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17 Oct 2017 Mahesh Vyas

Transformations cost jobs

Urban unemployment continues to remain elevated. At 7.5 per cent during the week ended October 15 it is lower than its recent peak level of 8.2 per cent in the previous week. But, the average urban unemployment rate of 7.85 per cent during the first fortnight of October is significantly higher than the levels seen during the preceding 12 months.

Overall unemployment rate was around the same level as in the previous week, at 5.7-5.8 per cent.

Employment has been hit by a series of shocks over the past one year. First it was demonetisation in November 2016 then Goods and Services Tax in July 2017 and on October 9, Supreme Court banned the sale of firecrackers in Delhi-NCR till November 1. Each of these has hit employment in the unorganised sectors.

Each of these shocks seek a transformation of society. Demonetisation sought to eradicate black money and usher in digitisation of economic transactions. GST seeks to eradicate the cascading effects of multiple indirect taxes and introduce a single seamless market across India. The ban on sale of firecrackers seeks to protect the health of Earth and of its inhabitants.

All three transformations require a major shift in our attitudes. We, as a society, need to agree collectively that we shall not evade taxes or pollute the Earth. Tax evasion is popularly not considered to be a crime and, belligerence is confused with celebrations. Government has delivered the shocks and the costs of those shocks are now non-negotiable. It is now imperative that we transform to reject the social acceptance of rotten behaviour.

Demonetisation is an unnecessary and costly price we pay if we do not transform and resolutely reject tax evasion in society.

One of the biggest costs of demonetisation was job losses. We estimate that about 2 million jobs were lost between January and August 2017. 1.54 million jobs were lost during January-April 2017 and another 0.42 million were lost during May-August 2017.

We need to offset this cost with a transformation in attitudes towards the generation and deployment of unaccounted wealth. Else, this was a colossal waste of the nation’s resources and a heavy price paid by the poor and unfortunate who lost jobs.

GST is hugely transformative. It effectively reduces the scope for the informal sector to survive without its transformation into a formal tax-paying sector. We understand, from scores of anecdotes every week, that the implementation of GST is leading to substantial job losses. Entrepreneurs either cannot bear the transaction cost or, customers are unwilling to pay the higher price suppliers now charge because of GST. Businesses that were not profitable if they were truthful in paying taxes are shutting down. Those with thin margins are shutting because they cannot bear the cost of compliance. This is a huge and painful transformation.

What we hear from CMIE’s Consumer Pyramids Household Survey execution teams is that the job losses because of GST could be larger than the job losses because of demonetisation. I discount this information because people tend to dramatise current woes compared to past ones that they survived. Yet, there is an element of truth in the stories from the households. Demonetisation was distributive. People who stood in queues to convert the ill-gotten wealth of others got paid to provide this service. Wealth distribution happened in many other ways.

GST has no such distributive impact. This is a unilateral hit to those who cannot bear the cost of compliance. GST disrupts business for a cleaner business environment but, it could wipe out business sections. Employment data does not yet, show job losses on the scale that the execution teams relate through anecdotes. But, a fall in employment is evident.

The third transformation is led by the supreme court which banned sale of firecrackers in Delhi and NCR. This will impact traders around the region and producers in Tamil Nadu. The court order reflects society transforming in favour of a more civilised existence. Schools are educating children on the ill-effects of firecrackers. The impact on jobs because of this transformation will be relatively small but, its impact on our character, as a society, is much larger. Most civilised nations do not permit the random bursting of firecrackers. Fire-works is an art-form. We do not have to leave this to the level of crass, noisy display of belligerence.

We need to reduce the shocks, as job losses can derail the economy. Even as we may sustain efforts at the transformations initiated, it is imperative that the economy is not subjected to any further shocks till it recovers.

First Published in Business Standard Link