Cash crunch rains misery on farmers after below-par monsoon

The impact of cash crunch on farmers is likely to have a cascading effect on the broader economy in southern India


The cash crunch triggered by the scrapping of Rs500 and Rs1,000 notes has come at a time when the entire southern peninsula is reeling under drought-like conditions because of a deficit monsoon. Photo: AFP
The cash crunch triggered by the scrapping of Rs500 and Rs1,000 notes has come at a time when the entire southern peninsula is reeling under drought-like conditions because of a deficit monsoon. Photo: AFP

Bengaluru/Chennai: P.V. Rajappan, a rice farmer in Kerala’s drought-hit Palakkad district, had been planning to drill a borewell to irrigate his next crop. He thought he would be able to do it this year. Rajappan delivered his entire harvest—10,210kg of paddy—to the state-run Civil Supplies Corporation, popularly known as Supplyco, and waited for the payment of Rs2.25 lakh to come in.

Then came the 8 November announcement that Rs500 and Rs1,000 banknotes had ceased to be legal tender. Supplyco had no money to pay farmers, and Rajappan hasn’t received a rupee. His savings too are of no help. The cooperative bank where he kept his money, like almost every other farmer in the region, has become practically non-functional because of curbs imposed on cooperative banks by the Reserve Bank of India after demonetisation.

So, for now, Rajappan has had to shelve his plans of drilling a borewell to irrigate his next crop.

The cash crunch triggered by the scrapping of Rs500 and Rs1,000 notes has come at a time when the entire southern peninsula is reeling under drought-like conditions because of a deficit monsoon.

From 1 October till 11 November, Tamil Nadu was 68% rain- deficient. The rain deficit in Telangana was 34%, in Andhra Pradesh 78%, in Karnataka 77% and in Kerala 60%, according to weather forecaster Skymet.

The cumulative impact of drought and demonetisation will hurt the rural economy severely, said Himanshu, an associate professor at Jawaharlal Nehru University in New Delhi and a Mint columnist.

“It is a double whammy for farmers. A two-year-old drought was already there. This year it is continuing in some parts of the south. Whatever little money they were about to get is locked up in bank vaults,” he said in a phone interview.

The impact on farmers will have a cascading effect on the broader economy in southern India, he said, as the rural population puts spending on hold—whether on weddings or purchase of consumer durables, stalling a revival of rural demand.

“We already had a bad year with insufficient rains and this (demonetisation) has taken a toll on our livelihood,” said P. Dhanapal, a farmer from Manargudi in Thanjavur district of Tamil Nadu. Dhanapal said he has not been able to pay the eight people who work for in his farm.

In Andhra Pradesh, private millers have stopped purchases for lack of new banknotes, and the government’s kharif paddy procurement is yet to begin, said Venkat Rao, a paddy farmer in Srikakulam district.

In Karnataka, farmers are bringing back their unsold produce from the markets; the prices of some farm commodities are falling, said Kodihalli Chandrashekar, president of the Karnataka Rajya Raitha Sangha, a farmers’ group.

Viswanath Pilla in Hyderabad contributed to this story.

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