Economic
Highlights
New Delhi, 28
December 2012
Job Loss & No Profits
HOW WILL INDIA PROGRESS?
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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