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Demonetisation created problems for the farmers on the input side by creating a cash crunch in a the agriculture market driven by cash transactions. Photo: Abhijit Bhatlekar/Mint
Demonetisation created problems for the farmers on the input side by creating a cash crunch in a the agriculture market driven by cash transactions. Photo: Abhijit Bhatlekar/Mint

Demonetisation fails to bring any cheer for farmers

Demonetisation caused an average 20-30% fall in the prices of most commodities, a fall from which no farm produce has yet recovered

Mumbai/Delhi: Narayan Ghawat, a 66-year-old paddy farmer in Mila village of Maharashtra’s Thane district, was mighty impressed with Prime Minister Narendra Modi’s demonetisation drive when he read about it in newspapers on 9 November 2016. One year later, Ghawat does not quite understand what demonetisation has achieved.

“I think the objective was good but it has not been achieved. It has not unearthed black money to the extent Modiji said it would," Ghawat says as he awaits his turn at a branch of Thane District Central Co-operative Bank. Ghawat does not have a debit card and does banking the traditional way. Before he withdraws money and leaves the bank, he helps fill up a cheque for a tribal couple, both farm labourers, from his village.

Dhondu Mukne, the tribal farm labourer, remembers notebandi, as demonetisation is popularly known, as the period when his daily wages of Rs300 would not be paid in cash at the end of the day. “It was paid after some days," Dhondu says. Now, Dhondu says he gets paid his wages in cash at the end of each day he puts in. Dhondu offers little on notebandi other than this impact.

Ghawat grows paddy on his 3 acre farm. Extended monsoon rains have damaged his standing paddy crop, causing a nearly 25% drop in productivity compared with the 20 quintals he grew in 2016. He says he will sell the produce at a government-appointed procurement centre.

“Money will be transferred to my bank account if I sell rice at the government-operated procurement centre. But this would happen even before notebandi. Now even traders have to deposit money directly into farmers’ accounts if they have purchased farm produce from them. That is not exactly a good thing for farmers because we need some ready cash for day-to-day expenses and agriculture inputs," Ghawat says.

One year after Modi’s demonetisation, the farm sector has somewhat recovered from the immediate impact it caused—a cash crunch for buyers of farm produce, disruption in movement and supply chain of commodities leading to a steep rise in the retail prices, and loss of cash wages for millions of farm labourers across the country. But farmers, activists, other farm sector stakeholders like functionaries of the regulated markets, and experts point out the long-term damage demonetisation has done to the farm sector.

“Demonetisation distorted an already skewed and fragile farm sector across India. It snuffed out cash from a market which is largely cash-driven and which operates mutually on cash flows. It caused an average 20-30% fall in the prices of most commodities, a fall from which no farm produce has yet recovered, and also impacted the consumer goods in rural and semi-rural markets because farmers are the largest component of buyers in these markets," said an agriculture sector expert in Maharashtra who runs a think-tank and who did not wish to be named.

In Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, and Telangana, states that are still recovering from the impact of drought, demonetisation contributed to a market-driven crisis by cutting down the margins that the farmers would have realized if cash was not scarce.

In Maharashtra and Madhya Pradesh, it added fuel to the demand for farm loan waivers which, as in Maharashtra where it has been conceded, puts additional long-term stress on the state finances and takes away capital from productive investment and allocates it to non-productive.

Protests in Maharashtra triggered a similar agitation in neighbouring Madhya Pradesh in June. In Mandsaur district, six protestors were killed in the police firing. In Maharashtra, the Bharatiya Janata Party (BJP)-led government blinked and announced a Rs34,022 crore farm loan waiver which is being implemented using online and biometric systems. Maharashtra followed another BJP-ruled state Uttar Pradesh, which had already announced a Rs36,000 crore loan waiver.

While the jury is still out on the costs and benefits of demonetisation, farm sector stakeholders see little for farmers to cheer about the disruptive decision. “Demonetisation was never an economic decision. It was a political decision which paid off for Modi in the Uttar Pradesh elections. In the short term after 8 November, it only compounded the systemic problems for farmers," says Vidarbha-based farmer and farm activist Vijay Jawandhia. It was in Uttar Pradesh that Modi, while campaigning for the BJP, promised a farm loan waiver, an announcement that predictably had repercussions in other BJP-ruled states.

Another Maharashtra-based sector expert and former member of the Commission for Agriculture Costs and Prices (CACP), who requested anonymity, says it is the trading lobby in the farm sector which made the most of demonetisation at the cost of the most vulnerable segment—the farmers themselves. “The commodity traders exploited demonetisation as an opportunity. Since they had cash in old or banned currency, they offered it to farmers who wanted to sell their produce to get some cash. The farmer, who sold his produce to the traders for prices much lower than the market, then stood in the queues to exchange this currency. This way, traders offloaded some of their black money. Traders exploited the cash crunch created by demonetisation to bring down the prices of farm produce to such distress levels that it created a market-driven agrarian crisis in a year of record high yields," the expert said.

He said demonetisation had created problems for the farmers on the input side by creating a cash crunch just ahead of the 2017 Rabi season, and the output side by allowing traders to dampen the prices, and also the farm labourers.

Despite fears that demonetisation will impact the Rabi crop, overall foodgrain production at 276 million tonnes broke all records in 2016-17. Together with a bumper harvest of horticulture crops like fruits and vegetables, India’s agriculture growth rate shot up to a high of 4.9% during the year, up from a measly 0.7% the year before. The record harvest, coupled with demonetisation pulled down crop prices, especially that of perishable crops and pulses.

A senior Maharashtra government official, who did not want to be named, admitted the “disruptive nature" of demonetisation on the farm sector but pointed out some benefits too. Traders registered across Agricultural Produce Market Committees (APMCs) in Maharashtra started making payments to farmers through real-time gross settlement and national electronic funds transfer systems, he noted. “This happened in other states as well after the initial disruption. This change not only reduced the role of middlemen and commission agents but also enabled state governments across India to digitally identify farmers," the official said.

Jaydatta Holkar, president of the Lasalgaon APMC in Maharashtra’s Nashik district, India’s largest regulated onion market, agreed with the observation but said the change was not necessarily good for farmers. “Earlier since the transactions were cash-based, both farmers and traders had enough cash and the cash flow kept the economy running. Traders would raise soft loans to pay off farmers and repay the loans when the commodities moved further in the wholesale and retail market. But the cash crunch disrupted this flow and led to drop in the prices. Another fallout of digital transfers of money is that the farmers who would come to the APMC market from smaller places would spend some of the cash they received in the local consumer market. For instance, the onion growers who sold their produce in Lasalgaon would spend some of that money in the local Lasalgaon market that same day. This is not possible with digital money and the consumer markets have suffered due to farmers’ withdrawal," Holkar said.

Sunil Golya, a farmer in Madhya Pradesh’s Harda district and founder member of Aam Kisan Union in Madhya Pradesh, said APMCs in Madhya Pradesh too had started making RTGS/NEFT payment to farmers. “But if this was such a good change, why is it that chief minister Shivraj Singh Chouhan recently announced that traders could pay up to Rs50,000 in cash to farmers for procurement and the balance through RTGS? This means the Madhya Pradesh government has in a way admitted that the cash crunch created by demonetisation was not beneficial to farmers," Golya said.

In addition to the other negative consequences like a fall in the procurement prices and cash crunch, demonetisation had also directly impacted the value of a big asset that the farmers held, Golya said. “Demonetisation has drastically reduced the price of agricultural land, an asset that the farmer banks on to leverage in times of crisis. In Harda district only, an acre of irrigated land was fetching around Rs12 lakh before demonetisation but the prices are down to Rs5.5-6 lakh since November 2016," he said.

With an average 20% fall in the remunerative prices and land prices getting halved, farmers in Madhya Pradesh, despite contributing to the state’s record high 20% agriculture growth, did not have surplus income and demonetisation was a factor in it, he added.

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