Economic impact

Cash to the economy is like the blood which supplies nutrients to all parts of
the body. Cash circulation enables transactions to occur, which helps generate
income. If 85% of the blood is taken out of the body and 5% is replaced every
week, the body will die. Similarly, when 85% of the currency in circulation was
taken out and replaced little by little over a year, the economy collapsed.
The major component of the Indian economy is the unorganized sector,
employing 94% of the workforce. It consists of the micro and small units which
work with cash and not through formal banking. While the organized sector
was hit due to a shortage of demand as people lost incomes, the unorganized
sector just could not function without cash. The long-term implications which
go beyond the period of demonetization are evident. There has been growing
unemployment and an increase in inequalities leading to a decline in demand.
The result has been an economic slowdown even before the Covid-19
pandemic hit in 2020.