What was touted as a measure to curb the flow of black money in the economy, has left most Indians with no money to spend. Demand for many non-essentials and some essentials, like green vegetables, plummeted. The demonetisation of the Rs 1,000 and the old Rs 500 currency notes wiped out 86 per cent of the currency in circulation at one stroke on November 8. The ensuing cash crunch had a relay effect on the demand for goods and even some services.
Many enterprises have since struggled to make a profit and pay wages for their employees. Many have been compelled to lay off staff and some more are on the verge of trimming their workforce. Anandorup Ghose, director at the US-based human resource consultancy, Aon Hewitt, has predicted job losses and a freeze on hiring over the next six to eight months.
Industry body, Assocham, has reported job losses in the unorganised sector. Assocham president, Sunil Kanoria, said, “In the unorganised (sector), which is the daily wage earner, there will be some impact at the moment... The sales will get affected, so they (vendors) will not be able to pay on a daily basis.” Debabrat Mishra, partner, Deloitte Consulting India said, “Along with the unorganised sector, the job market in the services sector will also have maximum impact. People will avoid spending on services like beauty and wellness, food delivery etc. and as a result, workers engaged in the sector will be impacted.”
The analysis buttresses some of the gory projections by some political parties, which have spoken of rampant job losses since November 8. On November 25, Communist Party of India (Marxist) general secretary Sitaram Yechury said that demonetisation had felled four lakh jobs. His views were echoed by the largest trade union organisation, the Bharatiya Mazdoor Sangh (BMS), known to be aligned with the Rashtriya Swayamsevak Sangh (RSS). Bharatiya Mazdoor Sangh president, Baij Nath Rai, said, “Under the new government, 1,35,000 job opportunities have been created so far, but 20 lakh people have lost their jobs.”
Awdesh Kumar, who offers a shuttle service on a three-wheeler in New Delhi, said, “My passengers ask me if I take money through Paytm, before getting into my vehicle.” Kumar bemoaned that he didn’t know how to use a touchscreen phone. “I am hardly making money these days,” he said. Kumar is among lakhs of daily wage earners, who have no work or a means of livelihood because their worlds revolve around tangible, paper currency notes, that have suddenly turned scarce.
The real estate sector faces a huge crisis too, unable to pay daily wages to construction workers. The Royal Institution of Chartered Surveyors (RICS), a professional body for qualifications and standards in land, property, infrastructure and construction, has in a report, attributed the “low activity at construction sites” to about 86 per cent of the currency in the market “being replaced with a miniscule number of replacement notes”.
Materials sourced from the unorganised sector, like bricks and sand, also rely significantly on cash, as do transporters. Sub-contracting, which is now common practice in most projects, is badly hit by the cash crunch. The RICS feels that the situation would not improve till liquidity returned to the market. As the informal sector collapses, households that were probably on the threshold of poverty, now risk slipping back into deprivation, it feels.
The ripple-effect of demonetisation has been particularly scary along the food chain, hitting farmers hard. The Kharif (summer) crop has no buyers and sowing of the Rabi (winter) crop has been severely impeded as farmers are unable to pay for fertilisers, insecticides, agricultural workers (who earn daily wages), or farm machinery for sowing and irrigation. “One will only have a bank account if one has any savings,” said a farmer in east Uttar Pradesh, adding, “We are all dependent on cash for our survival.”
Jute mills around Kolkata that pay most of their 2.5 lakh and more mill workers in cash, have been unable to pay wages to their employees. The Indian Jute Mills Association (IJMA) has now sought the intervention of the West Bengal government. Leather extraction units in Mumbai and Chennai are also struggling to pay their workers.
The misgivings that demonetisation would lead to widespread job cuts gained traction when car manufacturer Renault-Nissan cut down a shift after an inventory pile-up of more than 20,000 vehicles. The decision will lead to a potential loss of 1,980 jobs at Renault-Nissan’s Chennai plant. Mahindra & Mahindra has announced that it would stop production on certain days in December, not counting days scheduled for its planned annual maintenance. The maintenance schedule involves shutdown at some of its automotive and tractor plants to adjust inventories.
Mobile phone makers plan to cut back production by up to 50 per cent. Some even consider laying off factory workers to cope with declining sales. Pankaj Mohindroo, chairman of the government backed Fast Track Task Force that promotes local manufacturing says, “We fear that if liquidity does not return to the market soon enough, a situation may emerge where workers would be laid off.”
Small textile factories in Punjab and Gujarat have shut down because of weak demand. More than a hundred textile units in Ludhiana and Amritsar in Punjab have shut down too, displacing thousands of labourers. Nilesh Sadh, a Surat-based businessman says, “Business is in a gloomy state. Workers are going back to Uttar Pradesh and Bihar, as there is nothing for small traders here.” Big traders are unaffected by demonetisation though, dependent as they are primarily on exports. At Deloitte Mishra says, “Large manufacturers can benefit from the situation as exchange rates are favourable. Hence there is no fear of job cuts in this department.”
Micro and small industries have been particularly hit by demonetisation. Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small and Medium Enterprises said, “The impact of demonetisation is different on different segments. Handloom, carpet, glass industries in smaller towns like Moradabad, Panipat, Bhagalpur, have either shut down temporarily or have reduced production by 50 per cent.” He said job losses had been widespread in these areas, adding “Owners have asked workers to go back home and come back when things normalise.”
E-commerce & MediaDemonetisation was the last nail in the coffin for the mushrooming smaller players in the e-commerce space, said Sandeep Aggarwal, founder and CEO, Shopclues and Droom. He said the move would hasten the demise of e-commerce companies that were hanging onto angel investment or seed capital. Droom also deals in online retail of used cars. Aggarwal expected online automobile transactions to increase and felt that “offline will suffer due to the black money menace coming under attack.”
Fashion jewellery brand, Voylla, has been hit hard by the demonetisation exercise and its online sales have dropped by more than 30 per cent. Even so, Voylla’s co-founder, Vishwas Shringi is confident that the impact of demonetisation would be short lived. “People have only postponed their sales as of now, it will be back on track once they adapt to the e-wallet or e-payment mode,” Shringi said.
Cash on delivery (COD) accounts for almost 80 per cent of the overall e-commerce business. India’s largest online retailer, Flipkart and the food discovery and delivery portal, Zomato, accept cash for almost 70 per cent of their orders. Most companies have temporarily withdrawn the COD model, while some have restricted it to low price point categories. Amazon India has stopped accepting cash-on-delivery, while Flipkart and Snapdeal have restricted such orders to inexpensive products.
Some, like Girish Vanvari, Partner and Head of Tax, KPMG in India, too felt that demonetisation would only compel consumers to move to bank-based financial payment. LimeRoad claims to be the only e-commerce player whose gross merchandise volume (GMV) was up by two per cent in November. “This year GMV will be up 4x versus last year. Prepaid orders grew 3x post demonetisation,” said LimeRoad founder and CEO, Suchi Mukherjee.
Media houses have felt the heat of demonetisation from the start. Many have reduced the number of printed pages, some have stopped hiring and are considering lay-offs. In November, advertisers either withdrew advertisements or postponed them, leading to a drop in revenue. Media barons known to have taken drastic steps to deal with the situation include Bennett Coleman & Company (BCCL), DB Corp and the Anandabazar Patrika (ABP) Group, which publishes newspapers like Anandabazaar Patrika and The Telegraph. The ABP group has reduced the page count of its publications and is reportedly laying off close to 47 per cent of its employees, including journalists. An HT Media staffer termed the current scenario as a ‘worried environment’.
The rumour mill says most broadcasters and publishers were staving off layoffs till the New Year. The broadcast arm of BCCL, Times Television Network, has released a circular to its employees, asking them to cut back on operational expenses. “The business environment since the last one month... has adversely impacted all businesses, particularly English broadcast media,” it said. DB Corp, which publishes the Hindi newspaper, Dainik Bhaskar, has issued a circular announcing a freeze on recruitment. BAG Network, which runs News 24, has trimmed expenses on events by 60 per cent. The entire media fraternity is looking forward to next year and hoping that market sentiments would rebound.
The sentiment echoes through the cash-driven part of the Indian economy, which may miss the cheer in the Christmas and New Year shopping season.
BW Reporters
The author is Senior Correspondent with BW Businessworld
BW Reporters
The author is a journalist with BW Businessworld. He primarily covers Retail, Media & Entertainment and Travel & Tourism sectors
