Cashless transactions: How will it affect the farmers

Discontinuing the Rs 500 and 1000 denomination notes is not going put any financial pressure on the farmers and people living in rural areas despite the major transactions happen in the mode of cash there. Eventually, the step will take them into the banking system.

In order to put a check on the fake currencies, corruption and black money, Prime Minister Narendra Modi, yesterday announced to withdrawal of circulating higher denomination currency notes – Rs 500 and 1000 – from the midnight of November 8 and 9.

After the move, small farmers will have to deposit their cash into the bank accounts. However, in the lack of banking services in rural India, it will be painful for them. Today, 47 per cent population in India is yet to get access to the banking services. The situation was more miserable before implementation of Jan Dhan Yojana with 35 percent penetration of banking services in the country.

Hence, the rural people along with farmers will have to open bank accounts in the nearby branches. It will take time. As an alternate, the non-banked population can deposit their cash in the accounts of any relative with filing a declaration. Though the money will be deposited in the relative’s account, but on the name of the cash holder.

“If he is an honest fellow and doesn’t have a bank account, then he has to file a declaration and can deposit the cash in some relative’s account. Though the amount will be deposited in the relative’s account but on the name of that fellow,” the Prime Minister said while the announcement.

The big farmers who have unaccounted cash as well as the commodity traders, aartiyas and commission agents in the mandis who deal in cash will necessarily feel the pain.

“The income of commission agents comprises both farm and non-farm. The move will lead to show separate declarations to the banks while depositing the cash. In agricultural income whether the amount is Rs five lakh or Rs one crore, they will not have any problem as agricultural income is exempted from income tax. However, they may face problem during declaring non farm incomes,” Prof CK Sabharwal, Managing Director, Crop Health Products said to R&M.

Commission agents have huge cash transactions and earn interests on lending. They deal in real estate, rent machinery, have petroleum pumps among various other activities. It would be challenging for them to distinguish agricultural and non-agricultural income.

“The Government must have prepared something so that the move will not affect small income groups in the villages. The non cash transactions will take the cash in the system and will be good for the overall economy,” he added.

The per week cash withdrawal limit of Rs 20,000 will not allow agricultural commodity traders to make payments to farmers in the mode of cash. Thus, they will have to take the route of cashless transactions such as cheques, NEFT or RTGS. To begin the process, the farmers will have to join the banking network.

The local governance bodies such as panchayats and self-help-groups need to be sensitized by the Department of Agriculture and district administration to help the farmers.

The real target of the move is real estate, jewellery shops, liquor, metal and big traders. The industry and hawala transactions will also come under the net of Income Tax department. As a result, the big money would come into the light.

For short-term, the traders will face problem, but in the long run, they will come into the system by making transactions through banks. It will gradually increase the financial market.

Despite the good network of banking services in the urban areas, according a study, people prefer to make only 5 per cent transactions through cheques, NEFT, IMPS, debit and credit cards. Even in the urban centres, e-commerce sites give the cash-on-delivery (COD) option to expand their consumer base. Though the trend of preferring COD by consumers is declining, it still stands at 60 per cent of all transactions. However, in rural India, the cash transactions is higher than the cities.

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