An ominous confluence

by Mahesh Vyas

Medium and large companies did not announce layoffs in the aftermath of demonetisation. The huge liquidity shock, the breaking down of supply chain in some sectors - particularly agriculture, the disruption of business in other sectors - particularly construction, the confusion caused by changing rules of conversion and the myriad uncertainties, none transmitted into announcements of laying off of labour by the relatively larger enterprises.

Most considered demonetisation to be a temporary shock of a couple of quarters. And that business would return to normal soon.

The shock of demonetisation was felt largely in the informal sectors, which has mostly been beyond the pale of mainstream commentators. The impact of demonetisation was a big fall in labour’s participation in the labour markets. This was essentially a fall among young men and women, particularly young women. But, its immediate impact on employment was relatively small. While the labour force is estimated to have fallen by 15 million, from 447 million to 432 million; employment is estimated to have fallen by a much smaller, 4 million, from 410 million to 406 million.

This fall in labour force and employment is seen in the Consumer Pyramids Household Survey in the monthly estimates just before and after the November 2016 demonetisation. But, the nearly one per cent fall in employment is not reflected in the Annual Reports of listed companies. These showed a 2.56 per cent increase in employment in 2016-17. Large and medium sized companies did not suffer a contraction in employment when the economy as a whole did witness this contraction, implying that the contraction in employment was entirely in the unorganised sectors.

The unorganised sectors suffered again with the introduction of goods and services tax that came quick on the heels of demonetisation and made smaller business enterprises that survived almost entirely on tax evasion, unviable. It made the business of those who could not afford the compliance cost of GST unviable as well. Their loss was the gain of the large companies and so while the introduction of GST did lead to job losses it was no reason for the larger business enterprises to announce layoffs.

Calendar year 2018 bore the combined brunt of demonetisation and GST. Employment fell by a further 5 million - from 406 million in 2017 to 401 million in 2018. However, the larger, listed companies reported a 4.7 per cent increase in employment. This was expected because the GST helped the larger and more compliant companies takeover the market shares vacated by the small enterprises.

It is therefore quite likely that the brunt of the shocks of demonetisation and GST and the consequent economic slowdown thus far since 2017 has been borne by the unorganised sectors.

But, the organised sector is now facing its own challenges. At a macro-level, the Indian corporate sector has stopped investing into new capacities for all practical purposes. In the year ended March 2019, net fixed assets of the Indian corporate sector grew by a meagre 5.3 per cent. In better times, net fixed assets grew by 16-17 per cent in a year and even peaked at 23 per cent in 2008-09. The sharp fall in net fixed assets growth is bound to have an impact on the ability of the corporate sector to increase employment.

It is not just the lack of investments that is at play here. Sector after sector has been besieged by a semi-crisis.

Several telecom companies faced an existential crisis after the Supreme Court ruling on AGR and simultaneously, BSNL has shed over 78,000 employees while MTNL has shed over 40,000. These are big layoffs amidst big crisis. IT companies were reported to be laying off mid- to senior-level executives to deal with skill challenges. 35,000 were reported to be laid off in the sector and the count was expected to go up to 50,000. The automobile sector faces its biggest slowdown of recent times. Bosch announced that it would reduce headcount in India by over 10 per cent. Hero Motorcorp is also shedding manpower. And, newage enterprise Ola is reducing its workforce by 5-8 per cent. Even food delivery enterprises like Zomato, Swiggy and UberEats are facing new challenges as growth has slowed down. Uber has reportedly cut staff by 10-15 per cent. Future Group was reported to be shutting down 140 grocery stores after having grown rapidly till recently. Oyo plans to fire 1,200 in India. NBFCs, brokerage companies face their own challenges.

Public sector banks are being merged, Air India and more are to be privatised. More jobs may be lost.

Employment contraction that so far was limited to the unorganised sectors has started to hit the organised sectors.

Contraction of employment in the unorganised sectors does not stir the conscience of India’s chatterati or the mainstream media; it does not directly impact the middle classes or the aspirational Indian and it has not moved policy makers or politicians sufficiently. But, a contraction in employment in the organised sectors will hurt India’s middle classes and its much raved about aspirational Indian.

The angst against the new citizenship law and against the growing perception of a government machinery being pitched against young students in campuses is headed to soon meet a severe lack of jobs in the organised sector. This confluence of anger in the youth, an anger that has been vitiated as they seem to be pitched one against another, with a corporate sector that closes its doors to them will give us the first screenplay of the demographic disaster that India may have created for itself.