1. Getting rabi right

Getting rabi right

Important to focus on production areas first

By: | Published: November 18, 2016 6:20 AM
Pulses--PTI-L The problem with inadequate cash in the system is that, even if farmers were to start accepting cheques for crops sold by them, actually withdrawing this will take a long time, and more so for those whose accounts are with primary cooperative societies. (Source: PTI)

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 R25,000 per week against sanctioned crop loans and another R25,000 per week from amounts credited to them from payments made by mandis—that is, for crops already sold. And to ensure that traders in mandis have enough cash, the R50,000 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 R50,000 cash allowance for mandi 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 R14-15 lakh crore that has been demonetised. The problem with inadequate cash in the system is that, even if farmers were to start accepting cheques for crops sold by them, actually withdrawing this will take a long time, and more so 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 it feels, with their not-so-robust KYCs, these cooperatives 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 R4,500 to R2,000 is a good idea; allowing cash advances of up to R10,000 against salaries for government employees (till Group C) is retrograde, but shows the power organised unions in the government have.

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