NITI Aayog: No effect of note ban on rabi sowing, prices of crops

Ramesh Chand cites four-fold impact on farming - area sown, crop pattern, productivity, market

The acute cash crunch in rural areas due to demonetisation and the resultant drop in prices of fruits and vegetables in November and December could lower farmers’ income in 2016-17 by just 0.26 per cent, said a paper by NITI Aayog member and eminent agriculture economist Ramesh Chand.

The paper, released on Tuesday, also said if the shortage in fertilisers due to cash crunch persisted till the end of the rabi sowing season, India’s crop output could slide by 1.05 per cent, while agriculture output could shrink by 0.75 per cent.

With cash becoming scarcer, farmers scaled down fertiliser use. Their sales, mapped by the ministry of agriculture, had fallen by 7.47 per cent, compared to 2014-15 and seven per cent, compared to 2015-16.

The rabi sowing season, which ends after January and contributes to almost half the country’s annual agriculture output, was just peaking when Prime Minister Narendra Modi announced the decision to demonetise Rs 500 and Rs 1,000 notes. 

The severe cash crunch also slowed fertiliser and seed purchases, fuelling talk of Prime Minister’s Modi move leading to a potential slowdown in farm-sector growth, which, until now, was showing some signs of revival after two years of drought.

However, Chand, in his paper, showed that even after factoring in the fall in income, the overall income of farmers would still grow at a healthy rate of over 5.8 per cent in 2016-17, while the sector itself would grow at over six per cent.

“The growth story in agriculture is intact. Demonetisation is found to have had insignificant effect on output growth as well farmers’ income. The largest informal sector in the Indian economy has, in fact, shown strong resilience to the effects of demonetisation,” Chand said. 

However, this estimate does not take into account the impact of temperature on the rabi harvest in February and March.

In a well-researched article, Chand said demonetisation could affect agriculture directly in four ways - area sown, crop pattern, productivity and market. 

During the week ended December 30, 2016, the net sown area under rabi crops exceeded the normal area by 2.77 per cent and area sown last year by 6.86 per cent. 

“The data on progress of sowing of rabi crops clearly indicate that, at the country level, there is absolutely no adverse effect of demonetisation insofar as sowing of major crops is concerned,” the report said. 

On its impact on productivity, the report said farmers use cash to buy quality seeds, fertilisers, chemicals, diesel, and to hire labour and machinery. 

On seeds, Chand said even though the sales of seeds by public institutions is lower than last year’s, its impact could be limited, what with more than 70 per cent seeds used in rabi crops being self-produced, with the rest purchased from public sector agencies, research institutes and private sources. 

On the impact on demonetisation on prices, the report said there was no impact on prices of major crops like paddy, soyabean and maize in November, and their wholesale prices in agricultural produce market committee mandis were around three per cent higher in November, compared to October last year. 

But prices of fruits, vegetables in most markets and states showed a dip in market arrival as well as prices after the currency purge, which could be due to seasonal glut and bumper crops.

“It is difficult to ascertain how the much the fall in prices of perishables during December 2016 was due to glut in arrival and how much could be due to any disruption due to demonetisation. Because of this, it is assumed the losses to farmers were similar to those of November, which will raise the total loss during the months of November and December to 0.26 per cent,” the report added.