Informality, Micro and Small Enterprises, and the 2016 Demonetisation Policy in India

Abstract

Using a panel dataset collected in 2014–2017, we examine small and micro entrepreneurs in Delhi, India, distinguishing registered (more formal) and unregistered (more informal) enterprises. The dataset contains not only information on the characteristics of entrepreneurs and firms, but also General Social Survey trust information. Quantitative analysis comparing the two types of entrepreneurs reveals that their social backgrounds and trust were different, and that the difference is correlated with firm performance. In the micro and small enterprise sector in Delhi, registered and unregistered firms coexist with different kinds of superiority, but the business transactions of both types of firms remain highly cash-dependent even after the 2016 Demonetisation shock.