note demonetisation

Demonetisation isn't an inconvenience for poor people – it risks causing a welfare shock

The 'Economy' doesn’t lend, trickle to the poor – or do anything to ease the shock.

I want to make one thing clear. There is a difference between “short-term inconvenience” or pain or difficulty, however you want to call it, and a welfare shock.

Take a very simple empiric: 80% of families in India that are above the poverty line in one year and then fall below it in another, do so because of one illness, to one family member, in one year. Let that sink in please: one, one, one. That’s it. (see Aniruddh Krishna’s excellent “One Illness Away” to read more).

This is the reality of the vulnerability of what is so dismissively called the “cash economy”.

You can replace illness with wedding or funeral and the story still holds. Welfare shocks, as they are called, break cycles of very tenuous security and small economic gains, pushing families back into cycles of debt and depleted savings. They do it because we don’t have enough public welfare protections to guard against small risks and life events – domestic savings are the only floor.

The thing about demonetisation done in this way, where no planning accounts for the “short-term” contraction of the cash economy in a place where 60%-80% of workers work informally, half get paid in cash, and one in every five of them work in cash on daily/weekly wages (see Reserve Bank of India, National Sample Survey data, or the report by theNational Commission for Enterprises in the Unorganised Sector) then you aren’t pushing a “short-term inconvenience,” you risk causing a welfare shock.

Do the maths: daily wage workers weigh the opportunity cost of lost wages and risk to continued work (skipping even a day risks not being called back to work with the same contractor) against access to usable cash. This happens for two or three days. Then you need to spend. You borrow, and a new cycle of small debt begins. If in the middle of this, one small other thing happens – just one, say an illness, a puncture in your rickshaw, a sudden off-cycle bribe to the cops for your thela or cart – and you can’t use your savings, then the debt cycle worsens, or you forego other expenditures like food or school fees.

This is not “inconvenience”.

The risk here is that demonetisation will do exactly what illness, accident, eviction, funeral, and drought do to poor families. If you think just faulty implementation can’t do that, you are ignoring how thin the line between stability and crisis is for too many working people in this country.

So debate all you want about whether or not this will hit black money (and let me be honest that I am currently neither convinced by the sell or the critique on that count but that’s for another time), but what makes this move unconscionable for me is that there is no concern whatsoever to think about the consequences for a dominantly small cash economy. Let alone medium-term implications for the Micro, Small and Medium Enterprises sector, mid-size employment, and trade but the very real impoverishment effects of short-term crises.

Real risks

I don’t think it is accidental that we did not think the implementation through at all. The implementation seems to reflect the actual exercise at play when you hear Finance Minister Arun Jaitley speak.

Recently, he “regretted hardships” and “advised the public to be patient as the move will have larger benefits for the economy in long term.” In the short run, he said, some “obvious” disruption will be caused. “But once the money is available both in the system and more so in the banking system, the advantages of that to the economy and businesses will be far more. The capacity of the banks with all this additional capital to lend and support businesses is going to be far higher. And therefore medium term and long term advantages to the economy as against this temporary inconvenience or disruption, are far too many,” he said here.

He’s possibly right. The “Economy” of banks, deposits and formal lending will benefit, and do so enormously. The catch is: this is not the economic lifeworld where the shock is. The National Housing Bank says that 75% of all housing loans, to take one example, in the country given by financial institution are above Rs 10 lacs. The “Economy” doesn’t lend, or trickle, to the poor – or ease the shock. You want to connect these two economies, fine. Doing it through coercive deposit exercises will have a short-term effect at best. All the reasons why the poor don’t bank or transact in the formal economy will not change just because you pushed them through the doors this one time. Is chemotherapy really sound economic policy?

That said, let us also challenge any easy critique. There is a need to hit black money. It has real costs, many of them on equity as well as on growth. Some part of any plan to do so will be punitive and have collateral damage. But that is precisely why thinking through what to do must begin itself from the very real risks it poses and to take seriously the current nature and structure of our economies, not the “Economy.”

How to do that is a conversation we must have, if only to not let a welfare shock be described as an “inconvenience”. We are still to see the real impacts – even short-term – of this move, but what it signals for our priorities and approaches to economic change is worrying.

This article first appeared on Kafila.

We welcome your comments at letters@scroll.in.
Sponsored Content  BY 

Harvard Business School’s HBX brings the future of business education to India with online programs

HBX is not only offering courses online, but also connecting students to the power of its network.

The classic design of the physical Harvard Business School (HBS) classroom was once a big innovation – precisely designed teaching amphitheaters laid out for every student to participate from his or her seat with a “pit” in the center of the room from which professors orchestrate discussions analyzing business cases like a symphony lead. When it came to designing the online experience of HBX—the school’s digital learning initiative—HBS faculty worked tirelessly to blend these tenets of the HBS classroom pedagogy with the power of new technology. With real-world problem solving, active learning, and social learning as its foundation, HBX offers immersive and challenging self-paced learning experiences through its interactive online learning platform.

Reimagining digital education, breaking the virtual learning mold

Typically, online courses follow a one-way broadcast mode – lectures are video recorded and reading material is shared – and students learn alone and are individually tested. Moving away from the passive learning model, HBX has developed an online platform that leverages the HBS ‘case-based pedagogy’ and audio-visual and interaction tools to make learning engaging.

HBX courses are rarely taught through theory. Instead, students learn through real-world problem-solving. Students start by grappling with a business problem – with real world data and the complexity in which a business leader would have to make a decision – and learn the theory inductively. Thus even as mathematical theories are applied to business situations, students come away with a greater sense of clarity and perspective, whether it is reading a financial report, understanding why a brand’s approach to a random sample population study may or may not work, or how pricing works.

HBX Platform | Courses offered in the HBX CORe program
HBX Platform | Courses offered in the HBX CORe program

“Learning about concepts through real-life cases was my favorite part of the program. The cases really helped transform abstract concepts into observable situations one could learn from. Furthermore, it really helped me understand how to identify situations in which I could use the tools that HBX equipped me with,” says Anindita Ravikumar, a past HBX participant. India’s premier B-school IIM-Ahmedabad has borrowed the very same pedagogy from Harvard. Learning in this manner is far more engaging, relatable, and memorable.

Most lessons start with a short 2-3 minute video of a manager talking about the business problem at hand. Students are then asked to respond on how they would handle the issue. Questions can be in the form of either a poll or reflections. Everyone’s answers are then visible to the ‘classroom’. In the words of Professor Bharat Anand, Faculty Chair, HBX, “This turns out to be a really important distinction. The answers are being updated in real-time. You can see the distribution of answers, but you can also see what any other individual has answered, which means that you’re not anonymous.” Students have real profiles and get to know their ‘classmates’ and learn from each other.

HBX Interface | Students can view profiles of other students in their cohort
HBX Interface | Students can view profiles of other students in their cohort

Professor Anand also says, “We have what we call the three-minute rule. Roughly every three minutes, you are doing something different on the platform. Everyone is on the edge of their seats. Anyone could be called on to participate at any time. It’s a very lean forward mode of learning”. Students get ‘cold-called’ – a concept borrowed from the classroom – where every now and then individuals will be unexpectedly prompted to answer a question on the platform and their response will be shared with other members of the cohort. It keeps students engaged and encourages preparedness. While HBX courses are self-paced, participants are encouraged to get through a certain amount of content each week, which helps keep the cohort together and enables the social elements of the learning experience.

More than digital learning

The HBS campus experience is valued by alumni not just for the academic experience but also for the diverse network of peers they meet. HBX programs similarly encourage student interactions and opportunities for in-person networking. All HBXers who successfully complete their programs and are awarded a credential or certificate from HBX and Harvard Business School are invited to the annual on-campus HBX ConneXt event to meet peers from around the world, hear from faculty and business executives, and also experience the HBS campus near Cambridge.

HBXers at ConneXt, with Prof. Bharat Anand
HBXers at ConneXt, with Prof. Bharat Anand

Programs offered today

HBX offers a range of programs that appeal to different audiences.

To help college students and recent graduates prepare for the business world, HBX CORe (Credential of Readiness) integrates business essentials such as analytics, economics, and financial accounting. HBX CORe is also great for those interested in an MBA looking to strengthen their application and brush up their skills to be prepared for day one. For working professionals, HBX CORe and additional courses like Disruptive Strategy, Leading with Finance, and Negotiation Mastery, can help deepen understanding of essential business concepts in order to add value to their organizations and advance their careers.

Course durations range from 6 to 17 weeks depending on the program. All interested candidates must submit a free, 10-15 minute application that is reviewed by the HBX admissions team by the deadlines noted on the HBX website.

For more information, please review the HBX website.

This article was produced by the Scroll marketing team on behalf of HBX and not by the Scroll editorial team.