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

calendar iconJun 29, 2017


Dana Kornberg 'interviewed more than 100 garbage collectors, scrap buyers and policymakers' 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?'

Excerpt from SCMP article "Note Ban: Will it make India or Break Modi?" by Debasish Roy Chowdhury

Electricity, when available, is erratic. There is often no power for months on end. Some 304 million people in India have no access to electricity, and that’s not including areas, such as Hirve, that are officially electrified. There’s no mobile connectivity either (my phone was on the blink for the better part of my stay there.) It’s not for nothing that 70 percent of Indians with mobile internet access live in cities, and only 17 percent of Indians own a smartphone.

“Most people here can’t operate smartphones. Even if they could, most of the time you can’t charge your phone. And even if you can, there’s no internet access. In most villages nearby, they don’t even have running water. Cashless, seriously? Why is it even a priority when there’s so much else to fix?” fumes Chauhan.

Excerpt from SCMP article by "Mody's key aide blames poor planning for India's currency crisis" Debasish Roy Chowdhury 

The hardest hit have been the poor outside the formal banking system, who are typically illiterate and are now being forced to pay touts to fill out forms to exchange their currency notes. India has the highest number of unbanked adults in the world – 21 percent of the global total, followed by China, at 12 percent; and Indonesia, 6 percent.

“We have been in power for nearly two and a half years. The finance ministry should have prepared for this from the very first day. It is easy to argue that the ministry was not in the loop, but that is no excuse for not having a contingency plan,”
"Subramanian SwamyMember of parliament and one of Modi's top aidesexclusive interview to This Week in Asia

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. 

Excerpt from The Conversation article by Dana Kornberg

'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


Chowdhury,  Debasish Roy. "Mody's key aide blames poor planning for India's currency crisis" South China Morning Post. Electronically published November 6, 2016. Accessed December 5, 2017. 

Chowdhury,  Debasish Roy. "Note Ban: Will it make India or Break Modi?". South China Morning Post. Electronically published January 8, 2017. Accessed December 5, 2017. 

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 by 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: Sep 9, 2021