note demonetisation

Demonetisation: India's unbanked population would be the world's 7th-largest country

Larger than Bangladesh or Japan.

Banks are no longer be permitted to exchange older Rs 500 and Rs 1,000 notes over the counter for new ones. When he announced the demonetisation of higher-value notes on November 8, Prime Minister Narendra Modi had said that everyone would be able to exchange up only to Rs 4,000 in cash until November 24, after which the limit would be increased. Instead, on Friday, the finance ministry said it was ending cash exchanges altogether.

“It has been observed that over the counter exchange of the old currency notes of Rs. 500 and Rs. 1000 denomination has shown a declining trend,” the ministry said in a release. “Consequently, there will be no over the counter exchange of old Rs. 500 and Rs. 1000 notes after midnight of 24.11.2016.”

Those who still have older notes have the option of depositing this money in their bank accounts. Unless, that is, they don’t have bank accounts.

India’s unbanked

Because of India’s sheer scale, that is not a negligible number of people.

A report prepared by PricewaterhouseCoopers India in 2015 pointed out that India’s unbanked population that year was 233 million. This was half the number it was in 2011, at 557 million, primarily because of the Pradhan Mantri Jan Dhan Yojana scheme aimed at making it easier for people to open new accounts. Since that report, in October 2015, the Jan Dhan Yojana has grown even further, adding 68 million accounts as of the most recent report on November 9, 2016.

Presuming every single Jan Dhan Yojana account has gone to a new user, that still leaves about 165 million people unbanked. Allowing for the Jan Dhan’s aim of opening bank accounts for every household (of an average of four people), rather than individual, that brings this number to 41 million households.

If that entire unbanked population were a country, it would be the world’s eighth largest nation – more populous than even Bangladesh.

Surveys carried out by banks under the Jan Dhan Yojana in 2015 found that 99.99% of the 21 crore households they reached out to had opened bank accounts. The government and RBI have also made efforts to use other avenues to increase access to banking, such as giving licences to payment banks, allowing India’s Post Offices to be leveraged that way. Yet, despite this, the Centre acknowledged in June this year that 40% of the country is “outside the ambit of formal banking”.

Financial inclusion

The Finance Ministry’s press release did address this too. “It has further been felt that people may be encouraged and facilitated to deposit their old Rs. 500 and Rs 1,000 notes in their bank accounts,” it said, on Friday. “This will encourage people who are still unbanked, to open new bank accounts.”

It’s possible that some of those households that are unbanked were already able to exchange the cash that they had or can rely on informal networks to do so. But that still leaves potentially millions more who have to now open bank accounts – at a time when most banks are still struggling to deal with the massive rush.

Many of these will have trouble opening accounts even if they had the one identity card that had allowed them to exchange cash earlier, but no valid current or permanent address proof that a Jan Dhan account requires. Anecdotal evidence suggests that banks also don’t have the capacity to handle new account openings while they continue to deal with the massive pressure of people depositing older currency.

Banking pressure

Even if they do manage to open an account though, if the government continues to use these tactics to force people into using the banking system, it will put the already stretched industry under further strain. India has only 18 ATMs per 100,000 adults, compared to a global average of 43. It has only 13.4 bank branches per 100,000 adults, in line with the world average but far behind any country that can claim to be primarily cashless.

Business correspondents, the people whose job it is to do small banking transactions in areas where there are no branches, are already under strain as a result of the demonetisation. They are allowed to assist with opening of accounts, but the KYC formalities will nevertheless have to be done by branches.

India’s central bank, after notifying this new sudden change, did allow for some leeway.

  “The Reserve Bank of India advises members of public that exchange of banknotes in Rs 500 and Rs 1000 denominations, whose legal tender status has been withdrawn, will continue to be available at the counters of the Reserve Bank upto the current limits per person as hitherto. (However such exchange facility is no longer available at other banks’ counters).”  

If they want to, those 165 million Indians who haven’t been able to open an account can now go exchange their cash at RBI’s nationwide network of just 19 regional offices and nine sub-offices.

We welcome your comments at letters@scroll.in.
Sponsored Content BY 

How sustainable farming practices can secure India's food for the future

India is home to 15% of the world’s undernourished population.

Food security is a pressing problem in India and in the world. According to the Food and Agriculture Organization of the UN (FAO), it is estimated that over 190 million people go hungry every day in the country.

Evidence for India’s food challenge can be found in the fact that the yield per hectare of rice, one of India’s principal crops, is 2177 kgs per hectare, lagging behind countries such as China and Brazil that have yield rates of 4263 kgs/hectare and 3265 kgs/hectare respectively. The cereal yield per hectare in the country is also 2,981 kgs per hectare, lagging far behind countries such as China, Japan and the US.

The slow growth of agricultural production in India can be attributed to an inefficient rural transport system, lack of awareness about the treatment of crops, limited access to modern farming technology and the shrinking agricultural land due to urbanization. Add to that, an irregular monsoon and the fact that 63% of agricultural land is dependent on rainfall further increase the difficulties we face.

Despite these odds, there is huge potential for India to increase its agricultural productivity to meet the food requirements of its growing population.

The good news is that experience in India and other countries shows that the adoption of sustainable farming practices can increase both productivity and reduce ecological harm.

Sustainable agriculture techniques enable higher resource efficiency – they help produce greater agricultural output while using lesser land, water and energy, ensuring profitability for the farmer. These essentially include methods that, among other things, protect and enhance the crops and the soil, improve water absorption and use efficient seed treatments. While Indian farmers have traditionally followed these principles, new technology now makes them more effective.

For example, for soil enhancement, certified biodegradable mulch films are now available. A mulch film is a layer of protective material applied to soil to conserve moisture and fertility. Most mulch films used in agriculture today are made of polyethylene (PE), which has the unwanted overhead of disposal. It is a labour intensive and time-consuming process to remove the PE mulch film after usage. If not done, it affects soil quality and hence, crop yield. An independently certified biodegradable mulch film, on the other hand, is directly absorbed by the microorganisms in the soil. It conserves the soil properties, eliminates soil contamination, and saves the labor cost that comes with PE mulch films.

The other perpetual challenge for India’s farms is the availability of water. Many food crops like rice and sugarcane have a high-water requirement. In a country like India, where majority of the agricultural land is rain-fed, low rainfall years can wreak havoc for crops and cause a slew of other problems - a surge in crop prices and a reduction in access to essential food items. Again, Indian farmers have long experience in water conservation that can now be enhanced through technology.

Seeds can now be treated with enhancements that help them improve their root systems. This leads to more efficient water absorption.

In addition to soil and water management, the third big factor, better seed treatment, can also significantly improve crop health and boost productivity. These solutions include application of fungicides and insecticides that protect the seed from unwanted fungi and parasites that can damage crops or hinder growth, and increase productivity.

While sustainable agriculture through soil, water and seed management can increase crop yields, an efficient warehousing and distribution system is also necessary to ensure that the output reaches the consumers. According to a study by CIPHET, Indian government’s harvest-research body, up to 67 million tons of food get wasted every year — a quantity equivalent to that consumed by the entire state of Bihar in a year. Perishables, such as fruits and vegetables, end up rotting in store houses or during transportation due to pests, erratic weather and the lack of modern storage facilities. In fact, simply bringing down food wastage and increasing the efficiency in distribution alone can significantly help improve food security. Innovations such as special tarpaulins, that keep perishables cool during transit, and more efficient insulation solutions can reduce rotting and reduce energy usage in cold storage.

Thus, all three aspects — production, storage, and distribution — need to be optimized if India is to feed its ever-growing population.

One company working to drive increased sustainability down the entire agriculture value chain is BASF. For example, the company offers cutting edge seed treatments that protect crops from disease and provide plant health benefits such as enhanced vitality and better tolerance for stress and cold. In addition, BASF has developed a biodegradable mulch film from its ecovio® bioplastic that is certified compostable – meaning farmers can reap the benefits of better soil without risk of contamination or increased labor costs. These and more of the company’s innovations are helping farmers in India achieve higher and more sustainable yields.

Of course, products are only one part of the solution. The company also recognizes the importance of training farmers in sustainable farming practices and in the safe use of its products. To this end, BASF engaged in a widespread farmer outreach program called Samruddhi from 2007 to 2014. Their ‘Suraksha Hamesha’ (safety always) program reached over 23,000 farmers and 4,000 spray men across India in 2016 alone. In addition to training, the company also offers a ‘Sanrakshan® Kit’ to farmers that includes personal protection tools and equipment. All these efforts serve to spread awareness about the sustainable and responsible use of crop protection products – ensuring that farmers stay safe while producing good quality food.

Interested in learning more about BASF’s work in sustainable agriculture? See here.

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