The impact of India's snap cash ban on the informal economy

June 29, 2017 Share Source

Dana Kornberg 'interviewed more than 100 garbage collectors, scrap buyers and policy makers' during her research of the informal economy of India between 2013-2015, revealing what cash really means to the underrepresented low-income workers. 

When it comes to cash debates, the economic argument might be interesting but the social one is heartbreaking. A glance at the social impact of India's recent snap ban of 500 and 1000 rupee notes alone demonstrates just that. To die over paper may seem strange from afar, but when that paper means food for your hungry children or hospital treatment for your loved one, it is no surprise that a panicked population would experience heart attacks, suicidal turns or domestic abuse. According to Indian Express, over 30 people died in relation to the abrupt cash ban, which raises the question, 'what exactly was the benefit of the ban and was it worth the lives it cost?'

With the nation in panic-mode, calls to domestic abuse hotlines doubling overnight in some areas, many losing work to spend their day in a bank queue, it was the lowest working class that was the most drastically affected. Sadly, Prime Minister Modi's short-sighted attempt to cripple the shadow economy with the cash ban ended up crippling many law-abiding citizens particularly those dependent on the informal economy. 


'India recently tried to reduce the use of cash in its economy by eliminating, overnight, two of its most widely used bills in what was called demonetization.

'While the effort – initially explained as an attempt to curb “black money” – has been a failure in many respects, it was part of an ongoing and global push toward cashlessness.

'What India and other governments have failed to contend with, however, is the adverse effect such severe policies have on the poor, who seldom use banks.

'India’s working poor rely almost exclusively on cash, with about 97 percent of all transactions involving an exchange of rupees. With 93 percent of the country working in informal off-the-books jobs, most transactions entail personalised relationships rather than standardised forms of legal contract or corporate institutions.

'[Kornberg's] own research on the persistence of Delhi’s informal recycling economy shows just how important cash is to low-income labourers.'

Read full article on The Conversation

Kornberg, Dana. "Why a 'cashless' society would hurt the poor: A lesson from India." The Conversation. June 26, 2017. Accessed June 29, 2017. Web.

Dana Kornberg Ph.D. Candidate in Sociology, University of Michigan is a contributing author for The Conversation.

This research was supported with funding from the National Science Foundation and the University of Michigan's Center for the Education of Women and Department of Sociology.

The Conversation UK receives funding from Hefce, Hefcw, SAGE, SFC, RCUK, The Nuffield Foundation, The Ogden Trust, The Royal Society, The Wellcome Trust, Esmée Fairbairn Foundation and The Alliance for Useful Evidence, as well as 65 university members.

Last Updated: July 27, 2017