Impact of Demonetization on Household Consumption in India

In November 2016, the Government of India made the two highest denomination currency notes illegal overnight. While this move was proposed for potential future benefits, it resulted in severe liquidity constraints for many households as these two notes constituted 86% of the total currency in circulation. In this paper, I study the impact of these liquidity constraints on household consumption using Consumer Pyramids panel data. I find that demonetization led to a decline in household durable and non-durable consumption in the initial months after demonetization. The decline was higher for the relatively richer households. I also find that households increased borrowing after demonetization, particularly from money lenders to deal with the shock. The increase in borrowing was higher for relatively poorer households. Use of credit was higher among more cash constrained farmers, as measured by farmers who do not consume their own grown food. The results suggest that while the richer households reduced their consumption because it came at a lower utility cost to them, the poorer households had to rely on informal credit to maintain their consumption.

Conditional Cash Transfers and Parental Investment in Daughters

Many states in India rely on conditional cash transfer schemes, to reduce discrimination against females. These programs aim to increase the perceived value of the girl child in general. In this paper, I study the impact of one such program on vaccination status and birth intervals following the eligible girls. Using District Level Household Survey (DLHS) data, I employ a difference-in-difference strategy, with boys as the control group. I find that the probability of vaccination for the eligible girls goes up by 11 percentage points relative to boys in rural areas. However, I do not find evidence of a differential change in the birth intervals following the eligible girls. My results suggest that while parents respond to the direct incentives for such schemes, they do not seem to respond by making investments which are not directly incentivized.

Impact of Increase in Bank Access on Informal Interest Rates (Work in progress)

A central aim of increasing access to formal credit is to save the poor from the high interest rates in the informal credit markets. It is hoped that the availability of this formal credit would lower the dependence on informal credit or at least would lead to a reduction in the high interest rates of the informal sector. While this effect of formal credit access on informal interest rates has been theoretically analyzed, there has not been a compelling empirical study on this effect. Theoretically, the increase in formal credit access can either decrease the informal interest rates (competition effect) or increase the interest rates (composition effect). In this paper, I plan to test this effect empirically using a bank expansion program in India, which increased bank access in all districts with the number of bank branches per capita below the national average in 2005. Using a difference-in-difference strategy and detailed borrowing data from National Sample Survey (NSS) 2003 and 2013 rounds, I plan to compare informal interest rates in districts above and below the cutoff, before and after the launch of the program.