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Demonetisation and Its Impact on Job Market
Thu, 16 Feb Pre-Open

A few months ago we were plunged into a chaotic world of queues and no cash. The well-intended move ended up handicapping the economy and generally inconveniencing the multitudes.

Demonetisation disrupted various sectors, and threw a spanner in the already limping Indian economy. Normal monsoons - after two consecutive years of bad monsoon, the seventh pay commission, and low interest rates seem to be early signs of economic revival.

However, if first advanced estimates for Gross Value Added (GVA) are to be believed, the industry is going to suffer a huge setback in terms of growth. The demonetisation has impacted almost all sectors.

And given the fact that around 100,000 new job seekers enter the job market every month - that makes 1,200,000 a year - demonetisation has added fuel to India's unemployment problems. The unorganised and rural sector - labour which generally works on daily wages - will bear a brutal shock.

Now, after three months of demonetisation if one goes to see the effect on unemployment (especially in the rural economy), there are two sets of data leading to two different opinions.

An article in Mint holds that sowing of rabi crops shows improvement on YoY basis which paints good picture for the rural economy. On the other hand, the decline in two-wheeler sales gives the opposite impression.

The discrepancy lies in the job situation between the non-farm and farm segment. If we look at the year on year rural wages growth, the non-farm segment has fared much worse than the farm segment. In fact, agricultural wage data shows an improvement over the previous year's performance.

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The improvement clearly indicates that demand for farm labour due to normal monsoon was not affected by the demonetisation. However, the same is not true for non-farm labour.

For both the urban and rural labour non-farm markets, things look bad. As per the survey conducted by Reserve Bank of India in the major cities of the country, negative perception on the employment scenario is at its highest since May 2014.

Our colleague Vivek Kaul, has often talked about the biggest problem of India i.e. unemployment. He puts it perfectly:

  • India needs to create jobs and that too at a very rapid rate for the huge number of people that is entering the workforce every year. And that does not seem to be happening. As the latest Economic Survey points out: "The power of growth to lift all boats will depend critically on its employment creation potential...

    In an Indian case given the semi-skilled nature of the workforce, the construction sector could have been a huge creator of jobs. But one reason that doesn't seem to be happening is because the construction activity in the real estate sector has come to a standstill. This is primarily because real estate prices continue to remain high and hence, unaffordable to a large section of the population.

Needless to say, one of the worst hit sectors after demonetisation has been real estate. This amplifies Vivek's point of lack of job creation in both urban and rural economy.

We believe the farm labour in the country got a tailwind on the back of a normal monsoon, but it is quite clear that if the Indian economy is to do good the government should focus on all-round job creation.

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