The historic move on 8th November by Government of India to tender 86% of the 16 trillion Indian Rupees illegal, has understandably evoked a variety of reactions across the world. While a lot of well-meaning citizens have taken it in their stride to convert their cash into legal denominations, some are angry, some are hopeful of seeing India stronger as a result of this move and the unscrupulous are sweating it out to innovate methods of saving some or all of their undeclared wealth and escaping from a potentially harmful noose around them! What’s the impact on our economy and the job markets?
I read an article in Forbes that says, economy of a country has so many moving parts that one cannot easily predict the macroeconomic impact of a change that is introduced. While this is interesting and technical, let’s make an assumption that the *real* intent of this action is to make our economy transparent.
Let us hope that de-monetization is just one of the first steps towards the day when cash supply is minimal, all sale transactions are made by tax invoices, donations and gifts are made easy and legal and whatever else needs to happen to give all the citizens the trust and assurance that there are no unfair ways by which one can get wealth or win undue favours.
In this backdrop, let’s think how our job markets will be impacted.
As we transition towards a cashless economy:
All of us know, we in India predominantly use cash transactions. As history has shown, we will move towards transacting through cheques, plastic money, online payments and mobile wallets. 47% of our countrymen do not have bank accounts now, 80% do not have credit cards and possibly 90+% do not use internet banking. That being said, in the next 5 years, the situation will alter dramatically if the Government of the day wants to focus on its tax earnings.
Banking and Financial Services sector will see huge actions as the market size will grow exponentially. Jobs will grow,accordingly in the area of sales, customer service, credit control, risk assessment, collection, product management, financial technology and big data analytics. If the industry grows by a modest 50% in the 5 years ahead, we will see proportional increase in jobs. We are talking about creation of 1 million new jobs in this sector in 5 years!
As Technology kicks in:
Our large-sized cash economy creates a smoke screen for thousands of people around the financial health of an enterprise; involves many middlemen in the process of employment leading to low and irregular wages at the hands of the worker; prevents a worker from taking up jobs at the right wages and one’s own free will. Further, the savings of a worker do not give adequate returns because they are not banked the right way. In India, we have nearly 45 crores (an overwhlming 85+% of the total workforce) working in the informal sector : daily wage workers, small business owners, artisans, freelancers and millions of so-called employees without a clear and clean contract of employment.
As the economy gets more streamlined with the power of technology, banking and social awareness, citizens will be aware of the benefits of working with a clear contract of employment and understand their responsibilities as employees. They will be able to see how a business is doing, what kind of jobs are in demand and what fair wages are for a job. This transition will increase the contribution to social security funds and hence, more money available with the Government for investing in the social infrastructure such as roads, police, sanitation, water supply, science, technology and so on. Thus, the core sectors of economy start getting busy.
It has been proven again and again that investment in the core sector of the economy results in growth in the output of Manufacturing sector. That leads to growth in demand of raw materials, power supply and transportation services. This increases the number of jobs and hence, the number of people employed. With disposable income at hand, the demand for consumer products, housing, automobiles, entertainment, travel, hospitality, healthcare, outsourcing and so on.
Sources say that each job in the core sector of the economy leads to 6 new jobs in the overall. So, we are talking about at least 10 million new jobs in the next 5 years!
Hope, we are ready!
The Govt has said that they would create 400 million jobs by 2020.The estimate of 15 million jobs referred above seems small on the canvas. Sine there is no single magic bullet that can make us reach the target, this move can be a good beginning if the next few steps are orchestrated well to take our economy towards cashless-ness and technology is leveraged in the right way. Majority of our population has to change their habits of dealing with money and the government has to make swift changes across various sectors to make things transparent and connected.
It’s a mammoth task that needs great commitment to start and stronger execution skills in seing it through. Given the fact that 10-12 million youngsters are joining the workforce each year, the government has limited choices. Better they execute!