Demonetisation - Six Months On

Dr. John Fernandes, Director of MASARD, spoke to SOTE about the effect of demonetisation on rural communities in SOTE's Hosur project area six months after demonetisation was announced. 

"On 8th November 2016, the Indian Prime Minister declared 86% of currency notes as illegal tender, by invalidating 500 and 1000 denomination notes. This massive operation in a country where infrastructure for it just does not exist, with large chunk of population living in villages, with large scale illiteracy and poverty, and without access to a banking system created extreme chaos in every section of Indian society whether upper, middle or lower. But it hurt the poor the most. This move without proper preparations, unplanned and badly implemented, became a manmade disaster. In a country where 95% of all transactions are done in cash, the catastrophic outcome of this cash squeeze, with no possibilities of immediate exchange, has been a total devastation of all productive activities including agriculture, small scale industry, construction, retail trade, traditional rural employment and so on. The people that suffered the most were the rural poor.

During the 2014 election campaign, before becoming Prime Minister, Narendra Modi promised that if elected, he would bring back the black money piled in foreign accounts and deposit Rs 15 lacks in the account of every Indian within a hundred days. It is estimated that 75 lack crores of illegal money is stocked abroad.  As per various official studies including that by RBI and by Ministry of Finance, more than 80 percent of the ill-gotten wealth or black money generated in India is stashed abroad in foreign tax havens such as Mauritius & Swiss Banks, and of the remaining 20 percent, the lion’s share is in India, in the form of land holdings, real estate, gold, shares, various forms of trafficking, etc. As per the above studies, the actual “black money hoards” or unaccounted cash is not more than just 6 per cent of the total cash in circulation. A question being asked is whether it was worth inflicting such a massive pain and suffering on the common man by demonetization that aims to targetjust 6% of the unaccounted wealth.  In the words of former Prime Minister Manmohan Singh who is also a world renowned economist, it is  a monumental disaster. This decision stripped many a person overnight of all their hard-earned money, of their purchasing power and without providing an alternative.  Ithas made common people pay with their life and livelihoods. It hasresulted in more than 100 deaths and made small shopkeepers down their shutters. A lack of daily wage workers could not find work, as employers had no cash to pay them. People were unable to buy their daily needs of food and medicines.

The plight of rural poor living in interior villages, as most of our project beneficiaries do, was terrible.  These are the worst affected. Most people in our project areas do not have bank accounts. Many do not have IDs required for exchange of old notes. For most of our beneficiaries, the only bank or ATM in the area (which most of the time were not working) is 5 to 12 kms away, and without availability of regular public transport, accessing it had become a huge nightmare. Some villagers own bikes, but there was no money for fuel. Small marginal farmers cultivating fruit and vegetables, couldn’t sell them, as people had no cash to buy them, and thus incurred heavy losses. Most of our beneficiaries who are daily wage workers, were deprived of their livelihood, as their employers had no cash to pay them. The women in these areas, who are mostly daily wage laborers, are in the habit of saving little sums of money at home in cash. They often put aside money without the knowledge of their husbands, building a nest egg for themselves and their children, and a safety net against emergencies. For those who are victims of abuse, it is a much needed safety net. This is no ‘black money’, but money earned through a great deal of hard work and sacrifice. Overnight, these entire savings of women suddenly became ‘invalid tender’ thus stripping them of all their hard earned money. In many cases they couldn’t exchange it due to lack of identity papers or bank accounts or had to struggle to find some outlets for exchange. In many households, exposure of this savings strategy of the housewives led to many cases of domestic violence. However, though there was no cash, there was the traditional trust in these village communities, which helped them to surf over the tides by getting their daily needed commodities on credit.

Members of the community told an interesting story to me during the demonetisation drive. One of the village landlords suddenly started constructing a huge granite stone compound wall for his farm extending to about 2 kms, the cost of which would run into several lacks of rupees. Many locals wondered where all the money for this came from, when even banks were not issuing more than Rs. 2000 per person per week, that too, after waiting on long serpentine queues, and often coming back empty-handed. The talk among the poor in the village was that a local politician, who held black money was aware of the suffering, starvation and deprivation in the village, and intended to help them out, gave one huge bag of his demonetised notes to this particular landlord for distribution to the poor in the village. However, instead of distributing it to the poor, he made use of it for constructing his own farm compound wall. This story may or may not be true, and may be just a rumour but it reflects the mindset of these rural people in the midst of their sufferings, dreaming of someone coming with bags of money and helping them out of their suffering.

In the history of independent India, there were two demonetisations prior to this.  One in January 1946 and the second one in 1978.  In both cases, it had very little impact on black money but at least the common people were not hurt. Whereas Modi’s demonetisation hurt the poorest, not the richest."

This article was written by John Fernades, Director of MASARD, one of Salt of the Earth’s partners in India. If you are in a position to do so, please support SOTE by donating here. If you want to read more, head back to SOTE's blog page.