We’ve written about the unfolding demonetization situation in India a few times now (here and here). Demonetization, the government declaration on November 8, 2016 that Rs. 500 and Rs. 1000 notes would become void on midnight of the same day, aims to curb black money and corruption, and support the uptake of digital financial services. However, demonetization has caused a range of harms. These consequences should have been foreseeable because: the declaration was massive in scope, affecting 86 percent of the country’s currency in circulation; the country’s banking industry was given no time to prepare, as the plan was kept secret until November 8; and the vast majority of the country’s labor force works in the informal sector, dealing almost exclusively in cash.
Our previous posts focused on the financial inclusion implications of demonetization and how the government’s move affects Indians’ ability to conduct their finances. But our posts haven’t discussed the non-economic ways that demonetization is affecting citizens. Let us be clear, with the massive population in India living at or below the poverty line, the financial shock caused by demonetization has meant life or death for many. Here is a list of some of the ways demonetization is causing more than economic harm:
- Many have committed suicide: see here, here and here.
- Individuals have been trampled to death or suffered violence outside ATMs and banks.
- Individuals have suffered heart attacks while waiting in bank queues to exchange notes.
- Many are unable to pay for weddings or other important expenditures due to cash shortages.
- Infants are being denied treatment at private hospitals and some are dying as a result.
- There have been calls from bank officers for the Reserve Bank of India head to resign.
- Elections have been lost due to citizen disapproval surrounding the move.
The trials and contention surrounding demonetization have made their way into the press:
- Paytm released a video advertisement for their mobile payment company characterizing those struggling or suffering as a result of demonetization as being “melodramatic”. Received with vitriol, Paytm quickly altered the advertisement to soften its messaging.
- Even Larry Summers, President of Harvard University, spoke out against the move in a piece published in The Hindu and The Wire, saying “this was a bad idea ‘we’ had.” The article was shared widely.
- One of the most hardline conservative media outlets in India published a post yesterday called “Death On The Cash Queue: The Modi Government Has Goofed And Must Make Amends”.
And the list could do on. Though, of course, these links show only one, very pessimistic side of the story. For example, positive speculation is abuzz as far as what demonetizations means for venture capital and investing in India’s fintech ecosystem.
We’d be interested in hearing others’ thoughts on what of this could have been prevented with a different policy roll-out (or a different policy altogether).
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