This study examines the impact of capital on the small peasant economy of Sri Lanka which has been dominated by paddy cultivation, the consequent processes of agrarian change in the peasant society and the impact of these changes on the lives of the peasantry. The persistence of peasant agriculture throughout the developing world has posed a challenge to classical theories of the development of capitalism in agriculture which considered peasant production or Simple Commodity Production as a transitional phenomenon doomed to disappear. Recent interpretations of theories on Simple Commodity Production however, argue that peasant forms of production can and likely will survive within capitalist social formations, and therefore the analysis of the dynamics of agrarian change has to focus on historically specific situations. Pursuing the latter view, this study identifies the role of the State, class structure, and the role of agro-ecological imperatives as key factors influencing agrarian change in Sri Lanka. While existing agrarian relations in the peasant sector have not become a barrier to the growth of productive forces in the peasant economy, this growth has not necessarily led to the disintegration of the peasantry, despite a certain amount of differentiation among them. While the dynamism manifested in the emergence of a small stratum of rich peasants and rural entrepreneurs may indicate the possibility of capitalist development in the peasant sector in some areas of the country, the overall situation within the peasant economy indicates the possibility of paddy agriculture reaching its advanced stages within the form of peasant production itself. In the event of such a possibility, it is the problem of underemployed labour in the peasant sector which will become the agrarian question of Sri Lanka. / Arts, Faculty of / Sociology, Department of / Graduate