Has demonetisation’s impact been more severe on India’s non-farm jobs?

Non-farm employment indicators have suffered in both rural and urban India after the demonetisation move


Agriculture is the only sector, which is expected to improve its performance in the second half of the ongoing fiscal year over the first half. Photo: Mint
Agriculture is the only sector, which is expected to improve its performance in the second half of the ongoing fiscal year over the first half. Photo: Mint

While demonetisation’s negative impact on the Indian economy is a widely accepted fact, there is not much clarity on how this has affected different sectors of the economy.

If first advanced estimates for Gross Value Added (GVA) at basic prices are to be believed, industry is going to suffer the biggest setback in terms of growth, while agriculture is likely to come out with flying colours. In fact, agriculture is the only sector, which is expected to improve its performance in the second half of the ongoing fiscal year over the first half.

While, demonetisation’s effect on the Gross Domestic Product (GDP) would be clearer once revised data is available in May, its effect on unemployment is far more difficult to ascertain. Even for the rural economy, the numbers are ambivalent. For example, sowing data for rabi crops shows an improvement over last year, but decline in two-wheeler sales seems to be a sign of a sluggish rural economy. What is to be made out of such ambivalent indicators?

We have some additional data from last week which can help in answering this question.

An examination of year-on-year growth in rural wages (for men) shows that non-agricultural rural wages have fared much worse than agricultural wages in the period after demonetisation (November and December). In fact, agricultural wage data shows an improvement over previous year’s performance. This suggests that there has indeed been some improvement in demand for farm labour due to a normal monsoon after two consecutive deficient rainfall years. This is in keeping with the trend in progress of sowing data. This upswing, however, is not visible in the demand for non-farm labour.

The gloomy outlook in rural non-farm labour market is also shared in employment scenario in urban India. Although there is no monthly wage data for urban India, the Reserve Bank of India’s quarterly consumer confidence survey asks people about their perception on the employment scenario. The survey is conducted in six metropolitan cities (Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, and New Delhi). Statistics show that share of respondents with negative perception about employment in December, 2016 was the highest since the Modi government assumed office in May 2014.

Two important lessons can be drawn from these statistics. One, there is a need to further our understanding of the dynamics of farm and non-farm economy in rural India. Two, the government would do well to think of ways to stimulate economic activity in urban areas.

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