Betel nut lot at Sirsi market yard in Karnataka, India. (Photo: Vivian Fernandes)

The Savagery Of Demonetisation In Rural Karnataka

BloombergQuintOpinion
The decision has not been taken in haste, but after detailed deliberations. All efforts were made to minimise immediate difficulties and mitigate them. The problems of the common person were at the top of the policymakers’ radar.
R Gandhi, Deputy Governor, Reserve Bank of India

Given the inconvenience that people have faced even a month after the demonetisation, and the extent of economic dislocation, RBI leaders are either brazen or have relied on questionable impact analysis.

Some Cope, Others Suffer

At the Sirsi wholesale market yard for betel nut or supari, in Karnataka’s coastal district of Uttar Kannada (erstwhile North Canara), one of the largest cooperative societies has been compelled to curtail daily cash disbursements from Rs 60 lakh to Rs 2 lakh. “There has been disruption to some extent,” said Raveesh Hegde, the society’s general manager, who was earlier a senior executive with a soft drinks multinational corporation.

A primary agricultural cooperative society for the Harugara group of villages is witnessing a severe credit freeze.

To this correspondent, that kind of shrinkage seems savage.

Credit disbursal has dropped as much as 96 percent at an agri cooperative in Karnataka’s Belagavi district. (Photographer: Dhiraj Singh/Bloomberg)
Credit disbursal has dropped as much as 96 percent at an agri cooperative in Karnataka’s Belagavi district. (Photographer: Dhiraj Singh/Bloomberg)

Meanwhile, the 23,000 farmer members of Totgars’ Cooperative Sale Society can largely function without cash. The society, formed in 1923, has undertaken a number of pro-farmer initiatives – quite a change from cooperatives elsewhere in rural India which have by and large been run aground by special interest groups.

Totgars’ acts as a commission agent at the Sirsi yard, which is one of the largest for betel nut trading. Last year, of 1.72 lakh quintals traded, 61 percent or 1.05 lakh quintals passed through its terminals. Another cooperative did 31 percent.

Farmers looking at quotes at the Sirsi wholesale market yard in Karnataka, India. (Photo: Vivian Fernandes)
Farmers looking at quotes at the Sirsi wholesale market yard in Karnataka, India. (Photo: Vivian Fernandes)

Apart from auctioning, the cooperatives buy on their own account to lift prices. Members can obtain pledge loans against betel nut stocks or crop loans. They are not in hock to moneylenders. This is important because credit and agricultural output markets are often linked.

Moneylenders usually double up as traders and farmer borrowers suffer a double blow – they pay very high rates of interest and are compelled to sell to the lender soon after harvest at low prices. Not so in Sirsi.

In fact, Totgars’ rents out storage capacity – 60,000 kg of it – so farmers can sell in a staggered manner, as prices rise.

Totgars’ purchases seeds, fertiliser, irrigation equipment and groceries centrally. Those buying from its stores get the benefit of scale efficiency. It acts as a bank. Farmer members are provided two-way debit and credit cards, with which they can withdraw money from the cooperative’s own ATMs. Banks – private or public – have been unable to make much of a dent here.

Since most of the farmers have accounts with the cooperative, they can settle transactions mutually through book entries. Hegde says “50-60 percent of transactions” can be done without cash. Yet, of Rs 670 crore worth of transactions last year, Hegde estimates about Rs 150 crore (over 250 working days) were done with cash.

Raveesh Hegde, General Manager of the Totgars’ Cooperative Sale Society. (Photo: Vivian Fernandes)
Raveesh Hegde, General Manager of the Totgars’ Cooperative Sale Society. (Photo: Vivian Fernandes)

Still Stuck To Cash

The cooperative spirit is not as entrenched in Byadgi, about 100 km from Sirsi. Along with Guntur in Andhra Pradesh, Byadgi is among the largest markets for chillies. Hardly any of that crop is grown locally, cotton and maize having taken over the fields. But farmers from neighbouring districts in Andhra and Karnataka prefer Byadgi because of transparent price discovery made possible by e-auctions, and goodwill built by the private commission agents over the years.

While trading is online in Byadgi, payments are not. “I am struggling to persuade farmers to opt for e-payments,” says Guruprasad, secretary of the Agriculture Produce Marketing Committee. Cash goes out to those who work their fields and transport produce to the market. While fertiliser supplied through primary agricultural cooperatives can be paid for by cheque, retailers of seeds and other inputs want cash payment. There is another reason, one seldom articulated.

Regular loan waivers have destroyed the credit culture. Farmers fear banks will grab money credited to their accounts to settle dues. There is insurance in cash.

From a surgical strike on black money, Prime Minister Narendra Modi has touted the demonetisation as a vehicle for transition to a cashless economy. But digital payments require upfront investment in banking infrastructure and internet connectivity, which may not be worthwhile in rural areas. A cashless economy also presumes a modicum of literacy.

There is also the loss of control to reckon with. For instance, when a banker declines to honour a bearer cheque because the signatory has made it payable to 'self' and not the presenter, there is loss of autonomy. With cash, bankers cannot act as babus. The transition to digital payments in rural India cannot be forced. It should happen gradually. Cash should not be vilified for poor administrative preparedness.

Vivian Fernandes is the editor of www.smartindianagriculture.in and often contributes to BloombergQuint.