Demonetisation - A year later. The farm world still a land of cash

A year after demonetisation, the cash-intensive agriculture sector is yet to fully recover from the impact.

Cash continues to be the preferred instrument for rural and farm transactions, while alternatives such as cheques and bank transfers are seen making their presence felt in some quarters.

The cautious agri-trade is still seen struggling with inventory management, as the liquidity crunch that threw the supply chain in a disarray has forced many a trader to adopt a cautious stance amidst poor demand that has influenced the prices of various commodities. Hit by the note-ban, traders continue to buy on a “need-basis”, only to service their orders-on-hand.

“Unlike in the past, the trade is not keen on building inventory mainly because of the liquidity crunch and volatile price trends. The note-ban and GST rollout have affected the risk-taking ability of the traders,” says a trader at the Hubbali APMC (Agricultural Produce Market Committee). As a result, prices of many commodities continue to rule lower than last year’s levels, and also below the minimum support price (MSP) levels, despite the tight supplies (see table).

Though farmers have mostly overcome the hardships created by demonetisation, they are hoping for better prices. The average Indian farmer, who sells his produce in APMC mandis to the private trade, expects to realise his payments in cash, on the spot. The realised cash is used to make purchases before heading back home.

“I need cash to pay the workers on my farm and for buying inputs such as seeds, pesticides and fuel and for daily household purchases,” says Venkata Reddy, a farmer from Sankarapuram in Chittor district of Andhra Pradesh. Traders of inputs insist on cash payments.

Cash is still king in rural India because banking/ATM facilities are mostly lacking there, and encashing cheques is viewed as a complex and time-consuming process.

“Cheque will take at least a week to get cleared,” says Hirjibhai Bhingradia, a farmer from Malpara village in Gujarat’s Bhavnagar district. “A farmer doesn’t usually prefer to wait that long after selling his produce. Secondly, the digital mode adopted by the state agencies too take long to reflect in the accounts.

This keeps farmers wary of cash-less payments.” He points out that traders also misuse the farmer’s helplessness at the mandis, often trying to discount the produce and pay a lesser amount if he insists on cash.

“This has become a new normal. If we want to sell cotton for cash, the rate will be less by about ₹100 per 20 kg than what we would get if we accepted cheque,” said Bhingradia.

While banking infrastructure still remains weak, it appears that a large section of farmers/villagers are being brought under the ambit of the banking system through schemes such as the Jan Dhan Yojana. Farmers say the government should focus on setting up bank branches at villages farther away from large towns and cities.

In the aftermath of demonetisation, traders did attempt to pay farmers through cheques, but the efforts have seen moderate success. In some markets such as Lasalgaon or Kolar, traders have found reasonable success in making payments through cheques.

“Today, most of the transactions take place either through cash or cheque, of which the cash component is more,” said Narendra Bharad, an agriculture expert at Rajkot.

Jayadutt Holkar, Chairman, APMC Lasalgaon, said that post demonetisation almost all traders shifted to using cheques to pay farmers. About ₹15-20 crore in payments are made daily through cheques at Lasalgaon, the largest market for onions in the country, where about 1.5 lakh tonnes of bulbs are traded.

Similarly, at Kolar in Karnataka, the second largest market for tomatoes that are even supplied to distant locations such as Kolkata and Delhi, the majority of transactions happen through cheques, traders said.

“We take and make payments through cheques these days. Only if the farmer insists, payments up to ₹20,000 are made in cash,” a trader said.

The use of digital payments is still not very prevalent in the trading and farming community, as tech knowledge is scant, as is connectivity.

On the other hand, farmers selling their produce to the government procurement agencies, sugar mills, etc have been realising their payments through their bank accounts. The Centre needs to do more to create awareness about cash-less trade, which will bring in transparency and also accountability, a trader said.

(With inputs from Rutam Vora in Ahmedabad and Rahul Wadke in Mumbai)