Economic Highlights

New Delhi, 7 November 2008

Job Loss A Reality

NO KNEE-JERK SOLUTIONS PLEASE

By Shivaji Sarkar

Will there be job losses, as Assocham, the industry representative predicts? Or is the government right when it dismisses the prediction as outrageous?

The Assocham report cannot be faulted, but its timing can. It was politically incorrect to predict the stark reality at a crucial time, the elections. The forecast was made soon after Jet Airways gave pink slips to its employees and cut pay packets of its pilots by ten-fold. Indeed, the report rattled every one, more so the policy makers.

A glance at the recent corporate results testifies that the job-loss report is closer to reality. Instead of panicking, a realistic approach should have been taken about the report. Well, for one, the Prime Minister’s meeting with CEOs on the issue was a correct approach and so also the setting up of high-powered economic committee.

The Assocham report warns that 25 to 30 per cent employees in various businesses would be given the pink slip. The businesses could vary from information technology (IT), to aviation, or steel, or financial services, real estate, cement and construction. The reason for such a move is an obvious overall slowdown and cost cutting, of which the easiest is in human resources, explains Assocham President Sajjan Jindal.

Jindal is right. Except banks, for higher interest rates and fees, pharmaceutical companies which sell more during stressful times and telecom and metals, almost all other sectors have fared poorly as per their latest balance-sheet. Aditya Narayan, an analyst with Citigroup, in an India Strategy reports says that automobiles, capital goods, media, hotels and consumer business has had disappointing performance.

Consumer goods and automobile firms, including Tata Motors, had the worst growth in net profit. Even the mega pharmaceutical company Ranbaxy turned in one of its worst performances clocking a loss of Rs 394 crore compared to a profit of Rs 207 crore only a  year ago.

According to another study, the aggregate net profit has come down to 5.7 per cent compared to 25.8 per cent in the second quarter (July-September) of 2007-08 and 10 per cent during the first quarter (April-June) this year. The number of loss-making firms has risen by over 33 per cent as against 14 per cent of last year. Even some IT companies have shown a fall in their net profit.

The loss makers include big companies such as Indian Oil (Rs 7047 cr), Hindustan Petroleum Rs 3219 cr) and the construction firm DLF (Rs 1935 cr). Interestingly, while Reliance Telecom showed Rs 1531 cr profit, Reliance Retail has a dismal outlook with the UK-based supply chain Wincanton severing its ties with the retail outlet. In turn, the latter has quietly sacked or laid-off large number of its employees.

Similar actions has been taken by many IT and business process outsourcing (BPO) firms. Their recruitment process has clearly taken a hit. Besides, many companies have reduced the facilities extended to their employees. The smaller companies have quietly closed shop. These job losses have yet to be taken into account.

Moreover, as a number of companies functioned as ancillary units, their performance has been affected with the slump in production. It is a harsh scenario all around. More so because  the job market in the public sector came down from 190 lakh jobs to 180 lakh between 1991 and 2005, as per estimates of the Union labour ministry. On the other hand, jobs in the private sector rose from 76 lakh to 84 lakh. The reason being that with a near-freeze in recruitments in the public sector, the private sector added jobs.

The present slowdown, which is yet not officially termed as a recession, has not only brought a halt to these additions but has in fact reduced staff strength. The labour ministry notes that despite the growth in private sector jobs till 2005, unemployment has increased to 8.28 per cent. This so because the total employment in the agriculture sector has dropped from 61 per cent to 52 per cent.

In urban India, trade, hotel and restaurant services, IT and manufacturing had gradually emerged as major employers. However, as all indices show a fall in the performance of these sectors, the country is headed for drastic job cuts across the board. This is likely to throw a major challenge to the 11^th Plan goal of adding another 45 million jobs.  In fact, the ongoing trend may even put the Plan development goals off the target. And, with the government feeling the fund crunch, we may face a major problem.   

Higher unemployment in all likelihood will further affect revenues and market-related growth, which is more excruciating when corporates and individuals are made to pay taxes at an exorbitant rate. Clearly, there is need to have a fresh look at the tax policies.

Odd as it may sound, despite a gloomy scenario, the international rating agency Standard & Poor’s (S&P) has reaffirmed India’s investment ranking. In a statement from Singapore, S&P has reaffirmed long-term rating and says it is stable. It has cautioned a downgrade only if there is a fiscal slippage on the part of the government or if there is a marked decline in the external liquidity indicators or policy measures, which weaken economic growth prospects.

The S&P predicts that India’s business environment is likely to improve in the years ahead, notwithstanding the current dislocations in the global credit markets. However, it is a veiled warning about the slowdown continuing and that jobs may not come by easily.

So far, the reduction in foreign exchange kitty is $ 15.5 billion--another grim reminder of the impending scenario. Pumping more money, as the RBI is doing, is not a solution. Credit off-take has come down owing to high interest and banking costs. It needs to be reviewed – as the S&P has indicated about weak policy initiatives. But it does not require knee-jerk solutions. Instead, it calls for measures to rejuvenate the economy, to achieve the 11^th Plan goals. If that is done, the present blues would not last long. Emphasis needs to be laid on job creation and not profit of a select few. ---INFA

 (Copyright, India News and Feature Alliance)