#Demonetisation has become a pivot point for important discussions about India’s future

Every action has an equal and opposite reaction. We saw this in action last year when the “masterstroke” of demonetisation announced by the Government of India on 8 Nov 2016 left India in shock. Journalists, academicians and industry experts, reacted with a flurry of writing taking diverse stands. A google search on ‘demonetisation India’ yields over a million results! These reactions ranged from open support, complete disdain, reportage on the misery citizens were facing, advice on how it could have been done better to optimistic pieces about how this could leverage long-standing change towards digitization, formalization and efficiency.

Over time, though, commentary on notebandi has become an entry point to discuss a large variety of problems and issues related with India’s economy. It is a testimony to how profound the impact of demonetization has been on Indian consciousness that months after it happened, we are still passionately analyzing it. Commentators are still writing about it, often continuing to use their analysis and arguments to support the exercise or reiterate its failure. Some, like Swaraj Editor R Jagannath have even dramatically changed their opinions, making for some unexpected media drama.

Others have used demonetisation as an entry point to delve deeper into questions that were already part of their frame of enquiry. At the Centre for Policy Research, for instance, we revisited old field sites across Delhi to understand how informal sector workers were coping . Qualitative research that sought to understand how informal sector workers coped with the absence of cash revealed to us linkages that were less obvious before. For instance, the impact of the supply chain on the livelihood of a small time grocer, was not something we had foregrounded in our studies on work and labour before. Neither had we dwelt on the strategy of migrant workers  to switch from one type of work to another in order to survive in the city. [Hear our podcast and read op-eds on cash dependence and migration]. The results of a post-demonetisation survey of slum households in Mumbai published in January 2018  by Deepa Krishan and Stephan Seigel revealed a drop in income and consumption, yet showed overall support of the policy. This enquiry also appears to take forward the long-term interests of the authors in urban poverty and social issues in one case, and private savings and investments for the other.

To me, demonetisation has been useful to galvanize debate on three key interlinked issues, which I attempt to list here:

Invisibility of the informal economy: Beyond the immediate alarm bells that went out regarding the disproportionate distress the note ban caused to the informal economy basis anecdotal and prima facie evidence, the government’s report of 7% GDP growth over Nov-Dec 2016 and unchanged GDP forecasts rekindled debated about how the informal economy is measured by the Central Statistical Office while estimating the GDP of the country. This debate was particularly vibrant because the CSO had changed GDP estimation methods in 2015; ostensibly the new methods are better equipped to capture the informal economy. In retrospect it seems that the data machinery is simply not equipped to cater for a sever economic shock like demonetisation. As Kumar and Verma point out in their recent EPW piece on remonetisation:

“The impact on the unorganised sector does not show in the official data on the growth rate of the economy. This is because the methodology used by the government’s statistical organisation to measure the contribution of the unorganised sector to gross domestic product (GDP) is not valid when a big shock, like, demonetisation, is delivered to the economy. Hence government pronouncements on the economy’s rate of growth do not capture its true decline.

In brief, the unorganised sector of the economy employing 93% of the workforce remains hidden behind a veil by the GDP data and the monetary data. This can only be uncovered by alternative calculations. This is not just an economic matter but also a political and social one (emphases mine).”

Beyond the urgent need for “alternative calculations”, I would day there is also a need to understand deeply the linkages between the formal and informal economy. We should understand if informality is a choice at all and what forms of formalization, if at all, will benefit the majority of Indians. These are tough questions and will demand intricate answers.

The role of cash in the economy: Post demonetisation commentary yielded a rich discussion on the importance of eliminating cash and the benefits of digital payment systems, from tax collection and speedier transactions to hitting terrorism and other illegal networks. The cash ban was seen by some commentators as part of a global offensive against cash. Indeed, the note ban did boost the idea of digital transactions and sent fintech companies into a tizzy, though a spike in the actual figures is debatable. On the other hand, bank data also showed that cash was being withdrawn upto pre-demonetisation levels as early as March 2017. All in all, this transition will need a more sustained effort hinging on improved connectivity infrastructure, improved security and much more awareness.

It will also need a curious approach to implementing taxation rules. Many of those in the informal economy are insecure after notebandi. Landlords and small-time entrepreneurs in urban villages that we have interviewed recently, for instance, have brought up notebandi in nearly every conversation, with no instigation from our researchers. The context has almost always been a sense that the government is looking more closely at defaulters. People seem to feel that they need to comply with the system, own PAN numbers and file tax returns, for the government to leave them alone. Whether they intend to do this to truly fall in line or to do the bare minimum and find innovative ways to scout the rules is another matter!

We have to acknowledge that cash transactions and informality are deeply ingrained; unless digital is significantly cheaper and hassle-free it will likely be slow to take off. More importantly, the fuzziness around informality and the reading that informal is likely also illegal needs to be deeply understood. Scholars have written extensively about how, in practice, the rule of law in India is riddled with exceptions. Demonetisation and the subsequent efforts towards formalisation could be a unique opportunity to study how the average Indian’s perception and practice of the rule of law is changing at this time.

The jobs debate: The role of the cash crunch following notebandi has been a recurrent theme in the reportage and analysis on the recent farmer protests in Madhya Pradesh and Maharashtra. However, the real problem of agriculture is that too many people depend on it (R Jagannath calls it the farm crisis a jobs crisis in disguise) . There simply aren’t enough decent non-farm jobs going around! Demonetisation has opened the Pandora’s box on the jobs crisis. Of course, this has been an anti-Modi political scoring point by many, but the failure to create jobs for India’s has been an enduring problem that needs both immediate and long-term solutions.

The answers lie in busting a few myths around urbanisation, migration and urban-rural links, perhaps too many to list here. But I will try to encapsulate my thoughts on this. One, the majority of job seekers criss-cross between rural and urban locations in pursuit of work; a migrant-friendly view of urban development would help match jobs, skills and labour while leveraging improved connectivity to develop rural production centres is an important strategy too. The role of small towns is key in this. Two, and following from the above, rural and urban are not distinct spaces in the Indian geography. In reality, the boundaries are blurred. Dense villages and sparsely populated cities, megapolises and remote rural settings all have their place. So a place-based and spatial approach to planning for jobs—and related infrastructure, skill development, housing and amenities—is absolutely key.





About ramblinginthecity

I am an architect and urban planner, a writer and an aspiring artist. I love expressing myself and feel strongly that cities should have spaces for everyone--rich, poor, young, old, healthy and sick, happy or depressed--we all need to work towards making our cities liveable and lovable communities.

Posted on June 22, 2017, in Uncategorized. Bookmark the permalink. Leave a comment.

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