It has been five years since demonetisation, the surgical strike on November 8, 2016, on India’s high-value currency notes. With hindsight, it’s clear that the high-decibel crusade supposedly aimed at unearthing black money and suffocating terrorist funding ended with a whimper.

Instead of the redistributing illicit wealth of the rich to the poor, as it was claimed would happen, demonetisation destroyed the livelihoods of those who had no wealth, white or black. But what it essentially revealed once again that the world of exchange, which often seems to be based on equivalence, is embedded in a highly unequal distribution of access and power.

Ironically, the immediate crisis created by the collapse of exchange appeared to be an equaliser in terms of how pain was distributed. The rich and the poor seemed to equally bear the brunt of the ethical cleansing of the financial system. Everyone had to wait in long queues to obtain the valid means of purchase and payment.

Act of exchange

We suddenly realised how important currency was in our lives to express and realise our social existence through the act of exchange. Money represents a social relationship independent of its materiality: whatever we produce in our society assumes meaning only when it is purchased by a member of society.

Goods and services are created for sale by producers who want to exchange their produce for money. Money represents relational value, an anticipation of value that is realised as price through the actual act of exchange.

Demonetisation entailed a temporary collapse of this exchange. In addition, it demonstrated the power of the nation that has the sovereign will to declare currency instantaneously invalid.

Money has different forms, as well as different roles to play. A piece of paper with stamp on its face from the state can perform the role of measuring value, can act as means of purchase or medium of circulation.

Other forms of money are legal instruments, enforcing contracts between producers and dealers primarily acting as means of payment.

Money as currency notes is extremely important for transactions where a sale is immediately followed by a purchase. This the realm of income and consumption, a simpler circuit where the primary aim of the producer is to sell the products and use the proceeds for consuming necessary goods and services.

A circuit can begin with money that is used to buy raw materials and inputs, employ domestic or hired labour, produce something and sell it in the market to earn money that is higher than the initial sum. The additional amount, though, is spent to meet the requirements of survival.

Another set of activities involve a complex process where contracts between debtors and creditors are enforced through an institutionalised edifice of trust, where money primarily performs the role of means of payment and this credit money represents social purchasing power. Access to this social purchasing power involves defined property rights, legal sanctions and assets that can be exchanged against liquidity.

However, circuits of purchase and circuits of payment overlap. Hence, assigning particular economic segments of the economy to a specific circuit would be wrong. At the same time, one cannot deny the fact that the informal segment in developing economies is largely dependent on cash transactions and largely excluded from the access to the institutionalised supply of credit money.

‘Illicit wealth’

Demonetisation had its initial impact on non-credit money, income and consumption. Transactions of the nature of immediate purchase and sale of commodities were hit hard. Workers could not receive their wages as old notes were suddenly declared invalid. The government said that new, valid currency notes could be obtained after denotified notes were deposited in bank accounts. But many workers did not have bank accounts.

Money hoarded in the form of cash either by producers and business owners in order to maintain a continuity of transactions or by workers as small amounts of savings that were not high enough to deposit in a bank account all suddenly became illicit wealth. Converting old notes to new ones involved both time and money for the poor since they had to offer a cut to someone who did have a bank account.

Many workers lost their jobs and had to go back to their hometowns empty handed. Evidence suggests that, as a result of demonetisation, wages declined and employment contracted. Small producers and businesses with very little savings were devastated as the process of demonetisation continued for about three months.

Despite India’s economic growth figures, more than half of employed people in India are self-employed and less than one-fifth are engaged in regular employment. Take, for instance, the country’s unincorporated enterprises. According to National Sample Survey, there are 63.4 million enterprises in India, of which 84.2% are “own account enterprises”, meaning that they do not hire any labour.

In the manufacturing sector, the share of single-person enterprises account for 85.5% of the total number of enterprises in the sector. The total employment in unincorporated enterprises is estimated to be 111.3 million, of which 62% are self-employed. Moreover, of regular salaried employees, 65% have no written contracts and half of them do not get paid leave. In the case of casual workers, 98% are not entitled for any such rights.

As it turns out, the formal sector represents a minuscule minority of the workforce. The vast segment of vulnerable working poor in India are considered informal. Informal workers are often like urban nomads. They migrate from villages to towns to big cities with any hardly identity or citizenship rights, the most volatile workforce moving as agricultural labourers, construction workers, sex workers, domestic help, rag pickers and rickshaw pullers.

Collateral damage

These undocumented workers had to absorb the biggest blow of demonetisation as collateral damage. Almost all transactions in India’s informal economy are cash transactions. Informal credit accounts for 20% of the total outstanding credit. Fake currency was estimated to be only 0.022% of the total currency used in the economy.

In the end, almost all old notes returned back to the system, the Reserve Bank of India said. But who suffered the most due to the “surgical strike” were India’s poor. According to an estimate based on drastic fall in labour participation rate just after demonetisation, there had been a net loss of more than five million jobs between 2016 and 2018.

Informality was criminalised as an illegitimate source of unaccounted income, as a dark zone for recycling black money. This demonisation escalated during the shock. The formal sector is presented as the normal face of capitalism, where exchanges occur on the basis of equivalence, where norms and rights exists, credits flow, trust is institutionalised and power is supposed to be counterbalanced by notions of freedom and equality.

Informality is the dark, dirty abnormal that might deserve some sympathy and sometimes transfer from the accumulated wealth routed through the government, but does not merit all rights. This narrative of “informality” can easily slip into ‘‘illegality” as and when required.

In several parts of the world and more so in developing countries such as India, this is the source of low-wage workers who contribute to the process of accumulation, both for domestic and global value chains. Home-based work is at the extreme end of the chain. The fragmented informality at the extreme end feeds into the profits of multinational corporations.

But the process of delegitimising the vast workforce and enterprises of the informal sector provides an additional disciplining device beyond juridico-political structures: it facilitates the silent internalisation of the untold orders of the dominant power.

With demonetisation, many small businesses wound up as they had very little working capital to sustain themselves, as the organised sector were able to continue digital transactions during this period. In this process, the informal did not convert itself into formal to help realise what had been posed as a second-order aim of the demonetisation policy. Rather, organised capital was able take advantage of the dispossession of the self-employed turned destitute.

Massive pauperisation

People, however, do not die easily. Rather, they renegotiate their terms of livelihood. Informality once again raised its ugly head with lower reservation wages for workers or lower reservation prices for outsourced jobs. Demonetisation recalibrated the terms of trade between the formal and the informal and facilitated the expropriation of the unprotected at an increased scale. This was pauperisation with a noble goal.

It is time to look back to the horrors of the spectacle, to revisit the production of lies and false consciousness. It brings to mind French theorist Guy Debord’s idea of the “society of spectacle”, where truth is nothing but maneuvered reality, instantaneous and eternal at the same time. Uncomfortable realisations from the past only deserve collective forgetting.

The gaze of the spectacle tends to bury agonies and dissent and eradicate historical knowledge. “With consummate skill, the spectacle organises ignorance of what is about to happen and, immediately afterwards, the forgetting of whatever has nonetheless been understood,” he writes.

Satyaki Roy is Associate Professor at the Institute for Studies in Industrial Development, New Delhi.

This article is part of a series looking back on five years of demonetisation prepared by the Centre for Financial Accountability. Read the entire series here.

Picture courtesy: Acer acea/Flickr

The original article published by can be accessed here.