NEW DELHI: Demonetization and cattle slaughter ban have pushed the rural economy over the edge- one bydestroying incomes and by choking off major sources of emergency financing for farmers.The demonetization was done in the month of November which is also the season for the harvesting of kharif crops and sowing of Rabi crops. This impacted both crop cycles because on the one hand farmers could not sell their crop and neither could get finance for buying essentials for the next season. But the farmer's vows did not end here. There were no buyers even for fruits and vegetables grown by them this is because demonetization took away the purchasing power of the people as they were not left with any cash to spend. Harish Damodaran
(https://indianexpress.com/article/opinion/columns/the-crops-of-wrath-demonetisation-4699598/) and Mridula Chari (https://scroll.in/article/840896/explained-behind-the-farmer-protests-in-16-
states-are-bumper-harvests-and-low-prices) provided detailed studies on fall in prices after demonetization. Their produce of perishables was destroyed.
The indebtedness of Indian farmers and related agricultural issues are not new to India. However, the situation is particularly grim this time as farmers are grappling with two major policy decisions of the government which have affected them adversely. Situation for small and marginal farmers is particularly grim. According to the NSSO survey, households with landholding of less than 4 hectares is almost 90% and with those below 2 hectares constitute 80%. These small and marginal farmers pay higher interest on loans as they mostly rely on informal sources of credit. Rajeev et al. (https://mpra.ub.uni- muenchen.de/42358/) report that the interest rate for credit from informal sources is around 36% which is 3 times the interest rate charged by banks.
The small and marginal farmers were greatly impacted by demonetization as this led to stoppage oflending from informal sources. The cash holdings of both farmers and moneylenders were rendered worthless. These farmers could not even turn to banks for their financing needs as the banks themselves were stashed with demonetized cash. Consumers from urban areas that create a market for agricultural produce also lost their purchasing power thus indirectly affecting the farmers. The actual burnt of demonetization was borne by people from rural areas as access to credit and banking services was already limited there, thus they pledged their only asset i.e. land to raise a loan. To make things worse the government also banned the slaughter of cattle.
According to NSSO’s 70th round, despite the fact that livestock contributes only 12% to monthly farming income and claims 18% of monthly expenditure, still Indian farmers continue to hold cattle. This asset is usually sold to help tide over temporary shortages of cash or credit. By making cattle slaughter difficult or impossible, the government took away the last resort for the struggling poor farmers. Together, demonetization and cattle slaughter ban have pushed the rural economy over the edge- one by destroying incomes and other by choking off major sources of emergency financing for farmers.
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low prices’, Scroll.in, 27 July 2017. https://scroll.in/article/840896/explained-behind-the-