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BW Businessworld

Where Small Change Counts!

How did the Indian farmer cope with the cash crunch that followed demonetisation? BW Businessworld investigates

Photo Credit : Shutterstock


We never had much to hide, so what could we have to lose?” asks Rahul Singh, as the sun blazes   down on his farm near Varanasi. “Whatever seven or eight thousand rupees I had kept as cash for emergency and of course, fertilisers, took weeks to exchange,” says the farmer at Prime Minister Narendra Modi’s constituency, as he looks back on the days that followed the demonetisation of two currency notes in 2016.

Singh is among the droves of farmers who blame the demonetisation exercise for the late sowing of the Rabi crop. A study published in the Indian Journal of Economics & Research says that 65 per cent of the respondents to its sample survey had blamed demonetisation for the delay in sowing the Rabi crop. More than half this number — 54 per cent to be precise — were small farmers. Large farmers made up only eight per cent of those who claim to have been stung by demonetisation and the cash crunch that came in its wake.

Agriculture ministry statistics vindicate the wails from the farmlands and show a marginal decline in Rabi sowing by 0.68 per cent in November 2016 over November 2015. Sowing slowed down further in December 2016, when planting of the Rabi crop was 7.85 per cent lower than in December 2015. Seed sales were lower too, but that was probably because Rabi crops are self-pollinated, so farmers do not need to buy fresh seeds every year. Usually 88 per cent of Rabi crop sowing is complete by end December, but in December 2016, 91 per cent of the Rabi crop area had been covered. 

None of the farmers surveyed for the study had used cheques or any digital payment gateway for procuring agricultural inputs. According to the Fertilizer Monitoring System (FMS) within the Union Ministry of Chemicals, Petrochemicals and Fertilizers, fertiliser sales were 7.47 per cent lower than in the corresponding period of 2014-15 and seven per cent lower than in 2015-16. The lower fertiliser sales, though, may have been a fallout of the Neem coating of urea mandated to prevent its misuse in the paint industry.

Farmers dealt with the cash crunch that came in the wake of demonetisation by dipping into seeds they had prepared on their own and dipping into accumulated stocks of fertilisers. Some borrowed from fellow farmers and many bought agricultural inputs on credit from private traders and cooperatives. Ironically, the late sowing did not show in the bumper harvest that came in spring, when crashing prices of farm produce made farmers panic and protest.

Even so, it would be a travesty to not acknowledge the fact that farmers and especially small farmers, were hit by demonetisation. Rajnikant Shroff, Chairman of United Phosphorus, pointed out that any new measure met with resistance. “I stand by the decision of the government,” he told BW Businessworld, “and the benefits to farmers are now visible.”

Shyam Ashtekar, a member of the Shetkari Sangathana (Joshi) says, “People often blame demonetisation and Narendra Modi for everything, even though the problem of farmers is deep rooted in the system. It starts with numerous policy loopholes and a quick solution is difficult rather than a quick relief.”
Ashok Dalwai, CEO of the National Rainfed Area Authority and the architect of the Union government’s vision document for doubling farmers’ incomes says, “The government has pumped around Rs10 lakh crore into the system for farmers, in terms of insurance for crops and credits, apart from the direct benefit transfer which is transparent enough and involves no intervention of external bodies.”

The Indian Journal of Economics & Research study was based on data coalesced from responses from large, middle-level and small farmers and wholesale and retail traders from the fruits, vegetables and grain markets. Data was also collected from consumers of four different income classes. The findings of the study are categorised into three groups, impact on activities of farmers, impact on the activities of traders and impact on consumers.

The impact on traders in agricultural products was based on a sample survey of 40 traders at the Azadpur Mandi in Delhi, considered to have been a wholesale market worst impacted by the dark side of demonetisation. It found the trading activity of 70 per cent of the wholesalers in the sample survey to have been impacted by the cash crunch. All, or 100 per cent of the retailers in the survey were completely stymied by the currency shortage that followed the demonetisation exercise.

Most hit by demonetisation were traders of perishables like fruits and vegetables. Grain traders were comparatively less impacted by the measure. The findings corroborate a report on the plight of vegetable vendors in the wake of demonetisation titled ‘Distressed And in Despair’ in the November 28 issue of BW Businessworld.  Consumers, the study found, and especially urban consumers, were the least impacted by demonetisation.

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