Demonetisation effect: Cotton bolled

The cash crunch has impacted the entire cotton value chain, from grower to cloth merchant.

Written by Vivek Deshpande | Hinganghat (maharashtra) | Updated: November 24, 2016 8:05 am
currency ban, rs 1000 ban, rs 500 ban, cotton farmers, Maharashtra cotton farmers, demonetisation, farmers help, farmer crisis no money, atm closed, banks closed, help, mumbai help, mumbai news, indian express news, india news The virtually empty cotton market yard at the Hinganghat APMC mandi. (Express photo: Deepak Daware)

This tehsil town in Wardha district has all the cast of the cotton story at one place. Home to Maharashtra’s biggest cotton mandi, 19 ginning units, and three major spinning, weaving and cloth manufacturing complexes, it gives some idea of what the Centre’s demonetisation of Rs 500 and Rs 1,000 currency notes may have unleashed in the sector.

The one word almost every player is using to describe the current situation is ‘slowdown’. “Last year, we had 2,63,000 quintals of arrivals of kapas (raw, un-ginned cotton) at this time, whereas that is down to just 100,000 quintals so far this year,” says Tukaram Chambhare, secretary of the agriculture produce market committee (APMC) at Hinganghat. This market yard handled arrivals of 19,00,867 quintals valued at Rs 835 crore in the 2015-16 season (October-March).

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The lower arrivals are notwithstanding a bumper cotton crop. The Cotton Association of India estimates the country’s output at 345 lakh bales in 2016-16, up from last year’s 337.75 lakh bales, with Maharashtra’s production alone projected to rise from 78 to 88 lakh bales. “What we are seeing now has to do with the cash crunch, post-demonetisation. Farmers prefer selling against cash, which they need for paying cotton-picking labourers and transporters. But the commission agents/traders who buy on behalf of ginners and mills don’t have cash today to disburse,” notes Chambhare.

His statement is borne out by the relatively empty APMC yard, which is receiving only 500-600 kapas-laden vehicles daily, as opposed to the 1,500-odd normally expected at this time. “We were anticipating good arrivals, but the sudden withdrawal of Rs 500 and Rs 1,000 notes from circulation has put the brakes,” sums up Sunil Jeswani, a local commission agent. Some traders sought to lure farmers by paying about Rs 200 per quintal more than the ruling market price, provided they accepted the demonetised notes. It, however, had few takers because most farmers figured out that this would entail queuing up before banks to get the notes exchanged.

currency ban, rs 1000 ban, rs 500 ban, cotton farmers, Maharashtra cotton farmers, demonetisation, farmers help, farmer crisis no money, atm closed, banks closed, help, mumbai help, mumbai news, indian express news, india news The partially filled kapas collection platform of ginner Alok Goenka’s factory at Hinganghat. The agriculture produce market committee at Hinganghat is receiving only 500-600 kapas-laden vehicles daily, as opposed to the 1,500-odd normally expected at this time.(Express photo: Deepak Daware)

The lower arrivals, even on the back of higher production, have led to kapas being sold at between Rs 4,800 and Rs 5,000 per quintal, more than the Rs 4,100-4,200 levels for this time last year. Some farmers are trying to make the most of the situation. Jeevan Mahakalkar from Donduda village in Hinganghat tehsil got a price of Rs 4,980 per quintal at Monday’s auction for the 37 quintals from the first picking of his crop. This was below the Rs 5,200 rate late last week. But his disappointment was not over the lower price, as much as in the commission agent paying only Rs 10,000 out of the total Rs 184,260 realisation in cash.

“An average woman labourer picks 70 kg kapas daily at the rate of Rs 7 per kg. My picking cost for the 37 quintals alone worked out to nearly Rs 26,000. And I need to pay this in cash,” complains Mahakalkar, who expects to harvest 90 quintals over different pickings. Matters have been made worse by the agents, who were earlier paying cash on the spot, now issuing cheques that farmers can deposit only after eight days. “We don’t have cash, as the ginners are paying us through cheques that can be encashed only after a week,” is the defense offered by Jeswani. Besides labour, the farmer also has to pay Rs 2,000-3,000 in cash to the transporter. Adding to the inconvenience of receiving payments in cheque is his inability now to use the same vehicle to lug back home groceries, fertilisers, pesticides and other farm inputs — which he would have, in the normal course, bought after selling cotton in cash. Ginning units, which separate the lint fibre from the kapas, are also barely running. “We have neither cash and nor kapas supplies to run our units. I am running one shift, instead of three, only to keep my labourers. If I stop work, they might simply go away and getting them back would be difficult,” points out Deepak Dubani, owner of Shri Saibaba Ginning.Hemant Kochar, who owns SS Industries, another local ginning factory, is yet to even start production. “Mind you, this is a seasonal business operating from November to May. If the currency crunch persists for the next four months or so, as many are predicting, our industry will be in deep trouble. We have to pay not only labourers, but even transporters in cash. The Centre should increase the weekly cash withdrawal limit for traders from the existing Rs 50,000 or at least vary it based on the number of labourers employed”, he suggests. Alok Goenka, a 34-year-old ginner, estimates the daily cash requirement for his two family-owned units, Balaji Ginning Factory and Balaji Fibre, at Rs one crore. “Lack of cash has affected procurement badly, as we need 5-7 days’ stock of kapas for uninterrupted running. The Narendra Modi government’s demonetisation move to address black money is laudable, but the implementation could have been better. The least they could have done was come out with the new Rs 500 notes first, instead of Rs 2,000,” he opines.

For farmers, restriction on withdrawals from their bank accounts has compounded the problems of being paid by cheque. Anil Warbhe, who farms five acres at Daroda village in Hingaghat taluka, received just Rs 2,000 in cash for the 17 quintals of his first picking. The remaining Rs 81,000 due to him was paid as a cheque, which he deposited at the Bank of India’s Wadner branch. “The bank is allowing withdrawal of between Rs 2,000 and Rs 10,000 at one time, depending upon cash availability. I have been able to withdraw only Rs 2,000,” he says. Vijay Pahune, a farmer from the same village, has a variant of the same story. He sold his first picking of 30 quintal at Rs 4,870 per quintal. The trader who bought paid him Rs 50,000 in the now-demonetised Rs 1,000 notes, and the rest as a cheque. His cooperative bank, the Wana Nagrik Sahakari Bank, is permitting him a maximum withdrawal of Rs 2,000 per day.

Nitin Dhongde, assistant manager at Bank of India, lists the problems at his end: “My (Wadner) branch has 25,000 accounts, mostly of farmers. We were able to allow higher withdrawals earlier because our daily inflow of Rs 100 notes was 2-3 bundles of 10,000 pieces each. That has reduced to just one bundle now. Even in the case of Rs 2,000 notes, we are getting only half a bundle daily, as against one till a few days ago”.

The ripple effect is also being felt up the value chain. Hinganghat has three integrated textile manufacturing units — Pee Vee Textiles, R.S.R. Mohota Spinning & Weaving Mills and GIMAtex Industries — all belonging to the extended Mohota family. “Our operations have been hit both because of inadequate supply of raw material (cotton) and the slump in the finished cloth market. We cannot afford to maintain current levels of inventories. If things don’t improve, there is no option but to substantially cut production”, admits Vinod Mohota, managing director of RSR Mohota.

Ajay Madan, president of the Wholesale Cloth and Yarn Merchant Association in Nagpur, feels that the Centre’s intention behind the demonetisation decision was welcome, “but our business is down by 80 per cent, as most cloth purchases are in cash”. He is further critical of the timing — right in the midst of the marriage season. Besides, in small district towns of Vidarbha such as Bhandara, Gondia, Gadchiroli and Chandrapur, retailers owe their sales largely to the farming community. “If farmers are struggling to meet even their daily bread and butter requirement, it shouldn’t surprise to see cloth markets, too, coming to a standstill”, he adds.