Up till 8.30 pm on the night of November 8, 2016, Muniram Yadav was blissfully unaware of the announcement that had shaken the country just thirty minutes before. He was engrossed in work, in a tiny workshop in Mumbai’s Sakinaka suburb, supervising four labourers as they carried out a very specific activity: polishing metal moulds of different shapes with a powder that was made from the dust of diamonds.

When chiselled, the world’s most expensive gemstones leave behind debris that has its own afterlife – startlingly, as an ingredient in the production of everyday plastic goods. If diamond powder is not carefully applied to every inch of the metal moulds used to make pens, bulb holders, boxes, parts of kitchen appliances – a process that is termed “polishing” – these plastic products will not have their distinct, glossy sheen.

Eighteen years ago, Yadav too had been a daily-wage worker polishing moulds with diamond dust. Then in 2003, he poured in his life’s savings to set up his own mould-polishing business. Over 13 years, he proudly watched his profits grow. He went from employing one labourer to four. His family was able to move from a slum home with one room, to another with two rooms in the same slum.

And then came the night of November 8, exactly five years ago.

Prime Minister Narendra Modi announced the demonetisation of all Rs 500 and Rs 1,000 notes, invalidating 86% of India’s currency at four hours’ notice. Citizens would get barely two months to stand in serpentine queues and exchange all their demonetised notes for new ones, but the “inconvenience”, Modi said, would be worth it for the greater good: it would flush out all black money from India’s economic system and “clean” India for the benefit of the poor.

Was this goal achieved? Today, Yadav neither has an opinion nor cares to form one.

“All I know is that my business was going up before notebandi,” he said, using the popular Hindi term for demonetisation. “But in the last five years, it has only been going down.”

Yadav’s profits, beyond the personal income he takes home every month, have dwindled from over Rs 30,000 a year in 2015 to less than half that amount. His client base has shrunk from 15 mould makers to barely seven. He has just two labourers left at his workshop, and often joins them at the mould polishing machines to save on costs.

Around him, dozens of small-scale business owners had similar stories to tell. Since demonetisation, they have seen smaller turnovers, slower rates of growth, rising costs and a worrying decline in their savings.

Diamond powder is sold in small quantities of five carats per bottle. It is used to coat metal moulds used to manufacture durable plastic goods, like this mould for parts of a tube light holder.

In the immediate aftermath of demonetisation, cash flow in the economy was choked – this dealt a devastating blow to these businesses, which rely heavily on cash transactions. But none of the business owners, including Yadav, placed the blame for their decline solely on demonetisation. Instead, they pointed to a series of jolts to the economy that followed soon after the high-value currency notes were delegitimised.

In July 2017, amidst protests from small traders and business owners across the country, the central government rolled out the controversial Goods and Services Tax to replace all previous indirect taxes on businesses. Under the new regime, the tax levied on some products and services was two to four times heavier than before, and a system of refunds and rebates made filing of GST a complex and tedious monthly process.

This was followed, in 2018 and 2019, by an unmistakable economic slowdown that the central government denied, and a growing crisis of unemployment. The final blow – the Covid-19 pandemic – hit the economy twice, with a three-month national lockdown in March 2020 and multiple state-level lockdowns during the second wave this year.

“If it was just notebandi or just GST, we would have recovered,” said Yadav. “But the problem is that all these shocks happened one after another, without much gap in between.”

In October, Scroll.in followed the value-chain of the durable plastic goods manufacturing industry, of which Yadav is a part, to understand the impact of the past five years on the businesses and people within it.

The pattern that emerged was clear. Those higher up the value-chain, with larger businesses, viewed demonetisation as a hiccup of the past, and experienced the Covid-19 lockdowns as the only real jolt to their stability. Smaller businesses in the informal sector, however, could not divorce one adverse economic event from another. For them, demonetisation was the turning point that signalled the downward slide of their financial health. Each shock that followed had compounded the impact of the next one.

This story is part of Common Ground, our in-depth and investigative reporting project. Sign up here to get a fresh story in your inbox every Wednesday.

Yadav’s “gala”, or workshop, is easy to miss among the hundreds of grimy, unnamed establishments lining every street of Sakinaka. This densely populated suburb is a hub of small-scale industries in Mumbai – manufacturers of computer parts, machines, plastics, furniture, garments. Like Yadav, most of these business owners have risen from the working class themselves, setting up their own galas after a few years of experience as labourers. Some businesses are registered as commercial establishments under the Maharashtra Shops and Establishments Act. Others don’t exist in government records.

“Banks never give business loans to small people like us, so I set up my shop by borrowing money from friends,” said 40-year-old Yadav, a tall man with large, expressive eyes. He invested Rs 25,000 to buy two mould-polishing machines, rented a 100-square-feet shop space, hired a worker and began making a modest profit within the first few months itself.

This was a huge step up the aspirational ladder for Yadav, who had studied only up to Class 5 in his village in Uttar Pradesh’s Siddharthnagar district, and began working as a mould polisher in Mumbai as an adolescent. He enrolled his three children – now aged 16, 14 and 11 – in English medium schools, confident that the industry he worked in would always be booming. Plastic products, after all, were ubiquitous, and they would always need the help of diamond coating on moulds in order to shine.

But the post-demonetisation years have, for the first time, shaken Yadav’s confidence in the future.

Muniram Yadav was a daily-wage worker polishing moulds for plastic goods before he set up his own workshop 18 years ago. After demonetisation, he claims his business stopped growing.

First, there was demonetisation itself, which brought Yadav’s operations to a near halt for at least two months. “My business runs mainly on cash, so when notebandi happened, most of my clients said they had no liquid cash to give me,” he said. His clients were manufacturers of metal moulds, who wanted Yadav to work on credit till cash flow returned to normal. “But the dealers I buy diamond powder and other raw materials from did not let me buy on credit, so I had to pay from my own pocket to keep going,” he said.

By the time cash flow returned to the market, Yadav and other small business owners had to confront the new GST regime. Since Yadav’s turnover was less than Rs 20 lakh a year, he did not require a GST registration to operate. “But many bigger clients who had GST numbers did not want to do business with me anymore – they only wanted to deal with others who had GST,” he said.

This was largely because of the input tax credit feature of GST, which allows a trader to claim, while filing their taxes, a deduction on the tax they already paid at the time of purchasing any goods or services – but they could only do this if the purchase was made from an entity with a GST registration number.

While Yadav assigns some blame to demonetisation for the economic blows he suffered, he believes GST did even more harm. “It made almost everything more expensive,” Yadav said. The price of some plastic goods doubled, while iron and other metals also grew costlier, affecting mould makers. Diamond powder, on which Yadav’s whole business depended, now cost Rs 250 for a tiny five-carat bottle – at least Rs 100 more than what it cost before demonetisation.

“There was so much inflation, I wanted to increase the rates of my own services,” Yadav said. “But then my clients would not have been able to give me work, and they would find someone else willing to do it for cheaper.”

In the midst of this, Yadav had to let go of two of his labourers so that he could increase the wages of the other two. By the time the first Covid-19 lockdown was enforced in March 2020, his business was already cash-strapped. He was able to pay his workers only for the first month of the lockdown. Businesses did not reopen until July 2020, and Yadav just about managed to pay his shop rent (Rs 5,000 a month) and electricity bills during the lockdown months.

Where once Yadav’s employees worked at least 12 hours a day, when he reopened after the lockdown, he said, “we could work for barely four hours a day, because policemen would roam around and force us to shut early”. Now, the workshop functions for seven hours a day, mainly because of the dearth of available work. “After notebandi, work was already shrinking by four or five percent every year. But after the lockdown, it reduced by another 10%.”

Though Yadav is convinced of the adverse effects of demonetisation (and later GST) on his business, at the macro-level, understanding and calculating just how badly demonetisation affected those in the informal economy has proven to be hard.

In the Economic Survey of 2016-’17, Arvind Subramanian, who was chief economic adviser to the government at the time, estimated a hit to India’s Gross Domestic Product of between 0.25 to 0.5 percentage points.

But Subramanian admitted that official figures would “understate the overall impact, because the most affected parts of the economy – informal and cash-based – are either not captured in the national income accounts or to the extent they are, their measurement is based on formal sector indicators.”

In general, estimates for India’s massive informal economy tend to assume that activity within it will move in tandem with the formal sector. Yet, soon after demonetisation was announced it became clear that its impact would play out differently in formal and informal spaces.

“Around 95% of transactions were estimated to occur in cash before this move, so this measure effectively froze many markets, caused demand to fall, disrupted supply chains and led to significant loss of livelihood and employment,” said Jayati Ghosh, professor of economics at the University of Massachusetts Amherst.

Not only were things worse off for those in the unorganised sector, firms in the formal space were actually set to benefit.

“Inequality increased, as the rich escaped relatively unscathed through this process: they could switch to digital transactions and were able to exchange their earlier notes (including through a quickly developed black market) without too much loss. But the poor suffered disproportionately,” Ghosh said.

“Formal enterprises could then make inroads into the markets these informal enterprises had previously served,” she added.

The Central Statistical Organisation, which generates India’s official economic data, estimates informal GDP by extrapolating from figures measured in the formal sector. This ratio is fixed, and is based on surveys that Ghosh said were last conducted in 2004-’05.

If demonetisation did indeed shrink the informal space and expand the formal, then any calculations based on the older ratios would be overestimating activity in the unorganised sector. Yet the CSO has made no move to update its assumptions.

As a result, researchers seeking to understand what took place in the informal sector have sought to use other measurements as proxies for economic activity.

A working paper from the US National Bureau of Economic Research, whose authors include the International Monetary Fund’s Gita Gopinath, looked at a household survey on employment as well as satellite data on “human generated-nightlight activity” to conclude that demonetisation reduced economic activity by at least 2 percentage points in the quarter after it was announced.

A World Bank team also looked at nightlight intensity as a proxy for economic activity, and specifically set out to make the comparison between the formal and informal sectors.

“The difference in local growth relative to a normal year was very small in urban districts, as well as in those with greater access to finance and with more prevalent regular wage employment,” the World Bank report said. “On the other hand, more informal districts experienced drops in local GDP in the range of 4.7 to 7.3 percentage points.”

Both studies pointed out that the effects were transitory. The steep declines managed to correct themselves within a quarter or two. However, this is when the overall economy begins its big slide. The country’s official recorded GDP growth rate in the year of demonetisation was 8.3%. By 2019 – before the Covid-19 crisis hit – it had fallen to 4%.

Despite this, in the months after demonetisation, the resumption of activity led many to believe that the shock of the move was temporary, and that the downturn had as much to do with the botched rollout of India’s Goods and Services Tax. Some interpreted the Bharatiya Janata Party’s success in the 2017 election in Uttar Pradesh as a sign that demonetisation had not had a significantly negative effect on people.

Subramanian, who after leaving office called demonetisation “a massive, draconian, monetary shock”, would later express surprise at how “small the effect [of demonetisation] was compared to the magnitude of the shock.”

Many of these analyses rely on seeing demonetisation primarily as a demand shock, meaning that, because access to cash was limited in those months, consumption of goods declined. Once cash supply had been restored, these effects wore off.

But Giri Subramanian, an economist at the Analysis Group, used a number of surveys and firm-level data to find that companies that were “more exposed to the informal sector and more dependent on informal/temporary workers were disproportionately affected” on the supply side. That is, these businesses were hit not by a lack of demand, but simply an acute shortage of cash supply that affected their ability to purchase goods and hire workers as needed. This meant that they were forced to lay off part of their work force and procure fewer materials in the period after demonetisation.

Though Giri Subramanian’s analysis also points to some of those effects dissipating soon after, data from elsewhere offers a glimpse of what was happening in the economy in the aftermath of the note ban.

Leaked numbers from an official government survey revealed that unemployment hit a five-decade high of 6.1% in 2017-’18. An analysis of survey data from the Centre for Sustainable Employment at the Azim Premji University found that 50 lakh jobs were lost between 2016 and 2018, with the numbers beginning to fall after demonetisation.

Yadav buys his diamond powder bottles from local retail hardware stores. Some are small establishments, like Ashok Patel’s 32-year-old store hidden in a Sakinaka bylane with no signboard to distinguish it from the furniture workshops around it.

Like Yadav, Patel too wholeheartedly believes that demonetisation was the first of a series of setbacks that together left small businesses gasping for air. In the past five years, Patel claims he has seen several shops in his lane shut down, particularly those whose owners were burdened with loans that they could not pay off. While he isn’t saddled with debt, his store has made neither profit nor loss in the past three years.

“For the first time in 32 years, my business is thapp, completely flat,” said Patel, a balding man with tufts of grey hair. “There was a recession in 2009, but even that was not as bad as my state today.”

Unlike large businesses with a separate budget for marketing themselves, Patel claims stores like his rely heavily on the bonds of trust he maintains with customers and the wholesalers he buys from. That trust enabled him to make his wholesale purchases on udhaar, or credit, whenever he was in need. In the years since demonetisation, however, that trust has gradually eroded.

“Today, no one is in a position to allow udhaar,” said Patel. “I understand why, but it still hurts when someone I have known for 20 years suddenly says, ‘pehle paisa, baad mein maal’.” First money, then the goods.

Ashok Patel has been running a small hardware store in Mumbai's Sakinaka area for 32 years. He believes the recession of 2009 did not affect him as much as the past three years have.

In contrast, a larger hardware store set up by a traditionally wealthy family was dismissive about the impact of demonetisation and the years that followed. The store, Laxmi Hardware, is nearly 40 years old and sells over 1.4 lakh industrial hardware products, including diamond powder, to serve the needs of local businesses in Sakinaka.

“Notebandi and GST were good for the country, they helped to remove black money,” said Deepak Jain, a proprietor of Laxmi Hardware and the son of one of its founders. “They did not impact our business at all, but the lockdown did.”

Since the Covid-19 pandemic began, Jain claims his store’s turnover had reduced by 50% – an unprecedented amount in his experience. “But this has not affected our family’s savings or household expenses at all,” said Jain, whose children attend international schools and plan to study abroad. “I don’t know of anyone whose family lives have been affected by the lockdown.”

Despite this sweeping claim, Jain also acknowledged that the lockdown had adversely affected several local businesses. “Many shops in this area have temporarily or permanently shut down during the lockdown, so we have lost customers,” Jain said. “In fact, many metal works shops have moved to Surat and other parts of Gujarat, because everything is cheaper there.”

Yadav has been witnessing this shift too: at least two of his mould-maker clients have now moved their operations to Gujarat, where everything from rent to electricity is cheaper than in Mumbai.

Jain buys five-carat bottles of industrial diamond powder from wholesalers based in both Mumbai and Gujarat. One such wholesaler is Soham Industrial Diamonds, a Surat-based company that 62-year-old Gowardhan Gajipara set up 21 years ago. Like the Jains, Gajipara’s annual turnover runs into crores, and he does not view demonetisation as a negative turning point for the economy.

“We are a white business and we don’t deal in cash, so we were not affected by these policies,” said Gajipara, speaking on the phone. “In fact, it would be better for all businesses to stop using cash and to come under GST so they can benefit.”

During the pandemic, when his business was shut for six months, Gajipura had enough savings to be able to pay his office rent and employees’ wages for the entire period. “It was a loss from my personal savings, but I did not go in debt and my family budget was not affected, so I don’t see it as a loss,” he said.

Gajipara sells powder from both natural and synthetic diamonds, which he sources from small-scale diamond polishers in Surat. Scroll.in contacted several of them to seek their views on the impact of the past five years, but only one business owner agreed to have a terse conversation.

“Look, we are chhote dhandhe wale, small businessmen,” the diamond polisher said, requesting anonymity. “I am scared to speak about such issues. It is best that you ask the big businessmen.”

Deepak Jain's hardware store is a large family business that has prospered well over 40 years. He claims it was not affected by any of the shocks to the economy before the Covid-19 pandemic.

On the other side of the plastic goods value-chain, the situation was no different: smaller businesses were more acutely affected than larger ones by the years of economic shocks that began with demonetisation.

Take the case of Mahadev Industries, a bulk manufacturer of plastic kitchen goods in Mumbai, with a staff of nearly 50 employees. If demonetisation or GST caused any temporary hiccups in their operation, the company representative did not admit it.

“We have only been affected by the lockdown, just like everyone else,” said Bhupendra Purohit, a manager at the company. “We were able to pay all our employees when work had shut down during the lockdown, and now business is picking up again.”

One of the mould makers that Mahadev Industries deals with is Dasrath Pradhan, who is also one of Yadav’s clients. Like Yadav, Pradhan has a one-room workshop in Sakinaka, where seven workers cut blocks of steel and iron to make moulds for small and mid-sized plastic items. It can take up to six weeks to make the moulds for all the parts of a mixer-grinder range.

Plastics manufacturing is a huge industry in Mumbai, and Pradhan claims his business – and his competition – have both grown in the past five years. “But the rate of growth has been much, much slower than before,” said 42-year-old Pradhan, who set up his workshop in 2005.

Like many small business owners in Sakinaka, Dasrath Pradhan worked as a daily-wage labourer before moving up the economic ladder. His workshop, set up in 2005, has two machines for making plastic moulds.

For six weeks after demonetisation, Pradhan’s clients – plastic product makers – could not pay him what he was due. After the GST rollout, inflation began to hit his sector, peaking in mid-2020. The price of steel blocks, for instance, would rise by just Rs 4 or Rs 5 per kg every year before GST. In the past year, their rates have shot up by Rs 70 per kg.

“When every item you need to buy becomes more expensive, and the competition does not allow you to raise your own service fees, there is a jhatka, a shock, to your earnings,” said Pradhan.

Faizan Shah, a wholesaler who sells metal blocks to mould makers like Pradhan, has also been grappling with the effect of this shock. “The money that would buy 10 tonnes of iron a few years ago can now buy just eight tonnes, so my profits have been stagnating,” said Shah, who describes his 20-year-old business in suburban Mumbai as mid-sized. “Ever since demonetisation, the government has dropped different bombs at us and my business has not had a chance to properly stabilise.”

While Shah believes in accepting what he cannot control and learning to “adjust” to the changes in his economic situation, he is angry about the manner in which the blows were dealt. “Why does Modi always have to make big announcements at the last minute, just hours before midnight?” he said, referring not just to the announcement of demonetisation but also the March 2020 lockdown. “How is anyone supposed to prepare and make arrangements, like making sure clients pay up what they owe you before everything shuts down?”

If the years after demonetisation affected small and large business owners differently, the repercussions on their personal finances have also been clearly disproportionate.

Despite the pandemic, large businessmen like Deepak Jain and Gowardhan Gajipara have been able to run their households just as they did before November 2016, without any changes or compromises to their lifestyle or their aspirations.

Others have been shaken to their core.

“Before notebandi, I never felt uncertain about my family’s future, but now I feel like we always have to be prepared for the worst,” said Ashok Patel, the small hardware store owner.

One of Patel’s daughters works with him at their store, while his two sons have labour jobs at hardware workshops. Their salaries were reduced by half during the 2020 lockdown. “Apart from the food we eat, we have had to cut down our expenses in every single thing. Who would have imagined such a time would come?”

Rajesh Shivale, another small entrepreneur in Sakinaka, has not been able to pay his children’s school fees for the past year, and his family has given up on grand festival celebrations and annual holidays outside Mumbai. “Even if it was not for Covid-19, we would have had to give up these expenses, because our businesses have been stagnating from the time of demonetisation itself,” said the 40-year-old, who runs two small enterprises with his wife.

The first one, started in 2005, is a workshop for cylindrical grinding – the process of ensuring that metal moulds made by people like Dasrath Pradhan are precisely measured and aligned. The other is a textile dyeing workshop that the Shivales launched soon after demonetisation, with the help of business loans from banks – loans that they are still struggling to pay off.

Despite the blows to his businesses, Shivale believes the Modi government has been successful in controlling corruption and improving the image of India abroad.

“I support this government and I believe that notebandi and GST were good for India,” he said. “But I will admit that I have not earned as much under Modi raj as I did under Congress raj.”

In their two-room slum home in Sakinaka, Muniram Yadav and his wife Deepa were doleful about their savings, which had been depleting gradually after demonetisation but have now almost completely been wiped out by the pandemic. “We had to buy three extra mobile phones with data packs for my children’s online classes. We had to pay their full school fees throughout this period, which is Rs 36,000 a year,” said Deepa. “Meanwhile basic dals and vegetables are so expensive. We used to eat mutton-macchi three or four times a week, but now we only eat meat on special occasions.”

Yadav describes his children’s education as his only remaining “savings” for the future. “They are the only hope,” he said.

But at the very bottom of the value-chain, the labourers in Yadav’s workshop do not even have that hope to hold on to.

“Before notebandi, I used to earn Rs 12,000 a month and was easily able to save Rs 8,000 from it,” said Shiv Charan Yadav, a 30-year-old worker from Uttar Pradesh’s Balrampur district, who began working with Muniram Yadav in Mumbai at the age of 15. As inflation increased, the amount Shiv Charan was able to send to his ageing parents, wife and young children in the village began to dwindle. “Now, even though I earn Rs 18,000 a month, I am barely able to save Rs 3,000 for my family.”

Much like the diamond powder he scrubbed carefully on a mould for a small plastic bucket, Shiv Charan’s hopes also seemed to have turned to dust. “I don’t know what the future holds for people like us.”

Shiv Charan Yadav (right) has been working since the age of 15, using diamond dust to polish moulds like this one, for a small plastic bucket.

All photographs by Aarefa Johari.

This reporting is made possible with support from Report for the World, an initiative of The GroundTruth Project.