Rs 150,000 crore plus: the govt stimulus for rural areas post lockdown -Harish Damodaran

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published Published on Jun 25, 2020   modified Modified on Jun 25, 2020

-The Indian Express

That’s the actual liquidity pumped into rural areas by government post lockdown – through grain procurement, PM-Kisan and MGNREGA wages.

There are many parallels one can draw between the novel coronavirus-induced lockdown (gharbandi) and demonetisation (notebandi), in terms of their impact on India’s farm economy. Both resulted in the same thing – demand destruction – albeit through different routes.

Notebandi caused a haemorrhaging of liquidity from the predominantly cash-based farm produce markets. In the pre-demonetisation era, it wasn’t uncommon for individual traders to purchase produce worth Rs 50 lakh or even Rs 1 crore daily during the peak arrival season and make payments to farmers entirely in cash. With demonetisation, and also restrictions on cash transactions introduced in the 2017-18 Union Budget, wholesale mandis were suddenly denuded of liquidity and, thereby, demand.

In gharbandi, demand destruction was wrought not by a lack of cash, but of buyers themselves. And these were institutional buyers, as opposed to households. The closure of hotels, restaurants, tea stalls, street food joints, sweetmeat shops, hostels and canteens — in addition to no wedding receptions and other public functions — led to a collapse of out-of-home food consumption. Even household-level food consumption was affected by falling incomes (in respect of poor and lower middle class families suddenly finding themselves without work) and reduced requirement due to forced inactivity (as with the rich and better off).

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The Indian Express, 25 June, 2020,

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