In the midst of an election season, the second anniversary of demonetisation was marked by sharp political exchanges. From an economic standpoint, demonetisation was an ill-conceived move as costs outweighed benefits. Some costs were transient but one that has lingered is the impact on employment. Employment data released by Centre for Monitoring Indian Economy (CMIE) shows that unemployment rate in October was 6.9%, the highest in two years. More worrying is the related data showing that the number of people in the job market was just 42.3% of the working age population, the lowest level since January 2016.
Demonetisation’s impact was felt primarily by agricultural and informal sectors, the two most cash-dependent parts of the economy. Research, both for India and other countries, shows that informality is largely a fallout of poverty. Consequently, the work force dependent on it is often unskilled. One of the trends thrown up by CMIE data is that it’s women who bore the brunt of adverse consequences of demonetisation on the job market – even if the problem of women dropping out of the work force precedes demonetisation. On balance, demonetisation clearly hurt the job market.
The best antidote is economic growth. Alongside there needs to be policy attention paid to patterns of growth. As the informal sector still provides the lion’s share of jobs, it requires a light touch regulatory framework. In fits and starts, Centre and states have tried to address this aspect. But a relatively neglected aspect is the boost job prospects in the informal sector can get through a combination of policy and targeted spending on infrastructure. It will improve the entire ecosystem of doing business. This can reverse the recent trend in the job market and also over time formalise a lot more firms.
This piece appeared as an editorial opinion in the print edition of The Times of India.
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