Click to play videoThe Index of Industrial Production (IIP) figures rose to 4.8 per cent in September from a dismal 1.4 per cent in the month before. But experts warn that it is not yet time to rejoice as the situation could worsen due to global economic meltdown.
Companies are putting expansion plans on hold due to the global liquidity crunch. In America 12 lakh jobs were lost in the last 10 months. But in corporate India the mantra seems to be cut costs and save jobs.
Hire and fire is not an option in the country with no social security system whatsoever. To gauge corporate India's health many look up to the Tatas or the Ambanis. Right now many indications point to an illness, taking precautionary pills.
Tata Son's Chairman Ratan Tata sent an e-mail to his managers saying says the group is gearing up for the economic slowdown. "We are being proactive in managing our companies and not letting circumstances lead us," the e-mail reads.
Leading companies like the Future Group, Hindustan Unilever, Reliance Retail, Reliance Industries, Grasim Industries and Aditya Birla Group are on a drive to cut costs and survive.
Measures include ways of reducing operational costs, deferring non-essential man power expansion, improving production capacity and efficiency and even putting on hold any plans to acquire new interests unless considered strategically critical.
The question asked on Face The Nation was-"Are corporate employees ready to face cost cutting?"
The panellists were Chairman and Managing Director of Bajaj Auto Limited, Rahul Bajaj; Managing Partner, of Counselage, Suhel Seth and the CEO of Naukri.com, Sanjeev Bhikchandani.
The discussion was moderated by senior editor Sagarika Ghose.
Premature celebrations and misreads
Rahul Bajaj said that his office did not require nor contemplate sending a message to employees to cut costs. He was, however, shocked by the misreading of the IIP figures of August and September by people in the power corridors. The uncalled for celebration and misinterpretation of the IIP figures irked him.
Bajaj felt that the IIP figures should be compared year-on-year and not month-on-month. The increase in September was due to the festival season in October and production or purchases do rise when Dussehra and Diwali are round the bend.
The inflated IIP figure for September may be higher than the preceding month but is extremely low as compared with the same month in the year before, he pointed out.
"It’s a bad figure. We are not talking of GDP growth here, industrial growth has to be in double digits like 10, 11 or 12. The figure 4.8 per cent is very low," began Rahul Bajaj.
Bajaj Auto Ltd employees can rest assured that the company has no plans to lay off staff to cover losses.
"In Bajaj Auto, my total employee-costs in percentage of my sales are three per cent. What will I save by either sacking people or cutting salaries? But in service industries like IT, Hotel and aviation sectors it may be somewhere near to 16 or 20 per cent. They have 20-25 per cent extra people on the bench to handle extra surge of work flowing in. In the next six to 24 months there is no likelihood of extra work so they will have to look at lay offs or salary reduction, to survive. But the manufacturing industries are relatively safe and doing all they can, so there is no reason to worry," assured Bajaj.
Who will be the next to fall
"First of all there have been no major job cuts across the board so far," informed Sanjeev Bhikchandani.
"As for the IT industry, what they are doing is that there is not a lot of hiring taking place. But basically what happened is that they held job interviews and made job offers on campuses but now they find that the growth is much less. They are in trouble as they are largely dependent on the BFSI sector in the US and Europe which is going through serious turmoil. So it is a demand-side problem. Unless demand picks up there it is going to be difficult," he observed.
"But the IT sector is looking at making the bench more efficient and there are smart people in the management who will figure a way out of the crisis," said an optimistic Bhikchandani.
Is it an earn and burn generation of employees that we have or are employees ready to cut costs and deal with hardship?
"I don't know if they can deal with hardship but they are ready for hardship," said Suhel Seth. "If they are watching CNN-IBN, reading the newspapers and seeing what's happening around the world, I think they are ready."
"It’s all ultimately about corporate efficiency and corporate responsibility," he added.
"I think that Ratan Tata's e-mail to his executives and company colleagues suggests a new wave of transparency where the head of the organisation is willing to come to terms and is not in denial," Seth joyously noted.
Seth pointed out the fact that the government expenditure has ballooned in terms of staffing. Its ballooned in terms of costs so if we look at Ratan Tata's communiqué, at least we have some one who is setting an example of transparency," said Seth in appreciation of industrial stalwart Ratan Tata.
Statistics are damned lies!
"What we have not come to terms with is the bloodbath that is going to be impacted in this country, thanks to the vanishing real estate business. The real estate industry accounts for 8 per cent of GDP, employs 1 crore people directly and three and a half crore people indirectly. So you are talking at a huge base of employees who are suddenly going to lose jobs," warned Seth.
But Seth's strongest warning was, "Don't look at employees losing jobs but look at loss of livelihood and therefore a loss of employee dignity. Our census data says that each employee provides to a family of four. So the opportunity lost, the collateral damage is far more impactful and scary," said Seth while warning that statistics are damned lies.
But Finance minister P Chidambaram said in the recent past that an economy growing at seven per cent is a job creating economy and not a job destroying one. But is the Indian economy creating jobs?
Bhikchandani was of the opinion that job cuts are possible in four sectors, viz. Construction, Exports, Real Estate and IT.
IT and Insurance along with Telecom are sitting pretty and relatively safe, said Bhikchandani.
"In India a recession is less than five per cent growth and a slowdown is when it is less than 6 per cent. People have expected and leveraged growth at 9 per cent. Now over two or three quarters they will stabilise themselves and the issue will be resolved," said Bhikchancani.
Who will show the path?
Should the corporate chiefs lead by example? What will happen to the lavish lifestyles of corporate honchos and their business class only travel.
"Practically all in industry or politics should lead by example. Not only when the times are bad. Okay, that time the need becomes a little bit more. Marriage expenses, gold plated taps in bathrooms are a disgrace!" said Bajaj.
"Do not expect people below you to do things that you won't do yourself. If I take a salary cut, if my top management takes a salary cut, only then can we ask employees to take a salary cut," Bajaj added.
Which companies are in more trouble, asked Bajaj rhetorically.
"Oil is down, rupee is down. So companies who have acquired additional companies abroad with debt and not with their own money will find themselves at sea," said Bajaj while pointing out that his company was a zero debt one for the last thirty years.
So if companies like Jet lay off people, must they be made to take them back?
Seth observed that the only intelligent people in Jet were the employees. "They say that we want our jobs but we do not mind a salary cut. I think people are looking for basic security, a basic dignity that will allow them to be at home with, then they do not mind a salary ct. If the company is led by someone who leads by example and can form a strong bond with them, then it works brilliantly," said Seth.
"In fact I believe that in times of trouble we know who the real family is," concluded Seth phiulosophically.
Experts rounded off the debate by reminding that India is a nation and not a market, a compassionate economy which does not have harsh employee-employer divides.
Final result of SMS/Web poll: Are corporate employees ready to face cost cutting?
Yes: 52 per cent.
No: 48 per cent.
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