Skip to main content

World Bank: Demonetization has hit hard 90% of India's workers, disproportionately impacting poorer households

By Our Representative
The World Bank has raised the alarm that while “the macroeconomic impact of demonetization has been relatively limited”, the informal economy, which makes up 40% of the GDP and employing 90% of India’s workers, is “likely to have been hit especially hard”, even as regretting lack of availability of reliable data on this score.
In its report “India Development Update”, released on Monday, the report, talking of “the disproportionate impact of demonetization on India’s informal sector”, suggests that “the poor and vulnerable are more likely to work in informal sectors (farming, small retail, and construction), and are less able to move to non-cash payments.”
Calling the construction sector “an important gateway out of poverty in India”, as it has “dual effects of creating jobs at the low-end of the income distribution, and providing conditions for crowding in private investments and sustaining growth”, the report states, “Demonetization’s continued impact in FY18 is expected to be felt primarily in the construction and real estate sectors.”
According to the report, “First, informal traders and credit providers felt the brunt of the withdrawal of liquidity. If informal credit providers, who serve individuals and informal businesses, faced losses related to cash that they had not previously declared, their capital base and future ability to lend declined.”
The report says, only the formal merchants and businesses “were better able to switch to non-cash forms of payment during the liquidity crunch, thereby minimizing disruptions”, adding, at the same time, “many firms that had been reluctant to formalize” adopted digital payments, “moving a step closer to formalization.”
Suggesting this a positive development, the report says, as the informal economy accounts for 82 percent of non-agricultural employment, demonetization has this way helped promote “a reallocation of resources from the informal to the formal economy.”
“Cash transactions are still very prevalent, however”, the report says, adding, while it true that after the demonetization decision in early November 2016, there has been “a large jump in digital payments” with use of debit cards up by 92%, y/y in FY17 vs. 31 percent in FY16), the “high growth comes from a low base”.
The report says, “India’s economy was slowing down in early FY17, until the favorable monsoon started lifting the economy, but the recovery was temporarily disrupted by the government’s ‘demonetization’ initiative.”
Noting how on November 8, 2016, the government demonetized an estimated 23 billion INR 500 and INR1000 banknotes, corresponding to 86 percent of India’s currency in circulation, the report says, “Demonetization caused an immediate cash crunch, and activity in cash reliant sectors was affected. GDP growth slowed to 7.0 per cent year-on-year (y/y) during the third quarter of 2016-2017 from 7.3 percent in the first quarter.”
“As a result”, the report says, “a modest slowdown is expected in the GDP growth in FY 2016-2017 to 6.8 percent. According to the Update, growth is expected to recover in FY 2017-2018 to 7.2 percent and is projected to gradually increase to 7.7 percent in FY 2019-2020.”
“While limited data is available, demonetization may have had a disproportionate impact on poorer households, which are more likely to work in construction and informal retail”, the report says, adding “Demand for guaranteed employment up to February 2017 exceeded the full year of FY2015/2016 and rural consumption (in particular, sales of two-wheelers) contracted sharply in November. Greater data availability, especially on labor markets, is needed to better gauge the social impact of policies in the future.”

Comments

TRENDING

Rushdie, Pamuk, 260 writers tell Modi: Aatish episode casts chill on public discourse

Counterview Desk
As many as 260 writers, journalists, artists, academics and activists across the world, including Salman Rushdie, British Indian novelist, Orhan Pamuk, Turkish novelist and recipient of the 2006 Nobel Prize in literature, and Margaret Atwood, Canadian poet and novelist, have called upon Prime Minister Narendra Modi to review the decision to strip British Indian writer Aatish Taseer of his overseas Indian citizenship.

Church in India 'seems to have lost' moral compass of unequivocal support to the poor

By Fr Cedric Prakash SJ*
In 2017, Pope Francis dedicated a special day, to be observed by the Universal Church, every year, as the ‘World Day of the Poor’. This year it will be observed on November 17 on the theme ‘The hope of the poor shall not perish for ever’; in a message for the day Pope Francis says:

Visually challenged lady seeks appointment with Gujarat CM, is 'unofficially' detained

By Pankti Jog*
It was a usual noon of November 10. I got a phone call on our Right to Information (RTI) helpline No 9924085000 from Ranjanben of Khambhat, narrating her “disgraceful” experience after she had requested for an appointment with Gujarat chief minister Vijay Rupani. She wanted to meet Rupani, on tour of the Khambhat area in Central Gujarat as part of his Janvikas Jumbesh (Campaign for Development).

There may have been Buddhist stupa at Babri site during Gupta period: Archeologist

By Rajiv Shah
A top-notch archeologist, Prof Supriya Varma, who served as an observer during the excavation of the Babri Masjid site in early 2000s along with another archeologist, Jaya Menon, has controversially stated that not only was there "no temple under the Babri Masjid”, if one goes “beyond” the 12th century to 4th to 6th century, i.e. the Gupta period, “there seems to be a Buddhist stupa.”

Gujarat refusal to observe Maulana Azad's birthday as Education Day 'discriminatory'

By Our Representative
The Gujarat government decision not to celebrate the National Education Day on !monday has gone controversial. Civil society organizations have particularly wondered whether the state government is shying away from the occasion, especially against the backdrop of "deteriorating" level of education in Gujarat.

VHP doesn't represent all Hindus, Sunni Waqf Board all Muslims: NAPM on SC ruling

Counterview Desk
India's top civil rights network, National Alliance of People’s Movements (NAPM), even as describing the Supreme Court's Ayodhya judgement unjust, has said, it is an "assault on the secular fabric of the Constitution". In a statement signed by top social workers and activists, NAPM said, "The judgement conveys an impression to Muslims that, despite being equal citizens of the country, their rights are not equal before the law."

Violent 'Ajodhya' campaign in 1840s after British captured Kabul, destroyed Jama Masjid

Counterview Desk  Irfan Ahmad, professor at the Max Planck Institute for the Study of Religious and Ethnic Diversity, Göttingen, Germany, and author of “Islamism and Democracy in India” (Princeton University Press, 2009), short-listed for the 2011 International Convention of Asian Scholars Book Prize for the best study in Social Sciences, in his "initial thoughts" on the Supreme Court judgment on the Babri-Jam Janmaboomi dispute has said, while order was “lawful”, it was also “awful.”