Who Gained from India’s Demonetization? Insights from Satellites and Surveys

Abstract

On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99% of the currency was eventually returned to banks. We exploit large regional variations in deposit growth as a result of demonetization to study the medium term effects of this policy. Using night-light data, we show that districts which experienced higher deposit growth during the demonetization period, recorded higher levels of economic activity in the year and a half that followed. We estimate a one standard deviation increase in deposits is associated with a 5% increase in district GDP per capita. Further, districts with larger rural population, agricultural and non-agricultural informal labor shares also recorded an increase in nighttime light activity. The results are also supported by household level surveys on income and expenditures.

Antibiotic consumption in India: geographical variations and temporal changes between 2011 and 2019

“…The nationwide demonetization of Indian currency that happened in November 2016 may also have had a role, possibly through a reduction in the spending capacity of the population due to a negative transitory shock resulting from the decline in income and employment. 21 …”

Bank Coordination and Monetary Transmission: Evidence from India

“…This exerted downward pressure on deposit rates, aiding balance sheet positions of banks, and allowed banks to lower their lending rates. Chanda and Cook (2019) find that deposit growth during demonetization was accompanied by subsequent increases in lending by the banking system, and higher economic activity. We argue that part of this expansionary effect could have been driven by an increase in monetary transmission.…”

Consumer payment choice and the heterogeneous impact of India’s demonetization

“…We do not consider firm's/retailer's decision to accept different payments, but in our analysis of demonetization we allow for increased technological development which could reduce the exogenous costs of using non-cash/digital means. Chanda and Cook (2019) uses geographical variation in deposits to identify the effects of the shock. Wadhwa (2019) uses consumer pyramids data to find empirical effect of the shock on consumption and find a higher decline in consumption for richer than poorer households.…”