Demonetisation: A Reality Check

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Demonetisation: A Reality Check

Demonetisation has been a reality for over one month. The government decided to pull out 86% of the cash in circulation in an economy that functions almost entirely on cash. Ninety percent of all payments are cash, including the ones made at government shops for food. The government of Karnataka reportedly is forced to give grains at ration shops on credit, and in Madhya Pradesh customers looted a ration shop after old notes were not accepted in return for grains. Limited access to food grains, due to demonetisation even for one or two months can have catastrophic consequences for India.


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As the effect of demonetisation deepens, estimates suggest that over 400,000 jobs could be lost as a direct result of the policy. It impacts the most precarious people in the unorganised sector -- those living on daily wages, who rely on social security nets like the Public Distribution System (PDS), which provides grains to ~65% of the total population under the National Food Security Act (NFSA).

Government subsidies of grains are critical in India, which tops the world hunger list – 194 million people are undernourished. India has some of the worst figures on malnutrition in the world -- 48% of the country’s children are malnourished, while 55% of women are anaemic.

Government subsidies for grains are critical in India, which tops the world hunger list – 194 million people are undernourished.

The NFSA enables people to purchase subsidised grain (~5 kilos/person) at subsidised prices which are paid in cash by customers to the government shop owners. This entitlement is likely to take care of one third to half of the monthly food intake for many households. Access to these grains makes a difference between life and death for many, who have been struggling to get their entitlements for November and December.

Financial Inclusion

Meanwhile, state governments have been issued decrees to hurriedly on-board people on to digital financial platforms to ensure no hiccups in access to food. Governments are also taking this opportunity to test out cashless PDS, for instance in Maharashtra and Karnataka. Easy as it sounds to send money to a phone or a wallet, it isn’t a simple ask – PDS shops have been local stores that women of the house traditionally visit, standing in line and handing over money in exchange for their entitlement.


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The move to digital platforms, if not done with adequate training and sensitisation is likely to take away the control over food procurement that women have had over the years (due to ease of access and convenience).

Complex systems that rely on technology are likely to alienate women whose access to mobile phone is much less than men -- only 17% of all women own mobile phones. Beyond access to technology, financial and digital literacy is key to ensuring the women are empowered through the introduction of technology and do not lose their bargaining and decision-making powers in the household.

Experiments in India, particularly those, that impact the fragile food security system must be carefully implemented to ensure that no one is excluded from access to food. If the government anticipates that access to cash would not be any easier in January, ration shops should be allowed to give grains on credit, across the country. The country’s young population will suffer the brunt of these experiments, and the weight of three months without adequate food will take significantly more time to overcome.

Views expressed are personal. Astha Kapoor is a strategy consultant at MicroSave working on public policy issues. She can be reached @KapoorAstha



Feature Image Credit: Wikimedia Commons

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