The Government has to find new, additional ways to inject cash liquidity in the rural economy, like immediately setting up camps in villages for the proper exchange of old currency. The Government can very well use the infrastructure of the cooperative banks
The recent announcement of demonetisation by the Modi Government has no doubt started a revolution of clean-up in the country. But since it has come at such a crucial time for the farmers, it is likely to affect them more than anyone else. Farmers in India generally deal in cash, and this present period, which is the onset for the Rabi season, is creating a lot of panic among them since farmers usually get only 15-20 days to plant their crops. Therefore, the cash crunch in rural India has to be sorted out pretty quickly by the Government. The Government has to make sure that the cash reaches the farmers quickly than to other sections of society. Any sort of delay in this planting season will threaten to dent the country’s agricultural and overall economic growth to a large extent.
The Modi Government, apprehending the situation, has in fact taken a couple of decisions to ease the money flow to farmers, like allowing them to purchase seeds with the old currency and also letting them withdraw upto Rs25,000 from their bank accounts. But considering the huge cash shortage with banks, especially in rural India, most banks are not allowing such withdrawals for want of funds. This has further compounded the crisis period for the farmers.
Demonetisation is likely to effect the rural and farming economy since this is considered to be the busiest time for farmers in relation to the cash transactions, as they will urgently require cash to plough their fields, to purchase fertiliser, to hire machinery and labour, and make arrangements for water, purchase of diesel etc, apart from buying seeds from the market. For example, for sugarcane growers, the crushing season has just started and the farmers don’t have cash to harvest the canes, pay for labour and transport the cane to the sugar mills.
likewise, when farmers go to the local mandis to sell their produce, it will be difficult to find a cash buyer; and by chance if they find one, it is very unlikely that they will get the appropriate price of their crops. They will simply have to sell on credit.
The farmers who had already done their ploughing and irrigation before the demonetisation, are finding it difficult to keep the soil moist since they don’t have adequate cash to move further. And this delay in sowing can greatly affect the yield and is also likely to expose the crops to number of vulnerable diseases, which in turn will make it difficult for farmers to recover their cost of cultivation.
For example, a delay in sowing of wheat can drastically decrease the wheat yield to 1.5 quintals per acre per week. This scenario is now urgently demanding that the Government take additional steps to help the farmers.
The banking penetration in rural India is quite low and the farmers are finding it difficult to tackle this bold move by the Modi Government. Farmers live miles away from their nearest bank branch, and the number of ATMs in the rural regions is also negligible, as the banks generally focus on urban areas for their banking business — which has made the situation a little more difficult for farmers in this crucial period.
The Union Government has proposal to start the Indian Post Payment Bank (IPPB), which can become a powerful and effective vehicle of real financial penetration in the country. But that still is some time away to get started, and in this needy period it would have definitely came handy with its 650 branches and 5,000 ATMs across the country, especially in the rural part.
The Government has to find new, additional ways to inject cash liquidity in the rural economy, like immediately setting up camps in villages for the proper exchange of old currency. The Government can very well use the infrastructure of the cooperative banks, which have been excluded in this demonetisation programme, to open counters of the Reserve Bank of India.
Since the people of the country have showed overwhelming support to this decision by the Prime Minister, it is also now the duty of the Government to not just stop at this, but to take this fight to clean and improve the system further by considering other pertinent measures. A holistic approach is called for.
Issues like massive hidden subsidies and tax rebates and exemptions given annually to the corporate sector in India by the Union and State Governments should be re-examined in the light of a statement by Prime Minister Modi early this year. He had said , “When a benefit is given to farmers or to the poor, experts and Government officers normally call it a subsidy. However, I find that if a benefit is given to industry or commerce, it is usually an incentive or a subvention.”
An analysis of National Tax Data clearly shows that, due to the Government incentives around 52,000 companies made profits in the year 2014-15, but surprisingly had paid zero tax. The quantum of tax deduction/exemptions given by the Government to these companies are to the extent that, during the period of 2014-15, the public companies paid higher effective tax rates than private companies This amount of tax rebates to the corporate sector in India, if we calculate, will approximately be at least twice that of the amount which the Government is likely to get from the present demonetisation programme.
The Government gives these tax rebates to the corporate sector after assurances from them that they will work towards the development of the country and will also help in job creation and take care of their corporate social responsibility. This has not worked at all. Corporates have never delivered on this assurance but have conveniently taken the rebates and exemptions from the Government.
Now, with the massive drive of demonetisation, the Government should also put a cap on these enormous tax rebates and subsidies so that the country can actually move forward by taking all the sections of the society with it.
(The writer is an advocate in Supreme Court of India and social activist)