If rural cooperative banks go under, so do farmers



Farmers accustomed to decades of failed government policy are willing to bear the pain caused by the government’s decision to recall the Rs 500 and 1000 notes, but conceiving of a systematic failure of the rural cooperative banking sector would be an unforgivable profanation.

Earlier rural bank branches received gradual maternal treatment: branches of rural cooperative banks were not replenished with lower-denomination currency, while newer, higher-denomination banknotes were issued at bank branches in towns. Now, all district cooperative banks have been ordered not to trade or even accept bills of Rs 500 and 1000 from account holders. This will have a multiplier effect. Most small farmers deal with these banks and Primary Agriculture Societies (PAX). Farmers receive most direct credit for agricultural inputs from PAX. Perhaps the establishment has not fully grasped the extent of the notification’s implications.

Farmers operate through these institutions for their kisan credit card. The new rules will not allow them to deposit money into their own accounts, but the bank will continue to charge them interest for the loan used. The cooperative banks will start to collapse because they will fail to collect the loans. Being the planting season, PAX stores are full of fertilizers, they will not be able to supply them to their own farmers according to the rules as past loans remain unpaid. PAX isn’t even allowed to operate with public sector banks, so they’re in a catch-22 situation on what to do.

Many farmers have also taken advantage of a revolving cash credit limit that must be deposited at harvest time. When the bank refuses to accept payment, these deposits will become NPA on the bank’s books and bank balance sheets will be decimated. People are starting to withdraw deposits from co-operative banks and good capital will flow into private or public sector banks, never to return. Wherever branches of rural cooperative banks have an online service, this draconian notification should not have been mentioned at all.

Suddenly, all rural banking transactions were paralyzed. Trouble was inevitable, but the extent of the mismanagement is staggering. The timing of the currency recall itself is intriguing. Exploitative merchants refuse to accept old banknotes. Merchants demand 30% more value for the same inputs if purchasing older tickets. Villagers are forced to exchange a 500 note for four 400 rupee notes.

The ideal window for sowing wheat is about 21 days. Resourceful farmers can get away with it, but at a higher cost. Delayed planting can significantly reduce yield. Moreover, farmers who bring perishable fruits and vegetables to the wholesale market are in a hurry. Traders explain that small street vendors and shopkeepers do not have money to buy perishable goods. Sales are down about 20% and even the prices farmers receive for their produce are down 25%. Truckers are paid on delivery for their transportation costs by the freight forwarder where the delivery of perishable goods is made. Today, sabzi mandi traders insist on paying with the old currency which truckers refuse to accept. This has a cascading effect.

Perhaps more than a third of people in rural areas do not have a bank account in a rural cash-based economy.

Rural women are particularly affected, as they will have to reveal their savings to their husbands. The secret hideout, small as it is, took years to build. Husbands are unlikely to hand over the savings to the wife. It seems that the consequences of this policy are not even neutral.

In addition, pawnbrokers and traders force gullible farmers to deposit old currency in their names. This will create interesting statistics that will be interpreted as evidence of the black money hoarded by farmers and will argue for the taxation of farmers’ income.

A society that loses confidence in its own currency finds itself in a dangerously precarious situation. The economy is slowly shutting down. The majority of the masses believe that this bold reform is to strike at the root of the threat of black money and still support the Prime Minister. “But, it just turns into a race where on the one hand the government has to logistically make cash available in the banks for people to redeem/withdraw or the repercussions of a poorly executed transition may not only force the government to water down the provisions of the de-notification, but could be the tipping point in the leader’s political life Leaders need to be reactive, but a reactive leader is not necessarily a responsible PM A callous and irresponsible opposition may not be able to salvage the situation.



The opinions expressed above are those of the author.



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