just eight artisans out of the 70 interviewed recorded sales to such government organizations. A Bankura-based terracotta artist recorded how these governmental units, on grounds of artistic inferiority, never buy his works and how these public units only provide exposure to a selected few in the rural community. Such partiality severely affects the rural producers, because lack of information has confined most of them to only the known sales channels.

4.2.5 Issues pertaining to financial aspects

Sixty out of the 70 artisans with whom we interacted stated that they receive payment only after the completion of placed order. But the production process, from its very initiation, requires cash — for procurement of raw materials, for example — without which the production process cannot start. A Birbhum- based rural Kantha producer reported how the nature of receiving payments post-production makes a financial crunch inevitable at the time of procurement of raw materials. Capitalizing precisely on this need, a class of rural moneylenders or middlemen have gradually evolved and prospered, thriving on lending money to these rural producers at high rates of interest.

There are multiple government-sponsored schemes providing loans at subsidized rates to rural producers. However, the difficulty of going through the lengthy official procedure and, in some instances, lack of adequate financial information have confined a considerable number of rural producers to the locally available money-lenders. This points to the urgent need to devise a more target-oriented and contextual rural credit market, suited to mitigate production-related challenges in the Indian crafts sector (Choudhury, 2004). Another Birbhum-base Kantha producer’s narrative clearly reflects the inefficiency of public financial structures, which has compelled him to take monetary help from informal sources such as friends and local money-lenders. Although he is aware of the lack of transparency inherent in such informal transaction domains, the difficulty in getting subsidized loans sanctioned has left him with no alternative.

Moreover, lack of financial information and assistive platforms further prevents these rural producers coming up with adequate strategies to cope up with the loss incurred due to change of government fiscal policies.

4.2.6 Alienation from the digital world

Sixty-two out of the 70 artisans reported nil or minimal digital literacy. Lack of basic education and access to digital technologies (especially the internet) has kept them unable to utilize the fruits of digitization. Contemporary ICT has heightened itself to such a status that information has become the most important and accessible resources in this era. Yet our in-depth interaction with the artisans revealed quite a disappointing result; only 2% of all the artisans interviewed recorded resorting to a digital medium for the purpose of their trade. Digital ignorance of the majority has disallowed them to access and use the information available online for the betterment of their business. Not only is the digital adherence rate of rural producers alarming, their ignorance as to how the medium can boost sales by encouraging virtual collaboration is additionally disappointing. When asked by our research group, one of our rural respondents, although recording poor sales, explicitly expressed distrust of the digital medium’s ability to boost her sales. This response has to be interpreted as the mindset of a person who has never had the privilege to experience the digital medium’s effectivity. Widespread digital illiteracy and alienation from the operative dynamics of the e-channels thereby contribute in sustaining the ignorance of rural producers regarding newer designs of products, multiple online selling outlets and other relevant information. Only 2% of the total rural producers interviewed said they resorted to smartphones for communicating with customers.

4.2.7 Issues related to skill-building opportunities

Even if the artisans feel that they want to upgrade their skills or learn a new skill, they do not have adequate information regarding the availability of potential trainers and/or informational sources which they can tap into to enhance the skills required to translate acquired informational resource into holistic knowledge pool.

During our interventions we showed some of them YouTube videos on the design of soft toys and the making of low-cost jewellery. They not only tried to learn from the new digital informational source but also used the information, with the help of contextual training, to enhance their application sense and knowledge pool. However, skill-providing channels, which lead to the successful translation of information to knowledge resources, are seldom available. Even in contexts where provisions of such contextual training facilities are made for artisans, the sporadic nature of the initiatives, coupled with lack of application guidelines on how to utilize acquired skills for profitable returns, have largely rendered the measures inadequate in practically realizing mass-scale rural empowerment.

A rural self-help group producer residing in the village of Kandi stated having received government-sponsored stitching training, where the rural members were paid a minimal amount in lieu of their participation in the training programme. However, our respondent also recorded how such training, though inculcating stitching skills among rural participants, provided no subsequent guidance on how to use the acquired skills to enhance market prospects. As a result, our respondent insightfully remarked, “We are a set of skilled women. But we do not know what to produce and where to sell.”

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