Demonetization: Government takes new steps to aid farmers, exporters

Concerned over reports of rural distrust and the Opposition's plans for a nation-wide stir, Prime Minister Narendra Modi along with Finance Minister Arun Jaitley met top officials on Monday to review the impact of the ban on higher denomination notes in far-flung rural areas.

Recently, the top brass of the BJP have been reviewing plans to ease any negative impact of demonetization in these areas and in this regard BJP president Amit Shah and Jaitley held a separate meeting on Monday. This meeting saw discussions on a variety of sops that could be put in place to improve the cash flow to the general public.

Sources said the prime minister has already directed the finance ministry to ensure better availability of cash in rural areas. Earlier also, the government had announced a slew of measures to help farmers, one of them being that farmers could purchase seeds with old high-denomination notes of Rs 500. This move came after reports of distress in villages, which have poor access to banking facilities, and that farmers were finding it difficult to pay loans.

A government notification, on Monday, stated that farmers could purchase seeds from any government outlet on production of proof of identity. The notification said that this revised rule was being put in place in order to support farmers harvesting the current Rabi crop.

In the meantime, in another bid to bring relief to the common man, the Reserve Bank of India (RBI) on Monday also provided an additional 60 days for repayment of housing, car, farm and other loans worth up to Rs 1 crore. This is applicable to loans payable between November 1 and December 31, the RBI said in a notification.

Government sources said that the Centre had also been listening to its allies, the Akali Dal and the Shiv Sena, who have placed forth a list of demands which are being taken forward. Sources say the Centre is considering putting money into cooperative banks and then disbursing it through organisations such as NABARD (National Bank for Agriculture and Rural Development) to help people in far-flung rural areas. Punjab Chief Minister Parkash Singh Badal has also asked the Centre to include cooperative banks in the system of dispensing alternative currency.

The problems faced by farmers are also on the mind of the Shiv Sena. Earlier, the Sena had joined a protest march by Mamata Banerjee-led Trinamool Congress, where the latter had submitted a memorandum to President Pranab Mukherjee demanding the immediate rollback of demonetization. The Sena however did not sign that memorandum and instead submitted a separate memorandum seeking permission for district cooperative banks to accept old scrapped notes up to December 30. This permission has already been granted to other commercial banks and post offices.

There are already reports that India's exports of one million bales of cotton have been delayed due to demonetization, driving up prices to levels higher than in the global market. This has forced buyers to switch to other producers like the United States, Brazil and other African countries.

Despite such measures, official sources admit that economic growth will be slower in the first quarter, but add that the economy is expected to pick up once the banks are flush with money. Top sources in the government expect that a dip in sales or any visible negative impact on the economy would be a temporary phase and would outweigh long term gains. They add that the government expects banks to cut interest rates sharply on account of the surge in deposits. Such a move is expected to ensure public spending and a larger tax base. More ATMs are also expected to be set up across the country to deal with consumer demand.

Apart from these measures to address rural distress, the government also increased the cash limit withdrawal for farmers to Rs.25,000 per week from their Know Your Customer (KYC) compliant accounts subject to the normal loan limits and conditions, apart from the other facilities announced on November 17.

It's not just farmers that the government is keeping an eye on. The government is also looking at exporters and sources say, there is a move to increase the cash withdrawal limit for them as well. Reports reveal that the cash crunch post-demonetization had caused some exporters to shut shop or scale down production.

In this regard, export promotion councils have approached Commerce and Industry Minister Nirmala Sitharaman on Monday to ask the government to increase the cash withdrawal amount for them and the minister had assured them that she would take up their demand.