NOIDA, India -- Over the past two years, the city of Noida has mushroomed into a flourishing enclave of small cellphone manufacturers, attracting tens of thousands of workers from the countryside. The New Delhi suburb, known as the "handset hub," was touted as a showcase for Prime Minister Narendra Modi's "Make in India" initiative.
But on Nov. 8, Modi's government took a step that has jolted the bustling industrial quarter. The government scrapped high-denomination currency, a move that officials said was intended to curb illicit wealth and the financing of terrorism. But the cash shortage triggered by the move has also curbed legitimate small enterprises. Many of Noida's manufacturing units have slashed production by nearly half, and more than a quarter of the workers have gone back to their villages.
"It was a booming, sunrise industry before Nov. 8. Not now," said Vipin Malhan, president of the Noida Entrepreneurs Association, who also runs a business that makes cellphone accessories. "Many small factories and assembling units, which used to work round the clock, with three shifts, have scaled down to just a single shift. We are all in shock now. One word that businesses dread is 'uncertainty.' The government has thrown that at us."
Modi came to power in 2014 promising to boost business, create jobs and crack down on corruption. But now several small- and medium-scale industrial clusters, employing a total of more than 80 million people across India, are reporting declining sales, production slowdowns and layoffs since bills worth 500 and 1,000 Indian rupees were invalidated (500 Indian rupees is worth about $7.40).
Towns famous for weavers, lock makers, bicycle parts manufacturers, and makers of garments and handicrafts face rising inventories of unsold goods.
Citizens were given 50 days to exchange their old bills for new ones, but the process has been slowed by long lines at banks.
Even large car manufacturers have halted production in some of their factories for several days because of a sharp dip in consumer spending. And in a reflection of the belt-tightening that has accompanied the general sense of uncertainty, credit card companies have posted a decline in the total value of transactions, even as the cash shortage is forcing people to use their cards more.
This month, Goldman Sachs downgraded its outlook for growth in Asia's third-largest economy to 6.3 percent in the coming year.
"We started hearing murmurs that there were no fresh orders from the market, that our raw material was stuck because we could not pay. Stocks were piling up," said Sudhir Ramphool Singh, 33, who lost his job at a cellphone assembly unit in Noida and returned to his Dharavu village in northern India this month. He is the sole breadwinner for his family of seven. "Production slowed. The unit was shut down for 10 days. When it reopened, many of us were asked to go."
It was Modi who helped boost cellphone business in Noida last year.
"Earlier, India's rules favored importing fully manufactured mobile phones from places like China and Hong Kong," business tax consultant Saurabh Mathur said. But Modi "made it cheaper for entrepreneurs to import critical components and assemble them here. That shifted about 100,000 jobs from China to India."
Lava International, one of the leading cellphone manufacturers in Noida, said it also had halted production for 10 days and sent workers on leave.
"We are waiting and watching and will plan our next course of action based on how situation improves or deteriorates," the company said in a statement.
With the large, bellwether state of Uttar Pradesh scheduled to hold elections early next year, the business slump -- and the lines at the banks -- have become campaign issues.
"Forget about creating new jobs. Modi's decision is taking away people's jobs," the opposition Congress party leader, Rahul Gandhi, said at a public meeting last week.
Despite nearly two decades of impressive economic growth, India has been unable to create enough new jobs. Nearly 1 million job-seekers enter the job market each month. But in 2015, only 135,000 new jobs were created, the lowest number since 2009.
"Every place I call, I get the same answer: 'Business is down, there is no job,'" said Singh.
Modi has urged people to adopt digital-payment methods and bear some pain in support of the long-term goal of rooting out corruption.
"The losses in the small- and medium-scale industries are nominal and temporary," said Kalraj Mishra, the minister for micro, small and medium enterprises. "Once the currency flow resumes, the industrial momentum will be back."
Mishra's office is conducting 50 training sessions every day in small industrial hubs to help them transition to cashless transactions. But many business owners in these clusters say it is not easy to change because laborers do not accept checks and do not have smartphones with Internet.
"You can't fit a jet engine to a bullock cart and expect it to fly," said Bandish Jindal, a bicycle-parts manufacturer in the northern city of Ludhiana and president of the Federation of Associations of Small Industry of India. "How are we supposed to become cashless overnight?"
A Section on 12/26/2016