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Term Paper

Topic: Impact of Demonetization on

Vendors and Hawkers

Submitted by:

Trishala Gautam

Economics honors

Dept of Economics

Dayalbagh Educational Institute

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ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my advisor Dr Jyoti Gogia, who have been a tremendous mentor for me. I would like to thank her for encouraging my research and for

allowing me to grow as a researcher. Her advice on both research as well as on my career have been priceless. I also want to thank her for letting my defense be an enjoyable moment, and for

her brilliant comments and suggestions.

I would also like to thank my parents, friends, colleagues, and whosoever helped me in the completion of this research and supported me in writing, and incenting me to strive towards my goal.

Secondly I would like to thank almighty God without their blessings I won’t be able to complete my research.

At last I would like to say that this research work will not only provide marks to me but have a great contribution in increasing my knowledge.

Once again thanks to all who helped me out in finishing this research on time.

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INDEX

SR.NO. CONTENTS PAGE NO.

01. Introduction 04

02.

Impact of demonetization 05

03.

Impact of demonetization on hawkers and vendors 07

04.

Current Scenario

11

05.

References

12

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INTRODUCTION

According to former governor of Reserve Bank of India Raghu Ram Rajan, “demonetization is

the act of striping a currency unit of its status as a legal tender”.

In simple words demonetization can be referred as a change of national currency in which the old

unit of currency are retired and replaced with a new currency unit.

In year 1946 Indian currency was demonetized for the first time. In January 1946, banknotes of

1000 and 10000 rupee were withdrawn and new notes of 1000, 5000 and 10000 rupee was

introduced in year 1954. After that Janta Party coalition government under the leadership of

Morarji Desai had again demonetized banknotes of 5000 and 10000 rupee on 16 January 1978 as

a means to curb counterfeit money and black money.

A recent demonetization occurred when Indian Prime Minister Mr. Narendra Modi on 8 th

November 2016 announced that all notes of 500 and 1000 would be illegal in country. This was

the highest and most popular currency demonetization in India, forming 86% of the currency in

circulation by value. Indians have until December 30 to deposit all the notes of 500 and 1000

rupee in banks and post offices to get them replace.

The government’s goal was to eradicate counterfeit currency, fight tax evasion, eliminate black

money gotten from money laundering and terrorist financing activities, and promote a cashless

economy.

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IMPACT OF DEMONETIZATION

Just like everything has both positive and negative aspect, demonetization has also affected

economy in both positive and negative manner. Demonetization has affected following areas:

Parallel economy: After demonetization it was expected that black money will be

removed in some amount as owners will be blocked and will not be in a position to

deposit the same in the banks, secondly demonetization lead to temporarily stall the

circulation of large volume of counterfeit currency and lastly it will curb the funding for

anti-social elements like smuggling, terrorism, espionage, etc.

Money Supply: With the older 500 and 1000 Rupees notes being scrapped, until the new

500 and 2000 Rupees notes get widely circulated in the market, money supply was

reduce in the short run. To the extent that black money (which is not counterfeit) does not

re-enter the system, reserve money and hence money supply will decrease permanently.

However gradually as the new notes get circulated in the market and the mismatch gets

corrected, money supply pick up again.

Demand: The overall demand was affected to an extent. The demand in following areas

was impacted particularly: Consumer goods, Real Estate and Property, Gold and luxury

goods, etc. because significant amount of cash transactions are involved in this sector.

Prices: Price level is expected to be lowered due to moderation from demand side. In

case of consumer goods, prices fall only marginally due to moderation in demand as use

of cards and cheques compensate for some purchases. In case of Real Estate and

Property, prices in this sector fall, especially for sales of properties where major part of

the transaction is cash based, rather than based on banks transfer or cheque transactions.

In the medium term, however the prices in this sector regain some levels as developers

rebalance their prices (probably charging more on cheque payment).

GDP: The GDP formation could be impacted by this measure, with reduction in the

consumption demand. However with the rise in festival demand offset this fall in overall

impact. Moreover, impact on GDP may not be significant as some of this demand will

only be deferred and re-enter the stream once the cash situation becomes normal.

Banks: As directed by the Government, the 500 and 1000 Rupee notes which now cease

to be legal tender are to be deposited or exchanged in banks (subject to certain limits).

This automatically led to more amounts being deposited in Savings and Current Account

of commercial banks. This in turn enhances the liquidity position of the banks, which can

be utilized further for lending purposes. However, to the extent that households have held

on to these funds for emergency purposes, there would be withdrawals at the second

stage.

Rural Sector: demonetization impacted rural sector in a mixed way. Rural sector face

the brunt of this scheme, because of lack of banking facility in rural areas, as well as rural

people prefer to do cash transaction rather to do digital payment. But there were some

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positive aspects of its too, as in most of the rural areas transaction takes place in form of

cash and there is mostly undocumented borrowing and lending at high interest rates.

Since 500 and 1000 notes are no more legal tender so the rich landlords and sahukars

who lend money at high interest rate and have undocumented cash in large amount have

either rush to bank in the city or have o surrender that money to income tax department.

Online Transactions and alternative modes of payment: With cash transactions facing

a reduction, alternative forms of payment see a surge in demand. Digital transaction

systems, E wallets and apps, online transactions using E banking, usage of Plastic money

(Debit and Credit Cards) etc. has substantial increase in demand. This eventually led to

strengthening of such systems and the infrastructure required and will lead the economy

towards cashless economy and PM’s digitalization mission.

Different Economic Entities: With cash transaction lowering in the short run, until the

new notes were spread widely into circulation, certain sections of the society faced short

term disruptions in facilitation of their transactions. These sections are: agriculture and

related sector, small traders, SME, services sector, households, political parties,

professionals (like doctor, carpenter, utility service providers, etc.), retail outlets,

vendors, road side shops, hawkers.

The nature, frequency and amounts of the commercial transactions involved with these

sections of the economy necessitate cash transactions on more frequent basis. Thus, these

segments the most significant impact post this demonetization process and the

introduction of new notes in circulation.

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IMPACT OF DEMONETIZATION ON VENDORS

AND HAWKERS

To know the effect of demonetization on vendors and hawkers I made a primary study on this

topic. I have adopted the personal interview method to know the views of vendors and hawkers.

Research includes the sample size 20 in which 12 were vendors (60%) and 8 were hawkers

(40%). The area of research is Sunderbagh (in Dayalbagh) Agra.

After personal interviews of vendors and hawkers researcher came to the conclusion that after

demonetization weekly sales of hawkers and vendors decreased upto 70%-80% The main reason

for decrease in their sales was shortage of cash as instead of buying from vendors and hawkers

people preferred to go to modern retail stores and departmental stores where online payment is

acceptable so that they can make transaction without cash.

It is also been observed that 50% of them do not have bank accounts, and 30% of them access

bank only in their home town. Whereas only 20% of them have bank account in the city they are

living. So it was bit difficult for hawkers and vendor to change demonetized notes of 500 and

1000 Rs. with new currency.

60%

40%

Number of Hawkers and Vendors

Vendors

Hawkers

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It is observed that some of them have opened their bank accounts through Jan Dhan Yojana but

hardly had they deposited any of their savings in them. They prefer to keep their savings at home

so that they can use them at the time of uncertainty. Only 20% of them deposit their savings in

bank accounts.

20

30

50

having bank account in current

city/ town

having bank account in home

town

don’t have any bank account

% of people

having bank account in current city/ town having bank account in home town

don’t have any bank account

20

80

prefer to save donot prefer to save

no. of people

prefer to save donot prefer to save

9

It was the said by Manohar lal (one of the street hawker) that before demonetization he was able

to save 300 to 350 Rs. per months but after demonetization he was not even able to cover up his

and his family basic needs. So whether he should fulfill his basic needs or save money.

Many of them having bank accounts were not able to debit money from their bank accounts and

ATMs. They have to leave their work and stand in long queues for taking out cash from banks

and ATMs. Following graph shows percentage of vendors and hawkers able to withdraw money

from bank/ATM under the heads such as easily withdraw money, faced little bit difficulty in

withdrawing money, faced very much difficulty in withdrawing money, and didn’t withdraw any

money from bank/ATM.

On this Ram Lal (a street vendor) said that whether he should go to his workplace and earn

money or he should stand in long queues and wait for his turn to took out his savings from

Atm/bank. He also said that sometime it also happened that he is waiting in queue and as his

chance came to withdraws cash, no cash left out in Atm/bank.

Hawkers need supply of cash from the last day’s trisection to start a new cycle in the morning.

Without cash there business is not at all of any worth.

A hawker Kanta Ram said that the informal economy of India which employees working class in

higher number has been impoverished after demonetization.

Hawkers and Vendors do not have any immediate plans to switch over to new modes of money

transfer. And for them handling a card swiping machine is a costly affair.

easily little bit difficulty very much

difficulty

not at all

15

50 40

5

People able to withdraw money from bank/ ATM

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However if they arrange to buy card swiping machine or Smartphone but they don’t know how

to access it and if somehow they learn to access them then also they face several problems such

as:

85% of hawkers and vendors face difficulty in using online mode of payment while 15% of them

find out it easy to use.

But demonetization on other side have some positive aspect too as on the other hand some

vegetable vendors and small traders have began the use of cashless payments like PayTm, UPI,

MobiKwik, freecharge, card swiping etc as people were unable to undertake transaction through

cash in the absence of Rs 500 and Rs 1000. It has somewhere promoted PM’s cashless India

mission.

...• how to recover deduction of money from failed transaction.

...• if they input wrong amount how to correct it.

...• how to check whether or not amount is deducted from failed

transaction.

85%

15%

response of hawkers and vendors regarding online mode of payment

difficulty in operation

easily operated

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70% of vendors are availing online payment services to keep their business going.

A peddler Ramu Das said that his sales decreased after demonetizations. People use to come with

old currency notes which were not acceptable so he started PayTm service in his store.

vendors availing online payments

70

percentage of vendors availing online payments

vendors availing online payments

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55% of vegetable vendors and street vendors had installed PayTm in their mobile, 30% of them

are using card swiping machines and the one who are not having Smartphone’s i.e. 15% are

using *99# service started by our PM for accepting payment.

PayTm

Card Swiping Machine

*99# service

55

30

15

vendors/hawkers using online mode of payment

PayTm Card Swiping Machine *99# service

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CURRENT SCENARIO

After completing study on impact of hawkers and vendors on demonetization researcher asked

them question regarding future perspective of demonetization.

On this an argument was given by Saroja Singh (a hawker) that suddenly after demonetization

they faced many problems but as time passed out situation is handled and their lifecycle is back

to track.

In present scenario the demonetization has motivated cashless transaction in economy. Because

of shortage of cash people start preferring online mode of payment and shopkeepers started

prevailing online mode of payments but after situation being handled people still prefer online

mode of payment as it is much safer to carry plastic money or PayTm rather than to keep cash in

wallet. Shopkeepers also find out easy to keep record of total sales, total expenditure, total

revenue etc. After demonetization within 50 days people/shopkeepers both became use too of

making online payments.

We can say that it’s a kind of 1st step toward PM’s digital India mission.

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REFERENCES

rbi.org.in/faQs/meaning_of_demonetization.

www.finmin.nic.in/Impact_of _demonetization_on_different_sectors_of_economy

(Ministry of finance)

Personal interview of hawkers and vendors to know the impact of demonetization.

Graphical interpretation of data received from personal interview.

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