Thanks to note ban, farm sector may not see 'acche din'

Dateline: New Delhi

Days after Prime Minister Narendra Modi announced scrapping of high value currency notes, Agriculture Ministry officials were eagerly awaiting the details about sowing for rabi crops across the country. The government was facing all round criticism for having announced the note ban at a time when the agriculture sector was witnessing an upswing on the back of a better monsoon after two consecutive drought years.

The sudden withdrawal of legal tender of Rs 500 and Rs 1,000 currency notes had left the farmers devoid of any cash to buy seeds or fertilisers. But as the figures trickled in, there was a sense of cheer as the sowing operations appeared unaffected.

Up to November 11, rabi sowing was completed on 14.6 million hectare area – 5.7% lower than normal crop coverage and the gap declined steadily. During the week ending January 20, 2017 sown area under rabi crops was 628.34 lakh hectares, which was 6.07% more than last year's acreage of 592.36 lakh hectares.

Agriculture Minister Radhamohan Singh has been issuing statements on how demonetisation had not affected rabi sowing to counter the campaign by opposition leaders on note-ban leading to agrarian distress.

Experts have been sceptical about the government's gung-ho approach vis-a-vis the rabi sowing numbers, particularly the comparison with the previous year's acreage which was low because of severe drought. Though the government speaks glowingly about demonetisation not affecting farm activity, the numbers tell a different story. According to the data released by the Agriculture Ministry, rabi sowing in 2013-14 had touched 670 lakh hectares and leading to a bumper harvest of 263 million tonnes.

Economist Pronab Sen was categorical. “Rabi sowing looks big on the small base of last year,” he said. Sen, India's first chief statistician, also said the government could have pushed for implementation of demonetisation in January this year as the seven-week gap would have helped farmers make purchases of seeds and fertilisers for sowing of the winter crop.
According to Sen, delaying note ban by a few weeks would have helped farmers sell their kharif crop, prices of which had already fallen drastically on account of good harvest. The wholesale markets, which usually deal in cash, had a tough time lifting the farm produce and the maximum impact was felt by those dealing in fruits and vegetables.

Farmers in Punjab and Uttar Pradesh dumped their potato crop on the roads in Ambala and Lucknow, respectively, as they had no cash to pay for transportation of the farm produce to wholesale markets. In Gujarat's Surat, farmers threw vegetables and milk on the streets as they had no access to cash after the government kept out the district central cooperative banks out of the demonetisation process.

Prices of fruits and vegetables dropped in wholesale markets post-demonetisation as did the market arrivals. Prices of banana, apple, tomato, cabbage were lower in the range of 4% to 9% in November when compared with the rates in October, making it clear that farmers were affected to some extent.

Government analysts say that the prices of tomatoes crashed in December because of glut in the market due to bumper crop. But they admit that it would be difficult to ascertain how much fall was because of the glut and how much due to disruption due to demonetisation.

Cash crunch in rural areas had turned acute as the cooperative banks as well as primary cooperative credit societies too were kept out of cash exchange affecting purchase of quality seeds and fertilisers by farmers.

There were reports about slowdown in farm activity such as timely spraying of pesticides or application of fertiliser for want of labour. Many farmers were unable to make cash payments to farm labourers who were forced to return to their home towns. Cotton trade nosedived as mills were unable to make cash payments to farmers who supply bales.

Quiet acceptance

There is quiet acceptance of this fact within the government circles as productivity may take a hit this year. Also, farmers have bought far less amount of fertilisers this rabi season when compared with the previous two drought years. One set of estimates peg the sale of fertilisers to be nearly 7.5% lower than the previous year.

This means that despite high acreage achieved during the sowing phase may not reflect in the farm output this rabi season. According to a study by Ramesh Chand, Member, Niti Aayog, a 1% increase/decrease in fertiliser use result in 0.1% increase/decrease in agriculture GDP and about 0.14% increase/decrease in crop output.

If the current trend in the shortfall in fertiliser consumption continued till the end of the rabi season, it could lead to a more than 1% decline in production. As a result, the rate of growth in farmers’ income is also expected to dip due to the drop, though Chand still pegs it at 5.8% in real terms for 2016-17.

India’s farm sector was looking set for some good times after two consecutive drought years that had slowed down growth and even witnessed a contraction of 0.2% in 2014-15. The normal monsoon had cheered the farmers who had reaped a better kharif harvest and were keen to follow up with even better returns in the winter crop cycle.

Ratings agencies had forecast 4% growth for 2016-17 over the previous year which was certainly brighter given the meagre growth in the past couple of years. The sector had barely witnessed growth since 2011. In 2012-13, the farm sector grew by 1.5%, followed by 4.2% in 2013-14, -0.2% in 2014-15 and 1.2% in 2015-16. At a time when things were looking up, the demonetisation decision has pushed the long desired ‘achhe din’ for agriculture in the realm of uncertainty.