Rural distress

To rural India, which is already reeling under multiple crises, demonetisation has come as yet another blow.

The main wholesale vegetable market at Jadcherla in Telangana wearing a deserted look at 9:30 a.m., peak business time, on November 15.

WHEN the Prime Minister made the decision to withdraw Rs.500 and Rs.1,000 notes, he did not quite factor in the impact it would have on agriculture. Despite the rhetoric the concept of digital wallets has not yet entered rural India unlike in much of the country’s urban areas, and much of rural and agricultural India was caught unawares by the decision. While the mainstream media documented the serpentine and unending queues in front of banks in the metros and smaller cities, similar images from the rural hinterland were missing. This was not because there was no crisis of a currency crunch there but because of the thin density of the banking network in rural India. If anything, the reduced footfall at vegetable markets in the metros and other cities was an indication of the crisis that had hit the perishable commodity sector.

Private consumption overall was expected to drop because of the cash crunch, which was interpreted by some quarters as short-term pain. But the crisis in the rural hinterland and the shape of things to come because of it remain understated. The effects of the currency crunch, coming as it did at the peak of the sowing season, are going to be long term. Producers of perishable items such as vegetables and fruits have already begun to feel the punch.

Despite a record harvest, farmers were not able to sell their produce; neither could they procure seeds and fertilizers for the rabi crop. All the four largest markets in the country run by Agricultural Produce Marketing Committees suffered major losses as traders were not able to sell the produce or pay farmers.

The volume of trading in Asia’s largest wholesale fruit and vegetable market, Delhi’s Azadpur Mandi, which has around 30,000 small traders apart from labourers engaged in loading, unloading and other activities, came down by 10 to 20 per cent. The low turnout of the public too at prominent vegetable markets was an indication of the exchange crunch. The only queues seen were at bank branches for the entire fortnight. The mandis were empty. The rural economy, comprising almost 65 per cent of India’s population, is a cash economy. Plastic money is an unheard of concept here. And with just 53 per cent of the people having bank accounts in the country, it was unrealistic in the least to assume that much of the rural income was lying in bank accounts. Vijoo Krishnan, joint secretary of the All India Kisan Sabha (AIKS), said that agriculture as the main source of livelihood had been disrupted by the decision, which choked the availability of cash for investment in agricultural operations and for household expenses. The AIKS, which was on an all-India campaign on farmers’ issues for one month, said that farmers were caught completely unawares by the decision. Activists were shocked to see the kind of large-scale suffering that farmers and agricultural labourers were going through.

Uncertain future

The worst hit is the area of perishable commodities like vegetables and fruits. “Farmers want to sell their produce, but traders are not willing to buy it citing lack of legal tender. The opening of Jan Dhan accounts has not made access to credit any easier as the majority of the transactions are still in cash. Institutional credit is not available to tenant farmers, agricultural labourers, poor peasants and the socially oppressed sections. They all rely on cash borrowings for their day-to-day requirements,” said Krishnan. He said he had seen long queues of mostly women outside the local branch of Andhra Bank in Nirmal district, carved out of erstwhile Adilabad, in Telangana. The women, he found, had been coming to the bank repeatedly to exchange the high-denomination notes they had received after the sale of paddy crop. This effectively debunked the notion that transactions in agricultural India were in the form of low-denomination notes as was being propounded by some economists who defended the government’s decision and discounted the discomfort in rural India.

While the landed people had something to fall back on, the situation was particularly pathetic for the landless and agricultural labourers. Inderjit Singh, vice president of the Haryana unit of the AIKS, said that wages under the Mahatma Gandhi National Rural Employment Guarantee Act were paid into bank accounts, but with the paucity of work under the scheme, the landless were suffering hugely. The rural poor were unable to buy even medicines and other essentials, not only food. In Haryana, too, agricultural activities came to a standstill because of the uncertainty over the availability of cash in exchangeable denominations. Migrant workers in several States were hit badly as they lacked local contacts and resources to see them through the currency crisis. In its overzealousness to convey a message that the government was serious about its drive against black money, the Reserve Bank of India (RBI) on November 14 sent a letter to cooperative banks to ensure strict compliance with the instructions regarding deposits and the exchange of bank notes. It had apparently come to the notice of the RBI that some cooperative banks were not complying with its directive. All district central cooperative banks were instructed not to participate in the exchanging of demonetised notes. They were not authorised to exchange Rs.500 and Rs.1,000 notes, said the RBI directive.

This one decision of cutting both the deposit and credit facilities not only affected the operations of district cooperative banks all over the country but had direct consequences for the account holders, mainly agriculturists. Kerala Chief Minister Pinarayi Vijayan, who could not get the Union Finance Minister to roll back this directive, went on a satyagraha in front of the RBI office in Thiruvananthapuram on November 18. Interestingly, the opposition United Democratic Front in the State extended support to the Chief Minister.

The RBI allowed those holding kisan credit cards to withdraw up to Rs.24,000 a week. But exchange and deposit of the old currency were not allowed. The government was yet to give a cogent explanation for this decision that affects the rural masses.

Bhartiya Kisan Union spokesperson Dharmendra Kumar said the government would learn its lessons in the elections. Women who had saved money to meet exigencies as well as for small family rituals and ceremonies were forced to part with their savings apart from being labelled as “black money” holders, he said. The rural rich, he said, did not get affected anyway.

The money that people kept for emergency purposes became useless, and people find it hard to meet wedding and health care expenses. “What can the farmer do? This is the peak sowing season in Madhya Pradesh, the Bundelhand [region], western Uttar Pradesh and Maharashtra. Either he has to stand in a queue or take out a protest. He cannot do both. The banks will ultimately take people’s deposits and give loans to other people, which will then be declared as non-performing assets only to be written off,” he observed, referring to the controversy on NPAs being written off. The government clearly had little idea of the kind of crisis that was going to emerge in the coming months.

At several places, Dharmendra Kumar said, farmers were bartering their produce in the absence of money. “Can the farmer afford the luxury of standing in a line during the sowing season? The government did not apply its mind before taking such a big decision,” he said. And not all villages have banks or ATMs; few farmers have debit cards. Dharmendra Kumar said that there was only one bank for every four villages.

A manager speaks up

A letter sent by the general manager of the Bhiwani Central Cooperative Bank to the Chief General Manager, Department of Currency Management in the RBI, responding to the November 14 missive directing cooperative banks to ensure “no exchange facility of bank notes (Rs.500 and Rs.1,000)” indicated how out of sync with reality the government was. His letter pointed out how badly the decision had hit both farmers and the credibility of the banking system.

The letter, dated November 15, a copy of which is with Frontline , pointed to the difficulties agriculturists were facing. It pointed out that while exchange was not allowed, there was an embargo on deposits as well. The Bhiwani bank manager wrote that it was “discriminatory” not to allow cooperative banks to accept old currency notes from its customers and that because of this decision, the banking system would crash as they would be unable “to accept the deposits of our valued customers who have reposed their faith, confidence and trust in our cooperative banks for the last hundred years. The depositors in our bank are pressing very hard to accept the deposits as they do not have any savings bank account in other commercial or private banks.”

He wrote that the “loanee farmers of our bank, who are about 2.54 lakhs are facing great difficulties as they are unable to get fertilizer and seed in exchange of Rs.500 and Rs.1,000 old currency notes”. The manager pointed out that the bank had three lakh customers and that its situation was rather solvent but suggested that if it was not allowed to accept deposits, it might lose credibility.

Unable to pay back crop loans Another result of the demonetisation and the subsequent RBI directive to cooperative banks has been that farmers are unable to pay back their crop loans. The money that they received after the sale of the kharif crop would normally have been utilised for paying off their crop loans. “The irony is that the peasantry wants to repay their loans but cannot do so,” said Inderjit Singh. The repayment of other debts had also become difficult and challenging with every passing day, with the interest on the loans and penalties for not paying by due date accumulating.

Moreover, banks were not the only place from where farmers took loans. Moneylenders too had to be paid back. Farmers said not only were they unable to clear their old crop loans with the old currency, but they were unable to take fresh credit to purchase inputs and other requisites for the sowing season. With much of the rural banking transactions taking place through cooperative banks, the government’s discriminatory decision has the potential to force farmers to take loans from moneylenders at usurious rates.

In the uniquely symbiotic relationship of a rural economy, the farmer and the trader depend on each other. The latter is a supplier of seeds and fertilizers and often would give out raw material on credit. But the lack of availability of acceptable currency has affected the traditional ties the two have enjoyed. Similarly affected is the routine sale and purchase of cattle in States where pastoral activities and dairy farming are combined with agricultural work.

The coming months will reveal the full impact on the rural economy and the country’s economy as a whole. The aftershocks will continue until the rabi harvest, which many people are not optimistic about now. To the farmer already reeling under the weight of multiple crises, demonetisation has come as yet another blow.