Yes Bank Ltd, one of the nation’s fastest-growing lenders, has cut 12% of its workforce, mostly salespeople. When Reliance Industries Ltd, controlled by billionaire Mukesh Ambani, starts a new bank soon, it won’t have any branches. According to BloombergQuint, shop attendants that sell its phones will double as bankers. It makes sense, since the Jio Payments Bank will largely exist online anyway.

These are just two of the many examples of a digital revolution in India that’s either destroying old jobs, or not creating enough new ones.

Mind you, it’s a welcome change. If the same amount of banking services is being delivered by 50 people instead of 500, then labour productivity is 10 times higher. Trouble is, advances in digital technologies have arrived amid a crisis in job creation in more traditional industries.

TeamLease Services Ltd, one of the country’s biggest recruitment firms, is flagging a 30% to 40% reduction in manufacturing jobs from 2016. Larsen & Toubro Ltd, India’s largest engineering group, says the private sector won’t return to significant infrastructure projects for two more years.

Ever since November’s shocking cash ban, there’s been a push by New Delhi to formalize the economy and tax as much activity as possible. Digital technologies are both enabling this shift, and benefiting from it. But it’s not a neat handover from the old way to the new one: Supply chains have been disrupted. JPMorgan Chase & Co.’s research shows a disturbing rise in non-oil, non-gold imports since demonetisation.

This is why the rupee, one of Asia’s best-loved currencies of late, is headed for its worst week in two years. Talk of $7.7 billion in extra fiscal spending to deal with the crisis of jobs and growth is making investors nervous: a higher fiscal gap tends to lead to a deeper current account hole in India.

Doubts are also emerging in the nation’s stock market, but abundant domestic liquidity makes it impossible for mutual fund managers to not deploy their cash bonanza even at stretched valuations. The source of this liquidity is also partly digital. Real-estate transactions and financing of informal businesses used, and spewed, cash. The fact the economy is operating with 12% less cash and 8% more in bank deposits than last November suggests some of that wealth is now in shares.

Financial assets are frothy the world over. But the Indian stock market appears to have become particularly unhinged from a slowing economy where even a sustained nationwide fiscal deficit of around 7% of GDP is failing to trigger an investment boom. Part of the reason is debt-fuelled overcapacity in traditional industries. Those soured loans are clogging the balance sheets of both firms and banks. Corporate earnings may grow in the mid-single digits this fiscal year, according to Credit Suisse Group AG.

India’s digital transformation is exciting the likes of Alphabet Inc.’s Google, which earlier this month rolled out an online payments app custom-built for the country. But behind the gloss lies the reality of still mostly unskilled workers. Their main sources of employment—small businesses that connect directly with consumers or via large firms—are drying up. Ragpickers have seen demand ebb because recycled plastic is now so heavily taxed that to preserve margins, firms have to scrimp on what they pay for garbage.

It’s not just taxation. Even regulation is filled with a mistimed zeal for creative destruction. The telecom regulator is slashing what one mobile network pays another for terminating its calls by 57%. The move, which Fitch Ratings Ltd estimates will lead to a transfer of as much as $600 million a year from incumbent operators to newcomer Reliance Jio’s wireless service, would cause further distress in an already overstretched industry, and may accelerate job losses.

All this churning may still be worth it if investment and jobs revive before asset markets crumble and inflows of capital turn into outflows, abetted perhaps by monetary tightening by the US Federal Reserve.

Reliance and Yes, which are riding the digital wave, are the darlings of a pricey stock market. Yet while their share prices will tell you everything about gains from India’s digital transformation, they say nothing of the pain being felt in the traditional economy. Bloomberg Gadfly

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