By Dr Anushka Kulkarni
Dr Kulkarni is a media academician and researcher at Amity School of Communication, Amity University, Mumbai.
It has been a year since demonetisation, and the story in rural Maharashtra continues to remain the same. Hundreds of farmers gathered at Azad Maidan to observe 8 November 2017 as ‘death anniversary’ in protest of the note ban decision taken by the government a year ago. Though the rains and the crops were considerably good this year, the farmers are still in distress as most of them had to sell their produce even below the Minimum Support Price (MSP). This has affected the rural economy. The major source of income for rural India is agriculture. When this major source is affected and there is a fall in demand, the other non-farm activities are also affected, which leads to changes in the economy.
Decline in prices and sales
The immediate effect of demonetisation was a cash crunch which led to piling up of produce like vegetables and fruits in the wholesale markets. This caused a fall in the Wholesale Price Index (WPI). On products like soybeans where the MSP was fixed at ₹3,000 per quintal, the farmers got just ₹2,500. Only crops like wheat and paddy, whose MSP is dependent on the procurement process done by government agencies, could be sold as per the MSP.
The cost of tomatoes was reduced by 35 percent and that of potatoes by 45 percent. The effect was that the farmers, mainly the ones who produced perishable items like fruits and vegetables, had to sell their crops at lower prices or had to destroy their crops as the production cost was much higher than what they received.
A research conducted by the Indira Gandhi Institute of Development Research mentioned that the there was a decline in the sales of rice by 61 percent in various markets. There was a loss of 15-30 percent on the market produce.
Impact on loan schemes
Along with the reduction in the cost of the commodities, demonetisation had an impact on the loan schemes offered by various banks. The farmers, thus, had to turn to private money lenders who charged higher rates of interests. Many of them had no cash to purchase even seeds and fertilisers. The irony of the situation is that about nine months before the note-ban, Reserve Bank of India (RBI) governor Raghuram Rajan had clearly stated that after a move like note-ban, the rich would invest their money and the motive of eliminating black money from the economy would not be fulfilled.
There are a few positives though. The rural people now know more about cashless transactions. Most of the major payments made by traders are done through Real Time Gross Settlement (RTGS) directly into the farmers’ accounts. However, this has also failed to improve the situation of the farmers. Many places in the rural areas still do not have proper banking systems and an internet connection. A 2016 Consumer Economy Survey mentioned that only three percent of the households in the underdeveloped rural areas have access to internet facility. Note-ban, GST and reduced prices—all have affected the economy of rural India. Farmers do not have enough money to purchase seeds, fertilisers or even equipment and machinery. Apart from this, the farm workers also faced hindrance in getting their wages due to a cash crunch. The rural job schemes are thus affected.
There was a prediction by Robert Lucas on demonetisation policy where he mentioned that it has a negative impact on income and employment. This leads to a decline in the economic activity. His prediction proved true for Indian rural economy. Implementing Swaminathan Committee recommendations and improving the agriculture base, introducing schemes for the welfare of farmers, fixing MSP at 50 percent more than the weighted average cost of production could be the means to improve the state of the rural economy.