Demonetization has severely impacted India's agricultural sector, which relies heavily on cash transactions and accounts for nearly half of India's workforce. The removal of high-value currency notes invalidated 86% of India's cash, disrupting farmers' ability to purchase seeds, fertilizers, and other supplies due to lack of funds. While short-term effects included reduced crop sowing and prices crashing as produce rotted, long-term impacts may include investment in agriculture through recovery of black money, lower interest rates, and improved irrigation. However, rural farmers distant from banks face significant difficulties unless solutions reach them.

2. UNIVERSITY OF AGRICULTURAL SCIENCES, DHARWAD
Department of Agribusiness Management
Master’s Seminar- I
Impact of Demonetization on Agricultural sector
Chairman
Dr. Vilas S Kulkarni
Presented by:
P Santosh Kumar
PGS16AGR7015

3. Demonetization is the act of “stripping off the
currency unit of its status as legal tender” i.e. withdrawal of
some denominations as the official mode of payment. In
other words, the demonetized currency could no more
perform any of the function of money as a medium of
exchange, the standard of payment, storage value etc.
It is the process of ceasing to produce and circulate
particular forms of currency.
This is necessary whenever there is a change of
National currency. The old unit of currency is retired and
replaced with new unit of currency.

5. The Indian government decided to demonetize the
500 and 1000 rupee notes, the two biggest denomination
notes. These notes accounted for 86% of the country’s
cash supply.
The government’s goal was to eradicate counterfeit
currency, fight tax evasion, eliminate black money gotten
from money laundering and terrorist financing activities,
and promote a cashless economy.
Demonetization has affected every Indian, but it has
hit the agricultural sector the hardest.

6. Agriculture in India accounts for 48.90% of the workforce.
Farmers, who are the backbone of our national economy, were
severely affected by the demonetization of which invalidated 86% of
India’s currency.
Most of the farmers are getting loans from cooperative banks
which now don’t have cash to supply them. So farmers cannot buy
seeds, fertilizers and other things required for farming. It would take
few weeks to solve this issue. Till that time, farmers will find it
difficult.
Farmers generally deal in cash and India is also largely a
cash economy. The cash transactions in this economy are far more
than the total number of electronic transactions done on a daily
basis.

7. The whole country was taken aback when Prime
Minister Narendra Modi on November 8, 2016 announced
that the currencies in the denominations of Rs.500 and
Rs.1000 will be invalid post midnight. However, the lower
denomination –Rs.10, Rs.20, Rs.50, Rs.100 and coins –will
be valid. Thus, giving millions of Indians a panic attack.
Q. Do you think was this the first time an Indian currency
was banned of a sudden?
Ans: NO. Demonetization has been implemented twice -
1946 and 1978 – in the past.

8. The first currency ban:
 In 1946, the currency note of Rs 1,000 and Rs 10,000 were removed
from circulation. The ban really did not have much impact, as the
currency of such higher denomination was not accessible to the
common man. However, both the notes were reintroduced in 1954
with an additional introduction of Rs 5,000 currency.
 Rs 500 and Rs 1000 notes were introduced in 1934 and after four
years, in 1938, Rs 10,000 notes were introduced.

9. The second currency ban:
 That came in 1978; the Prime Minister of India Morarji Desai
announced the currency ban taking Rs 1000, Rs 5000 and Rs 10,000
out of circulation. The sole aim of the ban was to curb black money
generation in the country.

10. 1000 note (1978)
5000 note (1978)

11.  Ghana(1982)
 Nigeria (1984)
 Myanmar(1987)
 Soviet union(1991)
 North Korea(2001)
 Zimbabwe(2015)
 Australia(2016)
 Pakistan(2016)

12. Nigeria (1984)Ghana (1982)
Myanmar (1987) Soviet union (1991)

13. Pakistan (Dec 2016)Australia (Dec 2016)
North Korea(2001) Zimbabwe (2015)

15. An attempt to put an end to financial corruption
An effective way to fight the peril of fake
currency notes
Demonetization will expose those entities that
have non-complied with the prevailing tax rules
The government will improve the figure of the
collected revenues
A move towards a cashless economic framework

16.  The Indian government claims that the demonetization
effort is to stop the counterfeiting of the current
currency notes allegedly used for funding terrorism
across the border by the neighbouring countries, and as
an attack on the black money in the country.
 The move was claimed as an initiative to curb
corruption, trafficking of drugs, and smuggling across
borders.
 The supply of currency notes of all denominations has
seen an increase by about 40% during the period
between 2011 and 2016, the Rs. 500 and Rs. 1,000
denomination notes has increased by 76% and 109%
respectively during this period due to forgery.

17.  This forged cash is usually used to fund various terrorist
activities against India.
 Nations demonetize their local units of currency for various
reasons. Some include combating inflation or corruption, and
to discourage a dominative cash system.
 The government’s aim was to wipe out the counterfeit
currency, scrap tax evasion, abolish black money generated
out of money laundering and terrorist funding activities, and to
promote a cashless e-economy.
 The purpose is also to curb fake currency (financing terrorism)
and also corruption.

18. Demonetization
in India
Parallel
economy
Counterfeit
currency in
circulation
Terror
financing
Scrap tax
evasion
Cashless
e-economy

19. Source: Cash economy in India

20.  Agriculture
 Auto and auto ancillary
 Consumption
 Real estate
 Finance and bond markets
 Health sector
 Cross sector credit impact
 Online transactions and payment wallet
 Pension holders
 Private educational institutions
 Political party election funding
 Household sector

21. Agriculture
Source: Ministry of agriculture & farmers welfare

22. Auto and auto ancillary

24. Real estate

25. Health

26. Digital transactions

27. Source: Ministry of Commerce & Industry, Govt. of India.

28. Short term impacts
The farmers are classified on the aspect of
demonetization:
 Farmers with KCC/Agri Loan account
 Farmers with no KCC/Agri Loan account
Long term impacts

29.  The government allowed farmers to withdraw up to Rs.25,000
per week against their crop loans to ensure sowing of winter
crops is done properly. Farmers have at least a basic knowledge
on how banking works and they could be able to sustain the
impact of demonetization.
 Unless they have huge amount of money hoarded, they shall feel
relaxed about the current situation. Since it is a winter crop
harvesting period, they shall feel relaxed.
 The problem would be with the cash realized from previous sales
which were not deposited into KCC account and not with buying
the new seeds. If they do have large hectares of land, they can
pay easily making a simple bank transfer. Further as of now,
farmers can use old Rs.500 notes to buy seeds.

30.  They will be largely affected as they do not have the facilities of
withdrawing 25000 in cash. As it is generally seen that such
farmers do not keep lump sum in bank accounts largely due to fact
of low income or sometimes, lack of awareness.
 They will have to stand in line and suffer. So, is the case with
people in general. Credit transactions may increase in agricultural
sector due to these farmers. Further as of now, farmers can use old
Rs.500 notes to buy seeds.
Now coming to the different perspective, the farmers based in
rural areas with no banks would be largely affected. They will face
too much difficulty because of the demonetization. The cash crunch
will hit them hard. Unless they have good connection with the
suppliers, they are bound to suffer most.

31. Agricultural sector is still lacking behind in terms of
innovation and irrigation. It is often seen that innocent farmers are
exploited by the intermediaries. It is to be seen in future what Modi’s
government has in place for farmers in the future. Some of the
impacts on presumptions would be:
 With recovery of black money likely to be in billions, the
government can invest in the agricultural infrastructure.
 The rates of interest on loans are likely to fall. It will depend on
how much the government does make recovery.
 Out of the money, the irrigation project can be financed.
 The government should try to reach out to the farmers of rural
areas also. Otherwise, we might see rise in prices of the
commodities. So, in a nutshell, the farmers in rural areas being
distantly linked with banking channels will be hit hard.

33. India's Rs. 17 lakh-crore agricultural and food markets, from
the mandi to the neighbourhood grocer, are at a standstill.
 Demonetisation has vacuumed liquidity from this virtually cash-only
economy that provides livelihood to half the population.
 Prices have crashed and fresh produce lied rotting.
• Anxiety, caution, frustration and optimism have one common
‘caveat’; demonetization would cause short term discomfort but bring
benefits in the long term.
• Because of demonetization, while lending rates have come down,
bank deposits have increased; if those lower lending rates can be
translated into higher investment, then there's certainly going to be
less risk from demonetization.

34.  Agricultural growth in India contracted 0.2% in 2014-
15 and grew no more than 1.2% in 2015-16, largely
because of back-to-back droughts.
 Expected to grow at 4% in this year, but looks unlikely
because farmers are running out of cash to buy seeds,
fertilizer, equipment, and pay wages to workers and
commission to agents etc.
 Because of cash shortage the daily supply from
transport system has also suffered which has resulted in
25 to 50% reduction in sales (Sumathy, 2017).

35.  Effect on sown area
 Crop wise effect
 Effect on productivity
 Effect on prices
 Effect on output growth
 Effect on seasonal workers/daily workers
 Effect on mandi

36.  Timing: End of Kharif season (harvesting) and the
beginning of Rabi season (sowing)
 Rabi sowing was completed on 14.6 million hectare area
which was 5.7 per cent lower than the normal crop coverage
(November,2016). The gap between area sown this year and
normal area steadily declined almost every week since the
announcement of demonetization.
 By end of December, 2016, net sown area under rabi crops
exceeded the normal area by 2.77 per cent and area sown last
year by 6.86 per cent.

37.  Figures released by the agriculture ministry, shows that
the total sown area under rabi crops stands at 327.62
lakh hectares as compared to 313.17 lakh hectares
during the same time last year.
 Sowing of rabi crops clearly indicate that, at country
level, there is absolutely no adverse effect of
demonetization as for as sowing of major crops is
concerned.
 Normally rabi sowing is completed on 88 per cent area
by 30th December. But this year it has been completed
on more than 91 per cent area.

38. Rice
wheat
Source: Ministry of agriculture & farmers welfare

39. Pulses
Oil seeds
Source: Ministry of agriculture & farmers welfare

40. Comparison of all India net sown area in months of Nov and Dec

41.  Wheat, which accounts for 47 per cent of total area under
reported rabi crops, showed a big shortfall of 41 per cent in
area at the time of demonetization. The gap declined to less
than 1 per cent by mid December, 2016 and crossed normal
area by 2.12 per cent by the end of December.
 Area under pulses and oilseeds is higher than normal for the
corresponding period by 11.2 and 1.7 per cent respectively.
 The shortfall in area is reported for rabi rice and coarse
cereals.

42.  This shortfall is much smaller (6.6 lakh hectare) compared to
the gain in area under wheat, pulses and oilseeds (22.3 lakh
hectare) resulting in net increase in area under rabi by 15.7
lakh hectare over normal area and 37.4 lakh hectare over last
year.
 Among the major rabi crops, shortfall in sown area is about 20
per cent in Tamil Nadu and Karnataka and 8 per cent in
Gujarat and Andhra Pradesh. Similarly, J&K and Himachal
Pradesh also show major deficit in rabi sowing.
 Largest shortfall is seen in Kerala.
 All other major states indicate small to large increase in crop
sown area this year over normal area.

43. Source: Ministry of Agriculture

44.  Farmers use cash to buy quality seed, fertilizers, chemicals
and diesel and to hire labour and machinery.
 Sale of seed during the year by public institutions is reported
to be much lower than normal sales. This can have small
impact on productivity.
 Because rabi season crops are mainly self pollinated, farmers
need not buy fresh seed in rabi season every year. More than
70 per cent seed used in rabi crops is self produced and rest
is purchased from public sector agencies, research institutes
and private sources.
 The major impact on productivity is going to happen due to
change in use of fertilizer, in particular and purchased inputs
in general.

45.  According to Ministry of Agriculture, maintain Fertilizer
Monitoring System fertilizer offtake during the current rabi
season (till 21 December 2016) was lower than the fertilizer
offtake in the corresponding period during 2014-15 and 2015-
16 by 7.47 per cent and 7.0 per cent.
 According to a study by Ramesh Chand, 1 per cent
increase/decrease in fertilizer use results in 0.1 per cent
increase/decrease in agriculture GDP and about 0.14 per cent
increase/decrease in crop output.
 Based on this, it is estimated that current shortfall in fertilizer
consumption till the end of rabi season, which constitutes
half of annual agricultural output, can result in 1.05 per cent
decline in crop output and 0.75 per cent decline in agricultural
output.

47.  No effect of demonetization was seen on prices of
major crops like paddy, soybean and maize in the
month of November.
 However, prices of maize and soybean fell in the month
of December but paddy prices ruled higher than
previous two months and also as compared to last year.
 This might be due to some delays in payment to the
farmers due to cash crunch.

48. Market arrivals and price movement of paddy in APMC- Narela
Source: agmarknet.nic.in

49. Market arrivals and price movement of Cauliflower in APMC- Azadpur
Source: agmarknet.nic.in

50.  The perishables, vegetables and fruits, in most markets
and states showed a drop in market arrival as well as
prices post demonetization.
 Prices of banana, apple, tomato and cabbage in the
month of November in APMC mandis of the country,
taken together were 3.80, 3.86, 8.47 and 5.6 per cent
lower compared to the month of October, respectively.
 These changes indicate that incomes of producers of
perishable commodities have suffered due to fall in
prices in the month of November.

52.  Prices of some of the perishables crashed in the month of
December. The main reason for this was found to be the glut
in market.
 According to the data available on Agmarknet website, daily
arrival of tomatoes in mandis of Madhya Pradesh in
December 2016 was 54 per cent higher than November 2016.
 Average daily arrival of tomatoes in mandis of Maharashtra
was 48 per cent higher in the month of December and 51 per
cent higher in the month of November 2016 as compared to
the same months in year 2015.
 It is difficult to ascertain how much fall in prices of
perishables during the month of December 2016 was due to
glut in arrival and how much could be due to any disruption
due to demonetization.

53. Source: agmarknet.nic.in

54. Source: agmarknet.nic.in

55. Source: agmarknet.nic.in

58.  At the end of December 2016 implies that rabi crop output
will increase by 6.02 per cent over last year due to higher
area sown. But Lower use of fertilizer causes 1.06 per cent
decline in output of rabi season.
 These two factors put together imply that rabi output in
2016-17 could be 4.96 per cent higher than 2015-16.
 Lower sale of quality seeds due to cash crunch can also
affect growth but this impact is expected to be small.

59.  Level of productivity this year is estimated to be much higher
than last year due to normal N-W monsoon rainfall in year
2016.
 According to the first advance estimate for year 2016-17 the
increase was
57.0% in pulses
40.8% in oilseeds
19.4% in coarse cereals
6.7% in cotton
2.8 per cent in paddy
 The growth rate in farmers’ income is projected to be slightly
lower due to drop in prices of perishables during the months
of November and December.
 The net effect of fall in prices on farmers’ income is
estimated to be -0.26 per cent.

61.  Seasonal/Daily workers will be among the worst hits of the
demonetization. Because most of the daily workers receive
their wages on the basis of work they did per day.
 Cash crunch is very likely to result in delay or withholding
of their payments.
 Apart from them, a large section of rural population depends
upon the sale of their produce like vegetables, milk, eggs, etc.
which are perishable.
 There will be severe impact on these producers whose daily
bread & butter depend upon their daily sale.
 Most of these people do not have sufficient savings to sustain
their daily lives.

62.  A related impact has been observed in the vegetable market in India.
Trade has been hit hard at the largest vegetable market in North India –
the Chandigarh vegetable market as per Times Now Report.
 Drivers who have come from far off places like Indore and Nasik say it
takes 2 to 3 days for unloading to happen since there is no money in the
market to do transactions. They say they are not able to sell perishable
produce like vegetables and fruits.
 People and traders here make transactions with cash are suffering due
to the demonetization move initiated by the government.
 Traders who bring vegetables in vehicles complain that sales have dried
up as cash has dried up. They also say they do not have money even to
go back to their homes.

64.  Getting fake currency out of circulation
 Controlling inflation
 Tax Collection
 The move to digital currency
 Improved deposits and savings in financial institutions
 Stopping fraudsters
 Reducing illegal activities
 Growth in a country’s GDP
 Introducing new bank note designs
 A measure of good governance practices
 Good income management habits
 Reduction of lending rates
Source: https://www.demonetization-advantages-and-disadvantages.html

65.  Little cash in circulation
 Inconvenience and annoyance to the public
 Slowdown in Economic Growth
 Panic
 An avenue for fraud and corruption
 Disruption of Trade
 Loss of tradition
 Problems with paying bills
 ATMs have to be re-calibrated
 Short term financial crisis for poor people
Source: https://www.demonetization-advantages-and-disadvantages.html

66. Only an authoritarian government can calmly
cause such misery to the people-
Amartya Sen
Organized loot, legalized
plunder –
Dr. Manmohan Singh
The goal of this is to clean
transactions, [to] clean money-
Arun Jaitley