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NOPOOR Policy Brief Nr.36: The use of Social Networks in a self-inflicted macro-economic shock context: Demonetisation in India

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The demonetisation that occurred in India in November 2016 has created an unprecedented shock. Among other objectives, the measure has been presented as an efficient mean to promote a less cash economy in order to formalise the economy and to promote social protection. Drawing on ground-breaking data collected in rural south-India, this note expresses serious reservations about the stated goals. In the short run, due to the importance of cash in the Indian economy (98 percent of transactions are estimated to be in cash), this measure had strong impacts on employment, daily financial practices, and network use for more than three months, as people relied more strongly on their networks to sustain their economic and social activities. Rather than fighting against it, demonetisation has mostly strengthened the informal economy, while probably marginalising further those who lack networks. In the long run, and in a context like India, where state social protection is still weak and where governmental schemes are known to obey to patronage and clienteles’ networks, having a dense network of relatives, friends and patrons ready to help when needed remains the essential form of securing everyday life and the future. Eliminating such arrangements without offering alternative protection would be counterproductive. While cash less policies flourish in various parts of the world, we believe our findings have major implications and seriously question the merit of such policies, especially for the most marginalised segments of the population.

Image: IRD