Getting rabi right PDF Print E-mail
Friday, 18 November 2016 00:47
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Important to focus on production areas first


Given the evidence of the cash crunch being faced by farmers at the onset of the rabi season, the government has done well to increase the cash withdrawal limits for them, to Rs 25,000 per week against sanctioned crop loans and another Rs 25,000 per week from amounts credited to them from payments made to them by mandis – that is, for crops already sold. And to ensure that traders in mandis have enough cash, the Rs 50,000 per week limit allowed for businesses has been extended to them as well. Whether that is enough to ensure there is no disruption in the rabi sowing schedule is not clear but, while weekly limits on consumption expenditure is one thing, that on productive expenditure such as that on sowing crops makes little sense.


Nor is it clear that the Rs 50,000 cash allowance for traders is of much help – in the case of businesses, CII has already made a representation saying it is inadequate – but it is clearly driven by the shortage of cash in the system; estimates are it could take at least 6-8 weeks to print the required levels of cash to replace the Rs 14-15 lakh crore that has been demonetized. The problem with inadequate cash in the system is that, even if farmers were to start accepting cheques, actually withdrawing this will take a long time, especially for those whose accounts are with primary cooperative societies. In a recent newspaper article, Ajay Vir Jakhar of Bharat Krishak Samaj has argued that farmers with accounts in these societies have a particular problem since they cannot use cash to repay their loans and unless these are repaid, they cannot borrow more to buy inputs – the government is reluctant to allow these cooperatives to accept cash as they feel, with not-so-robust KYCs, this could become a source of money-laundering, but it needs to find a durable solution.


In a nutshell, if the choice is between funding consumption and funding productive investment, the government has to lean towards ensuring investments don’t suffer since, once the production cycle gets disrupted, getting it back on track takes a long time. In this context, reducing the amount for exchanging of old currency notes from Rs 4,500 to Rs 2,000 is a good idea; allowing cash advances of up to Rs 10,000 against salaries for government employees (till Group C) is retrograde, but shows the power organized unions in the government have.  


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