Cascading Misery

The BJP바카라�s unprecedented success in the Uttar Pradesh election, coming a few months after PM Narendra Modi anounced demonetisation on November 8, 2016, was widely seen as proof of its popularity among the masses. Now, even as the Centre proposes to mark DeMo바카라�s first anniversary   as 바카라�anti-­black money day바카라�, hundreds of farmers in Maharashtra plan to gather at Azad Maidan in Mumbai on November 8바카라�to observe the day as a 바카라�barsi바카라� or death anniversary. 바카라�There is a lingering effect of dem­onetisation on the rural economy,바카라� says MP Raju Shetti, who leads the Swabhimani Paksha. 바카라�The agriculture commodities market is yet to stabilise. Farmers in Maharashtra are still not getting the right price for their produce.바카라�

Shetti, who parted ways with the ruling NDA earlier this year, points out that INS­tead of the minimum support price (MSP), currently fixed at Rs 3,000 per quintal of soyabean, the farmers are getting only Rs 2,500. Similarly, in the case of maize, the farmers are getting only Rs 900 per quintal, though the MSP is Rs 1,400. Freshly harvested paddy is fetching Rs 1,300 per quintal (MSP: Rs 1,550), moong and urad (lentils) Rs 4,000 (MSP: Rs 5,000 and Rs 5,400, respectively).

This looks like a repeat of how it was in the weeks following the announcement of demonetisation last November, when farmers, particularly vegetable growers, were either forced to sell their harvest cheap in distress sales, or opted to dest­roy it on not being able to recover production costs. In Maharashtra alone, Shetti claims, around 400 farmers have committed suicide so far for reasons rel­ated to the impact of poor prices.

S. Mahendra Dev, director of the Mumbai-based Indira Gandhi Institute of Development Research, concurs that DeMo바카라�s immediate impact was mostly on the rural economy, especially agriculture, and the informal sector. 바카라�GDP figures are yet to reflect the impact on the informal sector,바카라� says Dev. 바카라�The Central Statistics Office (CSO) has taken into account only the formal and some of the relevant sectors. Once the actual numbers come, I expect the CSO will revise GDP growth for the last quarter, which will come down. Demo­netisation did have a significant impact on livelihood and employment, but as it바카라�s already a year since, I think the one-time impact may be coming down.바카라�

Besides data from the Centre for Monitoring Indian Economy (CMIE), which shows 1.5 million jobs were lost, there are no official numbers on jobs lost due to dem­onetisation. Experts claim that in the aftermath of job losses in urban areas, many opted to go back to rural areas to wait it out. CSO data in December or January will reflect this.

Dr V. Rukmini Rao of Secunderabad-based Gramya Resource Centre for Women points out that in the wake of money supply crunch, farm workers went without work or got lower wages as the farmers did not have enough money in hand. In the informal sector, the garment industry, for instance, was badly hit. Rao says many people from north India come to work in textile and garment factories in Coimbatore, an industrial town in Tamil Nadu. Following demonetisation, many workers were forced to go back home when the factories, faced with liquidity crunch, were closed down. That most of the workers didn바카라�t have bank accounts did not help. Their enforced holiday added to the woes of their families in the villages.

While the casual labour economy in urban areas was hurt the most by dem­onetisation, the rural economy felt the pinch, given the to and fro between towns and villages. For instance, the persisting slowdown in the construction sector, particularly housing, meant that a large number of youth who routinely seek alt­ernative employment to supplement farm income have been left with no source of income. Remittances from urban to rural areas have come down, but the extent is still not known. Fall in rem­ittances could be one explanation of the fall in rural demand.

Abhijit Sen, an agro-economist and former member of the erstwhile planning commission, claims that none of the numbers are particularly reliable at this stage. 바카라�What we are watching, especially on the prices side, suggests that rural dem­and is extremely low at the moment. It is lower than what could be normally expected on the basis of the good agricultural output that we got last year. While several factors could be beh­ind it, demonetisation could certainly be a contributory feature,바카라� says Sen.

Pointing to the slowing pace at which people are going from rural to urban areas in search of jobs, Sen says, 바카라�There is more waiting in rural areas for jobs rather than in urban centres. I am sure there must have been some fairly permanent damage in some quarters. If you are a cash economy and your working capital has been run down, it doesn바카라�t recover immediately. It is not as if the cash has come back and the working capital will be back. It is just like any business that has made large losses and takes time to recover.바카라�

What has changed considerably in the rural scenario is the practice of working on credit, which runs entirely on trust. It is still not known how much of that trust between farmers and traders has been eroded. A major factor working against farmers is the significant drop in domestic prices of many commodities, even as global food prices are on the rise, which is making some traders wary of extending credit for buying seeds and other farm inputs.

Lucknow University professor and president of Kisan Jagriti Manch, Sudhir Panwar, feels the aftershocks of demonetisation on the rural economy are being felt more acutely now. He points out that while favourable monsoon and weather conditions offset the impact on the input side, and 2016-17 witnessed record farm production, 바카라�it affected prices of all agri-produce, ranging from grains to fruits and vegetables. This could be why we witnessed more suicides in a year of record production.바카라�

Panwar says that besides low kharif and rabi crop prices, what has affected the rural economy are the low remittances to the villages from migrant ­labour in the construction and manufacturing sectors. Moreover, the rural non-farm sector, which employs nearly 30 per cent of rural labour, mainly woman, also suffered badly. 바카라�The cascading effect of demon­etisation impacted demand and industrial production, thereby turning inf­lation into deflation. In many areas, MNREGA funds dried up because of higher dem­and,바카라� says Panwar.

Echoing this view, Dev says, 바카라�There was deflation due to demonetisation, which led to a fall in farmers바카라� income. That바카라�s why there was considerable ­unr­est among them. While nominal wages in rural areas have not increased, according to some studies, real wages, which were stagnant for three years, showed some rise for a few months, ­because there was deflation in the prices. Now, as the prices are rising, the real wages may come down.바카라�

Pronab Sen, country director of the India-Central programme of the International Growth Centre, a multinational think-tank, also feels the rural scenario doesn바카라�t look too good despite a good monsoon last year and this year, after two consecutive years of drought. 바카라�Usually a good monsoon after drought sees a good pick-up in agriculture growth, which we also saw,바카라� says the former chief statistician of India. 바카라�But it was not as strong as one expected or would have liked. The prices of agriculture commodities crashed instead. It was largely due to the impact of demonetisation. The purchasing power of farmers did not grow at all despite the output going up. In effect, the farmers had three consecutive bad years, including two drought years.바카라�

Wages in rural areas have been going up at a rate of 5-6 per cent annually over the past few years and the trend continues. But as incomes of farmers have not been going up, they are faced with the challenge of paying higher wages for farm lab­our. 바카라�Farmer incomes have certainly not improved, hence you are seeing widespread farm distress. Agriculture commodity prices have crashed, even as input costs continue to go up, so incomes are getting badly squeezed,바카라� says Sen. Pointing out that agriculture generates most of the income in rural areas, he exp­lains how most non-agriculture activities in the rural areas are also hit if agriculture suffers. The squeeze in farm incomes has considerably impacted many small and medium enterprises. No wonder one of the fallouts of demonetisation has been the coming together of over 180 farmer groups to formulate a common charter of demands, including total farm loan waivers and price security.