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Early adoption of bank transfers to pay farmers and a strong banking network may help the Rs 35,000-crore sugar industry in Maharashtra to insulate itself, to an extent, from the side effects of demonetisation. Sugar mills had as early as the 1970s adopted the system to pay farmers, harvesters and their own labourers via bank transfer.
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Sanjiv Babar, managing director of the Maharashtra State Cooperative Sugar Factories Federation, said the system of bank payment had started with Pravara Cooperative Sugar mill in Ahmednagar. “The sugar industry in Maharashtra is almost a century old and had seen massive growth post independence,” he said.
Along with the sugar mills, the network of District Central Cooperative (DCC) banks had also grown. DCC banks, which were financiers to the sugar mills, also acted as bankers to the farmers and thus, payment was linked easily to the bank accounts.
“Every farmer had both a loan and a savings account in the local branch of the DCC bank from where they availed crop loans. Post payment of the cane price by the mills in the main branch of the DCC banks, the local branches used to remit the same to the individual farmer’s accounts after deducting the loan amount from it,” he said.
Before the advent of electronic money transfer and internet banking, the operations were done with the help of registry, duly maintained and tallied at the DCC banks.
The same system now continues albeit electronically and the farmer withdraws money from his savings account. Mills also paid the cane harvesters and their own labourers through the banking system. Rough estimates say that there are 5 lakh cane farmers, 2.5 lakh harvesters and 1.5 lakh sugar mill workers in Maharashtra and payment to all of them happens through the banking channel. Mills in Maharashtra had paid more than Rs 18,000 crore as cane payment to farmers for the season 2015-16.
In Maharashtra, the cooperative sugar mills and the DCC banks have been powerful centres of power and often interlinked. In order to yield political power, especially in the rural areas, parties vied to control both the DCC banks as well as the sugar mills. Control over DCC banks would have allowed easy access to working capital for the sugar mill and its control would ensure control over the purse string of farmers, which in turn ensured political survival.
Traditionally, the Congress and Nationalist Congress Party (NCP) have controlled both the DCC banks and the sugar mills. Entry of private players had seen the continuity of the model with nationalised banks and urban cooperative banks entering the fray in providing working capital to the banks. Also, in districts where DCC banks are weak or non-functional, even cooperative mills have similar arrangements with nationalised or urban cooperative banks. It is estimated that half of the mills have working accounts with the DCC banks as of now.
BB Thombare, president of the Western India Sugar Millers Association (WISMA) — the body of private millers — said the bank linkages had ensured transparency in the sector.
This year also, the millers will be able to credit the farmers accounts but the problem can arise when the farmer goes to withdraw cash, he said.