6 Dec 2016

Credit for cash-strapped farmers

Looking for precedents for the scale of the demonetization being managed in India, there have been two previous similar episodes in India, at the time of independence and again in the early seventies. Comparisons might also be drawn with the experience in Ireland in the early seventies, when supply of all currency was severely disrupted by long bank strikes. The emergence of internet capabilities adds a new dimension to the current episode but nonetheless a signature feature is the adaptability of consumers. The government has been very active in responding to specific needs, such as allowing the continued use of the 500 note by farmers for seed purchases to sustain planting of the Rabi crops. Similarly, NABARD, the agricultural bank has been permitted to create an additional $3bn of credit for cash-strapped farmers. The immediate consequence of this is that midway through the season at the end of November, Rabi sowing was 4.6% up on the previous year. 

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