Rural Distress – Cause & Effect

Agriculture sector contracted by 0.2% in 2014-15 and grew by just 1.2% in 2015-16. Even on this low base, revised estimates suggest growth rate of less than one percent in the current financial year. What are the causes of this draconian rural distress? Has the Government tried to address the issues of the rural economy?

Causes of Rural Distress

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  • The Government has been unable to replace more than 10% of the cash in the last days since the decision to demonetise. This has led to a liquidity crunch that has deflated the rural economy (less demand, more supply).
  • Rural wages have declined in real terms since November 2013 and it is noteworthy that the intervening years have been drought years which has intensified the Rural Distress
  • Demonetisation’s timings have hurt the hectic agrarian activity, with farmers either busy wrapping up kharif harvests or sowing the rabi crops.
  • Many farmers find no takers for their produce as buyers do not have money and prices have collapsed.
  • Those who have sold their harvest are suddenly rendered without cash because they do not have the right currency notes.
  • Cooperative banks have not been involved in the replacement of currency and many farmers only have access to the cooperative banks.

Measures taken by the Government

  • Government has raised the withdrawal limit for farmers to Rs 25,000.
  • It has allowed them a 15-day grace period to pay crop insurance premiums.
  • It has allowed the farmers to use old currency notes to buy seeds, but the relaxation does not extend to other key inputs such as fertilisers and pesticides, the absence of which may reduce the yields by half.

The Way Forward

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  • Government needs to extend the time period for depositing the money for rural branches. They need to distinguish between the rural and urban bank branches while doing this so that benefit reaches the rural population.
  • It is utopian to imagine that the cash habits would change overnight, therefore there is an urgent need to inject cash liquidity in the rural economy through formal channels such as scheduled commercial banks.
  • Traditionally the Mandis are the real source of black money. Most of the trade happens without taxation and the traders are not a part of the banking system or taxation system as there is no accounting. The concerned authorities need to clamp down on the Mandis to provide immediate relief to the small and marginalised farmers.
  • With due consultation with the concerned authorities, it should be deliberated if other key inputs such as fertilisers and pesticides may be relaxed from the demonetisation drive for a period of time.

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