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 The impact of Demonetisation, cattle slaughter ban and GST on rural economy

By Phrangsngi Pyrtuh

Rural India is at a critical stage. Rural distress is back with a vengeance and this time much of it has to do with faulty economic policies executed over the last few months. Despite India becoming a fast developing country it is still an agricultural country with about 830 million populations residing in the rural areas. Effectively, the economy of rural India is concentrated in agricultural related activities. So far India’s growth story has been exclusive, one that benefits mostly the organized segment of the secondary and tertiary sectors. Liberalization and the resulting reform policies have not benefitted the rural economy and those who live rural India. With a substantial vote bank the key to political power in India lies in the rural areas. Prime Minister Narendra Modi during the 2014 election campaign promised to double farmer’s income by 2022. Unfortunately political rhetoric is easier said than done. Different indicators have so far pointed to a downward spiral and pressure of rural income with increasing distress that have aggravated in recent months.

Unabated farmer’s suicide in different states and continuous farmer’s protest in the national capital and in different parts of the country are symptomatic of bad times. Schemes such as MGNREGS that remained a legacy of the UPA government continued to provide some form of assistance to the rural population and its income generating importance is realized even by the BJP government. The state of the rural population in India is precarious. The last thing they need is a government that is insensitive to their problems and basic living conditions. 

In a span of eight month, the Government unleashed a spate of policies the effects of which are still being felt to this day. The impact of these policies is felt most by the rural population. Demonetization, cow slaughter ban and GST roll out have further added to the woes and problems of the rural sector. Demonetization has contributed to a decline in the national income which at 5.7% is at a three year low. Many are sceptical of the economy picking up pace in the next few months with the effects of demonetization probably lasting more than anticipated. The effects of GST roll out will be clear in the coming few months but there are reports that certain critical sectors such as India’s craft sector that is mostly rural based and offering employment to millions is suffering enormously.   

We are told that problems relating to demonetization and GST are temporary and ‘transitionary’. These policies, we are told, are reform measures to consolidate India’s growth story. Irrespective of these arguments it cannot be denied that the two policies have caused much hardship to people (even deaths), something which have not happened to India in its endeavour to reform and liberalize itself since 1991. The sector that bears the brunt from these reform measures is the rural sector.

Another tenacious policy that could completely dismantle the fragile economic set up in the rural economy is the cattle slaughter ban. Allowed to continue on its own, this policy could probably sound the death knell to the rural economy. The notification on Prevention of Cruelty to Animals (Regulation of Livestock Markets) Rules was notified on 26th May 2017 and stayed by the Madras High court on 30th May and finally by the Supreme Court on the 12th July. The Apex court specifically stayed the “No slaughter” rules issued by the Union environment ministry. The cattle rules prohibit cattle trading except for agricultural purposes. In addition only bona fide agriculturist can trade cows etc in animal markets.

The three policies are not alike and have distinct identities and impact. While it may be reasonable (for some) to argue that demonetisation and GST are part of reform packages, the same cannot be argued in favour of the cattle slaughter ban. In fact the BJP government has asserted that it only seeks to prevent animal cruelty. The cattle slaughter policy is definitely not envisaged as a reform measure that India seeks to continue post 1991 liberalization. It is no wonder that it has generated more controversies than demonetisation and GST.  

A comprehensive and objective reading of the cattle rules reveal complete lack of awareness and understanding of ground realities. It is simply not practical as it ignores long standing tradition and practices of the rural community on cattle usage and disposal. Moreover the rules of the policy are clear violation of market principles that has been the hallmark of India’s growth story post 1991 liberalization. The cattle rules actually make mockery of the reform processes that have been going on in different sectors of the economy. For instance the cattle rules involve bundles of paperwork for cow traders that include identity cards and ownership documents after which the farmer needs to make not one but five copies of the ‘sale’ and submit it to the local revenue officer, the local veterinary officer, the animal market committee as well as one copy each to the seller and buyer.

The entire process of verification and submission is nothing short of the license permit raj system that the liberalization agenda of 1990s sought to dismantle. The government that is keen to prevent animal cruelty has put in place a series of procedures that would provide opportunity for red tape, nepotism, corruption et al, features that plagued the Indian economy before 1991. The irony is that only the rural population will suffer the consequences of such an ill thought policy that may or may not have to do with religious sentiments. The Supreme Court realized the stress and hardship the bandh could cause to the farmers and stated that ‘livelihood of people’ cannot be compromised. New rules are being awaited and it is hoped that reason and not prejudices will prevail.

The point of the article is that the rural economy in India continues to be in doldrums even after liberalization process has entrenched the country. However nothing much has changed for the rural population post liberalization and policies such as demonetisation, GST and ban on cow slaughter will exacerbate rural distress which is omnipresent in the rural economy. Moreover, even after 20 years of liberalization the rural economy of India still remains the most regulated and controlled sector of the country. The cattle slaughter policy is an indication that there is hardly any government that cares for the welfare of the rural population. What the rural economy needs is liberalization that is specific to its requirement which is different from that of other sectors of the economy. The rural economy is a struggling sector. Policies such as GST, demonetisation and the ban on cattle slaughter will further maim it.


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