14 December, 2016The demonetization process launched by India’s government has affected production, jobs and wages of workers across the country. There are fears that it will result in the loss of over 400,000 jobs and reduce India’s economic growth rate.
On 8 November, Indian Prime Minister Modi announced that Rs 1,000 (US$14.8) and Rs 500 (US$7.4) notes, which constituted 86 per cent of the total cash in the country, would no longer be legal tender by midnight. The government called on people to exchange their old notes and get new currency at the banks.
Involving 1.3 billion people, this massive exercise was said to bring unaccounted cash (popularly known as black money in India) into the system, to check counterfeit currency and to stop funding terrorist activities in India.
However, as old notes have not been replaced by new currency one month after the announcement, there is a lack of cash at the banks and cash machines. This has painful consequences for people across the country.
Poor penetration of the banking system and a minimal use of debit and credit cards, as well as other online transactions, have made matters worse. According to the World Bank, over 86 per cent of Indian workers receive wages in cash. Only 53 per cent of adults have bank accounts, and only 39 per cent of account holders have a bank card.
Rural areas, where more than 60 per cent of the total population live, are worst affected with limited banking reach. Only about five bank branches and four cash machines are available per 100,000 people in rural areas, while urban areas have 18 branches and 37 cash machines for the same amount of people.
Rajendra Prasad Singha of the Hind Mazdoor Sabha trade union centre and executive committee member of IndustriALL says:
Central trade unions oppose the demonetization drive. It has caused enormous distress and misery to millions of workers and common people with loss of employment, wages and livelihood. After one month it has become obvious that the irresponsible policy did not have big impact on black money, while workers faced irreparable losses.
The cash crunch has interrupted the economy’s payment system and has deeply disturbed production activities and workers all over the country. Not only agriculture, informal sector and daily wage workers, but also precarious workers in manufacturing and services sectors and all who received their wages in cash are facing severe implications. Reports from industrial areas across the country suggest that large number of big, small and medium enterprises have reduced or stopped their operations resulting in huge job losses.
Mobile manufacturing and assembling companies like Foxconn, Lava, Korbann and Micromax have drastically reduced production and sent workers on unscheduled holidays.
According to reports, automobile sales across India steeply declined in November 2016. Many original equipment manufacturers have drastically reduced their production, while some have even halted production. Permanent workers of these units have been sent on leave, while a large number of precarious workers will go unpaid.
The cement industry has been deeply affected as cement demand declined by 45 – 50 per cent. Large number of mini steel units and rolling mills were also seriously affected, as employers are not able pay wages in cash.
Almost 10,000 migrant shipbreaking workers are reported to have left the Alang shipbreaking yards in Gujrat.
Workers in industrial areas around Delhi are facing similar problems. Many workers were paid wages in old currency, but without bank accounts they have nowhere to deposit their money and are unable to exchange their cash for new notes. In cases where companies have deposited wages in workers’ bank accounts, workers have had to queue at the banks and cash machines to withdraw cash, while being marked absent at work.
Many companies have fired precarious workers, as employers no longer can pay cash wages. The shutdown of Sree Hanuman Jute Mills in Howrah, one of the biggest in West Bengal which employed over 2,500 workers, represents the crisis faced by over 200,000 jute mill workers in the state, who are predominantly paid wages in cash.
About 10,000 to 12,000 daily wage migrant workers reportedly left the industrial hub of Gurgaon as employers are not able to pay and workers are not able to buy food and pay rent for their accommodation. Workers who stayed are asked to work for half of the payment or get paid in old currency notes.
In the garment and textile industry in Tirupur, about 2,000 small and micro units have reduced their production from 15 to five shifts per week, affecting over 150,000 workers. Massive layoffs of construction workers are reported in Tamil Nadu, where about 1,000 major projects in Chennai and Kanchipuram districts have been affected.
Apoorva Kaiwar, South Asia regional secretary of IndustriALL says:
The demonetization policy has deeply affected precarious workers across the country as manufacturers including automobile OEMs, auto parts, electrical electronics, garment, textile and leather sectors have reportedly reduced or halted their production.