Demonetisation Decimates Ranchi’s Economy

Survey of small shops and businesses finds the average decline in earnings is 46%

Fruit seller in Ranchi. Representational image. Credit: Caroline/Flickr 2.0

Fruit seller in Ranchi. Representational image. Credit: Caroline/Flickr 2.0

Reports of the devastating effects of demonetisation on India’s economy have been pouring from all over the country in recent weeks. For instance, there have been reports of

The victims include

Ranchi survey

To get a clearer picture of the extent of the damage, not restricted to a single sector, we conducted a quick survey of traders, shop-keepers and street vendors in Ranchi, Jharkhand.

The survey covered seven different locations, spread across the city and its outskirts. In each location, we interviewed a sample of traders and vendors, aiming at a fair representation of the main businesses in the area. We did this precisely one month after “D Day” (November 8, when Rs 500 and 1,000 currency notes were retired), and interviewed 85 respondents.

We asked the respondents to evaluate the percentage decline in their earnings during the month that followed demonetisation, compared with earlier months. Most of them had no difficulty in answering the question. The results are presented in the table below.

Post-demonetisation Decline in Economic Activity

(85 shops/vendors/traders in Ranchi)

Nature of businessa Self-reported decline in earnings (%)
Labour contractors (2), fruit seller, tailor 81-100
Chicken shops (2), gift corner, tent house, welding shop, hardware, mobile shop, utensils, crockery shop, garments shop, shoe shop, electrical appliances, flower seller, cobbler 61-80
Garments shop (3), tailors (2), carpenters (2), welding shops (2), mobile shops (2), hardware (2), cycle-rickshaw puller (2), grocery shops (2), mutton shops (2), fruit sellers (3), dry fruits, sugarcane juice, egg rolls, watch shop, electrical appliances, fish shop, crockery shop, garage, stationary, labour contractor 41-60
Bicycles shops (2), garments shops (2), pan shop, snacks seller, golgappa, pan gumti, grocery shop, watch shop, optician, stationery, egg rolls, fruit seller, mobile shop, hardware, garage, 21-40
Crockery shops (2), shoe shop, fruit seller, dhaba, stationary, cobbler, garage 1-20
Newspaper hawker, autowalla, bookshop, chicken shop, hardware, barber, cosmetics, khaineeb, private vehicle transportb 0

a Numbers in brackets indicate cases of multiple observations.                b Minor increase in earnings.

As the table indicates, almost all the sample trades have been adversely affected. The unweighted average of the reported declines in earnings is as high as 46%. In other words, the level of business activity in Ranchi is barely half of what it used to be.

We also asked the respondents how much time they had spent in bank or ATM queues during the preceding month. The average comes to 13 hours (11 hours at the bank and 2 hours at the ATM). Some traders claimed to have spent 30 to 40 hours at the bank since November 8.

Personal experiences

One respondent pointed out that the picture would look even worse if one were to compare earnings  with the same month last year rather than with the months preceding demonetisation, because this is supposed to be a time of peak business activity in Ranchi, with the marriage season in full swing. Several respondents said that they had never seen this kind of slump in decades of trading. One of them, a fruit seller, was on the verge of tears as he explained how his business had come to a virtual standstill. Another fruit seller mentioned that he had been hit by 17 cancellations of marriage orders in a single month.

Two lucky respondents reported marginal increases in earnings post-demonetisation. One was selling khaini (chewing tobacco); he said that sales had increased because many labourers were unemployed. The other one was renting private vehicles; he said that he had done well because petrol pumps were accepting old notes, making it attractive for some people to use his services.

One enthusiastic supporter of Narendra Modi tried to dissuade us from doing the survey, arguing that there was no need for it. “Of course,” he said, “business is down. But not by more than 40 to 45%”. That was a fairly accurate prediction of the survey findings.

Outlook

This economic recession is not difficult to understand. Ranchi’s informal economy is largely cash-driven. When a large part of the local population is strapped for cash, business is bound to suffer. People spend sparingly, postponing what can be postponed (for instance, purchases of durables) in the hope that the situation will ease relatively soon.

Overcoming this recession, however, is likely to take time. The liquidity problem may ease relatively soon, as the economy is remonetised. But the problem is not just a lack of currency notes – it is also a lack of purchasing power, reflecting the adverse effect of the recession on employment and incomes. It may take some time to break this vicious cycle of low sales, low employment, low earnings and low purchasing power.

Many respondents, indeed, mentioned that they had laid off workers or assistants during the preceding month, due to low sales. Labour contractors confirmed that the demand for casual labour had sharply dipped after demonetisation.

Ranchi may or may not be representative of India’s urban economy, but judging from the recent stream of media reports on demonetisation, the situation is likely to be similar elsewhere. The rural sector, too, is clearly going through a serious crisis. Seen in this light, the impact of demonetisation on economic growth may well be much greater than the initial estimates suggest. But more importantly, this economic crisis is inflicting intolerable hardship on people who live on the margins of subsistence in the first place.

  • S.N.Iyer

    The problem is that BJP field workers are aware of the distress on the ground and probably relayed it to the Party President. But yet Modi in his statements feels that the people support him wholeheartedly. His speeches only highlights the demonetisation was targeted at the corrupt and black money forgetting that the greatest offenders are politicians. Fake notes and terrorism which were given as reasons for the operation hasnt shown any significant difference as the money involved was too small compare to what was expected as black money. He has been forced to give them promises of things being much better “in the long run””. BUt the question remains when and how? Will it be enough to help thse who have been seriously affected in unemployment, loss of business.by farmers and small traders- this iinvolvs a very high percentage of the population compared to who may gain by this ill planned operation. The results of the impending elections may give an answer which alone will make MOdi wake up from his stupor!!

  • Sthitapragnya Deshpande

    Thanks a lot for among the few decently researched articles on this important autocratic decision that we Indians (at least the majority) have taken sitting down. Ironical, considering the fact that we come on the streets to protest the Indian cricket team losing some godforsaken march, yet there has not been a single demonstration by people to say that they are not happy with being made to stand in long lines just to take out their own hard earned money.