SME sector has seen slowdown post demonetisation: IDF

The small and medium enterprises (SME) sector witnessed a slowdown post demonetisation, resulting in a fall in production, wages and employment, according to a study by the India Development Foundation (IDF).

However, there has been no "discernible impact" on prices and supply of agricultural commodities, the research foundation said.

In the study, IDF assessed the impact of demonetisation on agriculture and the informal sector that rely heavily on cash transactions and also provide employment to a majority of population.

"Our analysis shows that there has been no discernible impact of demonetisation on agricultural prices and quantities in the immediate aftermath," IDF fellow Arijit Das said while releasing the study.

He said the long-term impact on agriculture, which was measured through the quantities of various inputs applied, is mixed.

On the impact on SME sector, IDF said, "Unlike the agriculture sector, the SME sector seems to have suffered a negative impact of demonetisation.

"Production activity is reported to have fallen in the last quarter of 2016 compared to the last quarter of 2015. This has been accompanied by fall in employment and wages and job losses in the two months after demonetisation."

The study was based on secondary sources of data and a perception survey in 48 districts across nine states. Over 250 respondents took part in the survey. Over 74 per cent of the respondents said that production activity in SME sector has fallen, while 71 per cent said that labour employed during this period declined. Nearly 40 per cent of the respondents were of the view that wages paid to labour have decreased.

On job losses, 20 per cent of respondents said that "not many" employees have been fired in the last two months. As much as 54 per cent said "some" employees have been fired, while 26 per cent said "quite a few".

However, IDF said "given that both investments demand and consumption demand have slowed down before demonetisation, it is difficult to attribute the entire effect to it".

The study said that people reported significant job losses in cities and reverse migration to villages that increased demand for employment under NREGA. "Again, as noted for the SME sector, this could be due to the secular downward trend in the aggregate demand quite independent of demonetisation," IDF said.