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LATEST NEWS UPDATES | Cash Crunch: Measuring the impact of notebandi on domestic agricultural markets -Harish Damodaran

Cash Crunch: Measuring the impact of notebandi on domestic agricultural markets -Harish Damodaran

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published Published on Nov 17, 2017   modified Modified on Nov 17, 2017
-The Indian Express

First-ever comprehensive study pegs produce trade losses in mandis from demonetisation at 7-15%.

Demonetisation led to the value of farm produce traded in mandis across India collapse by nearly 15 per cent within a week of the decision, with these losses averaging 7 per cent even at the end of 90 days, according to a just-published Indira Gandhi Institute of Development Research (IGIDR) working paper.

The study, which crunches data on arrivals and prices from 2,953 mandis or regulated markets for 35 major agricultural commodities, estimates the extent of trade displacement to be even higher for perishable produce, at 20-22 per cent, during the first two months.

The daily loss of value of trade in their case — in relation to what it might have been in the absence of demonetisation — remained at over 18 per cent even 90 days after the Narendra Modi government’s November 8, 2016 announcement invalidating all existing Rs 500 and Rs 1,000 denomination currency notes, say Sudha Narayanan and Nidhi Aggarwal, researchers at the IGIDR, Mumbai and the Indian Institute of Management, Udaipur, respectively.

The two economists have used a “difference-in-differences” regression statistical technique to construct counterfactuals for 2016-17, i.e. projecting arrivals and prices of crops across mandis for the year based on trends during the previous five years (2011-12 to 2015-16). By comparing actual arrivals and prices in 2016-17 with what they would have been in the normal course based on past years’ patterns, the authors are able to arrive at the value of domestic agricultural trade that was displaced on account of demonetisation.

The significant part about the estimated average 7 per cent loss of value of trade (minimum price multiplied by total quantity of arrivals of each crop in a mandi, and aggregating it for all crops across mandis) even three months after demonetisation is that it comes in a year of bumper agricultural production on the back of a good monsoon. While farmers should have seen their incomes rise in such a year, they actually ended up experiencing a loss in value of the crop sold by them in the mandis. Most of this decline, as per the authors’ computations, was on account of prices rather than of arrivals, which more or less recovered over a period of three months; farmers couldn’t obviously have held on to their crop for too long, more so with respect to perishables.

The other important thing to note about the IGIDR paper is that its period of analysis is limited to three months after demonetisation happen. There is reason to believe that its impact lasted much beyond that period. Proof of it is the widespread farmer protests across state such as Maharashtra, Madhya Pradesh and Rajasthan, much of which was witnessed during June just when the rabi crop had been harvested and marketed. May-June was also the time when most farm commodities registered price collapses. Both these months, in fact, recorded negative consumer food price inflation rates.

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The Indian Express, 16 November, 2017, http://indianexpress.com/article/india/demonetisation-effect-on-farmers-farm-produce-note-ban-narendra-modi-minimum-support-prices-indian-agriculture-sector-4939


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