Job sector hit hard by demonetisation

When announcing the demonetisation of old currency notes, Narendra Modi led BJP government might have considered the benefits of this move in the long haul, to wipe out black money and whatnot, however, the govt’s move has certainly hit hard the job sector. The move may end malpractice and corruption in education sector but the current scenario is eye opening.

On the eve of November 8, 2016, Indian Prime Minister Narendra Modi announced that old currency notes of Rs 500 and Rs 1000 have been demonetised, sending a shockwave throughout the country.

There are roughly 200.18 lakh unregistered rural sector business units in India and they make up over 55 per cent of such enterprises. Urban Small units are 161.58 lakh. Within this informal business sector, there are a large proportion of labor-intensive sectors wherein cash is the only way to conduct business.

Daily transactions are done in cash alone in these sectors. Due to the sudden and ill-prepared demonetisation move, temporary jobs, especially in garments, textile, leather and jewellery, have taken a major hit.

More than 31.9 million people employed in the textile sector or “government” sectors have not been getting wages due to the cash crunch. It is quite obvious that at least temporarily jobs will be vanishing in many sectors.

Demonetisation has created a cash crunch that has sent the small-scale units, which form 78 per cent of the readymade garments sector, into disarray. Nearly 80 per cent of the workforce in this sector is employed as casual, off-rolls labour, and they are paid entirely in cash.

Owners of the small-scale units said that they have no choice but to downsize because the seasonal and unpredictable nature of the business and its economies do not allow for permanent staffing and formalised modes of payment.

Job lost due to demonetisation“Once business slowed down, we told our workers the situation would take a few months to normalise. Out of my 20-25 staff, only three to four remained, while the rest went back to their villages,” says Vinod Boracha, an ethnic wear manufacturer.

It is estimated that about 4 lakh people, comprising mostly of daily wage workers, have either lost their job or left work temporarily due to lack of payment. This number could keep increasing if the cash flow doesn’t improve.

While medium sized enterprises can tide over the cash crunch the most hard hit are tiny and micro enterprises which are managed by just one person. In this sector economic activity has definitely slid downhill. Paytm is not the solution either as it could take months or years to get rooted.

Engineering Export Promotion Council (EEPC) vice-chairman Ravi Sehgal said that labourers who have Jan Dhan accounts are refusing to accept direct transfer of funds into their accounts due to their fear that if the annual money remittance exceeds Rs 50,000, they would lose their BPL status, and along with that, several incentives and allowances would be withdrawn for them.

B N Rai, President of the Bhartiya Mazdoor Sangh (affiliated to the BJP) said, “Workers who are employed as contract labour, those working in construction and other infrastructure sectors, daily wagers and those getting wages weekly are definitely affected by this demonetisation drive. I do not have estimates but many jobs have vanished in these sectors.”

While saying that demonetisation were well intentioned, Rai said the policies were not yielding results because of a lack of preparation. He said the government should have printed enough new notes and got more bank branches and bank accounts opened before announcing demonetisation.

He also said the government’s drive towards a “cashless economy” would be difficult to achieve. “It’s not possible to turn India cashless because our society is predominantly cash-dependent,” he said.

The clearest indication of a direct link between job losses and demonetisation came from CPIM’s Sitaram Yechury, who claimed in Parliament today that since 8 November, four lakh jobs have vanished.

About 20-25% of the 2.5 lakh daily wage workers in the leather industry are also affected. 90% of the industry is made up of small and medium enterprises. It has been hit the worst.

About 15-20% of the daily wage workers in the jewellery sector have been affected as well. Jitendra Janani, manufacturer, and secretary, raw material of imitation jewellery association (RICA), says, “Our production has been reduced. Our factory functions only on alternate days now. Our workers have been with us for long and we can’t just take away their livelihood, but may be forced to.”

“Inadequacy of bank branches is one primary reason why cash dominates small businesses,” says Anil Bhardwaj, Secretary-General, Federation of Micro and Small & Medium Enterprises (Fisme).

Though the number of bank branches in urban and metropolitan centres more than doubled from 20,713 to 43,716, in rural and semi-urban centres, it has not increased, at such a pace.
There are 7.8 branches for one lakh people in rural India, as compared 18.7 branches in urban India.

In Bengal even as chief minister Mamata Banerjee apprehended a loss of at least Rs 5,000 crore in the state due to the Centre’s demonetisation drive, Sree Hanuman Jute Mills of Howrah district temporarily closed down citing its inability to pay workers in the absence of Notes. This has thrown 2,500 workers out of jobs at one go. This is the first closure of a big industrial unit after the demonetisation decision.

“In the name of demonetisation, the Centre has already caused tremendous sufferings to individual employers, employees and agriculture. It is extremely regrettable that a jute mill has to down its shutters throwing the lives of so many workers in jeopardy,” Mahesh Singhania, president of West Bengal Trade Associations, said.

Economist Pronob Sen has also warned that a virtual shutdown of India’s informal sector could spell doom for employment. Sen has said the fact that the informal sector in India accounts for about 45 percent of the gross domestic product (GDP) and nearly 80 percent of the employment, “disruption of this liquidity can be very costly indeed, both in terms of growth and equity.”

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