Despite the government’s efforts to attract investment under its Make-in-India campaign, sales of manufactured goods fell 3.7% during 2015-16–the first decline in seven years–sparking fears of layoffs and debt default in the months to come. Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel.

As a result, in the six months to September 2016, engineering major Larsen & Toubro laid off some 14,000 employees. Companies such as ...