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Demonetisation, Social Networks and Social Protection: Insights from Rural Tamil Nadu

Categories : Cash does not require a technology infrastructure, Cash is available to all users
January 22, 2018
Tags : Central Bank, Demonitisation, Digital, India, Regulation, Social Inclusion
Guillaume Lepecq

This paper was written by Isabelle Guérin*#, Youna Lanos**#,Sébastien Michiels**#, Christophe Jalil Nordman**# and Govindan Venkatasubramanian#. It was first published in Economic and Political Weekly on 30 December 2017.

*IRD, CESSMA – Paris, France
** IFP – Pondicherry, India
# IRD, DIAL – Paris, France  

The demonetisation that took place in India in November 2016 caused an unprecedented shock. Among its objectives, the measure was championed as an efficient means to promote a less-cash economy, in order to formalise economic transactions and boost social protection. This paper draws on ground-breaking data from rural South India to voice serious reservations over those stated goals. In the short run, the importance of cash in the Indian economy resulted in this measure strongly affecting employment, daily financial practices, and social network use for over three months. People came to rely more strongly on their networks to sustain their economic and social activities. Demonetisation has not fought, but has largely strengthened the informal economy. It has also probably further marginalised those without supportive networks. In a context such as India, where state social protection is weak and governmental schemes are notoriously subject to patronage and clientelistic networks, dense networks of supportive relatives, friends and patrons remain key for safeguarding daily life and the future. It can only be counterproductive to eliminate such arrangements without offering alternative protection.

With cashless policies flourishing in various parts of the world, we believe our findings have major implications, seriously questioning their merit, especially among the most marginalised segments of the population.