Last evening, a Mumbai taxi driver told me he doesn’t even save `500 per month anymore, so he has stopped paying his life insurance premium of that amount. He says it began, at least in his mind, after the sudden and then prolonged shortage of currency after 8 November 2016, when demonetisation was implemented. Since then, he has pulled his children out of school, one boy after class ten, and one after the 12th grade. He cannot afford to keep them in school.
It’s not just Uber and Ola, he thinks a whole section of society, not the very rich who can afford cars with drivers, not the destitute, but those considered middle and lower middle classes, don’t have money to spend. They are self-employed at a tiny and small scale level, or wage employed; they have not recovered from the slowdown that followed 8 November 2016. In fact, at the bottom of the pyramid, one and a half year later, the slowdown is not over yet!
The crippling effects of demonetisation
According to a report co-authored by SIDBI (Small Scale Industries Development Bank) and available in the media, in March 2018, small and medium firms with exposures (i.e., uncertainty of a return and the potential for financial loss) from Rs.10 lakh to Rs.10 crores have recovered from the demonitisation effects, but micro enterprises with borrowings of less than Rs.50 lakhs have not recovered, and for them the uncertainty of return and the potential for financial loss remain high. We know this much about those that do borrow from the financial system. Of the estimated 50 million micro, small and medium enterprises in India, only five million (10%) or so have accessed the formal financial system for credit, so we do not know much about how the rest are doing. They could be much worse off with more expensive credit from informal sources.
Retailers repeat the same story. It’s not just that people who have money to spend are buying online, but the class that did not buy online has no money to spend now. While the single high-end branded retail stores / franchise may lose their customers to online platforms like Amazon, Flipkart and so on, the unbranded stores are also losing business. They are losing business because there are too many such small unbranded stores (again a sign of poor employment opportunities) in a shrinking aggregate demand scenario!
So what is going on? The farmers have told us emphatically how they lost out during the post 8 November period, no cash to work with, no seeds, no fertilisers, and exploitation by local money lenders and wholesale traders. They have put forward their problems in two major agitations one in June 2017 and one massive march to the assembly in Maharashtra in March 2018. They say they are broke and cannot pay back loans. Their problems did not begin with the currency shortage but have been cumulatively adding up with increasing cost of farming and unpredictable market prices. However, that post demonitisation period tipped them over, and 8 November became a red letter day for them. All refer to the days of currency shortage as the high point of all their troubles.
In April/May 2017, a sample survey done in Mumbai and Pune by us included two hundred and seventy-six people, mainly women vendors of fruit, vegetable, food and makers of garment, incense sticks, bag, soap, phenol employed in different petty trade and manufacture were surveyed across 11 wards in Mumbai and 17 wards in Pune. Field work began five months after the event in two locations; among women employed in market places in Pune and among women in self-help groups (SHGs) in Mumbai. Women in Mumbai were beneficiaries of the previous poverty alleviation and financial inclusion policy (SJSRY) now called National Urban Livelihood Mission. The sample thus has two sub categories.
In the course of the survey it had become clear that currency shortages persisted six months after 8 November, they took the form of frequently empty ATM machines in urban areas (smaller cities are worse off), and while urban informal markets were dealing with sluggish sales, the rural economy was staring at recession. Some media reports then suggest that the decision to keep cash supply lower than the pre-8 November 2016 level was meant to the control black economy and push more and more people to digital transactions. There is some enigma to rationale number one viz., control of black money, because Western countries have in the past demonetised to check illegal weapons, drugs and money laundering (usually transacted in cash) by extinguishing large denomination currency in a phased manner. In India however, Rs.500 and Rs.1000 notes were removed in one stroke and replaced by Rs.500 and Rs.2000. The second rationale, which is forcing the pace of digital transactions is simply untenable. The level of internet penetration was too low and skewed in favour of the urban population and well-off classes. India’s mass poverty and unemployment needs no amplification, cash is the cheapest medium of transaction, and any popularly elected government ought to hesitate before pushing so many people out of the market.
The survey generated data which indicated that for those who were self-employed or wage employed in petty trade, the impact on business, sales turnover must have been serious. Because 52% of the respondents said that sales fell after demonitisation. Around 14.5% said the drop was less than or equal to 25%, 19% said it was less than or equal to 50%, 16% described it as less than equal to 75%. Close to 2% described it as less than or equal to hundred percent. About 8% report that a family member lost his/ her job, and 6% said someone in the neighbourhood was rendered unemployed. And 37% said their own income in the last three months had fallen, equally high 34% said that family income had fallen.
Before 8 November 2017, the average total financial savings (per respondent) are estimated at Rs.16,823. After demonetisation, 30% reported that their savings in banks had fallen, 24% had trouble paying school and college fees, 25% had trouble with hospital and other family bills. The estimated average total current savings of sample (April /May 2017) was Rs. 6,627, down by 60% six months after demonitisation.
One third of the respondents seemed to have had a very hard time due to demonetisation, not including the time spent in ATM lines in the first three months. In open ended answers, respondents spoke of their problems arising from rotting fruits and vegetables, having to sell on credit, having to borrow to pay back loans, not being able to pay for cooking gas, hospital bills, no change for Rs.2000, no money for marriage expenses, and being stranded in the village, where situation was much worse, and so on. Many of these issues have been in the public realm since then. The respondents of the survey also made random comments about the frenzy created around banks with Jan Dhan and then demonetisation, the loss of faith in banks, depression in business, incomes, savings, uncertainly about future, and much talk of banks that were being untrust worthy, and digital money creating too much of confusion and fraud.
One year after our survey of 2017, the lingering effects of demonitisation continue, but only at the bottom of the social pyramid. As the consequences of depleted savings, lost business confidence, lost jobs and sluggish demand for goods and services settles in. The Godly GDP somehow is above all that distresses people’s life; it has recovered from demonetisation and is again growing at over seven percent!
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Anuradha Kalhan
Anuradha Kalhan is an independent researcher. She was earlier a Fellow at NMML, Teen Murti.[/column]