Demonetisation: Are the Numbers Adding Up?

The government of India has pulled out 86% of the cash in circulation in an economy that does 90% of its transactions in cash. It is also an economy where over 80% of the people work in the informal economy, which accounts for 45% of the gross domestic product (GDP) – this sector works almost entirely in cash, from wages, to expenditure to savings.

New Bank notes. Image Credit: The Indian Express

This move by the government rendered defunct the money in their hands, dried up their sources of income and made it impossible to access their bank accounts, if they have them. The Prime Minister in his speech has asked to the nation to bear with him for 50 days, which is the amount of time he feels it will take to clean out black money from the system, reintroduce the currency that has been removed and normalise the economy the way it was before the announced the phasing out of old 500 and 1000 rupee notes, on 8^th November.

Also Read: Special Column by Smita Mishra: Check Mate for Black Money

While that is a long time for a cash crunch of this magnitude in any case, this is a particularly bad time for India; beyond the stories of daily wagers unable to find work and vendors unable to procure and sell goods from the market, there are deeper issues that will make this transition deeply problematic.

India is seeing some of the highest levels of unemployment in a long time and social security mechanisms and safety nets that must exist to soften the blow in situations like this have been gradually dismantled. The World Bank recently stated that India is likely to lose 69% of its jobs to mechanisation in the coming years. Unemployment is at a five year high – at 5%, and growth of 7% in the last two years has been largely jobless.

Further, the Mahatma Gandhi Rural Employment Guarantee Act (MGNREGA), a program responsible for creating 19.84 million man days of work, and reaching out to 276 million workers has seen significant budget cuts. MGREGA created 11 lakh jobs in 2011, and only 1.5 lakh jobs were created in 2015. It was recently reported that the government has dubiously used whatsapp to tell states to not create jobs under the scheme.

With this decision of the government, women have been the worse hit. Women are worse off than men on most statistics -- lower wages in the informal sector (at INR 120.3/day in comparison INR 194.2/day for men), to unemployment (8.7% of women and 4.3% of men) and access to banking (only 43% women have a bank account). Further, women tend to save largely at home which they consider safer and more accessible, as they don’t have bank accounts. Even if women are banked, there are issues of awareness, information and access – for instance only 27% of India’s villages have bank branches within a 5 KM radius, incentives for bank mitrs are poor as commissions are abysmally low. The reality is they earn ~INR 188/day, wages lower than MGNREGA workers, and even though they have been given the mandate to make more than one transaction a day per person, it is unlikely to change access to people’s funds.

These 50 days will be the difference between life and death for many people living precarious lives in the informal sector, particularly women. It is understandable that chasing after black money is a noble cause and the policy cannot be rolled back, but the government needs to ensure systems exist to support people and help them absorb the shocks of change – that social security benefits and MGNREGA unemployment benefits exist and are accessible, that last mile infrastructure is robust, that cash needs of villages are not deprioritised, that information trickles down to media-dark areas so there is no space for rumours, and that government entitlements like rations, education, agricultural assistance are not compromised and hinged on cash.

Also Read: All You Need to Know About the new 2000 Rupee Note

Priority Focus Areas:

• Social Security Benefits

• MNREGA Unemployment Benefits

• Last Mile Infrastructure

• Cash Needs of Villages

• Information for Media-Dark Areas

• Ration

• Education

• Agricultural Assisance

These systems can help reduce the human cost of change, and help people through the next 50 days, which is likely to actually spill over to five months!

Views expressed are personal. Astha Kapoor is a strategy consultant at MicroSave working on public policy issues. She can be reached @KapoorAstha

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Feature Image Credit: The Indian Express