Dear Modi Ji,
When you announced the demonetisation of the highest denominations of the Indian rupee, the Rs 500 and Rs 1,000 notes, some difficulties were anticipated in the coming weeks. However, what has really come to the fore is the real weakness in India’s financial infrastructure, of which the endless lines at open banks and functioning ATMs are only sickening symptoms.
This might be taken one step further to assess the implications of the move for the labour force, and deep-seated structural changes that we might see as a result of this in the Indian industrial sector.
The unorganised sector employs 83 percent of all labour in the country. It is officially defined as “[the sector] consisting of all unincorporated private enterprises owned by individuals or households engaged in the sale or production of goods and services”.
Plight of the Informal Sector
Breaking this down further, we must look at only the non-agricultural labour sector, which is roughly 200 million-worker strong. According to the Confederation of Indian Industry, construction, manufacturing and hospitality (hotels and restaurants) account for 150 million jobs (out of the total of 200 million) in the non-agricultural labour sector. Within these industries, 75 percent, 67 per cent and 94 percent of all labour employed , respectively, is informally employed, while overall 78 percent of India’s non-agricultural workforce operates informally.
That means that roughly 160 million workers operate with absolutely no contract, no state protection, little job security, and almost completely on cash.
Therefore, one can effectively say that Indian industry operates on the back of the informal sector and deals with its labourers almost exclusively in cash.
The Dark Reality
Now with the demonetisation announcement and 86 percent of all cash in circulation being made redundant, India’s industry is sure to be affected. The imposition of both daily and weekly withdrawal limits is a double whammy to this sector.
Even if the cash is available in their bank accounts, this not only severely limits the amount of liquid cash available for cash-only businesses to operate, but at the same time affects their customers who are sure to be facing a cash crunch as well. The demonetisation has in effect frozen business for these enterprises.
However the much darker reality of the demonetisation is the effect it will have on 83 percent of the Indian labour force, or roughly 160 million workers.
When the businesses themselves do not have cash on hand to spend on day-to-day operations; it is the labourers that will feel the brunt of demonetisation. Those working in the construction, manufacturing and hospitality sectors will be hardest hit as these are the sectors which employ the largest number of informal labourers in terms of volume. It is important to remember that construction workers, factory workers, cooks and waiters are from some of the poorest backgrounds and often rely on these daily wages to survive each day.
Gradual Shift to Automation
If the government’s intention was to push towards a cashless economy, then it has certainly not factored in the implications of what that means for roughly 83 percent of India’s workforce.
Firms that intend to transcend all cash-based transactions will not find the solution to their cash woes in labour, but rather in automation. Machinery does not need cash to operate and does not mind going a few days (or weeks) without work.
Firms are free to transact digitally, and there is no restriction on the purchase of machinery for those who can afford it. This will naturally provide a strong incentive to shift operations to capital-based means of production, resulting in massive lay-offs within the labour force.
Add to it the fact that larger businesses are also likely to be the ones that had previously relied on a large labour force.
Firms that do make the shift to capital may find their burden lessened permanently. However, herein lies a larger threat for the Indian labour sector. Each year until 2025, 12 million people will enter the Indian workforce, most of who will look to operate in the informal and unorganised sector. A shift towards automation might enable firms to operate in a cashless economy. However, if this is to become a trend, the government will have a lot of unemployed people on its hands.
Demonetisation Has Led To Complications
The threat of a ‘jobless growth’ already exists for India with a global shift in manufacturing towards automation and other labour-less techniques. A report by the World Economic Forum titled ‘The Future of Jobs' has already predicted that as many as 7.1 million jobs could be lost through redundancy and automation in the West. Although no similar study has been conducted in India, we are already aware that half of India's workforce is currently engaged in the soon-to-be-automated agricultural sector.
India stands on the precipice of the 'Fourth Industrial Revolution', one of the biggest themes discussed in the recently-concluded India Economic Summit in New Delhi. Like previous industrial revolutions, this one too promises to raise global income levels and improve the quality of life, through digitisation and automation.
For India, the past drivers of growth will now have to be re-worked if we are to take advantage of this new wave of industrialisation. But, the sudden move of demonetisation by the government seems to have complicated things, by aggravating prevailing fears of the Indian labour sector, regarding the future of industry, production and automation.
With demonetisation resting heavy on our heads, our industries may be compelled to move towards automation. But at what cost?
(The author is a research intern at the Institute of Peace & Conflict Studies, New Delhi. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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