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Job Loss & No Profits: HOW WILL INDIA PROGRESS?, By Shivaji Sarkar, 28 Dec, 2012 Print E-mail

Economic Highlights

New Delhi, 28 December 2012


Job Loss & No Profits


By Shivaji Sarkar


The New Year ideally should bring in cheer. At the outset, however, our leaders’ outlook at the National Development Council meeting was unfortunately pessimistic. Even Prime Minister Manmohan Singh admitted that 8 per cent growth target set by Planning Commission was too ambitious. Workers thus are not in a happy situation. Job losses are rampant. Closure of companies has become a rule. About 2 lakh companies have registered closure.


According to the Government’s Labour Bureau statistics, unemployment rate is 9 per cent which is split as 10.1 per cent in rural areas, and 7.3 per cent in urban areas. It brings the total number of unemployed at 40 million – a whopping four crore!


The scenario is indeed beak. The coal scam has severely impacted Coal India Ltd. So far, over four lakh employees have been sacked, as in 2000 the CIL had 8 lakh skilled workers, but in August 2012, the figure dropped to just 3.65 lakh.


A Microsoft Accelerator India study has found that 379 technology product startups were launched in 2012 and 87 were shut down during the year. This tends to suggest that the coveted IT sector is too not doing that well.


According to Confederation of Indian Industry (CII), 1900 technology professionals lost their jobs this year. They were working in some of the topmost companies such as Motorola Mobility, Texas Instruments, Alcatel Lucent and Nokia. Worse, these companies and many others are preparing to lay off more workers.


The slowdown in the economic growth has taken a toll of India Inc, with one in four companies recording a net loss during the financial year 2012. Of the 3,221 companies as many as 851 have reported an aggregate net loss of Rs 44,705 crore, as against Rs 5,658 crore in previous fiscal. A total of 644 companies had reported a combined loss of Rs 19,865 crore during the financial year 2010-11 (FY11). In short, the losses have more than doubled and are engulfing many more organisations.


The aggregate net profit of the 3,221 companies, including companies in the banking and financial sector, declined 3 per cent as compared to the 19 per cent growth recorded in FY11. This apart, many Government companies too are not doing well. It is just not the national carrier Air India, but the country’s biggest telecom company BSNL recorded Rs 8851 crore loss despite it being the backbone of telecom services for even the private firms. While the world is going for 2G to 4G operations, BSNL has been made to saddle with almost outdated CDMA operations.


Shockingly, however, the BSNL is virtually making private operators thrive at its cost. It is almost a repeat story of Air India, which withdrew from profitable routes to facilitate operations by its rival private players. Worse, its officials such as Raghu Menon and Arvind Jadhav, who charted the downhill course, have never been questioned. It is time the nation demands that the losses be paid by asking them to give up their pensionary and provident fund benefits.


Further, there are some other Navaratna companies which are in trouble. National Aluminium Company has clocked loss of Rs 168 crore and Rashtriya Ispat Nigam is set to lose its navaratna tag. So is MTNL, which is making losses continuously and has posted a loss of Rs 2,610.97 crore in 2009-10, Rs 2,801.92 crore in 2010-11 and Rs 4,109 crore in 2011-12.


The operating profit margin (OPM) of manufacturing companies has eroded around 100 basis points (bps), while net profit margins also dipped around 200 bps. This performance comes in the backdrop of 43 per cent rise in the interest cost.


Various sectors including refineries, steel, construction, realty, textiles, aviation, telecom, sugar, shipping and power generation and distribution have reported negative growth of over 20 per cent each at the net profit level. “Overall, several of the cyclical sectors had a tough year as the economy grappled with high inflation and slowing growth that ate into margins and reduced pricing power for most low entry barrier businesses,” explains Vaibhav Agrawal, VP Research-Banking, Angel Broking.


In addition to the above, policy logjam and clearance delays has led to a dropping of investment to 5.5 per cent in 2012 as against 7.8 per cent in the previous fiscal. Further, exports growth also dropped to 15.3 per cent as against 22.7 per cent in 2011 due to weak global environment, rating agency CRISIL pointed out in its report.


As per a FICCI survey, some of the Indian companies, which have invested in Europe, have also been adversely impacted by the sovereign debt crisis and they expect decline in business prospects. It said that majority of 30 firms, which participated in the survey expect that the current economic situation in Europe would linger on for the next few years. The loss- making companies include Arcelor Mittal, which is regularly sacking its employees and Tat group’s Corus Steel.   


The falling value of Indian Rupee against the US dollar, high fuel prices and significant tax burden continued to hurt the domestic aviation sector. Three companies – Jet Airways, SpiceJet and Kingfisher Airlines – saw their combined net loss more than quadruple to Rs 4,354 crore, as against Rs 1,012 crore in previous fiscal. The fluctuating rupee has also hit the ship breaking industry, whose losses add up to about Rs 800 crore.


The profit growth of telecom equipment and infra services sector was impacted by higher costs on account of 3G license fee amortisation, interest costs, forex losses and tax provisions. The aggregate net loss of the sector surged to Rs 1,786 crore from Rs 646 crore in the previous year period.


However, it is not that some companies have not made profit. Around 150, including Financial Technologies, Mahindra Satyam, Maruti Suzuki and some other auto companies have bucked the trend by reporting an aggregate net profit of Rs 3,462 crore in 2012, as against net loss of Rs 1,597 crore in the previous fiscal.


In such a scenario, growth seems to be elusive. Acceleration is only possible provided the UPA government looks beyond the industry. It has to come out of the pursuit of hackneyed “reforms” and give a push to traditional strengths such as agriculture and other allied areas.


The Prime Ministers prescription at the NDC meet, of increasing charges – electricity, petroleum fuels, road tolls, realty taxes and all others might further dampen the process of development. And, in the midst of all negatives, rating agency Goldman Sachs of late has projected growth at 6.5 per cent. It seems to be a daydream. Trends suggest otherwise—a further slowdown. ---INFA


(Copyright, India News and Feature Alliance)

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