Demonetization seems to have hit agriculture the hardest

13 Jan 2017 | By Ramya Patelkhana

After two consecutive drought years, 2016 was expected to be a relatively better year for India's farmers till 8 Nov'16.

The demonetization move reportedly has hit the agriculture sector the hardest.

Farm price trends show that agriculture may have been adversely impacted by the currency ban.

According to reports, farm products' prices, especially that of perishables like vegetables and fruits, sharply fell in Nov'16.

In context: Impact of demonetization on agriculture

IntroductionAgriculture in India

In India, agriculture is a significant part of the economy and contributes to GDP growth.

India is one of the countries with the largest farm output.

As of 2013, agriculture and allied industries like fisheries and forestry accounted for 13.7% of the GDP.

However, the economic contribution of agriculture has steadily declined; the agricultural growth has been stagnant over the last two decades.

Two successive years of drought

India, third-largest economy in Asia, had suffered two consecutive years of drought that led to a sharp decline in its agricultural output. A spate of suicides by farmers triggered by losses and weak demand also contributed to the decline.
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13 Jan 2017Demonetization seems to have hit agriculture the hardest

Farmer suicides

Bankruptcy or indebtedness accounted for most farmer suicides in 2014 and 2015, according to National Crime Records Bureau. Both the years were drought years but crop failures due to natural causes had a smaller share than other reasons like bankruptcy.
Three likely reasons behind the adverse impact

ReasonsThree likely reasons behind the adverse impact

Agriculture is likely the worst affected by demonetization due to three key reasons.

Demonetization's timing coincided with the Kharif season; farmers couldn't sell crops due to the cash crunch.

Lack of cash has also posed difficulties for farmers in sowing of rabi crops.

Unlike other sectors, agricultural output is perishable; it can't be stored and is less suited to withstand temporary adjustment to demand.

Incomes in farming are extremely seasonal

If a Kharif crop or some vegetable/fruit constituted a farmer's primary agricultural activity in a year, failure to get remunerative prices could have a huge impact on the farmer's total income for the whole year. Even temporary disruptions could cause long-term stress in this sector.
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DemonetizationDemonetization significantly dented agricultural income

Recovering the production cost is often a huge challenge for farmers when compared to raising output.

Coming amid the peak of farming activity, demonetization seems to have dented agricultural incomes significantly, raising farm distress.

Whether the currency ban has led to an increase in farmer suicides is yet to be seen.

But, the ban has driven farmers bankrupt; especially those growing vegetables and fruits.

Finance MinistryFinance Ministry seeks Twitterati's suggestion for upcoming budget

Union Finance Ministry, in a Twitter poll open till 12 Jan, asked which sector needs most focus in the next budget.

Halfway through the vote, agriculture was picked, putting the sector above others.

Finance Minister Arun Jaitley is expected to consider the verdict though it is based on a limited sample and outline a plan backed by adequate financial resources to tackle agriculture's problems.