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Last Updated : Nov 08, 2018 05:01 PM IST | Source:

2 years of DeMo: 60% jobs restored, but employment in unorganised sector stays muted

Almost 1 million jobs were estimated to be lost after Rs 500 and Rs 1,000 denomination notes were banned

M Saraswathy @maamitalks
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Mrinmoy Sarkar had a jute mill in North 24 Parganas in West Bengal, employing 40 workers who were paid in cash.

But after November 8, 2016, when the note ban move was announced by Prime Minister Narendra Modi, Sarkar went out of business.

After a month, he had to shut down the facility and is now involved in a grocery business and pays his employees in cheque.


PM Modi had announced a ban on Rs 500 and Rs 1,000 notes in a bid to curb the circulation of black money. But the unintended consequence of this decision was that a lot of smaller companies and factories, with daily-wage labourers on board, were unable to pay salaries.

Estimates suggested that almost 1 million jobs were lost in the 3-4 months following November 8, with up to 60 percent of them in the informal sector.

However, human resource professionals told Moneycontrol that while jobs were lost in the initial period, it was primarily the unorganised sector workers who lost their jobs as they were unable to adapt to the digital payment system, coupled with the fact that customer spending abilities were hit.

Sunil Goel, Managing Director, GlobalHunt, said a large proportion of the jobs that were lost have now been restored. “Small and medium enterprises (SME) sector initially faced challenges, but now the government is also enabling them to do business in an easier environment. It helped formalise the unorganised sector. The tangible numbers will be seen in another 1-2 years,” he added.

So while the formal sector may have benefited with better job generation, the informal sector is yet to get back the jobs it lost to demonetisation.

According to the International Labour Organisation, 81 percent of jobs in India are in informal sector.

November 8 impact

After the note ban was announced, while production was impacted due to large-scale absenteeism, demand for goods went down leading to further job cuts.

The worst hit sectors included infrastructure, leather, textile and construction where a large proportion of transactions were undertaken in cash. Demonetisation’s objective was to reduce cash transactions and emphasise on digital payments, so those ill-quipped with the technology went out of business.

Aditya Narayan Mishra, CEO, CIEL HR Services, said the payments process moved to cashless post-demonetisation.

“A lot of new jobs were created in payments banking space. While small vendors, retailing and construction witnessed a halt, about 60-70 percent of those jobs got restored. However, there were a section of construction labourers who lost jobs and returned back to their villages to look for other sources of income,” he added.

Digital payments industry got a big push as cash went out of circulation for almost two months. Everyone from a tea vendor to vegetable sellers were accepting e-payments, which boosted business for firms like Paytm.

Kamal Karanth, Co-Founder of staffing firm Xpheno, said almost 500 financial technology firms have been funded in India post-demonetisation. “There is a direct impact on jobs as these firms have scaled up. Close to 6,000-8,000 direct jobs were generated and about 10,000 contract jobs have been created by fintech firms, which in a way can be argued as the direct impact of demonetisation,” he stated.

While cash is back into circulation, HR officials said there is an inherent fear of a strike-down after the November 8 move. Hence, companies where majority of transactions were cash-based have either shut down or have rewired their operations to a digital-payment model.

“The bulk of the job-loss after demonetisation were in the informal sector where people above 65 years and youth below 20 years were employed. While those jobs are difficult to tabulate, there is a net gain in formal jobs in the last 2 years,” added Karanth.

Reforms also played an impact post-demonetisation

In July last year, the Goods and Services Tax (GST) regime came into effect. This forced a lot of small businesses and retailers to formalise their revenue and payment processes. Newer jobs were created in the areas of tax compliance since this was an area that the government agencies had serious penalties for non-compliance.

Rituparna Chakraborty, Executive Vice President, TeamLease Services, said the biggest impact came through formalisation of jobs, though demonetisation was not the sole driver of it.

“Apart from demonetisation, GST and several sector-specific reforms were initiated that led to creation of formal jobs. This can be directly seen in payroll data from the Employees Provident Fund Organisation,” she added.

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First Published on Nov 8, 2018 05:01 pm
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