With an insatiable thirst for foreign travel (over 64 jaunts since he came to power three years ago), India’s Prime Minister Narendra Modi appears to have lost sight of India, particularly, the real India living its villages, writes P.K.Balachandran in www.southasianmonitor.com.
Though he claims to be a small town man of humble origin, Modi would rather rub shoulders with heads of state and prime ministers of distant lands than look up farmers in his own country, who, burdened by debt caused by his decision to demonetize 86% of the currency in circulation in November last year, are committing suicide at an alarming rate.
Between 2014 and 2015, there have been suicides from 12,360 to 12,602. States ruled by Modi’s Bharatiya Janata Party (BJP) have the dubious distinction of being in the top seven of suicide-prone states. Maharashtra, a BJP-ruled state, accounts for 37.8% of farmer suicides and tops the list. Chattisgarh and Madhya Pradesh, also ruled by the BJP, are in the top seven.
The single most important cause of suicide among farmers is debt/bankruptcy accounting for 38.7%.
Debts is due to draught, fall in the prices of cash crops, and the inability to sell produce because of a shortage of cash in the market, is a situation suddenly created by Modi through demonetization.
The agricultural sector employs 50% of India’s workforce, and this workforce is paid in cash. Out of 1.2 billion Indians, 600 million have no bank accounts, and 300 million have no government identity cards to enable them to open a bank account. These millions were caught unawares and left in the lurch when demonetization happened over night.
Demonetization struck when farmers had harvested the kharif or winter crop and were going to sell the produce. But in the absence of cash in the market, buyers were scarce and the produce had to be given away at throw away prices. Cauliflower was going at Rs.3.5 per kg. Seventy percent of perishables had to thrown away in some states. In poverty stricken Chattisgarh, vegetables went for 0.25 per kilo. A report from Mumbai said that 70% of workers in some of the textile mills had to go back to their villages as the employers, who paid them in cash, had no cash.
Modi has not bothered to visit Madhya Pradesh, a state ruled by his own party where five farmers were recently killed by the police in an agitation for debt relief. He has not issued a statement sympathizing with them but is all set to travel to Israel and the US for photo opportunities with Benjamin Netanyahu and Donald Trump.
For all the overseas marketing of his “Make in India” project, Modi has little to show by way for Foreign Direct Investment to boost the organized sector. Research shows that the big FDI figures touted are only pledges and not actual investment. And much of the infusion of foreign capital is in the purchase of shares in existing Indian companies.
India’s private economy (leaving out the government and agriculture sector), grew by a mere 3.8% in quarter 4 of the 2016-17 financial year. For the same quarter the previous year, the growth had been 10.7%. Economists attributed this to the “incredible” effect of the demonetization of Rs.500 (US$ 7.5) and Rs.1000 (US$ 15) notes on November 8, 2016 which accounted for 86% of the currency in circulation.
Modi tried to market demonetization as an anti-terror financing measure. But this claim is yet to be tested for validity. However what is clear is that demonetization had hit India’s informal, agricultural and small scale industrial sectors below the belt.
As on September 30, 2016, the annual rate of growth of bank credit was 12.1%. That fell sharply to 5.4% by March 31, 2017, according to the daily Mint. Growth in rural loans in the second half of 2016-2017 (October-March) was 2.5% as compared to 12.9% during the same period in 2015-2016.
Agricultural growth, which was 6% in the previous year dipped to 3.8 %. Manufacturing fell from 8.3% to 6.9%. Real Estate saw a dip in growth from 7.6% to 3.1%. Small and medium industrial sector suffered the most because this sector, like the agricultural sector, is based on cash transactions and the absence of Rs.500 and Rs.1000 notes made payments extremely difficult, a difficulty made worse by a shortage of notes of lower denominations.
Perhaps regretting his decision to demonetize Rs.500 and Rs.1000 notes, the Modi government this month issued new Rs.500 and Rs.1000 notes with special features to distinguish them from the pre-November 2016 notes.
This will go a long way to ease business transactions. But indebtedness and distress caused by demonetization have to be addressed as these lead to suicides. Loan waiver is being considered. But this will inevitably be a big burden on the Central Exchequer as only the Center has the money. The amounts sought by the states go into tens of thousands of crores. If loan waiver is done in Maharahtra and Madhya Pradesh, both BJP ruled states, other states will also demand and have to be catered to.
(The featured picture at the top shows a fire engine set on fire by agitating farmers in Mandsaur in Madhya Pradesh)