Economy

In Amritsar, Decline in Earnings Doesn’t Translate to Anti-Demonetisation Sentiments

An informal survey of local shop owners and workers in the city’s Company Bagh and Lawrence road areas reveals most people’s ambivalence about the policy.

A market street in Amritsar. Credit: Adam Reeder/Flickr, CC BY-NC 2.0

A market street in Amritsar. Credit: Adam Reeder/Flickr, CC BY-NC 2.0

Pointing to the moving cars on the road, a tea stall owner at a busy commercial street near Company Bagh in Amritsar compared the consequences of notebandi or demonetisation to a traffic pile-on. He averred that the withdrawal of all Rs 500 and Rs 1000 notes, accounting for over 80% of the currency in circulation at the time, was akin to applying the brakes on the country’s trajectory and the ensuing slowdown in economic activity no different from a car crash.

In a quick survey of 35 respondents in the commercial areas around Company Bagh and Lawrence Road in Amritsar, conducted on January 3-4, the respondents on average reported a 45% decline in earnings post demonetisation. The people surveyed included owners of tea stalls, furniture shops, grocery stores, electric pump supply stores, motor cycle and bicycle shops, a cycle repair store, a fruit and juice shop, a dairy store, a dry fruit shop, a chemist, street hawkers, road side food stalls, florists, rickshaw and auto drivers.

The respondents were asked if overall they felt that demonetisation was a good or bad idea; 26% said that it was a good idea, 23% felt it was bad and 51% were not sure about it yet. A majority of those who were not sure had suffered some form of loss in income due to demonetisation but were willing to wait for things to improve in the future. Some of these respondents were expecting prices of food items and fuel to come down in the future as a result of the note ban.

An auto driver who reported a 20% decline in his earnings reasoned that the cash crunch has stopped the flow of customers to the markets; as a result, it is not only the shop owners but also rickshaw and auto drivers who have lost business. A tea stall owner who used to supply tea to customers visiting shops near his stall reported a 50% decline in his income. No customers in the markets means that street-side hawkers and food stalls, essentially daily wage earners, are finding it hard to make ends meet.

A balloon seller reported a 50% decline in earnings while a street-side kebab stall owner reported a 75% decline in business. This is also a section of people who do not have savings to help them smoothen out the financial burden of consumption in times of crisis. A worker at the food stall said that the non-availability of new notes forced him to use an old Rs 500 note at the lower value of Rs 400 to pay for his brother’s treatment at a local hospital.

Decision at the wrong time

Several respondents criticised the timing of the decision as it coincided with the wedding season. For some of these businesses, the wedding season brings in a major chunk of their annual earnings. Many of them reported marriages being cancelled or being solemnised in much simpler ceremonies, with reduced budgets. This has severely affected shops selling furniture, clothes, wedding-related accessories, tent providers and individuals who offer services like mehendi (henna) application et cetera. On average the decline in income for businesses associated with the wedding season was 50%.

Motive right, implementation wrong

In my discussions with them, most people supported the aim of fighting black money – the original reason for the demonetisation. But many believed that the rich got away by converting their ill-gotten wealth into legal tender by bribing banks.

However, people across the board were critical of the manner in which the decision was implemented. Facing a lack of smaller denomination notes, shop owners had to turn away customers who visited them for smaller purchases as they simply did not have the change to break Rs 2000 notes. A cycle shop owner opined that the government should have introduced more Rs 500 notes before launching the Rs 2000 notes; he pointed out that people have getting harassed at banks, as sometimes amounts as large as Rs 10,000 are dispensed in Rs 10 coins. Though most shop owners did not have to stand in line for ATMs – as they got enough cash for meeting their daily requirements through their daily business – workers had to queue up to withdraw money, often losing their daily wages in the process.

A retired government employee, having lived through the demonetisation of high denomination notes in 1978, said that nothing like the current cash shortage had ever happened before. He was aghast at not being able to withdraw his pension amount as banks had no money to give customers. The credit supply at the local grocery store could only last so long. He was specially acerbic when he said, “Notebandi ne sabko bandhi bana diya hai.” (Demonetisation has made everyone a slave)

Retailers of essential goods like grocery stores, chemists and dairy shops did not report a significant decline in their earnings. However, people have cut down on non-essential goods; a fitness equipment retailer reported a 95% decline in income.

GST should have been implemented first

A trader explained that he thought demonetisation would have been more effective had it been announced after the implementation of the Goods and Services Tax (GST). Having a GST would have encouraged people to generate real bills. He said that people have already reverted to selling without bills and the black money situation will go back to the pre-demonetisation state once there is enough cash supply in the markets.

Less cash, digital economy

On the topic of transitioning to a ‘less cash’ or a digital economy, some of the respondents said that they had applied to banks for credit card machines but were waiting for the machines to be installed. However, for the street hawkers and the tea stall owners, going digital was not even an option since some didn’t have phones or did not know how to operate them.

Conclusion

In policy studies literature, defining the success or failure of policies is a vexing question given the multiple interpretations of ‘failure’ one can employ. However, as per political scientist Colin Hay we can consider a policy to fail ‘if either: (i) it is not seen to achieve the goals set for it; or (ii) it leads policy-makers to question the value of such goals; or (iii) it generates significant negative externalities; or (iv) it generates significant opposition from target groups, other stakeholders and/or society more broadly’. Policy success or failure can be further analysed in terms of process, program and political issues.

For now, demonetisation seems to have been a failure on process (no people consulted, no scenario planning) and programme (implementation disaster). However on the third front i.e. politics, people are still ambivalent about taking a stand for or against the move, leaving room for politics and in a way perception management, to determine the success or failure of demonetisation in peoples’ minds.

Prateek Sibal studies Economics and Public Policy at Sciences Po, Paris and was a LAMP Fellow 2015-16 at PRS Legislative Research

  • Talwarh

    Great article! Well articulated with thought provoking insights into the challenge at the grass root level and overall impact on the people and economy.