Summary An issue which has attracted considerable attention in the study of agrarian structure is the phenomenon of interlinked markets. Amit Bhaduri has integrated interlinkage into an analytical explanation for stagnation in Indian agriculture. While Bhaduri's model of interlinkage provides important insights into the mechanisms for perpetuation of backward agrarian relations, it serves the thesis of technological stagnation rather poorly. This paper shows that interlinkage is not in any sense an exclusive characteristic of a backward or static, agrarian economy. To the contrary interlinkage has been found to be an integral feature of a dynamic regime which embodies emerging forces of capitalist development: one in which traditional methods of irrigation have given place to modern methods; there has been technological upgrading in all aspects of farm economy; heavy demand for production loans and heavy transactions in the product market. While the agents involved in exploitation ‐ at both the dispensing and the receiving ends ‐ may be different from those in Bhaduri's semi‐feudal setting, it will be observed that the instrument of interlinkage has an important role to play in establishing social relations of oppression and dependence which bear a strong family resemblance to those which obtain in his model. These issues are studied in the concrete context of a village in Tamil Nadu (South India).