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Demonetisation impact on agriculture sector

Monday, December 12, 2016
By Dinesh Shahra

MD, Ruchi Soya Industries

As cash is the primary mode of transaction in agriculture sector, demonetisation is bound to cause temporary stress in the system. But as they say “No pain, no gain”, for I believe this historic move has the potential of bringing about transformational changes in the sector like better access to credit for farmers, elimination of the middlemen, direct transfer of subsidies to farmers and ultimately linking the Indian famer to the global agricultural market.

However, in the short term, the sector has to brave several storms before it realises the true fruits of demonetization. In the transitional phase, farm produces with limited shelf-life like fruits and vegetables, which significantly contribute to overall farm output, will be hit due to cash crunch. Similarly, payment of wages to farm labours and rentals for farm implements will too become difficult considering the limited access of service providers to the banking system. The steep decline in transactions at various states APMC’s (up to 70% as per reports) in the aftermath of the decision is a testimony to this fact.

But despite these initial hiccups, demonetization can potentially address the perennial problem of credit in farm sector. With banking system glowing with liquidity, there can be increase in investments in farm sector, which is the only way to get out of the vicious circle of subsistence farming. Despite being declared as a ‘priority sector’ credit availability to typical farmers for investment in their own lands are far from adequate. This has forced farmers to rely on non-institutional credit, which further aggravates the problem.

With proactive support, India can further enhance its farm exports and contribute to its prosperity. Development of agriculture will also address other glaring social problems like town planning, migration and access to basic health care and nutrition. Better access to credit for farmers will help them gain sustainable incomes and invest in their assets for better returns.

Seeds, fertiliser and labour are the largest contributor to farmer's expense in the sowing season. Direct subsidy transfer for farmers for fertiliser purchase will be very beneficial in the current scenario. Banking provisions like over-drafting, disbursement of working capital/micro credit are the need of the hour.

The biggest challenge of this entire exercise lies in reaching out to marginalised farmers with negligible/nil landholding and to those outside the banking and social security net. Decline in arrivals at Mandis signals temporary distress in small farmers. From hiring trolleys, to unloading of crops, scarcity of cash has emerged as bottleneck in this sowing season. Our company is already taking steps to reach out to such marginalized farmers and address their problems. Government and Industry must come together to help farmers and make this initiative a thumping success for the farm sector.

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