A Study on effects of Demonetization on Rural Economy/ Small and

Micro Business/ Rural Households

By:-
Vaidehi Kaul (M2016CODP028)
MA Social Work in CODP (2nd Year)
 IMPACT OF DEMONETIZATION ON RURAL INDIA

SNAPSHOTS OF RURAL BANKING

 Out of the total 121 crore Indians of Indian population, 83.3 crore of population live in rural
areas, said the Census of India 2011.
 Nearly 600,000 villages in India, reportedly only 49,ooo villages have bank.
 Out of total number of 2,01,867 ATMs, an estimated only 28% are in rural India.
 Over 93% of people in rural India have not done any digital transactions.

INTRODUCTION
On 8th November 2016, our PM shook the
nation by demonetizing Rs. 500 and Rs. 1000
banknotes to drain illegal money from our
economy. The limelight after this
announcement was on metropolitan cities and
urban India. People and media were talking
about long ATM queues, digi payment solutions,
new notes but no one neither in authority nor
in media thought about 70% of Indians who
lives in so called “Real India”, the rural
facilities. Moreover according to RBI
population of our nation for whom the bomb
was thrown but unlike urban population they statistics, as of July 2016, out of total
had no measures to diffuse this bomb. They number of 2,01,867 ATMs, an estimated only
neither had proper banking infrastructure nor 28% are in rural India.
were equipped with modern money transaction
systems. To analyse the impact of In the time of demonetization due to weak
demonetization on rural economy the first we banking infrastructure, diverting cash
need to get bird eye view of rural banking in towards villages has taken longer to reach
India. than cities. Ironically, the immediate
casualty of demonetization were
cooperative and rural banks which added
The Scenario of Rural Banking insult to the injury and created massive
uncertainty this made the demonetization a
Out of nearly 600,000 villages in India, fiasco in rural India resulting to halting
reportedly only 49,ooo villages have bank local trade, shutdown of agricultural
branches so in a country where 7 out of markets, impending weddings and
10people lives in villages in that country you unemployment.
have to travel miles for availing basic banking
 IMPACT OF DEMONETIZATION ON RURAL ECONOMY
I have studied impact of demonetization on
rural economy keeping in mind the following
perspectives:
RURAL HOUSEHOLD AND BUSINESSES
The surgical strike on black money hit even
harder on the rural ecosystem. Rural India that
majorly relies on cash transactions to a great
extent came to a standstill after announcement
of demonetization. The people of lower
economic strata, daily wage workers who work
in the fields or in construction, who do not have
or operate bank accounts and rely on daily
wages, for them the cash crisis created a deep
turmoil and things like earning two time bread,
getting medicines or purchasing ration turned
to be a herculean task. As a result rural
consumer spends contracted from a growth of
12% in 2015 to 10.9% in 2016.
For the retail shop holders, it was difficult for
them to buy the wholesale goods and for the
vegetable/fruit seller it was difficult to buy the
vegetables/fruits from the wholesale market.
According to regional publications, farmers in
Lasalgaon in Nashik district have to close down
the onion markets due to cash crunch. Also, the
rural traders were getting throwaway prices for
their goods.
Many families who had weddings planned and
other special occasions were unable to
withdraw lump sum money and thus faced
depression, few lost their lives and many
weddings were cancelled.
AGRICULTURE AND UNEMPLOYMENT
Agricultural economy is labour intensive
absorbing 70% of employment contributing
50% to GDP. It is the largest employment
source and an important piece of the overall
socioeconomic
development of India. Cash transaction
dominates agricultural society, so after
demonetization farmers were unable to sell
their goods to consumer and purchase
inputs like certified HYV seeds from market
due to cash crunch.
A farmer depends mostly on village money
lenders for liquid cash which is also stopped
and if a farmer depends on a bank for loan
then they had ceiling for withdrawal and
has to pay full interest on loans. Moreover,
the small growers and retail vegetable
sellers are bearing the brunt, as they are
with inventories of perishable commodities.
Cumulative effect of all led to the job losses,
higher wastage of crops, fall in farm income
and social disruption.
SHG’s & RURAL WOMEN
Demonetization also came as a major blow
to the women as most of their savings are
outside the banking system that too hidden
from their husbands and relatives. As per
UNDP 80 per cent of women in India don’t
have a bank account as of FY2015. Therefore,
in essence, women require the consent of
male relatives to access formal financial
channels, whereas cash offers them a certain
amount of independence which got an end
due to Demonetization.
If we talk about women’s enterprise India has
over seven million SHG’s having more than
50,000,000 women. All these women saved
over 100 million rupees in 500 and 1000
rupee denomination notes that too secretly
from their husbands and families
Demonetization exposed all their savings
leading to even domestic violence in some
adverse cases.
 IMPACT OF DEMONETIZATION ON RURAL ECONOMY

SILVER LINING his situation gives a firsthand experience

on impact of demonetization on Rural
Demonetization also had some positive impact India
on rural economy like a self-realization by
government on improving rural banking CONCLUSION
infrastructure, increasing digital payment
Demonetization came as a surprise to
awareness in rural areas, proper and stringent
whole of a nation, it has long term
KYC norms after the misuse of Jandhan
benefits but a short term cost which is
accounts and most importantly a lifelong
clearly visible in Rural India. The rural
learning for rural population on importance of
banking system is still in a nascent stage
savings in banks instead of savings and credits
and is unprepared for policies such as
from unorganized lending sector.
demonetization. Improving the rural
CASE STUDY FROM MY FIELD WORK banking infrastructure and digitization
of rural economy is an immediate need.
During my field visit to Nuwagarh, Jharkhand in Self help groups can be of paramount
September 2017, I met with Mr Ramesh (name importance in imparting financial
changed) a 44 years old small farmer who shared literacy. So, proper implementation of
his experience on effect of demonetization on his financial inclusion policies, promoting
life. market place like E-NAM and awareness
drives are some of the ideal solutions to
He used work in landlord’s farms and get his
revive rural economy.
wages on 7th of every month, in 500 and 1000
___________________________________
denomination notes but sudden announcement
of demonetization was a complete shocker for
him. He was a sole bread-earner in the family
and his regular life was completely dependent on
the wages. In initial 1-2 days the ration
shopkeeper being his friend accepted old
currency but in later days he had to take out time
from his busy schedule and travel around 20-25
kms to the bank to get his notes replaced and a
many a times he had to return empty handed to
him.

According to him those were disastrous times

from him as after few days of demonetization he
even lost his employment for around a month as
landowner did not have cash to pay his wages.
He also said many farmers committed suicide
but that was not reported by any media or
authority as all focus was towards urban areas.
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