“The Informal Sector Will Be Mostly Finished”: Aruna Roy Discusses Demonetisation And Its Effects On Rural India

Aruna Roy, founder of the Mazdoor Kisan Shakti Sanghatan. Ramesh Pathania/ Mint/Hindustan Times
Elections 2024
31 December, 2016

Since 8 November 2016, when Prime Minister Narendra Modi announced that notes of Rs 500 and Rs 1,000 would no longer be legal tender, the government has been steadfast in its defence of the policy, which catapulted the nation into chaos. However, several economists and social activists have questioned the rationale behind the decision and criticised it. One such activist is Aruna Roy, the founder of the Mazdoor Kisan Shakti Sanghatan. The MKSS is a grassroots organisation in Rajasthan, which was formed in 1990. Since its inception, it has been working with the rural poor in Rajasthan on issues such as minimum wages and organising jan sunwais, or public hearings, of farmers, daily wage labourers and government officials. The organisation, with Roy at its helm, also drove the successful movement for the need to access public records that led to the enactment of the Right to Information Act in 2005.

On 17 November, a group of social activists, economists, and academicians, including Roy, issued a statement raising several questions about the demonetisation policy. In the statement, the collective deemed the introduction of the 2,000-rupee note as “inexplicable,” given the government’s rhetoric about high-value currency being used to hoard black money. They condemned the government for not taking into account the fact that a significant portion of the Indian population does not have access to the banking system. The signatories also pointed out that the distribution of banks in India is highly skewed, with a third of all bank branches being spread out in only 60 tier-1 and tier-2 cities and towns. The statement emphasised that people in rural India, who often suffer from inadequate information, have become the worst victims of demonetisation.

On 26 December—ahead of a public meeting that the MKSS was going to conduct on demonetisation in Beawar, Rajasthan—Kedar Nagarajan, a web reporter with The Caravan, spoke to Roy about the policy and later continued the conversation over email. Nagarajan and Roy discussed the impact of demonetisation on the rural informal sector, the disruption it has caused to the work of the MKSS and the current government’s conflicted approach towards the issue of black money.

Kedar Nagarajan: What are the likely impacts this policy will have on the informal sector in the short term and the long term?

Aruna Roy: The informal sector will be mostly finished. [According to the Economic Survey of 2007-08,] 93 percent of the Indian workforce is in the informal sector. Many of the people who work in this sector live from hand to mouth, and cannot handle a situation where their access to cash is squeezed and cut off.  Workers in this sector depend on daily work payments and cash transactions. This will also have a direct detrimental impact on the small and medium-scale industries that support the informal sector. The impact will eventually be felt right down the line acting like a forced recession that will take months to restart.

KN: What would be the difference in the impact of this policy on the rural informal sector and the urban informal sector?

AR: The difference will be marginal. I do not think that there will be a very significant difference between the two. We are listening to stories here in Beawar—a town with inextricable interdependency with the surrounding rural hinterland. Most of the people in the urban informal sector have migrated from rural areas, or even commute on a daily basis. In fact, the distress is probably more acutely felt in an urban space, because in rural areas one can still drag themselves out a little bit more, because there is that little bit of land and social security.

KN: In terms of social security, do you think this policy could force more people into the banking system and thereby make them less vulnerable to the harassment they face from moneylenders?

AR: I do not think so. There was a time when banks used to give preferential interest rates to people who were very poor, and a concerted effort was made to open branches in rural areas. Today, the banks have opened zero-balance accounts under intense pressure, but they have no will to service them.  Quite apart from the obvious crisis created in the banking sector by the quantum of Non-Performing Assets (NPAs), banks themselves see little reason for paying attention to the needs of the poor. Where, then, is the question of people entering the banking sector?

During demonetisation, the poor are unable to get more than Rs 2,500 of their own money [the daily limit on ATM withdrawals] from the bank. In fact, the only place from where the poor can get cash credit today is from moneylenders who have somehow managed to get access to even large sums of money. This phase has made banks the adversaries of the people, especially of the poor.

Today, even if the poor get a loan from a bank, they pay 13 percent interest and those with fluidity [good credit history] pay four percent interest on housing loans. The system is entirely tilted against the poor, so even if they have bank accounts, it is not a solution. In my initial years of working with the poor, [in the 1970s,] I persuaded them [the people I worked with in rural Rajasthan] to have bank accounts instead of relying on moneylenders. But today, there are new kinds of debt bondage. They are bound to the mining company, the construction company or the brick kiln. The bondage is not so much to the moneylender anymore, and the issue is not the land anymore—it is a range of labour and employment based on natural resources. So, there has been a dramatic shift.

But simply having a bank account does not mean that the person is a part of banking services. Many people have joined the banking system, but they receive very poor-quality services. The dramatic shift happened years ago with the NREGA [National Rural Employment Guarantee Act] because the government insisted on [NREGA workers getting] bank accounts. However, the accounts only received money whenever the people got work, and most often the payments were inordinately late. Similarly, many of the zero-balance Jan Dhan accounts have remained zero balance because the poor continue to be excluded and ignored by the formal banking system. People know that banking facilities and credit services are mainly for the affluent. The fact that only the poor have had to stand in lines to deposit or withdraw cash has cemented that understanding.

KN: What sort of impact will this policy have on the NREGA workers?

AR: People employed under the NREGA are already used to the banking system. In the last two years of the previous government there was already a massive shift when Jairam Ramesh was the [rural development] minister. Even Tamil Nadu shifted from weekly payments in cash to using the banks for payment under the previous government. There are tremendous problems because of delayed payments, banks have remitted money into the wrong accounts and so on.

KN: Has demonetisation had an adverse impact on fair price shops that organisations such as the MKSS have set up?

AR: The government has made an announcement that PDS (ration shops) will be turned cashless. This goes to show how one arbitrary and disastrous move is being followed by another. As it is, according to our estimation from the data available on the website of the Rajasthan state government’s food department, the introduction of compulsory Aadhar biometric authentication has resulted in the exclusion of 30 lakh entitled families in Rajasthan.

The grocery shops in the market have also been very severely hit. We [used to] have an annual turnover of almost Rs 5 crores from the grocery stores [before demonetisation], just by selling groceries. The Mazdoor Kisan Kirana Store it is called, and as far as that is concerned, sales have plummeted. The sales have plummeted to half or maybe even a little less than that. These are shops that should run even in this situation of a cash crunch.

KN:  How do you think the policy has impacted the work of rural women entrepreneurs?

AR: This is going to impact them severely. Almost all the women who run petty businesses or self-employed women run on the basis of cash. Their customers are too busy working out how to buy food.  If you cannot buy food, you are not going to buy handicrafts [sold by the rural women entrepreneurs]. If you are unable to purchase what is necessary, it is impossible to purchase things that are optional. Rural entrepreneurship run by women cannot sustain [their livelihoods because of the impact of this demonetisation] which is expected to last for a year.

KN: In a statement released on 17 November, you, along with the other signatories to the letter, had questioned the government for not releasing the names of the beneficiaries of the government’s loan waiver and the names of the big loan defaulters.

AR: It is obvious that they do not want to answer these questions because it will reveal the people the banking system has benefited, and where the money has gone. Our Beawar public hearing began with the RTI slogan, “hamara paisa hamara hisaab,” [our money, our discretion].  The money in banks is people's money, and the loan defaulters are clearly responsible for the stealing of people's resources. Revealing this information will lead to even more questioning about how much black money has been recovered.

In all likelihood there has been even more corruption and whitewashing of whatever black money there was, and the government has not been able to trap it. Even the RBI has stopped releasing this information. It will also blow to pieces all the rhetoric that they have been using about black money and a cashless transaction system. Their own obvious inability to hold corporate defaulters accountable will become obvious. If there is none of this, then they should disclose it.

KN: The general secretary of the Communist Party of India (Marxist), Sitaram Yechury, and members of civil society in India have stated that demonetisation is tantamount to an undeclared emergency.

AR: I have lived through the previous emergency and I do believe the suggestion in this case as well. One [indication] is fear—many are afraid about expressing their views about the state of affairs. In the previous emergency, institutions meant for the policing were doing the same. This time the government has instilled fear and insecurity in everyone about cash. Even the most honest citizen is being harassed and told they have no control over their own cash. They had to put it in the bank, and now they can’t take it out, even for an emergency. This is even worse than the obvious authoritarian nature of the emergency.

There are also these attacks on FCRA [the government’s cancellation of several licenses that were given under the Foreign Contribution Regulation Act, 1976 to various non-governmental organisations], which has such a dichotomy.

The government is selling off valuable agricultural land to MNCs [multinational corporations], but objecting to NGOs who are working with the underprivileged from accepting foreign money. There is a complete parity in logic. This government attacks all institutions and organisations that speak out and have a different ideology. Many people, I think, are scared to say things about this policy. Even when Nikhil Dey [a social activist who also works with the MKSS] and I write anything, there are these attacks on social media where a group of people use some of the most abusive language.

This interview has been edited and condensed.