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Farmers at the mercy of moneylenders due to demonetization

Demonetization, Farmers, DemonetisationThe cash crunch caused by demonetisation affected farmers badly who are not acquainted with cashless transactions. Prices in consumer markets (Delhi and Mumbai) are higher, but in villages there were no buyers for farmers harvested crop. Inventories of commodities are piling up at farmers’ fields due to lack of buyers in village markets to transport and sell them in urban market. For example, Apple prices in Delhi is hovering around Rs.80 per kg, which is about 25% higher than the same period last year.  At the same time, traders are buying from farmers in Himachal Pradesh at 20-25% discount to normal price and paying in cheques which can be realized only after 15 to 20 days. However, farmers have to pay in cash to their input dealers and labourers. Similar is the situation for other crops like Onion, Potato and Chana.

Fruits and vegetables farmers affected hard

Fruit and vegetable farmers were badly hit. They need cash on daily basis to purchase inputs like pesticides, fertilizers and hired labour for harvest and also to transport and sell at urban centres. Lack of cash with farmers leading to less-than optimal use of inputs resulted in lower yields, reduced sales, higher wastage and lower price realization. There is a standstill and breakdown of most of the sales. Arrivals reduced by 25 to 50%, but it has not resulted in increase in farm-gate prices due to lack of buyers. Most of the produce is not reaching consumers. Cotton farmers are in chaos: daily arrivals have reduced to about 35,000 bales as against the usual 1.5-2 lakh bales at this time (harvest) as per reports and prices have soared 10% in terminal markets after demonetization, ironically without benefiting farmers.

Although Rabi area increased yields may decrease

On 2nd December, Ministry of Agriculture released data showing that there is not much decrease in acreage of rabi season crops compared to the same period last year inspite of demonetisation due to good moisture in the soil and higher market prices. However, farmers were unable to purchase inputs like certified HYV seeds from market. They were using old seeds from the last year harvest and not purchasing quality seeds from market. This will adversely affect crop yields despite good monsoon this year.  Off late, government allowed purchase of seeds from government seed agencies by old Rs.500 notes, its effect is minimal, as already sowing is completed in many places and also very few farmers purchase from government agencies.

Less Bank Credit to farmers

A significant portion of the farmers depend on bank credit for their cash needs. However, banks only grant new loans, if farmer repay their existing ones. Because of lack of cash, many farmers are unable to repay existing loans, hence, they were unable to avail the agri-credit required for sowing of rabi crop and deprived of the interest waiver scheme without their fault. Farmers are unable to withdraw the required cash from their accounts, not to talk about getting crop loans. Of the targeted Rs 18,000 crore crop loan for Rabi, banks have disbursed over Rs 1,500 crore in October. No significant amount was released as crop loans after November 8, when Rs 500 and Rs 1,000 notes became obsolete.

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Lack of PAN card

Only 20% of the population had PAN cards, which is necessary for bank transactions above Rs.50,000. The penetration of PAN cards in rural India is much lower than this, hence all the transactions above Rs.50,000 were badly affected as farmers are unable to transact through cash, which they used to do earlier for example in purchase of a power-tiller or to rig the bore well.

Lack of Banks and ATMs in APMC markets

Most of the APMC markets (more than 50%) in the rural areas don’t have banks and also ATMs. Even though, some markets had ATMs, they are not working, if they are working cash was unavailable. Non-accessibility to ATMs was serious problem faced by farmers for their daily transactions. Sometimes they have to go about 20 km to find out an ATM and return empty handed as most of the times they don’t have cash. Farmers were ultimately depending on illegal money lenders and black marketers to cater to their transaction needs.

Undue advantage taken by middlemen

In the scenario of lack of cash, most of the transaction going on credit basis. The input dealers (seed, fertilizer and pesticide dealers) are increasing prices by 20-30% of the normal price as the transactions are on credit basis. In product market also big traders and commission agents are offering credit to farmers at much higher interest (reaching 36% for just a month) than in normal conditions.

General decline in inflation

However, one good thing is that, inflation is expected to come down. Consumer spending makes up to 55 per cent of India’s economy and most people buy and get paid in cash. The removal of 86 per cent of the currency in circulation has left consumers with a few currencies to buy commodities. Inflation has eased to 3.90 per cent in November from a year earlier, according to the median consensus from the Reuters poll of over 20 economists.

Promoting cashless transaction at APMCs and input dealers

There was a special drive through campaigns/awareness programmes to promote cash less transactions in 186 Agricultural Produce Marketing Committees (APMC) markets. It may help in cash less transaction through cheques, NEFT, RTGS and demand drafts and use of paytm. Steps needs to be taken to encourage input dealers especially fertilizer, pesticide and seed agencies to accept cheques from the farmers. However, it helps only large and educated farmers who cultivated cash crops like cotton and traders who knows nitty gritty of the cash less transactions. But most of the small farmers are excluded from such transactions, hence excluded from the regulated market system.

Hence, there is an urgent need to pump in cash of Rs. 100 and Rs.500 denomination to rural areas to lubricate rural markets, so that farmers will have sufficient cash in hand for their agricultural operations.  The new 2000 notes are not useful to most of the farmers as their daily transactions may not reach beyond 400-500 rupees.

A Amarender Reddy
(The author is the Director of (Monitoring and Evaluation), National Institute of Agricultural Extension Management, Ministry of Agriculture and Farmers Welfare, Hyderabad. He can be contacted at )

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