Demonetisation and Farmers

What is demonetisation?

  • Demonetisation is a situation where the Central Bank of the country (Reserve Bank in India) withdraws the old currency notes of certain denomination as an official mode of payment. Notes of a particular denomination cease to be legal tender.
  • In other words, the notes lose their value as a currency
  • On November 8, 2016, Prime Minister Narendra Modi announced the biggest-ever demonetisation exercise in India.
  • Currency notes of Rs 500 and Rs 1,000 denomination were withdrawn from public use. It was said that these notes accounted for 86 per cent of the currency in circulation at that time.

Why did the government do it?

  • The demonetisation move was to tackle black money and corruption; to curb fake currency and terror funding; and to make India a cash-free economy.
  • Black money is the unaccountable income hoarded by people – that is, income for which they have not paid tax.

How demonetisation affected famers?

  • Cash-based economy: India’s 263 million farmers live mostly in the cash economy. The agrarian economy of India is primarily cash-based and village-based.
  • Sale decreased: Farmers are also suffered a cash-crunch due to demonetisation, as many have crops lying around, but with buyers whatsoever. Failure to get a  reasonable  price  on their produce,  pushed  many  farmers under massive debts, burdened by interests.
  • Digital illiteracy: Farmers tend to be unable to avail digital services as such they tend to be digitally illiterate.
  • Fruit and vegetable 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.
  • 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.
  • Timing of the demonetisation: Demonetisation came at a time when farmers were engaged in either selling their Kharif crops or sowing the Rabi crops. Both these operations needed huge amounts of cash, which demonetisation removed from the market.
  • Exploitation by local moneylenders: Furthermore, when banks failed to exchange the farmers’ old notes or give them loans, local moneylenders exploited the situation by charging inhumanly high-interest rates.

Note:

  • Even the National Seeds Corporation (NSC) failed to sell nearly 1.38 lakh quintals of wheat seeds because of the cash crunch.
  • The sale failed to pick up even after the government, subsequently, allowed the use of old currency notes of ₹500 and ₹1,000 for wheat seed sales.

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