The governments’ much talked-about decision to withdraw high-currency notes from the economy continues to make news. A recent report says that an Assocham survey has revealed that the policy has negatively affected jobs, and growth in Small and Medium Enterprise (SME). 

Assocham’s Bizcon survey states that, “Demonetisation of high value currency notes would leave quite a negative impact on SMEs, rural consumption and job creation in the immediate run.” By disrupting the demand in the short run, the step has hurt SMEs, thereby slowing job creation. However, the survey also said that the large and well-organised sectors of the Corporate India are set to benefit in the long term. A majority of the respondents who participated in the survey expressed that SMEs have been strongly impacted, and the negative impact is likely to remain for at least one more quarter. “At a holistic level, a large number of the respondents felt that the impact could be seen in sales volume declining in the last quarter of the current financial year,” it added.

The survey also revealed that all sectors of the economy will not be impacted similarly. While agriculture, cement, fertiliser, automobile, textiles and retail will witness ‘negative impact’, as demand topples, power, oil and gas, pharmaceuticals, IT and electronics and infrastructure will see a ‘positive impact’.

Furthermore, it also stated that incidents of distress sale, in the face of lack of liquid cash in hand could be a major reason for the fall in prices of vegetables and other crops. Nearly 92% of the respondents agreed that the step will have a positive impact on inflation. In another report, the banking sector is said to be preparing itself to manage the new set of loans that will default payment, especially in the MSME (Micro, Small and Medium Enterprise) segment, owing to their lacklustre, or even negative, growth. 

The policy continues to evoke strong, and often polarised, reactions from all sections. However, such stagnation, or even reversal, of growth in the short run was anticipated beforehand. The effects of the entire exercise are bound to continue even after liquidity has been restored to the economy by the end of the February, as loan repayment, hiring, production, and consumption are likely to suffer in the next few quarters. And as experience has shown in the last decade, reviving hiring sentiment across industries is no easy task. Add to the challenge, the uncertain and undocumented processes of the unorganised sector, and it becomes difficult to gauge the true impact of the step.

The monetary, behavioural and structural benefits of demonetisation are likely to be debated for several months to follow. However, the government needs to take steps to ensure that the immediate obstacles created by demonetisation do not hurt employers – especially in SMEs – by providing suitable stimulus for growth. The policy successfully disrupted how business was conducted in a majority of the country, but also needs to minimize the collateral damage in the transition being a cash-intensive to less-cash economy. The upcoming pre-mature budget promises to provide relief, and expectations are surely mounting. Unemployment is already a major challenge for the Indian economy, as the growth in its size has not been at par with the growth employment opportunities. If SMEs – where a large number of workers are employed – do not get effective relief, and do not get it soon; the challenge may only compound. Hence, a lot is riding on the course of action taken by the government ahead, specifically in the budget, to ensure accelerated recovery to

The upcoming pre-mature budget promises to provide relief, and expectations are surely mounting. Unemployment is already a major challenge for the Indian economy, as the growth in its size has not been at par with the growth employment opportunities. If SMEs – where a large number of workers are employed – do not get effective relief, and do not get it soon; the challenge may only compound. Hence, a lot is riding on the course of action taken by the government ahead, specifically in the budget, to ensure accelerated recovery to pre-demonetisation level of growth and sentiment, failing which, it will be increasingly difficult to deal with the repercussions of the step.