After PM Modi’s declaration, 86 per cent of the cash circulating in India became defunct. What effect will this have on recruitment in 2017?
A month ago, the Modi Government declared that high-value currency notes such as Rs 1000 and Rs 500 denomination currency will not be a legal tender anymore. We welcome this enormously smart move by Prime Minister Narendra Modi to curb the growing menace of corruption, economic terrorism, fake currency and black money.
Ensuing chaos after demonetisation
While the initiative is far-sighted and bears a host of politico-economic benefits in the long run, the immediate effect is that of chaos. People are queuing up in front of ATMs and banks and banks are struggling to disburse new currency denominations to everyone. Right after the announcement, as an immediate aftermath, by midnight, 86 per cent of the currency in circulation became defunct for commercial transactions. The liquidity crunch had far reaching implication on each and every one.
Liquidity crunch in organized sector
As soon as the demonetisation drive was announced, the organized sector faced a major liquidity crunch. Since in India, almost all sectors have a sizeable contribution of MSME and various individual businessmen, the demonetisation will impact them as well as the overall economic fabric of the nation.
Short-term consumption demand decreases
Lesser amount of money in circulation means that short-term consumption demand will also decrease in the country. Businesses therefore are likely to experience a hit in terms of product and services sale. Indian consumers and retailers both prefer cash based transactions. With demonetisation, they are bound to become cash-strapped which will hurt business, at least in the short term, and consequently, revenue, employment, consumption and investment are all set to take a hard hit.
Disruption in unorganised sector could compromise weaker section
The unorganized sector in India, on the other hand employs a majority of workers and cash is the dominant mode of payment in this segment. A liquidity crunch in such a system could compromise the employment and livelihood of the weaker section of the society as well.
Industries show mixed reactions to demonetisation
Demonetisation is likely to sidestep India’s economic growth by 1 per cent over the next year and the employment market is estimated to witness about 400,000 job cuts over a same time frame.
The job market is estimated to be a mixed bag of sorts:
- The pharmaceutical sector will hire in large numbers, and the telecom and BFSI sectors will also follow suit
- However, hiring in the FMCG and the automobile sector will witness a sharp slowdown
- The IT sector is also estimated to witness a marginal increase in hiring
- Real estate, construction and infrastructure are the other industries that are likely to feel the backlash of demonetisation. Recruiters and head-hunters predict that these three sectors will see more than 100,000 job cuts over the next 12 months
Where can employment be expected from?
It is evident that the financial services sector will register strong growth, thereby providing more and more employment opportunities, banks will expand and grow, thereby providing more jobs and postal services segment will upgrade – opening up more and more employment opportunities. Prime Minister’s infrastructure projects and smart cities projects will provide employment to many more number of people going forward.
Could employment crisis become more severe?
Many opine that the impact of demonetisation on the employment market could become even more severe if cash supply in the system remains inadequate. The intensity of the impact depends on how fast the economy recovers, how fast money gets re-injected into the economy and when the imposed restrictions on cash withdrawals gets lifted. However, having said that, the employment scenario, no matter how bleak it may seem to be now, will definitely improve down the line.
Industries that will hire actively:
1.With the demonetisation drive, more and more retailers will hop onto ecommerce platforms, which will boost the need for manpower skills on the digital end. Most e-commerce firms are actively adopting cashless modes of payments.
2.All banks and brokerage firms are actively putting in efforts to build large digital banking and financial research teams, resulting in hiring in related areas. Payment banks, mobile wallets and fin-tech are likely to witness unexpected boost. The sector will register three to five-fold business growth which will reflect in their hiring growth.
3.The IT industry is least affected by the demonetisation drive. With minimal or negligible dependence on cash, this industry will witness maximum hiring.
4.Hiring in start-ups is all set for a high growth paradigm. India’s start-up community will grow if they get funding from angel investors and micro-VC’s. This can happen by disrupting the grey economy that exists today and compelling more Indians to pay taxes. More government funding through unpaid tax dues can be cultivated into Start-up and Innovation programmes, thereby fostering growth.