Demonetisation creates a cash shortage, consumers are buying smaller quantities of fresh produce, which means permanent loss of demand; not deferred purchase.
Western U.P. farmers will perhaps not have time to celebrate their ‘messiah’ Chaudhary Charan Singh’s birthday today. Not only do farmers in northern India continue to be rattled by natural calamities but also by disastrous government policies. The latest instance is the Narendra Modi government’s demonetisation move.
Modi had promised long-term gains and pleaded with the people to bear the short-term pains. Farmers readily supported the initiative though as his self-imposed 50-day deadline nears, farmers’ pain is expected to last far beyond the stipulated time. Neither the government’s propaganda department nor the BJP on social media have been able to list the promised long-term benefits. Confused and left high and dry, farmers’ support for demonetisation is waning and waning fast.
The solemn promise printed on Indian currency notes – “I promise to pay the bearer the sum of X rupees’”– was broken when, following a government notification, around 120 million customers of all the 33 state co-operative banks (SCB) and 367 district co-operative banks (DCB) duly licensed under the Banking Regulation Act of the RBI, were barred from depositing old bills in their own accounts or even exchanging petty cash.
Similarly governed urban co-operative banks continue to function as normal banks when the scandalous Axis Bank (a private bank in which the government holds maximum shares) goes unscathed, accepting deposits and conniving with black money hoarders, to the detriment of the PM’s reputation. About 260 commercial banks, all SCBs and most DCBs on the core banking solution (CBS) platform even issue RuPay debit cards. However, in their previous stints, both Modi (as Gujarat CM) and Economic Affairs Secretary, Shaktikanta Das (as secretary in Tamil Nadu) have closely seen the working of co-operative banks and have genuine concerns for bank management.
Situation in Punjab
Personally experience helps one to validate the apprehension among the vast multitude of farmers in Punjab. Most banks in Punjab and elsewhere are controlled by politicians and run like personal fiefdoms with state government patronage. Lack of supervision and governance by Nabard and the politically-controlled registrar of co-operative societies have created this crisis. Between seeking to end the black economy and crooked co-operative bank managements, farmers are being milled like wheat flour.
Most small and marginal farmers take loans from co-operative banks. About 50 million farmers, who have fulfilled KYC norms and received loans using Kisan Credit Cards, cannot even make repayments and continue to be charged interest. Farmers usually repay loans after every harvest. Now, unable to repay loans in time, farmers will not be eligible to claim four per cent interest subvention either. New loans are only given on repayment of old loans and the rabi season loan off-take is also impacted.
Dismiss Co-operative Bank Managements
Politically-controlled co-operative bank managements must be dismissed for they are not representative of the interests of primary agriculture credit societies and farmers. If the managements had even the slightest shame they would have resigned. New currency notes being made available to various bank branches are not being equitably distributed but being garnered by bank managements by using the names and accounts of unaware customers.
At the all-India level, the co-operative banks’ net outstanding crop loans stand at nearly ₹200,000 crore. One option would have been to allow the DCBs to accept repayment of the crop loans in the old currency. Banks could later, at their discretion, re-issue loans. Farmer loan NPAs with commercial banks have come down substantially as will be borne out when data is available. Meanwhile, co-operatives saddled with only defaulting customers are heading for failure. Another option would have been to let co-operative banks with CBS connectivity to work as other banks but it is too late to do this now.
Banks’ Refusal Unjustified
Farmers were given loans by RBI-licenced banks. Now, after the harvest, when farmers want to return the loans, banks are refusing to accept cash deposits. On Kisan Diwas, it is only logical that farmers refuse to repay the loans. The legal and supervisory issues left untouched during the UPA’s tenure now plague co-operative banks. Today, lawyers representing crooked co-operative banks managements have literally destroyed relief opportunities for farmers. Farmers will have to explore other legal options and are considering moving the Supreme Court after December 31. Alternatively, a face-saving solution for the government is to waive all farmer loans issued by co-operative banks.
Larger Crisis in the Offing
A larger crisis is brewing in the farming sector. Demonetisation has created a cash shortage. Therefore, consumers are buying smaller quantities of fresh produce and even traders have less money to trade with. As a result, the price of perishables (fruits and vegetables) is down, on a conservative estimate, by about 30 per cent. Due to lesser spending power, the loss is then transferred to shopkeepers and traders.
The prices of other produce such as fish, poultry, cotton, groundnuts, etc. are also down due to fewer cash transactions. When a person does not buy household goods or clothes and such like, the demand is deferred for a few months. When a person eats smaller quantities of fruits, vegetables and such like, that demand is lost forever.
Irrespective of demonetisation’s pangs, farmers are demanding that the PM sack the RBI governor immediately, not only because he failed to fulfil his mandate and wrongly advised the government but also for the problem-ridden roll-out of new currency notes.