In November 2016, India embarked on one of the most radical monetary experiments of the 21st century by demonetizing its two highest-denomination banknotes, effectively removing approximately 86 percent of the nation’s cash overnight. This unprecedented move, popularly known as the Great Indian Demonetization, was driven by the government’s ambition to tackle pervasive corruption, counterfeit currency, and to accelerate the adoption of digital payment systems throughout the country. However, the immediate repercussions were dramatic, causing widespread disruption and forcing millions dependent on cash-based transactions to rapidly reassess their business models.
The sudden withdrawal of large denominations triggered significant challenges across India’s diverse economic landscape, especially among frontline entrepreneurs engaged in informal sectors such as street vending and small retail businesses. These “necessity entrepreneurs,” typically cash-reliant and often operating beyond formal economic infrastructures, faced a stark dilemma: either quickly transition to digital payment technologies or risk jeopardizing their livelihoods. The abrupt policy implementation left little time for adaptation, illuminating the stark vulnerabilities inherent in cash-dominant economies confronting sweeping digitization mandates.
In a groundbreaking study published in the Journal of Business Venturing Insights, researchers from Washington State University, led by associate professor Amrita Lahiri, revealed that an entrepreneur’s political identity played as crucial a role as their financial capability in determining the pace and willingness to adopt digital payments post-demonetization. This insight challenges long-standing assumptions within entrepreneurship scholarship that emphasize economic resources and education as primary drivers for technological adoption, highlighting the critical influence of socio-political alignment in shaping economic behavior during times of uncertainty.
The research team conducted intensive, face-to-face interviews with 294 necessity entrepreneurs across India approximately seven months following demonetization. These qualitative case-study interviews delved into how entrepreneurs perceived the policy and the factors guiding their decision-making processes regarding digital payment adoption. The results revealed a striking correlation: entrepreneurs who identified with or supported the ruling political party viewed the demonetization move as credible and congruent with their values, which in turn lowered their psychological barriers and motivated them to rapidly adopt new payment systems.
Conversely, entrepreneurs who distrusted or opposed the ruling government exhibited significantly higher levels of skepticism and reluctance. Even those with adequate financial resources often delayed adopting digital payment technologies due to perceived misalignment with their political beliefs or broader distrust of institutional signals. This behavioral pattern underscores the profound role that political identification plays in reducing ambiguity during policy shifts, effectively acting as a lens through which individuals interpret and respond to unprecedented economic interventions.
Notably, the study identified cases where lower-income entrepreneurs, despite having limited financial means, embraced digital payments due to necessity and socio-political alignment. These findings emphasize that material resources alone cannot account for the complexities of entrepreneurial adaptation in turbulent contexts. The activation or withholding of resources hinges substantially on the entrepreneur’s ideological affiliations, reframing our understanding of how trust and identity intersect with economic action.
This crucial revelation has far-reaching implications for policymakers aiming to foster technological adoption in politically polarized environments. The Indian demonetization episode exemplifies how top-down economic interventions, when perceived as partisan or untrustworthy by sizable portions of the population, risk deepening divides and stalling progress. Experts argue that mere financial incentives are insufficient and that governments must build authentic trust through credible intermediaries—including local leaders, peer entrepreneurs, and non-governmental organizations—to facilitate more organic and sustainable adoption of new technologies.
Understanding this dynamic is particularly relevant in an era marked by growing political polarization worldwide, where public trust in institutions is fragile, and economic uncertainty is pervasive. The study’s findings are potentially generalizable to other contexts, including segments of the United States, where informal entrepreneurship and political identity similarly shape responses to institutional initiatives. As such, the research foregrounds the intersection of political psychology and economic behavior in entrepreneurial contexts, inviting scholars and practitioners alike to recalibrate their models.
From a theoretical perspective, this research challenges conventional entrepreneurship literature that privileges human and financial capital by illustrating the imperative of integrating identity variables—most saliently political identity—into models of innovation diffusion and resource mobilization. The study advances the discourse by demonstrating how identity can either activate or immobilize resource deployment under conditions of institutional ambiguity, equity uncertainty, and rapid policy shifts, making it indispensable in predicting entrepreneurial responses during crises.
The technological aspect of India’s policy shift was equally transformative. Digital payment systems, though nascent at the time, promised increased transparency, financial inclusion, and integration into formal economic channels. Nevertheless, technology adoption is not a purely rational economic calculus; it is enmeshed in complex social, cultural, and political matrices. For many entrepreneurs, aligning technology adoption with their identity framework was crucial to overcoming inertia, mistrust, or inertia caused by habit and skepticism.
Amrita Lahiri and her co-authors highlight that technology adoption under uncertainty is more than a question of access or ability—it is fundamentally about sensemaking within a fragmented social context. If entrepreneurs perceive policies as congruent with their worldviews, they require less cognitive effort to resolve uncertainty and are more willing to commit limited resources. On the other hand, a discord between political beliefs and policy signals can foster resistance, even among those with the means to adapt, hampering broader digital transformation efforts.
The broader economic consequences of this identity-infused behavior are substantial. When segments of entrepreneurs resist digital transitions because of political disenchantment, the digital divide widens, undermining the inclusivity and modernization goals envisioned by governments. This creates pockets of economic vulnerability and entrenches disparities, which over time can exacerbate political and social cleavages, forming a self-reinforcing cycle that inhibits progress.
In conclusion, the Great Indian Demonetization offers a unique natural experiment illuminating the intricate interplay between political identity, resource allocation, and technological adoption. It underscores the necessity for policymakers, scholars, and economic actors to reconceptualize entrepreneurship as a phenomenon deeply embedded in political and psychological contexts, not merely economic rationality. Building bridges of trust and fostering inclusive dialogue across political lines may ultimately be the linchpins for successful technological and economic transitions in an increasingly polarized world.
Subject of Research: People
Article Title: Mobilizing under uncertainty: Political identification, resource activation, and technology adoption among necessity entrepreneurs
News Publication Date: 15-Jul-2025
Web References: https://www.sciencedirect.com/science/article/pii/S2352673425000423
References: 10.1016/j.jbvi.2025.e00555
Image Credits: Not provided
Keywords: Great Indian Demonetization, Political Identity, Digital Payments, Entrepreneurship, Technology Adoption, Institutional Trust, Financial Inclusion, Necessity Entrepreneurs, India, Policy Impact, Resource Mobilization, Political Polarization
