Reports of stress in agriculture have begun to appear because of demonetization. Cash is the primary mode of transaction in agriculture sector which contributes 15% to India’s total output. Formal financing in many parts, especially Punjab, Uttar Pradesh, Odisha, Maharashtra, Gujarat and Kerala is significantly from cooperative banks, which are barred from exchange-deposit of demonetized currency. Notably, this is a time of kharif harvest and start of rabi sowing, partly explaining why this period is dubbed the ‘busy season’ from a standpoint of credit demand, the other being bunching of festivals and weddings. Agriculture is impacted through the input-output channels as well as price and output feedback effects. Sale, transport, marketing and distribution of ready produce to wholesale centres or mandis, is dominantly cash-dependent. Disruptions, breaks in the supply chains feedback to farmers as sales fall, increased wastage of perishables, lower revenues that show up as trade dues instead of cash in hand and when credited into bank accounts with limited access affect the sector. Currently, many of these networks are operating sub-optimally or altogether at a standstill, depending upon location, market links and other item-specific factors. The input side is equally affected as many payments/purchases, such as seeds, fertilizers, implements and tools, are outright in cash. Borrowing-financing operations of larger farmers and organized producers are also cut off or severely clipped. The impact is visible in different sub-segments. Winter crops such as wheat, mustard, chickpeas are due for sowing in a fortnight. Wheat prices were already up due to low stocks and anticipated shortfall in 2015-16 output and have firmed up further as demonetization fallout pushes traders to build more inventories. Production in 2016-17 could drop if sowed acreage (rabi) reduces for want of enough seeds on time to exploit the adequate soil moisture. Yields could fall from late sowing and subsequent exposure to rough spring weather, the lack of sufficient or timely application of fertilizers, pesticides, etc. Farm labour, vital for this period, is reported to be unpaid as farmers have no cash. Many of them are reported to be returning from some northern parts to homes in UP and Bihar. Labour shortages and wage-spikes may follow with a lag. Plantation crops such as rubber, tea, jute, cardamom are seeing no wages paid to workers. Small-medium tea growers have few buyers now (a third of the tea was unsold in recent auction in the south). Raw jute trade is halted as paucity of funds affects procurement-delivery by traders. Projections of scarcity have appeared with appeals for official procurement support. Cotton is witnessing havoc: daily arrivals have plunged to 30,000-40,000 bales against the usual 1.5-2 lakh bales at this time (harvest) as per reports and prices have soared 9% in a week, pushing up global prices in turn. Vegetables and fruits that along with crops added 61% of agriculture’s gross value added in 2015-16, depends critically upon a cash-strapped transport sector for daily supply network. Sales have dropped sharply (25-50%) across markets with occurrences of dumping. At present, demand is repressed for want of currency, so prices are subdued, but eventually, supply shortages could cause prices to rise. 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.A market-driven, intense farming practice is must for bringing about positive change on ground. India’s agricultural sector provides more jobs and sustainable incomes than all other sectors put together. Despite high-population density, per capita arable land availability in India is among the best in the world; it the only country in the world capable of growing almost any grain, fruit or vegetable in abundance. Unknown to many, India’s agricultural products fetches higher earnings than trade in services or manufacturing. 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. Farming communities across India have been very supportive to the cause. Despite inconveniences, farmers are willing to play their part for country’s development. An essential ingredient for the success of demonetization is internet penetration in rural India. Mobile wallets can play a cardinal role in dealing with cash crunch. They can be helpful in reimbursing labourers and providing farm implement rentals. Yet mobile wallets, net-banking are to a large extent dependent on internet connectivity; despite wide mobile coverage, internet connectivity and its stability remain dicey in rural areas.
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.
Demonetization will empower India’s farming communities and bring them at par with city dwellers. Access to institutional credit has the potential to change the very nature of Indian agriculture, post successful implementation of demonetization. The advent of GST regime and access to better credit can revitalize agro-processing in an unprecedented way.
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.

The government and industry must come together to help farmers and make this initiative a thumping success for the farm sector.