Labour, Jobs and Employment – Harmonization of labour laws, gender gap, unemployment, etc.

[op-ed snap] Aiming high, looking far


Mains Paper 3: Economy | Development and employment

From UPSC perspective, the following things are important:

Prelims level: Not Much

Mains level: It is important to know ‘the other side of the story’, as in last few months we had many articles which criticized demonetisation. But this article shows opposite views and how it will be helpful in countering employment issues.



  1. The article talks about the positive side of the demonetisation

Is unemployment our real problem?

  1. Our unemployment rate of 4.9 per cent is not  vague but a wages problem(i.e. low wages)
  2. This diagnosis is important
  3. As our real problem is wages, India needs the higher productivity that comes from structural change: Formalisation, industrialisation, urbanisation, skilling and deep financial markets

How demonetisation made India a better habitat for formal job creation?
There are five reasons behind this:

FIRST: Rs 18 lakh crore new lending capacity

  1. Demonetisation has reduced cash with citizens
  2. Bank deposits have increased by somewhere between Rs 2.8-4.3 lakh crore
  3. Currently, banks are lending this liquidity to the RBI but when they start doing their jobs well, this liquidity  will boost investment and formal job creation

SECOND: 7.6 crore new monthly digital transactions

  1. Demonetisation exploded the number of digital payments on UPI/Bhim from 1 lakh in October 2016 to 7.7 crore in October 2017
  2. Digitisation is important for formalisation because it makes regulatory arbitrage and tax evasion difficult

THIRD: 3 lakh crore new financial savings

  1. Demonetisation has catalysed a savings shift away from gold and real estate
  2. The eight months after demonetisation saw mutual fund inflows of Rs 1.69 lakh crore and the three months after demonetisation saw Life Insurance Premiums rising by 46 per cent
  3. Greater financialisation of savings creates a virtuous cycle for formal job creation because they deepen and broaden domestic capital markets

FOURTH: 2 per cent lower interest rates

  1. Expensive loans are better than no loans but the cost of money has been crippling for India’s entrepreneurs
  2. Lowering interest rates is a policy priority and banks had been only passing on 50 per cent of lower policy rates to customers; in the year after demonetisation this has risen to 100 per cent
  3. India’s economic trajectory suggests interest rates could reduce another 3 per cent over time
  4. sustained formal job creation needs the lower interest rates that come from macroeconomic stability, fiscal discipline, muted inflation expectations and an Independent Monetary Policy Committee

FIFTH: permanent damage to our sense of humour about the rule of law

  1. Demonetisation targeted a less-cash society because cash is the primary tool of corruption
  2. Demonetisation did not end corruption but raised its costs
  3. And ending our sense of humour about the rule of law that bred a riskless view of cash is an important pre-condition for sustained, formal, high-wage job creation

The way forward

  1. The problem for India’s youth is not jobs but wages
  2. As India completes a year of demonetisation, it’s early for conclusions but the early results are encouraging
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