The Indian farmers are paying the biggest cost of demonetisation. It left them with no money at a time when they needed it for their Rabi crops. The country had already seen two consecutive droughts in 2014 and 2015. A silver lining came in the form of good monsoon in 2016 which instilled a positive sentiment among the farmers and they were expecting a good harvest. However, the November 8, 2016 demonetisation move hit their projections. Fear looms large now among farmers. Farmers,in some regions of the country, are now fearing of crop loss in the third consecutive year.
Biting the dust
Sopan Kanchan, a farmer from Maharashtra who is also the founder of agri company Mahagrapes, said, “Demonetisation has left farming community in rural areas with empty hands. Due to poor monsoon in 2014 and 2015, some regions of the country faced famine like situation. Fortunately, monsoon in 2016 was normal which boosted the farmers’ sentiments. They, in the Solapur region of Maharashtra, sown Arhar pulses (lentils), were hoping a good harvest. But unfortunately, when they needed money for buying pesticides and fertilisers, they did not have money. It led to the huge crop loss to the thousands of farmers in third year in a row. They bore the maximum brunt of demonetisation.”
He was speaking on the occasion of a Roundtable on ‘Impact of Demonetization, Digital economy and GST on Rural Business’ at New Delhi, organised by MART, a marketing management and consulting firm.
They largely have accounts in rural cooperative banks which had no money in the earlier phase. Farmers are not even getting Re 1 per kg of their tomato which is a high value crop. The rates of peas are down by 75 percent in the mandis. How would the farmer survive? As they don’t have money, they are not able to make further investments thus polyhouses in the region is going empty this season, Kanchan added.
Demonetisation may or may not have adverse effect on economy in the long run, but as an immediate effect, it shattered the farmers’ expectations. Further it has gone wrong with their social lives too, marriages have broken or delayed due to lack of cash and even patients could not visit the doctors, the Solapur farmer said.
According to a survey, conducted by PHD Chamber of Commerce and Industry during the month of December 2016, 92 percent respondents said that the major impact of currency crunch is seen on daily needs of the people such as purchase of eatables, dairy products and other necessities. Nearly 60 percent respondents are facing high level of difficulty in fulfilling their day to day activities. Further, 89 percent respondents reported unavailability of cash at banks and ATMs as a major hurdle in withdrawing cash.
“The 93 percent of employment in rural areas is coming from informal sectors which transact only in cash. There are over 200,000 ATMs in India in which only 20,000 are located in rural areas. As per a latest study, out of that 10,000 are not-working. Either, they don’t have money or yet to be calibrated. Only 10 percent ATMs in India are catering to the 70 percent of rural populace,” said
Pradeep Kashyap, CEO, MART.
“On an average, there is only one ATM per 30 villages and one bank branch per 10 villages. Moreover, in rural India, not even 1 percent of retail outlet have Point of Sale (PoS) terminals. The internet connectivity is still not satisfactory in the villages which is a big challenge to push digital transactions,” Kashyap added.
Pronab Sen, former Chief Statistician and Advisor, Planning Commission, said, “If it would have been gradually progressed then things wouldn’t have been as disruptive as now. Due to poor supply of cash, people are spending on essentials only. The atmosphere of uncertainty has forced people to hold cash for emergencies by curtailing their requirements.”
Cash driven segments such as fruits and vegetables market, horticulture, floriculture, agricultural and food processing, construction activities, among others have been impacted badly.
The disruption in cash supply can impact the GDP growth by 1 – 3.5 percent. When 86 percent cash is out of economy in one shot, the it depends on how cash is being supplied. If cash supply gets resumed in three months, it would cost 1 percent to the GDP. Whereas, if it takes nine months, the impact could be 3.5 percent, Sen added.
However, with all commotion, there is a different view in the corridors of power and policy making, explaining the reason and long-lasting impact of demonetisation, Jagdish Shettigar, former BJP spokesperson said that the government was certainly aware about the immediate impact of demonetisation yet they designed it to achieve the long-lasting impact that would result in the country’s development.
“There is certainly fall in the consumption in December, especially in the durables, FMCG sales fell by 22 percent. It is certainly going to effect the growth rate. But in the long run, there will be fall in the interest rate by 1 percent and this might lead to the growth of the economy,” emphasised Shettigar.
“There is not much difference between the rural and urban sectors’ impact and suffering due to demonetisation. There will be change in the banking culture and credit policy. It will certainly contribute to the growth of economy”, the former BJP spokesperson added.
While affecting the farmers, the withdrawal of Reserve Bank of India’s “promise to pay the bearer” from 86 percent bank notes, has also affected the agribusiness companies who directly deal with the farming community by providing solutions. Ayurvet which provides herbal solutions for cattle health and nutrition, deals with the farmers. They had to sweat out to sell the veterinary products to the farmers. Providing and selling products on credit was the only solution.
Anup Kalra, the company’s Executive Director, said, “Farmers save money in cash for their needs. Now, they have suffered the most and are surviving on credit. We deal with them, they are asking, do we have black money? If not, then why are we facing unwarranted problems? The Government must be aware that who hold black money. But the question remains, who will bell the cat?”
“The decision has disruptively effected the lives of farmers. They don’t have money to buy inputs. If anyone asks their views on demonetisation, they still support the move as they fear if they would speak against, they would be labelled as anti-national,” he added.
When one avenue gets closed, the others get opened. The disruption in the cash supply has opened the opportunities for digital economy. People, not voluntarily, but forcefully bound to adopt the digital payment solutions despite multiplicity of problems.
Highlighting the opportunities on digital transactions in the wake of disruptions in cash supply, Manish Khera, Ex-MD & CEO- Airtel Money & Founder – FINO, the largest business correspondent network in India, said, “A large number of people have enrolled in the banking system. On the other hand, mobile has become a key medium in the payment system. Earlier it was for the convenience and now people are forced to use it. In the long run, every system is going to get digitised, therefore it is essential to start accepting the idea.”
In today’s world, digitisation is expensive and cash transactions cost consumers zero. Everyone wants to get 100 percent return of their money. We have to solve the issue of service charge, levied during digital payments, to make digitisation less expensive. Khera added.
It would be too early to asses the exact impact of demonetisation on the Indian economy, but the disruption in cash supply has hit hard the sentiments of the farming community in cash centric rural India. To move forward, with digital economy and inclusive economic development, the financial inclusion is the best way out. Financial inclusion can only come by strengthening the banking network in the villages. There is a need of setting up of booths outside banks in rural areas for spreading digital literacy for making an alternative of cash crunch.