PR ENGLISH SHORTHAND DICTATIONS: ENGLISH SHORTHAND DICTATION-219

It has been five years since Prime Minister Narendra Modi announced the demonetisation in November, 2016 to achieve the objective of checking black money and corruption, printing of counterfeit currency, and terror-funding. While the Opposition criticised the Modi Government over note ban, alleging that none of the objectives of the move has been fulfilled, demonetisation has certainly helped not just the Government but also the people at large.

There are three ways in which demonetisation helped Indian economy. Firstly, it has promoted cashless economy. With the announcement of demonetisation, citizens in India started using digital modes of payments more often for their day-to-day transactions. Data suggests that since demonetisation, penetration of digital transactions has increased consistently year after year.¹²⁰ The Unified Payments Interfaces were introduced in the post-demonetisation period in the country and their rapid growth is truly stellar.¹⁴⁰ Economists say that high level of digitisation has given the economy capacity to grow without a corresponding increase in cash.¹⁶⁰ During the nationwide lockdown imposed in 2020 to contain the spread of coronavirus, cashless economy proved to be a God-sent opportunity. During that period, people mostly ordered essentials online and made payments through online banking, debit or credit card or through Unified Payments Interface. If these means had not existed during the lockdown, people would have been forced to step out of house and would have risked contracting the disease.

Out of the four key objectives of demonetisation, India appears²⁴⁰ to have done well on three. Other than the rise in digital transactions, there has been a drop in fake currencies. There are also indications that the Indian economy is getting more formalised. One prominent economist of the country mentioned²⁸⁰ in a note that there are indicators that the informal economy has shrunk to 20 per cent of GDP from 50 per cent a few years ago. This is comparable to Europe and is much better than Latin American countries.³²⁰ According to experts, measures like demonetisation and GST have helped the Indian economy in getting formalised. In the longer term, this will help in boosting India's tax revenues.

Questions have arisen as to what has happened to old notes after³⁶⁰ demonetisation. According to the information, the Reserve Bank of India does not recycle old notes. The speciality of old notes is that they do not completely dissolve in water nor leave colour. In such cases, they can be used to make other paper item. The disruption that the demonetisation of high-value currency notes caused to people’s lives and livelihoods and the⁴²⁰ Indian economy is still fresh in many people’s memories. The direct impact on the informal economy that largely operated in cash, and the consequent ripple effects across everyone connected with it directly or indirectly, was widely reported at the time. Over the years since high-denomination cash was made to suddenly disappear, it has come back at higher levels than before.⁴⁸⁰ In the face of this reversal, it becomes important to evaluate the long-term trajectory that the economy has taken post-demonetisation. The return of cash makes improbable any claims of positive effects through the strong formalisation of the Indian economy. The negative outcomes, however, may not have been erased by the increased cash intensity of the economy.

The economy does not work like an elastic rubber band where once the stress is released, it comes back to the pre-stress configuration.⁵⁶⁰ Negative events tend to have long-term effects. Small firms that close because of a lack of demand do not reopen automatically once demand comes back. When people are unable to repay loans, taking a loan again, especially from informal sources, is⁶⁰⁰ not as easy. Hence, one can expect that there would be some longer-term negative effects of the shock that was demonetisation, unless subsequent economic policy served to help those who were affected and alleviate these effects.

As we look⁶⁴⁰ at how India’s labour market has fared in the years following demonetisation, we find that the situation had worsened substantially even before COVID-19 struck. For the Indian labour market, the announcement of demonetisation came on the back of an already dismal economic situation. According to a survey, from May to September 2016, a few months before the announcement of demonetisation, overall⁷⁰⁰ employment rate was approximately 43 per cent. This rate refers to the number of individuals employed as a proportion of⁷²⁰ the population of working age people.

Between January and April of 2017, only a few months after the announcement of demonetisation, employment rates had fallen to 42 per cent. Although this one percentage point fall does not seem like a significant effect, when seen in terms of absolute number of the workforce, this adds up to a loss of 95 lakh jobs during this four-month period. To put this in context, this number is comparable to the entire population⁸⁰⁰ of a city such as Hyderabad. Along with the small but significant reduction in employment rate, demonetisation was also followed by a steep fall in the labour force participation rate, which is the share of people working, looking for work or⁸⁴⁰ willing to work as a share of the working age population. The labour force participation rate dropped from around 50 per cent before demonetisation to around 45 per cent in the months immediately after it, translating to about 4.77 crore people withdrawing from the labour force. A part of this reduction can be explained by the decline in the employment rate. But a large part of it came from people who were willing to work before but were not looking for work after that.

Those people, who do not have work but are willing to work, are termed “unemployed” and their share of the labour force is termed the unemployment rate, which in this case declined. While a declining unemployment⁹⁶⁰ rate is typically interpreted as a positive development, in this context, the declining unemployment is not because those looking for⁹⁸⁰ jobs found them, but because they stopped looking. In fact, the fall in unemployment after demonetisation can be attributed largely to a fall in the unemployment rates among young and less-educated workers. It is likely that such workers recognising their bleak chances in the labour market stopped seeking employment.

Post-demonetisation, the employment rate has kept declining, going below 40 per cent in 2019. According to United Nations population estimates mentioned earlier, the working age population of India increased by 32 million between 2017 and 2019. Hence, just to maintain the employment rate of 42 per cent, the economy would need¹⁰⁸⁰ to create around 13 million new jobs in these two years. But instead of that, we lost about 6 million jobs, which shows up as a reduction in the employment rate. This, of course, is on top of the¹¹²⁰ 10 million lost in the months immediately after demonetisation. In this period, the unemployment rate has steadily increased from the low point it hit in the months immediately after demonetisation. While this could be a positive sign of the return of some of the discouraged workers into the labour market, the declining employment rate means that their chances of finding jobs are still diminishing. Hence, a part of the increase in the unemployment rate could also be a result of previously¹²⁰⁰ employed workers losing their jobs and moving into unemployment. The latter is possible, since during the same time, we see a decline in employment rates too.

Notably, these trends are also seen in the official labour surveys carried out by the Government of India’s employment and unemployment surveys conducted by the Labour Bureau. One can see about a three-percentage point¹²⁶⁰ fall in the employment rate and a significant increase in the unemployment rate. This mirrors the story of shrinking work¹²⁸⁰ opportunities in the economy, even as the working age population increases. Alongside the shrinking of the workforce and increase in unemployment, we also observe a shift in the composition of the workforce and the unemployed persons, both in pre-demonetisation and post-demonetisation periods. These trends are broadly confirmed in official employment surveys too.

This is an alarming development, given that the working-age population is turning younger. The changes in the composition of the workforce show that younger people are finding it hard to get work, and are either actively looking for work or are withdrawing from the labour force altogether. This inability of the economy to provide work to young workers has several ramifications. The younger generation is not only being¹⁴⁰⁰ deprived of work but also of the opportunity to gain experience and create social capital. These deficiencies have been shown to reduce earnings for workers in the long term. This also creates a pool of young people who are¹⁴⁴⁰ not in gainful employment who are then amenable to mobilisation for other purposes, including for creating social instability. Clearly, demonetisation seems to have set in to play a shrinking of India’s workforce, alongside a specific lack of opportunities for young workers. Whether this is entirely because of the demonetisation is a question over which empirical economists will continue to debate. But the more important question is the lack of any effective measures by the Government to tackle the employment crisis.¹⁵²⁰