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

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

'Wedding of the century': What does Mukesh Ambani want to prove by such extravaganza?

By NS Venkataraman*  Mukesh  Ambani,   a renowned Indian industrialist who is said to be the richest person in India and  one of the richest persons in the world,   has just now conducted the wedding celebration of  his son in Mumbai,   with unheard level of lavishness in India.

'28% rise in sedition cases': Top global NGO alliance rates India's civil space 'repressed'

By Rajiv Shah Rating India's civic space as repressed , Civicus, a global civil society alliance, in its new report submitted to the UN Human Rights Committee (UNHRC) on the state of civic space in the country has said that the use of sedition law against the Modi government’s critics continues. "Under the government of Prime Minister Narendra Modi, sedition cases have increased by 28 per cent with over 500 cases against more than 7,000 people", it says.

'Anti-poor stand': Even British wouldn't reduce Railways' sleeper and general coaches

By Anandi Pandey, Sandeep Pandey*  Probably even the British, who introduced railways in India, would not have done what the Bhartiya Janata Party government is doing. The number of Sleeper and General class coaches in various trains are surreptitiously and ominously disappearing accompanied by a simultaneous increase in Air Conditioned coaches. In the characteristic style of BJP government there was no discussion or debate on this move by the Indian Railways either in the Parliament or outside of it. 

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

How embracing diversity enriched my life, brought profound sense of joy

By Mike Ghouse*  If you can shed the bias towards others, you'll love the connections with every human that God or his systems have created. This gives a sense of freedom and brings meaning and joy to life. Embracing and respecting how people dress, eat, and practice their beliefs becomes an enriching experience.

Banned Maoist party protests in Jharkhand, Chhattisgarh, claims support across globe

By Harsh Thakor*  Despite being a banned and designated as terrorist organisation under the Unlawful Activities (Prevention) Act since 2009, the Communist Party of India (Maoist) is said to have successfully implemented a one-day bandh across Kolhan division in Jharkhand on July 10th, with repurcussions in the neighbouring Chhattisgarh. The bandh was called to protest against alleged police brutality in the Kolhan-Saranda region.

Post-poll mob lynching spree, bulldozer justice: NAPM seeks united resistance

Counterview Desk  Condemning what it calls "the horrific spree of mob lynchings across the country after the Lok Sabha election results", India's premier civil society network, National Alliance of People’s Movements (NAPM), has called for "united resistance" against "hateful communal politics, mob lynching of religious minorities and caste-based oppression".

Hindutva economics? 12% decline in manufacturing enterprises, 22.5% fall in employment

By Bhabani Shankar Nayak*  The messiah of Hindutva politics, Narendra Modi, assumed office as the Prime Minister of India on May 26, 2014. He pledged to transform the Indian economy and deliver a developed nation with prosperous citizens. However, despite Modi's continued tenure as the Prime Minister, his ambitious electoral promises seem increasingly elusive.