[Urbanstudy] Survey of the Effects of Demonetisation on 28 Slum Neighbourhoods in Mumbai

Vinay Baindur yanivbin at gmail.com
Thu Jan 26 07:37:22 CST 2017


*Survey of the Effects of Demonetisation on 28 Slum Neighbourhoods in
Web Exclusives <http://www.epw.in/web-exclusives>
Deepa Krishnan <http://www.epw.in/author/deepa-krishnan>
Stephan Siegel <http://www.epw.in/author/stephan-siegel>
Vol. 52, Issue No. 3, 21 Jan, 2017 <http://www.epw.in/journal/2017/3>
Published On : 25th Jan, 2017

Deepa Krishnan (*deepa.krishnan at spjimr.org* <deepa.krishnan at spjimr.org>)
heads the Abhudaya Project at the S P Jain Institute of Management and
Research, Mumbai. Stephan Siegel (*ss1110 at uw.edu* <ss1110 at uw.edu>) teaches
at the Department of Finance and Business Economics, Michael G Foster
School of Business, University of Washington, Seattle, US.

*The immediate impact of and reaction to demonetisation are documented and
examined through a survey of around 200 families living in 28 slum or
lower-income neighbourhoods in Mumbai in early December 2016. A drop in
family income is recorded with wide variation across different groups and
occupation types. There is also a drop in consumption as well as changes in
the families’ savings in November. Finally, we find that the majority of
respondents view the policy overall as positive, including the majority of
those who experienced some loss of income in November. *

We thank the first year post-graduate programme students at S P Jain
Institute of Management Reasearch for help in conducting the survey.

On the night of 8 November 2016, the Indian Prime Minister made a surprise
announcement on television: currency notes of ₹500 and ₹1,000 denominations
were to be withdrawn from the market with immediate effect (RBI 2016b;
Bhatt 2016). The scheme, popularly called *notebandi*, was championed by
Prime Minister Narendra Modi as a way to end the menace of black money,
counterfeit currency, and corruption. The government stated that honest
citizens had nothing to fear. People holding the two withdrawn
denominations could either deposit them in banks, or exchange them at the
bank for new currency notes.

Following the announcement, there was a rush at banks and ATMs to exchange
old notes and withdraw new currency (Roy 2016; PTI 2016a). The two
withdrawn denominations represented 86% of the currency in circulation (RBI
2016a). As the queues at banks grew, reports appeared in the press about
the suffering experienced by people, especially among the poor, who had no
access to credit cards or mobile wallets (Biswas 2016; TNN 2016). As more
days went by, the press reported that in both urban and rural India, the
country’s large informal economy (Kalyani 2016) had been disrupted, and
that notebandi would have a negative impact on gross domestic product (GDP)
(Kohli 2016; Mishra 2016; PTI 2016b)

S P Jain Institute of Management and Research–Abhyudaya (SPJIMR–Abhyudaya),
an educational non-profit working in slums in the K-West ward of Mumbai,
decided to assess the impact of notebandi on the families they were working
with. The objective was to get a first-hand picture of how these families
were coping with notebandi.

*About the Study*

SPJIMR runs a non-profit initiative called Abhyudaya, where business
students at SPJIMR mentor children from the slums in the K-West ward of
Mumbai. The children are called “Sitaras.”


[image: Inline image 1]​

Each business student is paired with one Sitara. The students visit the
Sitara’s home in the slum and provide one-to-one mentoring through the year.

To study the effects of notebandi on the families of the Sitaras, the
SPJIMR-Abhyudaya team designed a questionnaire in the last week of November.

It was decided that each business student would interview the family of the
Sitara whom they were mentoring, and obtain responses to the questions. The
responses would be collected using Google Forms, on smartphones.

On 3 December the questionnaire was uploaded on Google Forms, and the
students were given a link to the questionnaire, to be filled online on the

For slum locations without data access, the students were instructed to
fill out the form on paper and then upload it on Google Forms when they
returned to the campus.

>From 3 December to 9 December, the students visited their Sitara’s family,
and obtained the answers to the questionnaire. The data collected via the
questionnaire was then merged with the existing socio-economic data about
each family, already held with Abhyudaya.

The survey consisted of 37 questions, which address the families’ initial
response to the demonetisation announcement, the economic consequences for
their income, expenditure, and savings, changes in payment choices
following demonetisation as well as a subjective assessment of the policy.

*Surveyed families*

The sample of surveyed families includes 214 families living in 28 slum or
lower-income neighbourhoods of Mumbai. Of the 28 neighbourhoods, 27 are
located in Mumbai’s K-West Ward, while two families reside in the
neighbouring K-East Ward. Appendix Table A1 lists all neighbourhoods
included in the study as well as the number of families per neighbourhood.

The families interviewed for the purposes of this study have not been
randomly selected (as their children were previously selected to
participate in the SPJIMR-Abhyudaya initiative) and are not necessarily
representative of slum communities in Mumbai.  However, the following
socio-economic characteristics of the interviewed families show that the
vast majority belong to India’s lower-middle class. For example, Figure 1
reveals that 41% of fathers have at most seven years of schooling, while
30% of mothers are either illiterate or have only completed elementary
school. The occupational profiles of fathers and mothers included in the
sample, (see Figures 2A and B), show that some receive regular salaries as
they work in “service jobs” as domestic helpers, cooks, and drivers, while
many face substantial uncertainty as their wage income or customer volume
will fluctuate day-to-day. Finally, Table 1 and Figure 3 provide
information about monthly incomes in 2016 before demonetisation and the
distribution of income across the families in the sample. The mean (median)
monthly total family income is ₹12,777 (12,000) or approximately $190
($179) at an exchange rate of ₹/$ 67. For two thirds of the families, the
monthly total income is between ₹8,000 and ₹18,000. Based on the recently
completed ICE 360° Survey,[i]
the average monthly household income is ₹16,840 across all Indian
households and ₹29,690 across families living in metro areas such as Mumbai.
 *Figure 1: Education Profile of Respondents (Fathers and Mothers of

*Figure 2: Occupation of Respondents*

*Panel A: Father’s Occupation*

*Panel B: Mother’s Occupation*

*Figure 3: Histogram of Monthly Total Family Income before Demonetisation

*(Frequency expressed as absolute number of families, N=214)*

 *Table 1: Monthly Total Family Income before Demonetisation (₹)*


*Initial reactions: *The news of the unscheduled announcement to withdraw
the legal tender of high denomination notes by the Prime Minister quickly
spread and dominated media coverage. Not surprisingly, therefore, 77% of
families in our sample heard about the policy the evening of the
announcement, and 97% had heard about it by the end of the following day.
Following the announcement, between 9 November and 18 November, 82% of
respondents visited a bank branch or an ATM, 52% exchanged old notes for
new ones, 49% to deposit old notes, and/or 22% withdrew new notes from the
ATM. The majority (63%) experienced average wait times of one to three
hours during these visits (Table 2). About 11% of families report that they
exchanged old for new notes outside the banking sector, while about 25%
continued to use old notes.

*Table 2: Average Wait Time when Visiting Bank or ATM between 9 November
and 18 November.*

*Losing income*

 About 31% of families report that they lost at least some income by the
end of November. Table 3 Panel A and Figure 4 show that the fraction of
those reporting lost income following demonetisation varies significantly
as a function of the father’s occupation. Families with fathers that are
self-employed were hit the hardest: 59% of these lost some income in
November. Similarly, 47% of autorickshaw and taxi drivers who typically
accept only cash payments report some income loss. The frequency of lost
income is much lower (15%) for those with service jobs, such as domestic
help, employed drivers, or cooks, who receive a regular salary.

To assess the magnitude of the income losses, we ask those that report lost
income for November to provide an estimate of the lost income. After
scaling this estimate by the family’s monthly total income before
demonetisation, we tabulate the median relative amount of income that was
lost in Table 2 Panel B. Across all families that reported some income loss
for November, the median loss relative to their total income is about 21%.
with self-employed fathers experience the biggest relative drop in income
(44%), while the median loss for families with fathers working as
autorickshaw and taxi drivers report, labourers, tradesmen or in service
jobs ranges between 14 and 24%.[iii]

Across all families, independently of whether they reported any lost
income, the equally-weighted average relative income loss is 12%, while the
income-weighted average is about 9%. While it is too early to establish the
full income effect of demonetisation on the families in our sample, the
initial evidence presented here suggests that for the month of November
2016 their family income was on average about 10% lower than in other
months in 2016.

Table 3: Lost Income in November

*Panel A: Fraction of Those That Lost Some Income*

*Panel B: Median Relative Amount of Income Lost*

 *Figure 4: Fraction of Families Reporting Some Lost Income*

*Changing expenditure*

 We next examine the impact of demonetisation on household’s expenditures
between 8 November and 30 November. Expenditures might be lower either
because income dropped, because transactions could not be completed due to
lack of new currency notes, or because of increased precautionary savings.
Table 4 shows that across all families 54% report that they purchased less
groceries between 8 November and 30 November than usually, while 43% report
no change. Whether a family lost income is significantly associated with
whether a family reduced grocery purchases in November, with 70% of those
reporting lost income also reporting lower grocery purchases.

In Table 5, we investigate households’ postponing purchase decisions in
November. Panel A reports the fraction of those households that report that
they postponed at least one purchase decision in November. Across all
households, 39% delayed a purchase decision. The fraction is higher for
those that experienced income losses (46%), even though the association
between postponed purchases and lost income is not statistically
significant. Panel B shows that for 46% of those that did postpone a
purchase in November, the postponed amount was at most ₹2,000, for 34% the
amount was between ₹2,001 and ₹5,000, and only for 20% the amount was
larger than ₹5,000.

*Table 4: Grocery Purchases in November*

*Table 5: Postponed Purchases*

*Panel A: Fraction of Households Reporting Postponing Purchase Decision in

*Panel B: Amount postponed*


 Having investigated the impact of demonetisation on household income and
expenditure, we analyse the policy’s impact of households’ savings in
November as well as on the way households expect to save money in the

According to Table 6, only 10% of all households experienced a decline in
their savings. The fraction is much higher (25%) for those households that
experienced a loss in income. About 30% of households report that their
savings increased in November, possibly due to precautionary motives or due
to “forced” savings as new currency notes were not available.

Table 7 Panel A reports how families in our sample used to save before
demonetisation and how they plan to save in the future. Before
demonetisation, 80% of households held some of their savings in bank
accounts, while 51% of households also used to store some of their savings
in cash, only very small fractions used to save by lending money to others
or by investing in gold or real estate. In the future, 92% of households
expect to save at least some money in a bank account, while only 17% expect
to store their savings in cash. The substantial changes for bank accounts
(+12 percentage points or pp) and cash (-34 pp) are economically as well as
statistically significant. In Panels B and C, we examine how the adoption
of a bank account as a way to store the family’s savings varies across
different subsamples. Panel B reveals that those that were negatively
affected by demonetisation in terms of lost income are more likely to
report using a bank account for their savings in the future relative to
those that did not experience a drop in their income. Similarly, in Panel
C, we observe that the planned adoption of a bank account is particularly
pronounced among families whose father is a labourer, self-employed, or an
autorickshaw or taxi driver.

*Table 6: Savings in November*

 *Table 7: Changes in Ways to Save—Past and Future*

*Panel A: Asset Classes Used to Store Savings before and after

*Panel B: Bank Account Adoption by Income Lost*

*Panel C: Bank Account Adoption by Father’s Occupation*

*Payment tools*

The Families also answered several questions related to cashless forms of
payments they use or that they are aware about. Of the total, 8% report a
difference in the mode of payments they have used in November. Out of those
8%, 54% have used debit cards, 29% have relied on credit (or *udhar*), and
12% have used cheques.

Several families (12%) also report that at least one vendor in their
neighbourhood has adopted a cashless payment method. In 28% of those cases,
the adopted method was PayTM.

Finally, 80% of families report that they are aware of at least one
cashless payment method, with debit cards being mentioned most frequently
(50%), followed by PayTM which was mentioned by 21% of respondents.

*Policy assessment*

 A large majority of families (73%) confirm that as of the first week of
December there was a significant shortage of cash in their neighbourhood.
About one third (36%) of respondents expect the shortage to last until the
end of December, 22% until the end of January, 7% until the end of
February, and 9% beyond three months. The remaining 25% of families do not
know how long the shortage will last.

When asked how respondents feel about demonetisation, 56% provide a
positive assessment of the policy, while about 24% provide a negative
assessment (Figure 5).

In Table 8, we show that the policy assessment varies by families’
experiences (Panel A) as well as their level of education (Panel B).
Families that lost some income in November are more likely to view the
policy negatively than families that did not experience a loss in income
(31% vs 16%), even though a majority in both subsamples (51% and 62%) view
the policy positively. Families in which both parents have less than 8
years of schooling are more likely uncertain, undecided, or neutral about
their assessment of the policy than families with at least one parent with
8 years or more of education (34% vs 13%). Among families with at least 8
years of education, 63% view the policy as positive, while 25% of them view
the policy negatively.

*Figure 5: Subjective Policy Assessment (%)*

*(N = 194)*

*Table 8: Policy Assessment*

*Panel A: Assessment by Income Lost*

*Panel B: Assessment by Education Level*


Responses to our survey, conducted among selected families in several slum
neighbourhoods of Mumbai, provide an insight into how demonetisation has
affected some of the underserved communities in India. It is important to
keep in mind that surveyed population is *not* representative of India’s
population as a whole nor of necessarily of those of low socio-economic
status in India. Nevertheless, the results provide some initial
understanding of the immediate and possibly longer-term effects of the
demonetisation policy onto the urban poor.

First, the policy led to a drop in income. Across all families in our
sample, the average drop in income during the month of November was about
10% of their typical monthly income. However, the effect on income varies
significantly across different groups, in particular between those
receiving a regular salary and those not. The drop in income is associated
with a drop in consumption as well as changes in families’ savings in
November. To assess the full impact of the policy on the economic
conditions of the surveyed families, additional data will be needed in the

Based on respondents’ expectations, how lower-income families store their
savings in the future might differ significantly from the past. In
particular, bank accounts are expected to increase in importance, while
cash is expected to drop substantially as a storage choice. Whether or not
such changes actually occur remains to be seen.

Similarly, while there are signs of changes of how payments can be made and
are made by vendors and customers in slum communities, it is too early to
tell how significant these changes might be.

The majority of respondents view the policy overall as positive, including
the majority of those that experienced some loss of income in November.


 *Live Mint* on 2 December 2016:

median relative loss is 23% when including families with missing
information on father’s occupation (N=61).

that these subsamples are small and reported statistics are therefore


Bhatt, A (2016): “Watch PM Narendra Modi's Entire Speech on Discontinuing
500, 1000 Rupee Notes,” *NDTV*, 9 November,

Biswas, Soutik (2016): “How India's Currency Ban is Hurting the Poor,” *BBC*,
12 November, http://www.bbc.com/news/world-asia-india-37947029.

Kalyani, Muna (2016): “Indian Informal Sector: An Analysis,” *International
Journal of Managerial Studies and Research (IJMSR)*, Vol 4, No 1, January,

Kohli, Renu (2016): “Demonetisation: The Impact on Agriculture,” *Live Mint*,
22 November,

Mishra, Ashit Ranjan (2016). “Will Demonetization Adversely Impact GDP
Growth?” *Live Mint*, 10 November,

PTI (2016a): “Demonetisation: Finance Ministry Asks Banks to Hire Retired
Staff to Deal with Cash Rush,” *Economic Times*,  15 November,

PTI (2016b): “Demonetisation to Pull Down GDP Growth: Montek Singh
Ahluwalia,” *Economic Times*, 22 November,

RBI (2016a): “Annual Report, Table VIII 1 Banknotes in Circulation,” 29
August, https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=38520.

RBI (2016b): “Withdrawal of Legal Tender Status for ₹ 500 and ₹ 1000
Notes,” Reserve Bank of India (RBI) Notice,

Roy, Debayan (2016): “Demonetisation Rush at Banks Has Cashiers 'Weeping',
Say Bank Unions,” *News18.com*, 22 November,

TNN (2016): “Poor Lose Earnings and Time by Being in the Queue,” *Times of
India*, 30 November,

*Appendix Table A1: Surveyed Families by Neighbourhood and Ward*

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