Saturday, July 21, 2001
M A I N   F E A T U R E

 

Vanishing jobs!

ILLUSTRATION BY GAURAV SOOD

The great Indian job market is being violently buffeted by growth slowdowns in most sectors. Lay-offs have become mandatory as consumer demand has flattened out and finding a job today is like sifting through a stack of hay for the proverbial needle. Taru Bahl analyses the dismal scenario, and says that the going may get a lot more difficult before the market eases in the foreseeable future.

  • Amrit had risen from the ranks and had worked in the company for more than three decades.The PSU had given him job security, and that was all he wanted. But times were bad now. The employees hadn't received their annual bonus for the last two years and massive restructuring and cost-cutting moves were on. So when he was transferred to the HRD Department, he did not object. What Amrit didn't know was that the HRD Department would be the first to face the axe. Soon enough, he was given a VRS offer and asked to leave along with 20 other employees of his department. HR was not perceived to be integral to the company's functioning.

  • Bharat owns one of the oldest lamp shops in Delhi's Loknayak Bhavan. He inherited the business from his father. He didn't have to do much except source his lamps and chandeliers from Ferozabad and sell them at triple the price. He even had a small manufacturing unit. The entry of Chinese goods changed everything. There was no way he could match the price and quality of their exotic wares. His unit had to close down. The retail outlet is today languishing. He buys Chinese lamps from importers and hopes to cover operational costs by selling them. These too he can't sell at previous levels of profit because all the shops in the complex stock the same lamps !

  • The husband-wife team of Koshi and Valli set up their advertising agency in the early 1980s. They responded to the needs of the time and were quick to add new services to their portfolio, undertaking PR and Event Management functions. Cash flow was attractive and client base impressive. They moved into a swanky office and hired more staff. Twenty years later, they are still in the business but extremely worried about meeting their monthly salary bills. They are selling off fixed assets. Business is at an all-time low, clients have no budgets for ad spends and liquidity is dismal. Koshi now feels, "It is better to be working for someone than running your own business."

 

This could, well, even be your story or mine. As companies battle and struggle to keep themselves afloat in an environment that is demotivating, showing no signs of letting up, scores of employees, entrepreneurs and shareholders are being wiped out. Horror stories are doing the rounds everywhere. Suicides, depression, huge debt burdens, sellouts, joblessness, cash crunch, downsizing and layoffs are engulfing us, and making us scramble for the nearest security cover. First it was the South East Asian Economic crisis in the 1990s, and now it is the slowdown in the US economy that is making India Incorporated go into a tailspin. Just how serious are the alarm signals? Is doomsday really round the corner? Will the Indian economy pick up? How are the traditional family-run enterprises and the new brat pack coping?

Sanjiv Goenka, Managing Director of the Rs 6400-crore RPG group, says: "It makes sense to consolidate business where there is potential for growth by exiting out of low growth areas. We have traditionally been in power generation, tea, carbon black and chemicals. We got into the retail segment and are happy with our growth profile. There is Zensar (software), Music World, Food World, Cash and Carry and Hyper Market — all retail chains catering to the needs of the upwardly mobile, cash-rich Indian. We need the quick money from these ventures to pump it back into some of the steady traditional businesses." The younger Birlas, Yash and wife Avanti, are behind the Barista chain, which already has 85 profitable outlets in the metros. They are now planning coffee bars called Coffee Mantra and are shortly going to open lifestyle stores.

It is the services sector which is marching ahead with new ventures, generating greater profits and employment. Both agriculture and manufacturing sectors are bogged down by infrastructural bottlenecks and lack of marketing opportunities. In spite of agriculture producing 25 per cent of the GDP and engaging 60 per cent of the labour force, poverty persists. Yields for rice and wheat continue to languish below the international level of 30 per cent. Post-liberalisation productivity levels in industry have been lower in the 90s than in the 80s. India has a few companies that are as large as some of the biggest multinationals, but they lack global presence. Government rules and policies ensure they pay more for wages, power, subsidies and capital. This leads to higher transaction cost, making them uncompetitive. With protection gone and an open threat from international players, especially China, India's manufacturing sector is under pressure.

In the 80s, the buzzword was "diversify." While some companies succeeded in giving themselves new identities, there were others which moved away from their area of expertise, getting into unrelated diversifications and burning their fingers in the process. When Michigan-based Professor and management guru CK Prahalad first popularised the theory of core competence, there were companies to which it made enormous sense. They got back to doing what they were best at. Ajay Shriram of DCM Consolidated looked at further cementing his interests in seeds and chemicals. Rajan Nanda, CMD of Escorts Ltd, decided to focus on automobiles, health care and IT. The Morepan group gradually diversified from chemicals to hotels and then to health care. Max too invested in high quality health care at affordable prices after selling its cellular and pager business.

According to economy-industry pundits, the US economy was on an uninterrupted high growth trajectory for almost a decade. The present slowdown, which was inevitable, is nothing but a correction. They feel that a continuous high growth performance over long periods leads to inventory build-ups and imbalances across different sectors, requiring corrections every 3-4 years. A typical corrective action would be to reduce interest rates so that consumers could start spending again, leading to the economy's revival. The market would bounce back within 10-12 months, they claim.

Another reason for the US economy slow down has been ascribed to heavy investments, which have not been backed by high-capacity build-ups. The classic example is the dot com business going bust. While investments have been made and huge capacities have been created in almost all sectors of the economy, particularly IT and telecom, enough demand is just not there. In such a scenario, correction means industry consolidation and a long waiting period for the demand to build up again. Reliance India launched a $ 5 billion project linking 115 cities by fibre optics. But without a world-class telecommunication infrastructure in place, the projects are marred by cost and time over runs.

The slowdown has two implications for India — decline in exports from India and a decline in US investments in India. Exports contribute less than 10 per cent of the GDP. The US slowdown has not affected our total exports very significantly. With rupee devaluation, which has already taken place, exports growth rate may come down from 17 per cent to 12-13 per cent in the current year. According to a study conducted by the Confederation of Indian Industry profiling the performance chart of Indian exports over a five-year period, the export of traditional items like gems and jewellery, handicrafts, cashew, coffee etc has reached a saturation point. The new products in demand are processed vegetables, paints, enamels, varnishes, cosmetics, woollen garments, paper, wood and marine products.However, supply modifications in lie of changing demand have not been made leading to a mismatch and slowdown in sales.

The Economist recently carried a damaging report on India's reforming economy. However, it was not off the mark. Referring to "India Inc" as being "a juicy take over target," it speculated whether India could "deliver higher returns under a ‘new management’?" It said that "New owners' key worry" is when they would "drown in a sea of red ink as deficit adds up to 10 per cent of the GDP." The report goes on to discourage foreign investors by warning them,"Large sectors of economic activity are still cornered by traditional kinship and caste bonds. Any business that requires confidence in the judicial system is better left alone. Shortcomings in infrastructure raises costs. Delays and high costs of a poor transport infrastructure are compounded by high ‘transaction costs’ due to ’ of government departments. Transaction costs are estimated at 3-5 per cent in contrast with China where it is 0.5 per cent. Highly politicised power sector with losses (thefts) averaging 30-40 per cent is partially funded by overcharging industrial and commercial customers. While power tariffs are amongst the highest in the world, the quality of service rendered is one of the poorest. The industry produces 30 per cent of its power needs itself while SEBs are running in losses. Private investors haven't had luck so far due to SEBs inability to pay. Of the eight fast track projects, three have to sort out their financing and the rest have floundered. Cogentrix, EDF, Daewoo have pulled out. Enron is on the verge of packing up."

Indian PSUs, known for being overstaffed and unproductive, have been forced to take corrective action by either privatising or overhauling their working styles. Unable to withstand this pressure, most of them are buckling under their own weight. Air India, if and when it is sold off, is in for massive retrenchment. It is already cutting costs and freezing recruitment. Banks like the SBI have announced amidst much brouhaha various VRS schemes and have even suspended LTA allowances for two years. Balco transferred its officials overnight from Delhi to Korba, giving them 15 days of joining time. The decision was reversed but not before chaotic morchas and strikes were held.

The private sector companies, especially the older brick-and-mortar groups, too, have been forced to review their businesses. Tata-owned Indian Hotels are in a revamp mode with more than 2,000 job cuts. Indya.com has asked 20 per cent of its staff to go (readers will recall the trendsetting cover page of a leading national daily being used to announce the launch of this Pradip Shah-owned portal amidst much controversy). Indiaserver has closed down its India operations in spite of having prestigious clients like the South-based Hindu group of newspapers. With orders drying up and subscriber base dwindling, companies like Ericcson have already packed off more than 80 persons from their Delhi office. The rest fear seeing the pink slip on their table every morning. The HFCL has decided to focus on its core competency and has slashed manpower in its HFCL-Nine Broadcasting Ltd company. Even Infy and Wipro have felt the pinch as they go about discreetly benching staff, especially in their marketing and training functions. These are the same companies who had given stock options even to their drivers.

It is not that the picture is all gloomy. There are companies which are still offering dividends to shareholders, ESOPs to employees and attractive yearly increments to key performers. A number of companies are serious about setting up manufacturing units outside the country. Videocon, Ranbaxy, Apollo Tyres are all looking at the option of considering China as a base and then re-exporting the products back into India. Azim H Premji battled with the crisis by doing some quick strategic thinking. According to him, Wipro increased its dependence on global IT services during the last fiscal while decreasing its exposure to the consumer care and lighting business. Global IT services accounted for 34 per cent of the company's total turnover. It was 28 per cent in the previous fiscal year. Realising that the global economic conditions are not always going to be conducive, they have spread their markets so that they are not excessively dependent on a single area. Global Infotech major IBM is investing $ 100 million in its India operations over the next two years. It plans to increase manpower by employing 4,000 people in India. Of these, 3,000 would be in software services and the rest in manufacturing. On the whole, manufacturing is down and services are up.Even traditional business houses are realising this and are moving into these new ‘sunshine’ areas. (The Economist report is quick to point out: "Companies in India have come and gone; from a total of 1000 to 200. There is no longer any local TV brand. There are many sick industries though not many sick industrialists.")

Placement companies are upbeat. They feel that those who are deserving and have a pulse on the market, there is no need to be insecure and paranoid. "Capitalise on your strengths, ensure that you contribute to the bottomline of your company and scale the heights of success" is their advice. Monster.Com, the USA's leading online recruitment firm, is setting base in India and hopes to fill positions in banking, insurance, hotels, travel and tourism.

Meanwhile, entrepreneurial skills are in demand. Young graduates from business schools are preferring to set up businesses in new areas rather than work in companies which have a suspect future. Business schools, on their part, are restructuring courses and trying to offer an innovative mix to the ambitious, impatient younger lot.

While infrastructural constraints, high cost of capital, poor primary and secondary markets, archaic bankruptcy and labour laws, skewed ownership patterns, and haphazardly run financial institutions have been stumbling blocks to the growth and development of Corporate India in recent times, the last 10 years have also offered exciting opportunities and avenues. Those who have seen them and crossed the road blocs have been successful. The recently held G7 meet said that the worst of the economic slowdown was over. It said the USA should lead the world back to renewed growth next year but was unable to say when recovery would start. Some even felt the going could get worse before it begins to get any better.


Reasons to be Cautious

  • Company budgets are at an all-time low. ‘Sunrise’ professions of the 90s (event management; advertising; public relations) are all feeling the squeeze.

  • An aggressive marketing team may succeed in getting contracts/orders but not in getting payments released.

  • Corporate reforms remain limited; productivity growth in the 90s is slower than it was in the 80s.

  • Revised estimates released by the Central Statistical Organisation for 2000-01 show the lowest GDP figure in five years.

  • Slowdown has hit all the three sectors. (agriculture: growth stagnates at 2 per cent; services racing ahead with over 8 per cent; industry continues to potter along at 6 per cent).

 


Reasons to be optimistic

  • The Taskforce on Employment Opportunities believes that employment target and growth is linked. Headed by Montek Singh Ahluwalia, it has a mandate to provide 10 crore jobs over the next decade.It advice is to have short-term contracts. It also recommends abolition of the requirement of Government's prior permission for retrenchment and lay-offs.

  • Areas where there is expectation of jobs and quality opportunities: food processing, travel and tourism, real estate, construction, retail, road transport, housing and banking.

  • Organised retail, which is projected to grow 500 per cent to touch the Rs 30,000- crore mark in the next five years, is likely to create 2-3 lakh jobs. Ebony, RPG, NIFT and Pearl Academy offer courses in retailing. Shopper's Stop is likely to start one too.

  • India holds 80 per cent of the outsourced software market in the world.

  • NASSCOM predicts : By 2008, exports will generate $50 billion and 1.1 million jobs