Hard times,job cuts
These are not good times for workers employed in the Information Technology sector in India. For the longest stretch in the post globalisation era, India's service sector was deemed as the driver of India's economic growth story, even though only a relatively small section of the workforce found jobs in it. Recent reports indicate that the share of Indians employed in this sector is only going to grow smaller. On the front pages of many business dailies on Friday, there were stinging reports of how IT firms are about to witness mass layoffs, as they struggle with changing times, developed nations adopting greater protectionist policies, new market scenarios and the expectations that follow them. As per reports in Mint, seven of the biggest IT firms are expected to issue the proverbial pink slip to 56,000 engineers this year. This figure is twice the number of employees laid off by these companies last year. Media reports go on to suggest that the sector has not witnessed such layoffs since the 2008 global economic crash.
"The "end of hyper-globalization" story makes for compelling headlines. But the Indian code-writers' misfortune has more prosaic roots in technology and customer tastes. Global corporations, the paymasters of Indian software vendors, are no longer so keen to ante up for application development and maintenance. The flab-shedding has been in the works for five years now; it's only getting noticed in the age of Trump as muted hiring gives way to firings. With the trend gathering steam, these cash-rich firms from Bangalore or New Delhi are bound to pique the interest of buyout firms," writes Andy Mukherjee, a columnist with Bloomberg. Those at the receiving end of these layoffs are already voicing their protests. The past week has seen groups representing Indian techies submitting petitions to Labour Commissioners in Tamil Nadu and Hyderabad alleging forced resignation by employees.
These spate of job cuts are not merely restricted to the IT sector. Job seekers will find it a lot harder to find employment as the IT, banking, media and even manufacturing sector comes to terms with significant changes in their business model. It is a fact that many firms are investing more in digitisation and automation—artificial intelligence, machine coding, etc. In a bid to slash costs, these companies are hiring fewer employees. However, greater automation, which is a lasting structural change to how existing businesses function, is not the only factor responsible for job cuts. Others include restructuring in many existing industries, poor investment sentiment, low capacity utilisation in the face of uncertain markets at home, abroad and weak credit generation, and greater consolidation by major firms.
Last year, this column had analysed news of Indian engineering giant Larsen & Toubro (L&T) firing 14,000 employees or more than 10 percent of its staffers. Companies such as Microsoft, IBM, and Nokia were also reported to have cut back on their workforce last year. This piece of news does not come at a good time for the Narendra Modi-led NDA government, which is on the cusp of celebrating three years in office. It plans to celebrate this occasion with great pomp. The overriding message that the government has sought to project is one of great progress and development. Yes, there have been minor successes on the legislative front, but it may want to tone down its celebrations. Where are the game-changing measures to bring back jobs to the Indian economy?
In reply to a question in Parliament earlier this year, Minister of State for Planning Rao Inderjit Singh said that overall unemployment was rising, but the rate was highest among the Other Backward Classes (OBCs). The overall unemployment rate in the country is 5%, while it is 5.2% for OBCs. From 3.8% in 2011, the unemployment rate has only gone up. At a time when 12 million join the labour force every year, experts are worried about the implications jobless growth could have on India's social fabric. Both the previous UPA government and the Modi administration have struggled in coming to grips with the spectre of jobless growth. According to the Sixth Economic Census, the proportion of workers across agricultural enterprises in rural India has increased while the share of those working in non-agricultural jobs has declined. It is a worrying trend. Small companies are obviously in no position to take up the burden of employment generation. They just aren't productive enough. Many large corporate houses are saddled with massive debts, sparking a circle of low growth, weak bank credit, job cuts, low output and low growth. And let's not even get into the state of the e-commerce sector.
The International Labour Organisation's latest jobs report, titled World Employment and Social Outlook for 2017, is not a purveyor of good news. The number of unemployed people in India is expected to rise from 17.7 million in 2016 to 18 million by 2018. The increase in the number of jobless people in India is part of a larger global dynamic. The country's famed demographic dividend is proving to be more of a curse than a boon. From 1991 to 2007, the ILO estimated that India's employment elasticity stood at 0.3. In other words, for every 1% of overall economic growth produced 0.3% of job growth. As per a recent HDFC Bank report, employment elasticity in the economy currently stands at 0.15. A contraction in manufacturing growth for the first time in seven years to -3.7% in 2015-16 and the recent decline in investment proposals in the last quarter could also have a deleterious impact on job creation. What's worse, the assumption that greater injection of fresh capital investment, especially in the manufacturing sector, will spur job growth seems tenuous. Growing automation in the manufacturing sector further reduces the scope of employment generation. Why would a factory owner need to pay additional workers when a single machine can do the job? The Boston Consulting Group, an American global consulting firm, believes that robots will do 40% of manufacturing tasks in the years to come.