note demonetisation

Demonetisation has left India's food markets frozen – and the future looks tense

The liquidity crisis has affected both the trade in food and the planting of the winter crop.

As demonetisation enters its second week, traders in Patna’s Maroofganj mandi are seeing something unprecedented.

In the last seven days, the supply of new stocks in this wholesale market, which supplies cooking oil, spices, rice, wheat and pulses to shopkeepers across Patna, has plummeted. The supply of cooking oil, for instance, is down by 80%.

Talk to traders selling spices, grains or pulses and you hear similar numbers. “Do you see how quiet this market is?” said an accountant at a rice shop. “Till 10 days ago, you would not have been able to walk down this street.”

In the same period, orders from shopkeepers have fallen steeply as well. Most of them cannot buy as much stock as before, said Abhijit Kumar, who runs a wholesale shop for spices, because they have only Rs 500 and Rs 1,000 notes – both derecognised as legal tender by the government.

The strange thing is: despite the contraction in both supply and demand, commodity prices are stable.

Himanshu Kumar, a wholesale trader in cooking oil, said prices have not changed in the last one week. In rice and dal, said Vikas Kumar, a rice merchant who was overseeing the loading of sacks onto cycle rickshaws when this reporter met him, “demand is 80% down”. But prices, he said, have not changed.

The empty streets in Patna's Maroofganj mandi. Photo: M Rajshekhar
The empty streets in Patna's Maroofganj mandi. Photo: M Rajshekhar

Travel down to the fruit and vegetable market near Gandhi Maidan in Patna, and you will see something similar.

One of the biggest fruit and vegetable markets in Bihar’s capital, it occupies a handful of streets between the south bank of the river Ganga and a busy thoroughfare which runs east, heading out of Patna. This mandi gets its fruits and vegetables in multiple ways – traders travel to nearby villages early in the morning to buy vegetables which they later sell at the mandi, others go to a nearby wholesale market locally known as the Bazaar Samiti, and yet others get their vegetables from the wholesale market at Mithapur, near the train station.

Here too, volumes are down. Arrivals have fallen by half, said Sachidanand Singh, a wholesaler who supplies to vegetable sellers in this mandi.

On Wednesday morning, Sohan Kumar, a fruit seller, sat cross-legged on his cart at one end of the mandi with a heap of no more than 30 papayas in front of him. Usually, eight trucks arrive at the wholesale market every day, he said. “Right now, only two are coming.”

A liquidity crisis

Going by newspaper reports, Patna is not the only place in India seeing such changes. The vegetable market in Sonepat, Haryana, is seeing a lull, as is the grain mandi in Ghaziabad.

At Delhi’s largest agricultural market, Azadpur mandi, there were hardly any farmers on Tuesday morning. People at the mandi said farmers who bring produce to sell from the neighbouring districts of Panipat and Sonepat in Haryana, and from parts of Uttar Pradesh, have stopped their trips since November 13.

Prices, as this news report from Hyderabad says, are stable in some other parts of the country as well.

The reasons are simple, but the result is disturbing.

Take the mandi at Gandhi Maidan. According to Shiela Devi, a vegetable seller in her mid-30s who had arranged her baskets of brinjals, ladies’ finger and other vegetables near Sohan Kumar’s push-cart, farmers are not accepting Rs 500 and Rs 1,000 notes.

A similar payment crisis is playing out at Maroofganj. At Abhijit Kumar’s store, the wholesaler was talking to Jallandhar Kumar, a shopkeeper who buys from him. The latter only had Rs 1,000 notes and wanted to buy provisions for his shop, but the wholesaler was loath to take the notes. His suppliers do not accept those notes, he said.

Internet banking does not work here. Partly because, as a wholesaler in the grain business said, most businessmen do not know how to do internet banking. Many do not even have current accounts. “They did not want to show their transactions,” he said.

Instead, most participants in this chain operate largely in cash. But, with demonetisation, they cannot use a large part of the currency they own. Getting the same amounts in new denominations from banks is impossible, given the caps on withdrawals.

This liquidity crisis could have been mitigated if customer spending was high. But customers are spending more cautiously as well. Shopkeepers said families were spending only on essentials, like vegetables like cauliflowers while cutting back on fruits.

“The market is frozen,” said Abhijit Kumar. “The note circulation is slow. Retailers cannot give me new notes. And I cannot pay my suppliers.”

The failure of a market

This construct is responsible for that curious stability in prices.

If there was enough cash, said IIM-Bangalore professor MS Sriram, the mandi would have seen “a new equilibrium between supply and demand”. But right now, in the absence of cash, nobody can read the market. “We do not know how supply and demand will move,” he said.

Listening to him, it seemed the market had frozen at the last price it knew. This is something that Abhijit Kumar alluded to as well. “Yeh normal market nahin hain.” This is not a normal market.

It is not clear what happens next. At some point, Sriram said, these food markets will find a new equilibrium and prices will adjust to demand and supply. What is not clear is when that will happen, or what the new equilibrium will be.

In these initial days, the impact of a drop in supply is not too palpable. In the vegetable market, the initial brunt has been borne by the sellers of vegetables like tomatoes, which are trucked in from afar. In foodgrains, as the accountant of a rice trading firm said, wholesalers, retailers and families have buffer stocks. But if those stocks run out before the money supply improves in the market, there will be a shortage.

A paper published by the National Institute of Public Finance and Policy on November 14 said: “If supply too gets curtailed for want of a medium of exchange, prices might, in fact, rise.”

If that happens, the government will face the ire of people. At this time, however, opinion in the mandis is divided about demonetisation. Small traders like Sohan Kumar are angry. Kumar’s daily turnover has fallen from Rs 4,000 to Rs 1,000. So are workers whose daily incomes have been nearly wiped out. Ram Balak, a labourer in his 50s, who works in Maroofganj, made Rs 400 a day before demonetisation. Now, he barely makes Rs 50.

But there is support for demonetisation among bigger traders who believe it will reduce inflation. “Bilkul theek kiya. They did well,” said Sachidanand Singh, a wholesaler who supplies vegetables like cauliflower to the traders in this mandi. “If black money reduces, prices will come down.”

However, if normalcy takes longer, even businesses like his will be affected.

That is the clock this government is racing against.

Demonetisation and food

Take a closer look at all this and you see how demonetisation is disrupting the markets which supply us with our food. The government’s surprise announcement might damage the country’s food stocks, even if money supply improves dramatically in the days ahead, and mandis like Maroofganj and Gandhi Maidan pick up.

This is because the government embarked on the demonetisation drive at a time when the freshly harvested kharif or monsoon crop was arriving at the mandis and the rabi or winter crop was being planted in the fields.

Farmers, who need money to purchase inputs for the rabi sowing, find themselves strapped for cash. At the grain mandi in Karnal in Haryana, commission agents who buy the kharif harvest of paddy have told farmers that they can either collect a full payment in old denominations now or in new notes after 2-3 months.

For a farmer, both are terrible options. On Tuesday, Ramveer Pal, a farmer from Shamli in Uttar Pradesh, had sold around 20 quintals of basmati rice in Karnal mandi. The trader paid him Rs 40,000 in old denominations. “I have to take it as I cannot afford to keep the amount pending for three months,” he said.

But, to convert the old notes, he will have to visit the bank several times, which will be a problem because banks are marking people who are coming for an exchange of notes with indelible ink.

Grains waiting to be sold in Karnal mandi.
Grains waiting to be sold in Karnal mandi.

That said, the consequences of announcing demonetisation in November go beyond the inconvenience borne by farmers. As traders tried to scrounge up money, the sowing cycle has been delayed. Farmers will have to plant varieties which grow fast, said Rajnish Chaudhary, district president of the Anaj Mandi Association at Karnal. Such varieties have a 10%-15% lower yield, he added.

Some farmers were able to buy seeds, fertilisers and pesticides from commission agents on credit, who in turn got supplies from dealers on credit. Others, however, were struggling to make the purchases, with agents and dealers refusing to take the old Rs 500 and Rs 1,000 notes. Ishaq Garg, who runs a store called Ishwar Prem Seeds and Fertilizers in Karnal, said sales have dropped by at least 60%.

This too will affect the rabi yields.

We welcome your comments at
Sponsored Content BY 

Behind the garb of wealth and success, white collar criminals are hiding in plain sight

Understanding the forces that motivate leaders to become fraudsters.

Most con artists are very easy to like; the ones that belong to the corporate society, even more so. The Jordan Belforts of the world are confident, sharp and can smooth-talk their way into convincing people to bend at their will. For years, Harshad Mehta, a practiced con-artist, employed all-of-the-above to earn the sobriquet “big bull” on Dalaal Street. In 1992, the stockbroker used the pump and dump technique, explained later, to falsely inflate the Sensex from 1,194 points to 4,467. It was only after the scam that journalist Sucheta Dalal, acting on a tip-off, broke the story exposing how he fraudulently dipped into the banking system to finance a boom that manipulated the stock market.


In her book ‘The confidence game’, Maria Konnikova observes that con artists are expert storytellers - “When a story is plausible, we often assume it’s true.” Harshad Mehta’s story was an endearing rags-to-riches tale in which an insurance agent turned stockbroker flourished based on his skill and knowledge of the market. For years, he gave hope to marketmen that they too could one day live in a 15,000 sq.ft. posh apartment with a swimming pool in upmarket Worli.

One such marketman was Ketan Parekh who took over Dalaal Street after the arrest of Harshad Mehta. Ketan Parekh kept a low profile and broke character only to celebrate milestones such as reaching Rs. 100 crore in net worth, for which he threw a lavish bash with a star-studded guest-list to show off his wealth and connections. Ketan Parekh, a trainee in Harshad Mehta’s company, used the same infamous pump-and-dump scheme to make his riches. In that, he first used false bank documents to buy high stakes in shares that would inflate the stock prices of certain companies. The rise in stock prices lured in other institutional investors, further increasing the price of the stock. Once the price was high, Ketan dumped these stocks making huge profits and causing the stock market to take a tumble since it was propped up on misleading share prices. Ketan Parekh was later implicated in the 2001 securities scam and is serving a 14-years SEBI ban. The tactics employed by Harshad Mehta and Ketan Parekh were similar, in that they found a loophole in the system and took advantage of it to accumulate an obscene amount of wealth.


Call it greed, addiction or smarts, the 1992 and 2001 Securities Scams, for the first time, revealed the magnitude of white collar crimes in India. To fill the gaps exposed through these scams, the Securities Laws Act 1995 widened SEBI’s jurisdiction and allowed it to regulate depositories, FIIs, venture capital funds and credit-rating agencies. SEBI further received greater autonomy to penalise capital market violations with a fine of Rs 10 lakhs.

Despite an empowered regulatory body, the next white-collar crime struck India’s capital market with a massive blow. In a confession letter, Ramalinga Raju, ex-chairman of Satyam Computers convicted of criminal conspiracy and financial fraud, disclosed that Satyam’s balance sheets were cooked up to show an excess of revenues amounting to Rs. 7,000 crore. This accounting fraud allowed the chairman to keep the share prices of the company high. The deception, once revealed to unsuspecting board members and shareholders, made the company’s stock prices crash, with the investors losing as much as Rs. 14,000 crores. The crash of India’s fourth largest software services company is often likened to the bankruptcy of Enron - both companies achieved dizzying heights but collapsed to the ground taking their shareholders with them. Ramalinga Raju wrote in his letter “it was like riding a tiger, not knowing how to get off without being eaten”, implying that even after the realisation of consequences of the crime, it was impossible for him to rectify it.

It is theorised that white-collar crimes like these are highly rationalised. The motivation for the crime can be linked to the strain theory developed by Robert K Merton who stated that society puts pressure on individuals to achieve socially accepted goals (the importance of money, social status etc.). Not having the means to achieve those goals leads individuals to commit crimes.

Take the case of the executive who spent nine years in McKinsey as managing director and thereafter on the corporate and non-profit boards of Goldman Sachs, Procter & Gamble, American Airlines, and Harvard Business School. Rajat Gupta was a figure of success. Furthermore, his commitment to philanthropy added an additional layer of credibility to his image. He created the American India Foundation which brought in millions of dollars in philanthropic contributions from NRIs to development programs across the country. Rajat Gupta’s descent started during the investigation on Raj Rajaratnam, a Sri-Lankan hedge fund manager accused of insider trading. Convicted for leaking confidential information about Warren Buffet’s sizeable investment plans for Goldman Sachs to Raj Rajaratnam, Rajat Gupta was found guilty of conspiracy and three counts of securities fraud. Safe to say, Mr. Gupta’s philanthropic work did not sway the jury.


The people discussed above have one thing in common - each one of them was well respected and celebrated for their industry prowess and social standing, but got sucked down a path of non-violent crime. The question remains - Why are individuals at successful positions willing to risk it all? The book Why They Do It: Inside the mind of the White-Collar Criminal based on a research by Eugene Soltes reveals a startling insight. Soltes spoke to fifty white collar criminals to understand their motivations behind the crimes. Like most of us, Soltes expected the workings of a calculated and greedy mind behind the crimes, something that could separate them from regular people. However, the results were surprisingly unnerving. According to the research, most of the executives who committed crimes made decisions the way we all do–on the basis of their intuitions and gut feelings. They often didn’t realise the consequences of their action and got caught in the flow of making more money.


The arena of white collar crimes is full of commanding players with large and complex personalities. Billions, starring Damien Lewis and Paul Giamatti, captures the undercurrents of Wall Street and delivers a high-octane ‘ruthless attorney vs wealthy kingpin’ drama. The show looks at the fine line between success and fraud in the stock market. Bobby Axelrod, the hedge fund kingpin, skilfully walks on this fine line like a tightrope walker, making it difficult for Chuck Rhoades, a US attorney, to build a case against him.

If financial drama is your thing, then block your weekend for Billions. You can catch it on Hotstar Premium, a platform that offers a wide collection of popular and Emmy-winning shows such as Game of Thrones, Modern Family and This Is Us, in addition to live sports coverage, and movies. To subscribe, click here.

This article was produced by the Scroll marketing team on behalf of Hotstar and not by the Scroll editorial team.