How the Modi government destroyed Indian small businesses

The past five years strikes us as a series of 100-meter sprints for India’s small businesses and informal workers, one at a time. Whether for demonetization, the goods and services tax or foreclosure, whenever citizens have to run and endure what is called momentary hardship, supposedly to achieve what is said to be a “noble goal “.

Sometimes it’s “ache din”, “digital India”, “surgical strike against black money”, “Rs 15-lakhs to every citizen”, “Make in India”, “Aatma Nirbhar Bharat”, “five trillion economy “- a carrot that changes from time to time. Each is packed with the right mix of demagoguery, branding, and high decibels in media newsrooms, which has brought us into a country that lives in short bursts and even shorter memories.

The manufactured euphoria is used as a smokescreen that envelops the larger picture – a marathon race to the finish. A race signaled by the slogan “sabka saath sabka vikas”, but which over the years has been designed to decimate small entrepreneurs and the informal sector for the benefit of big capital.

First Blood: Demonetization

One of the first obstacles that stood in the way of petty trading was demonetization. The ban on the Rs 500 and Rs 1,000 banknotes which rendered 86% of India’s currency overnight to null and void, five years ago, is one of the many measures that perfectly highlights this current regime game plan. There was everything. The surprise announcement at 8 p.m. on November 7, 2016, which shocked and impressed the country.

As a result of demonetization, people had to wait outside banks for hours to redeem their banknotes. Photo credit: Amit Dave / Reuters

The ad did not talk about preparing for its implementation but demanded to overcome our individual hardships, endure the pain for just 50 days to rid the country of the evils of black money, terrorism and even money. liquid. It was enough for the ever-loyal media to peddle stories of a daring “surgical strike” on black money, new Rs 2,000 notes with tracking chips and so on. And everyone interviewed was called anti-national, hindering the “noble objective”.

Behind the masquerade of the “surgical strike” against black money, what is carefully hidden is the global war on cash which has been pushed by big business through the Better than Cash Alliance funded by the Swiss Agency. United States for International Development, The Bill and Melinda Gates Foundation. , Citi Foundation, Ford Foundation, Mastercard, Omidyar Network and Visa Inc. An alliance that India joined exactly one year before demonetization.

“The stated intention of cashless push”, as Tony Joseph explains, “is to make it impossible for the informal sector to survive as it does today – even if it employs over 70% of the workforce. Indian work ”. While proponents of a cashless economy have raised the need for the “creative destruction” of the informal sector, he warns of the immense loss of jobs and the uncertainty that such forced digitization would bring for a country like India. This is precisely what we have seen unfold since the demonetization.

For an unorganized, cash-intensive industry, demonetization came like a thunderclap. With a lack of working capital, micro and small businesses were unable to pay and thousands of workers left small towns and cities to return to their villages. Bihar’s finance minister said in December 2016 that 95% of migrants returned home because their employers did not have money to pay their wages.

In a study from December 2016, the All India Manufacturers’ Organization reported 40% and 32% job losses in the 40 to 55 and 22 to 30 age groups respectively during the first 50 days of demonetization. By the end of the year, it was clear that the smaller the units, the more sensitive they were.

Thus, small traders, shops and micro-industries recorded 60% job losses and suffered a 47% drop in income, while large industries suffered only 2% job losses. jobs and a 3% drop in income over the same period.

Structural blow: TPS

The unorganized sector had barely regained a foothold in the race when yet another obstacle stood in their way, this time in the name of the goods and services tax. This once again brought down the economy.

The goods and services tax has been a bigger and more structural blow to unorganized small entrepreneurs than even the shock wave of demonetization. Photo credit: Adnan Abidi / Reuters

Again, it was said that the strains would be short-lived. Once again, we were asked to persevere for the cause of formalization which, it was said, would take the country to new heights in the long term. There are indeed good reasons to believe that the goods and services tax was a bigger and a more structural blow to unorganized small entrepreneurs than even the shockwave of demonetization.

The logistics economics of the GST framework were completely skewed against the survival of small players and, in terms of market share, helped increase the footprint of large corporations and organized retail brands.

As various economists have pointed out, whether it is the Kirana stores next door or the local service providers, their survival largely depends on non-compliance because only through this means they are able to offer competitive prices vis-à-vis the biggest players.

Submitting them to official tariffs and making them bear the cost of compliance essentially meant eliminating at least most of them from the race. And that is precisely what happened. We heard from the executive chairman of Prestige Group saying “Thanks to the GST, unorganized competition is decreasing. There are three or four organized players. The rest could not follow.

“That’s why I called GST, Ground burning tax – the economy is damaged at ground level, ”economist and author Arun Kumar said in an interview.

Fatal fall: confinement

A report from Transunion Cibil and Sidbi said that by the end of 2019, micro, small and medium enterprises with exposures of Rs 10 lakh to Rs 10 crore had recovered to pre-demonetization levels, but the segment with exposure of less than Rs 10 lakh was still far from recovery.

The confinement induced by Covid-19 had completely upset the Indian economy. Photo credit: Jewel Samad / AFP

The unorganized sector was desperately trying to get back on its feet when in 2020 another obstacle was set in their tracks. This time, even a deadlier one who toppled them – the Covid-19 lockdown. The toughest state-imposed lockdown on record in human history was declared with a 4-hour lead, bringing the country to a standstill and a silent migration on the move.

The propaganda machine went on a rampage once again to sing the song of endurance for just a few weeks for the country to emerge strongly in the war against the virus, a war we obviously failed at during the second wave. .

The confinement completely disrupted the economy, with the heaviest price still being paid by the unorganized sector which was already paralyzed by the blows of demonetization and the GST. The effect was particularly biased against women in the workforce.

According to a to study, while only 19% of women remained employed, 47% had not returned to work before the end of 2020. Among them, domestic workers and sex workers (who are predominantly women) were among the most affected. Although invisible in official data, it has been widely reported how women lost their small savings due to demonetization and even faced domestic violence, which intensified further during containment.

Non-union workers affected

As for the fate of the unorganized sector as a whole, the All India Manufacturers’ Organization, in association with nine other industry associations in a study of more than 42,000 self-employed workers and micro-entrepreneurs, found that a third of them they were about to closing and over 70% were forced to lay off workers.

A detailed survey of 400 companies led by mid-2020, microenterprises lost 20% of their annual sales, while medium and large enterprises lost around 11%. The study estimated that microenterprises could retain only 37% of their workers, while the number of large enterprises was 57%. This was before the second wave hit our shores.

The story of Med Khan, a knife sharpener in Mumbai, is moving. For him, the pandemic was an accelerator of something that was already underway. “Most people buy stainless steel knives from Amazon and don’t need my services,” he said.

Shaktiman Ghosh, the general secretary of the National Federation of Hawkers, in a maintenance said that during the nationwide lockdown, only 10% of hawkers selling fruits, vegetables and groceries were able to remain operational. More than 80% of hawkers could not even open their makeshift shops. It has been devastating for them as around 60% of hawkers, he said, depend on their daily income to survive.

It has been hotly contested, and equally denied by the horrors of Wave 2, as to whether such a strict lockdown was the way to deal with the pandemic. But one thing is certain, it is even more solidified the basis of large digitized retailing on already struggling small players, hawkers and itinerant service providers. Grofers, for example, claims that among new users in 2020, 64% were first-time online grocery shoppers, while for 20% it was their first interface to e-commerce. Flipkart also boasts of a new user growth of almost 50% right after the lockdown and most of them were in fact from the hitherto under-exploited Tier 3 cities, making the lockdown a big deal. inflection point for online retail.

Taken cumulatively, demonetization, GST, or lockdown are in fact not short sprints – but a continuum – a five-year marathon – that has turned into a death trap for small businesses employing most of the hand. -informal work. Either they were bought out or their market share was regularly eroded by the big companies.

National recent criminal records office The data reveals that the 2020 pandemic year saw more suicides among businessmen in India than even among farmers. Among those who took hold were mainly vendors (36%) and traders (37%). Hatred, bigotry, and carefully camouflaged promises have diverted us from these harsh realities or turned us into cheerleaders for an inappropriate sense of pride. How long before we put an end to this death race?

Authors are researchers at the Center for Financial Accountability and analyze government financial decision-making from a people-centered perspective.

This article is part of a five-year retrospective demonetization series prepared by the Center for Financial Accountability. Read the whole series here.


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