Demonetization In Rural India

By: Jasmine Gambhir, 2016-11-17 11:00:00.0Category:  Awareness
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% of population living in rural areas


% of working population employed in agricultural and allied sectors


More than half of India's population lives in rural areas and more than half of India's working population works in the agricultural and allied sectors.

A comparison between banking penetration in rural versus urban areas:

Scheduled Commercial Bank branches/100,000 population in

Rural + Semi-Urban Areas


Urban + Metropolitan Areas


Need and Access to New Notes:

According to RBI, in a report released in Dec 2015, banking penetration indicators like "No. of branches/100,000 of population" ,  "No. of savings bank accounts/100,000 of population", and "No. of credit bank accounts/100,000 of population" are positively and linearly related to NSDP per capita. However, some of the states having the highest percentage of population involved in agriculture like Madhya Pradesh, Orissa, Uttar Pradesh, Jammu and Kashmir, Chhattisgarh, Jharkhand, Bihar, and Assam lie on the lower end of the NDSP per capita spectrum. Therefore, these have the lowest banking penetration among Indian states. In the presence of a majority(>50%) population engaged in agriculture and low banking penetration, agriculturalists are expected to be affected the most in terms of obstruction to transactions in the period leaving 84% of hard currency in circulation invalid. Also, it must be noted that except for Kerala(34%) and Delhi(0.2%), more than 40% of the population of all other states is employed in agriculture.

It is currently the sowing period for the Kharif season. Many farmers have sold off the Rabi harvest and many are awaiting for cash to buy raw material. With the APMCs short of cash at this crucial juncture, where after two drought years, Indian states received reasonably good rainfall(87% of long term average), many farmers are being left in the cold.

Insurance Schemes:

Village-level Primary Agricultural Cooperative Credit Societies , tasked with disbursing loans for Pradhan Mantri Fasal Bima Yojana are also handicapped in disbursing Rs.6000Cr worth of loans due to restrictions on withdrawal of money. Micro-credit organizations serving the poorest of the poor are also handicapped currently, as they are not allowed to accept repayments in old notes.

A side note, District Central Co-operative banks are not being allowed to exchange/take deposits from account holders.

Ideas for implementation:

Efforts can be made to collect harvest as a priority and pay in cash so that it reaches the many landless agricultural labourers. Emergency relief in the form of food and raw material for the current sowing season can be distributed. A change in plan leading to a phasing out of the notes along with tight restrictions on Gold/Forex/Land can be done.

This looks like a crisis beyond ATM queues.


Banking Penetration Area wise: Census 2011- Provisional Population Totals-India

Sector-wise composition: NSSO 66th Round Survey

NSDP Ranking: Ministry of Statistics and Programme Implementation

Banking Penetration Indictors: Report of the Committee on Medium Term Path on Financial Inclusion released 28th Dec, 2015

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