The disruption that the demonetisation of high-value currency notes on November 8, 2016, caused to people’s lives, livelihoods and the Indi...
The disruption that the demonetisation of high-value currency notes on November 8, 2016, caused to people’s lives, livelihoods and the Indian economy is still fresh in many people’s memories. The direct impact on the informal economy that largely operated in cash, and the consequent ripple effects across everyone connected with it directly or indirectly, was widely reported at the time.
Over the years since high-denomination cash was made to suddenly disappear, it has come back at higher levels than before. In the face of this reversal, it becomes important to evaluate the longer-term trajectory that the economy has taken post-demonetisation. The return of cash makes improbable any claims of positive effects through the strong formalisation of the Indian economy. The negative outcomes, however, may not have been erased by the increased cash intensity of the economy.
The economy does not work like an elastic rubber band where once the stress is released, it comes back to the pre-stress configuration. Negative events tend to have long-lasting effects. Small firms that close because of a lack of demand do not reopen automatically once demand comes back. When people are unable to repay loans, taking a loan again, especially from informal sources is not as easy.
Hence, one can expect...
