Impact of Demonetization on Recruitment Will Differ from One Sector to The Other

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A month ago, the Modi Government declared that high-value currency notes such as Rs 1000 and Rs 500 denomination currency will not be a legal tender anymore. We welcome this enormously smart move by Prime Minister Narendra Modi to curb the growing menace of corruption, economic terrorism, fake currency and black money. While the initiative is far-sighted and bear a host of politico-economic benefits in the long run, the immediate effect is that of chaos. People are queuing up in front of ATMs and banks and banks are struggling to disburse new currency denominations to everyone. Right after the announcement, as an immediate aftermath, by midnight, 86% of the currency in circulation became defunct for commercial transactions. The liquidity crunch had far reaching implication on each and every one.


As soon as the demonetization drive was announced, the organized sector faced a major liquidity crunch. Since in India, almost all sectors have a sizeable contribution of MSME and various individual businessmen, the demonetization will impact them as well as the overall economic fabric of the nation. The less amount of money in circulation translates into the lowering of short term consumption demand in the economy. Businesses therefore are likely to experience a hit in terms of product and services sale.

The job market is estimated to be a mixed bag of sorts. While the pharmaceutical sector will hire in large numbers and telecom and BFSI sector will also follow suit, hiring in the FMCG and the automobile sector will witness a sharp slowdown. The IT sector is also estimated to witness a marginal increase in hiring. Real estate, construction and infrastructure are the other industries that are likely to feel the backlash of demonetization. Recruiters and headhunters predict that these three sectors will see more than 100,000 job cuts over the next 12 months.

Indian consumers have an increasing propensity towards transacting in cash and retailers too prefer cash based transactions. With demonetization, they are bound to become cash-trapped hurting business, at least in the short term - and consequently revenue, employment, consumption and investment are all set to take a hard hit. The unorganized sector in India, on the other hand employs a majority of workers and cash is the dominant mode of payment in this segment. Liquidity crunch laced disruption in such system dynamics could compromise the employment and livelihood of the weaker section of the society as well. Demonetization is likely to sidestep India's economic growth by 1% over the next year and the employment market is estimated to witness about 400,000 job cuts over a same time frame.

Many opine that the impact of demonetization on the employment market could further go severe if cash supply in the system remains inadequate. The intensity of the impact depends on how fast the economy recovers, how fast money gets re-injected into the economy and when the imposed restrictions on cash withdrawals gets lifted. However, having said that, the employment scenario, no matter how bleak it may seem to be now, will definitely improve down the line.

It is evident that the financial services sector will register strong growth, thereby providing more and more employment opportunities, banks will expand and grow, thereby providing more jobs and postal services segment will upgrade – opening up more and more employment opportunities. Prime Minister's infrastructure projects and smart cities projects will provide employment to many more number of people going forward.

Industries which will hire extremely cautiously

Automobile manufacturing: The demonetization drive has hit the auto manufacturing sector badly. Sales of large equipment and machinery that mostly happen over cash in the rural areas – are now seeing a steep drop, thereby cutting down jobs.

Real Estate and Infrastructure: Both are cash intensive industries and are worst hit by demonetization, as both capital expenditures and cash flows have been affected. The business outlook may get further hit as infrastructure companies will look to cut costs and labour, especially in the unorganized workforce.

Industries that will actively hire

Ecommerce: With the demonetization drive, more and more retailers will hop onto ecommerce platforms, which will boost the need for manpower skills on the digital end. Most e-commerce firms are actively adopting cashless modes of payments

The Financial and BFSI sector: All banks and broking firms are actively putting in efforts to build large digital banking and financial research teams, resulting in hiring in related areas. Payment banks, mobile wallets and fintech are likely to witness unexpected boost. The sector will register 3 to 5 fold business growth and that is going to get reflected in their hiring activities.

Technology: The IT industry is least affected by the demonetization drive. Will minimal or negligible dependence on cash, this industry will witness maximum hiring.

Startups: Hiring in startups is all set for a high growth paradigm. India's startup community will grow if they get funding from angel investors and micro-VC's. This can happen by disrupting the grey economy that exists today and compelling more Indians to pay taxes. More government funding through unpaid tax dues that can be cultivated into Startup and Innovation programmes, thereby fostering growth.