8th November, 2016 would surely go down in history as one of the most historic of dates. It was on this date that the Narendra Modi’s Government took the sudden decision to demonetize two of the most common denominations of currency, RS 500 & RS 1000, making it no longer legal tender. Then in another part of the world on the same day, Donald Trump was declared victorious as the next President of the United States after a rather raucous and at times vulgar election campaign.
Both have been truly dramatic happenings, something unexpected that has caught most of the people across the world unaware. The double whammy of demonetization and the election of Donald Trump as US President has not only unnerved the Indian and world equity market but have also unnerved the Indian and world jobs market.
De (Monitised) India and Demonitisation:
In a country like India where an estimated 86 percent of cash is always in circulation and where about 90 percent of transactions happen in cash, demonetization has come as a cruel blow. Top of it the demonetized notes were to be deposited at banks or post offices before 30th December, 2016 and that amounts larger than a certain threshold increase in income would require an explanation.
The Indian Government in turn explained that all of this was needed to tackle and curb the problem of black money, terrorism and the informal economy that in normal times would escape taxation and bring the citizens cash holdings into the banking system where it could not easily avoid detection. While this is a laudable move, it is a disaster at the same time. Since its announcement, demonetization has not exactly worked out the way it should. It has in one stroke rendered scores of people across India cashless and businesses vulnerable. Experts believe that this in turn could lead to two dangers - deflation and unemployment, both of which are inter-related.
When huge amount of black money goes out of the system all of sudden due to demonetization, then it leads to a decline in the supply of money resulting in a fall in commodity prices leading to deflation. In a worse scenario, deflation could end up causing unemployment and retrenchment.
Talking of unemployment, India’s unemployment rate has been increasing rapidly for the past few years that are well before demonetization. After demonetization, the unemployment rate has only worsened.
According to a Government of India Labour Bureau survey report, unemployment rate, well-before demonetization had shot up to a five-year high of 5% in 2015-16, with 8.7% for women and 4.3% for men, nearly 4, 00,000 and more jobs could be lost in the coming months. The hardest hit would be the unorganized sector where a large proportion of labor-intensive sectors are dependent upon cash for business. Further out of 32 million people employed by textile and garment industry, one-fifth is daily wagers who get cash as compensation for their work on a day-to-day basis. With no currency, daily wages is in acute danger.
Likewise 15 to 20% of 2.5 lakh workers in the leather industry are also impacted. Some industries have even shut down due to lack of cash and no business following which many workers are said to have migrated back to their home towns.
Every year, around 12 million people are said to join the job-seekers queue in India. With demonetization throwing many people out of their jobs, the figure is only bound to rise in the coming months and would probably show little signs of stabilization at least for a few more months to come.
(De)Mocratised America – Effect on Jobs in India and Jobs across the World:
The US President-elect Donald Trump has during elections frequently targeted India through his rhetoric, accusing India of taking unfair advantage of the United States by taking away jobs out of the US to India, rendering many local Americans jobless. All through the election campaign, ‘Jobs’ was the main election issue for Trump and he came down hard on outsourcing, warning American businesses that he would impose harsh tax if jobs were shipped out of the US to India and China.
Indian business leaders were naturally concerned for that would negatively impact India as well as their own businesses. Indian IT giants like Tata Consultancy Services, Infosys, Wipro, etc, are heavy users of the H-1B visas and they have genuine concerns as Trump shifted his position several times on the H-1B program thereby sowing seeds of confusion. They express fears that the White House under Trump may bring about radical reforms aimed at increasing the H1B prevailing wage rate or making it mandatory for the US employers to recruit American workers first in preference to overseas workers.
With stricter laws for hiring and higher visa costs along with imposition of high tax rates on American companies outsourcing jobs to India, there would be a huge negative impact on jobs in India for nearly 60 percent of software exports is to the US.
Another possible likelihood is that Trump could encourage American companies to go for greater automation in American IT industry which if it happens would lower the demand for outsourcing from Indian companies. Already such a scenario is taking place in India well before Trump could advocate such a step, with periodic job cuts and lay-offs due to automation in Indian IT companies like TCS, Infosys, Wipro, etc.
There are definitely concerns at the moment that the long-term outlook of the impact of demonetization and Donald Trump’s victory on jobs in India and across the world looks uncertain and unclear. But how damaging the impact would be on the jobs market will be clear only in the coming weeks, the whole of January 2017 being especially crucial. History has shown that markets never like uncertainty which means that some amount of knee-jerk reaction can be expected in the jobs market in India and across the world in days ahead.
