Demonetisation impact: 35% jobs losses in first 34 days, SMEs worst hit

Cash-ban a boon or bane? - To many it may seem like a bold move by a confident Prime Minister, but to others, it spelt nothing but doom.

A study by the All India Manufacturers’ Organisation (AIMO) reveals that micro-small scale industries suffered 35 per cent jobs losses and a 50 per cent dip in revenue due to Prime Minister Narendra Modi's demonetisation drive. According to a report published in The Indian Express, major industrial activities have been halted and Small and Medium-sized Enterprises (SMEs) sector has been worse-hit.

 

AIMO conducted a study through which it projected a drop in employment of 60 per cent and loss in revenue of 55 per cent before March 2017.

 

The Indian Express quotes the study - While AIMO understands certain immediate repercussions of such a bold step (demonetisation) by the government, it did not anticipate or was prepared for such a jolt to industries even after one month.

 

Problems faced post demonetisation - Findings of the study in the first 34 days:

 

*Medium and large scale industries that primarily engage in infrastructure projects reported 35 per cent cut in employment and 45 per cent revenue loss.

*Industries engaged in export-oriented activities (including foreign companies) reported 30 per cent job losses and 40 per cent revenue fall. 

*In the manufacturing sector, medium and large scale industries reported a revenue hit of 20 per cent.

 

Future repercussions:

 

*The number of jobs and revenue are expected to dip by 40 per cent by March in Medium and large scale industries 

*Medium and large scale industries engaged in export-oriented activities are likely to witness 35 per cent job cut and 45 per cent revenue fall.

*Medium and large scale industries in manufacturing sector are likely to witness 15 per cent job drop and revenue hit by March.

 

Factors that contributed to the impact are:

 

1. Zero cash inflow

2. Rules curtailing cash withdrawals

3. Staff absenteeism

4. Weaker rupee

5. Choked fundraising options 

6. Inability of banks to work on proposals

7. Derailed real estate sector

8. Fear among foreigners

9. Poor preparedness

10. Uncertain status of GST

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Government's response to AIMO's findings:

 

The AIMO represents over 3 lakh micro, small scale, and medium and large scale industries engaged in manufacturing and export activities. It has sent periodical reports about their findings to the Union commerce and finance ministries

 

However, K E Raghunathan, national president, AIMO said that the government has turned a blind eye towards this emergency situation.

 

The Indian Express quoted him saying, "Unfortunately, there was no response of acknowledgement or reply from these ministries. Since the study is extremely critical of the Centre’s failed plan, we are unable to reveal the identity of the experts preparing these reports".

 

"Among all the states, Maharashtra and Tamil Nadu are the worst affected. The impact in these two states is still being ignored, thanks to an inefficient government in Tamil Nadu and a Maharashtra government that is bound to support the demonetisation drive,” he said.

 

Data of Nikkei India Manufacturing Purchasing Managers’ Index (PMI) for December wholly supports AIMO's study. Indicators reveal that demonetisation had taken a toll on manufacturing performance in the economy.

 

PMI data for December indicated that companies saw new work and output dip for the first time in 2016. In turn, quantities of purchases were scaled back and employment

lowered. 

 

According to a report published in Business Standard, 'Rates of contraction in new work and production were marginal overall, but in both cases the reductions were the first in 2016.' 

 

PMI data for December 2016:

 

* Cash shortages and lower workplace activity resulted in job shedding and falling buying levels during December

 

* Payroll numbers decreased marginally