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

Modi, Shah 'forget': Gandhi’s first Satyagraha was against citizenship law of South Africa

By Nachiketa Desai*
Hindu fanatic Nathuram Godse assassinated Mahatma Gandhi once on January 30, 1948 but his followers raising the war cry of ‘Jai Sriram’ are killing the Mahatma every day. In his home state of Gujarat, Gandhiji was killed a thousand times in 2002 when over 2,000 Muslims were butchered, their women raped, homes and shops plundered and set on fire and even unborn babies ripped out of the wombs of their mothers.

Union Budget 'moves away' from Right to Education, 1.3 lakh schools closed down

By Dr Aparajita Sharma*
It was a shocking reply by the Union human resource development minister to a question raised in Parliament on closure of schools in a country where lakhs of children are still out of school. On December 2, the minister, Ramesh Pokhriyal ‘Nishank’, told Lok Sabha that the NITI Aayog’s education project, Sath-E, has led to 35,996 schools of different levels being merged in Madhya Pradesh, 4,312 in Jharkhand and 1,803 in Odisha. NITI Aayog is the Central Government’s policy think-tank.

CAA-NPR-NRC will 'target' 99% homeless, who are without birth certificates: NCU

Counterview Desk
Claiming to base on a survey in five states (Andhra Pradesh, Bihar, Jharkhand, Maharashtra and Tamil Nadu), which finds that over 99% of the homeless people do not have birth certificates, a civil rights organization which networks activists, researchers, urban practioners, lawyers, informal sector workers, has claimed that the Citizenship Amendment Act (CAA), as also the proposed National Register of Citizens (NRC) and the National Population Register (NPR), are likely to adversely impact this section the most.

Modi 'warned': Will not remain silent when women are labelled terrorists and traitors

Counterview Desk
As many as 13 women's rights organizations and 162 individuals have issued an open letter to Prime Minister Narendra Modi stating that in the light of hate speeches during Delhi elections, especially directed against women, it is his "Constitutional duty to protect all citizens" and tell his partymen "to fight the elections in a manner that upholds the Constitution, not one that increases the fear and insecurity among women."

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam*
RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

Law 'governing' world's tallest Statue of Unity refers to local tribals as occupiers

By Rohit Prajapati, Krishnakant*
The recently enacted Statue of Unity (SoU) Area Development and Tourism Governance Act, 2019 in Gujarat comes amidst a terrifying atmosphere of intimidation, house arrests, detentions and FIRs, not to mention the overarching implementation of Section 144 across the state.

Anti-CAA: Mallika Sarabhai joins students, faculty to protest dy CM's 'divisive' talk

By Our Representative
Taking strong exception to deputy chief minister Nitin Patel’s statement against those protesting against the Citizenship Amendment Act (CAA) and the proposed National Register of Citizens (NRC), well-known danseuse Mallika Sarabhai has joined tens of activists and students and faculty of Gujarat University, CEPT University, Indian Institute of Management-Ahmedabad, Gujarat Vidyapeeth and Nirma University to say that they are seeking “azadi” from the fascist and communal forces of the country.

Mystery around Gujarat PSU 'transfer' of Rs 250 crore to Canadian firm Karnalyte

By AK Luke, IAS (Retd)*
While returning from a Board meeting of the Oil India Limited (OIL) in Ahmedabad some time in 2012, two officers of the Gujarat State Fertilizers and Chemicals Ltd (GSFC), Nanavaty and Patel,  saw me off at the airport. They said they were proceeding to Canada in connection with a project GSFC had entered into with a company there. As we were running late, I hastily wished them the best.

Savarkar in Ahmedabad 'declared' two-nation theory in 1937, Jinnah followed 3 years later

By Our Representative
One of the top freedom fighters whom BJP and Prime Minister Narendra Modi revere the most, Vinayak Damodar Savarkar, was also a great supporter of the two nation theory for India, one for Hindus another for Muslims, claims a new expose on the man who is also known to be the original proponent of the concept of Hindutva.