With the declaration of demonetisation, approximately 86% of cash became defunct. What effect will this have on the Indian job market?  According to a study representing over 3 lakh micro/small, medium, and large-scale industries in manufacturing and export sectors and conducted by the All India Manufacturers’ Organization (AIMO):

• In the first few days of demonetisation, micro/small-scale industries have suffered job losses of 35% and 50% dips in the revenue; job losses are expected to reach 60% with a 55% drop in revenue before March 2017.

• Almost all industrial activities have come to a standstill and that the SME sector has taken the worst blow.

• Medium- and large-scale industries involved in infrastructure and construction projects reported a 35% slash in employment and 45% drop in revenue, with additional reductions coming.

• Medium- and large-scale industries engaged in export-oriented activities reported 30% employment losses and dips in the revenue of 40%–figures expected to reach 35% and 45%, respectively, by March.

• The manufacturing sector’s medium and large-scale industries suffered 5% job losses and 20% decreases in revenue.

The Liquidity Crunch

The moment demonetisation was announced, many organized sectors suffered a major liquidity crunch. This is because all sectors have significant MSME contributions, and businesses are likely to experience hits in product and service sales.  Within the Indian market, both consumers and retailers prefer cash-based transactions. Revenue, employment, consumption, and investment are all set to continue taking hard hit.

The unorganized sector employs a large number of workers and cash is the dominant mode of payment.  The liquidity crunch here will negatively impact employment and livelihoods.

The Impact by Sector

• The Pharmaceutical sector will enjoy a large number of hirings, along with the telecom and BFSI sectors.

• The FMCG and Automobile sector will take the major blow and will witness a sharp slowdown. Sale-driven automotive OEM and large machinery/equipment sales are now witnessing a steep drop in demand and job cuts.

• With a very low dependency on cash, the IT sector is also likely to witness marginal increases in recruitment.

• Real Estate, Construction and Infrastructure are among those industries that are most likely to be on the receiving end of this drive as the capital expenditure and cash flow have been expected. Recruiters forecast that these three sectors will witness more than 100,000 job cuts over the next 12 months.

• E-commerce: More and more retailers are opting for cashless transactions, boosting the need for manpower to manage the digital end.

• Startups are set to experience high growth as the government has supported startup funding.

What’s Next?

Several economists and pundits are still unsure of the real impact on the employment market and believe that it could become even more severe if the cash supply remains insufficient.  Also, economic recovery is tied to the speed at which currency is pumped in the market.  Many opine that—no matter how bleak it may seem today—the employment market will improve in the long term.