Consequence of Economic Melancholy on Employment in India

Transcription

1 Research Article Consequence of Economic Melancholy on Employment in India Authors: 1Dr. Md. Shabbir Alam, 2 Tanushree Gupta Address for Correspondence: 1 Post Doctorate Fellow, Department of Economics AMU Aligarh 2 Asst. Professor, Jayoti Vidyapeeth Women s University, Jaipur Abstract: The economic melancholy causes a downslide trend in demand of the finished goods in the domestic as well as intercontinental market which eventually results in the loss of job. The banks are facing huge loss due to sub-prime catastrophe. The financial conditions of many banks are in a predicament. The economic slump which started in USA in December, 2007 spread all over the world. The Indian economy is also affected due to economic recession in USA since most of the international business of Indian subcontinent is with United States or European countries. Due to the economic recession, lakhs of people lost their jobs. The study is focused on the effect of economic recession on employment scenario in India and its critical analysis. The data has been collected from secondary sources. The analytical research methodology is used to make a critical analysis of the available data. Present study concludes that due to economic recession lots of people either lost their job or their compensation is shrinked. The employment scenario is same in almost all the industries. The capacity utilization of organizations shows a negative trend in comparison to previous years. Key words: Economic Recession, Sub-prime crisis, Capacity utilization, Employment Growth Rate. ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 1

2 1. Introduction: The current economic hold back fallout is a huge loss to the business and ultimately reduction of job. The banks are facing huge loss due to sub-prime catastrophe. The big banks like Lehman Brothers, Merrill Lynch etc. have gone penniless. India is facing recession not due to indigenous reasons but because of U.S.A. and European countries since Indian economy is more reliant on these countries. Due to the recessionary trends in the international market, Indian companies export orders are either cancelled or the export amount is reduced to a significant limit due to which some of the companies who cannot meet the situation have suffered from loss. The situation is similar in almost all the industries whether they are exporting or non-exporting. Therefore, the government also changes some of its fiscal and monetary policy in order to trim down the passion of recession. The pecuniary conditions of many banks are in a dilemma. The banks are providing loans with a lot of precautions. Due to the recessionary trends in the market, some of the organizations have suffered huge losses and in order to meet out these losses either they cut down the employee s salary or they reduce the manpower in the organization. Due to these reasons, the unemployment situation in India is more critical than ever before. 2. Economic Depression: Economic depression is defined as a business cycle abbreviation, a general decelerate in economic activity over a period of time. During recessions, many macroeconomic indicators vary in a similar way. During economic recession production as measured by Gross Domestic Product (GDP), employment, investment, spending, capacity utilization, household incomes, business profits and inflation all fall; while bankruptcies and the unemployment rate rise. It is believed that economic recessions are generally caused by a widespread drop in spending. Governments usually respond to recessions by adopting expansionary macroeconomic policies such as increasing money supply, increasing spending and decreasing taxation. Due to economic recession, Gross Domestic Product of various countries decreases and the condition is severe in some areas where people are committing suicide due to job loss. The subprime crisis which started in U.S.A in August 2007 later on gripped many other nations including India. Due to the economic recession many companies profit are either reduced or they face losses and some even met the situation of bankruptcy. The effect of recession is analyzed in production as well as service sector. The recessionary impact that the global financial and economic crisis resulting in huge job losses in various segments of the labour market. A reliable aggregate estimate to the extent of increase in unemployment is not available from the official statistical system. Recognizing that unemployment is on the rise, the government did make an attempt to estimate the impact of the downturn on employment. The Labour Bureau conducted a sample survey covering eight sectors (mining, textile, metals, automobile, gems & jewellery, construction, transport, information technology/business process outsourcing industry) to reach at an approximation of the job loss. ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 2

3 The survey was designed to cover a sample of units employing 10 or more workers, with the sample being drawn from 20 centres in 11 states and union territories. On the basis of this limited sample, the total employment in all the sectors covered by the survey is estimated to have declined from 16.2 million during September 2008 to 15.7 million during December, The actual decline in employment during this period is likely to have been much higher. 3. Review of Literature: 3.1. Fifth Quarterly Report on Effect of Economic Slowdown on Employment in India: The fifth Quarterly Quick Employment Survey was conducted during October to December, 2009 by Labour Bureau to assess the impact of economic slowdown on employment in India. In the survey, a fresh sample of units / establishments has been drawn to assess the employment trends. The information has been collected from 2,953 units / establishments by covering 21 centres spread across eleven states and union territory. The results about effect of economic slowdown on employment in the eight selected sectors namely textiles, metals, leather, automobiles, Gems & Jewellery, Transport, Information Technology/BPO and Handloom / Powerloom are summarized as below:- The overall employment has further improved by about 6.38 lakh (@1.70% per month) during December 2009 over September 2009 due to substantial increase in employment by 5.70 lakh in the IT / BPO sector alone. During the quarter October to December 2009, the employment, in fact, has increased in all the sectors studied except a marginal decline in the transport sector. This increase in employment also testifies the growth in the industrial sector during the quarter October to December The survey findings show that majority of the employment gain in December 2009 as compared to September 2009 is registered in the exporting units. Out of the total increase of 6.38 lakh jobs during this period, 5.80 lakh jobs (91 percent) have been added in the export units. In IT / BPO alone 4.87 lakh jobs have been added in export units during the period. Employment in export units of all other sectors covered (except transport sector) increased moderately or marginally during the period. As compared to exporting units, the increase in employment in non-exporting units is significantly lower i.e. by only 0.58 lakh during the quarter October-December The results of the Surveys of different quarters show that the employment declined by 4.91 lakh during the quarter October-December, 2008; increased by 2.76 lakh during January-March, ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 3

4 2009; declined by 1.31 lakh during April-June, 2009 probably due to seasonality; increased by 4.97 lakh during the quarter July-September, 2009 and increased by 6.38 lakh in the current quarter October to December Thus on the basis of the sample, the estimated employment in the selected sectors has experienced a net addition of 7.90 lakh since September Eleventh Quarterly Survey Report of Labour Bureau The Ministry of Labour has been continuously watching the effect on employment situation due to global financial crisis and economic slowdown in India since September The current survey to assess the impact of economic slowdown on employment in India is the Eleventh in the series of Quarterly Quick Employment Surveys in Affected Sectors covering the period April to June 2011 conducted by Labour Bureau. In the eleventh quick employment survey, the sample establishments covered in the previous survey have been revisited to assess the changes in employment. During the survey, the information has been collected from 2,289 units / establishments by covering 21 centres spread across eleven states/ut. The results about effect on employment in the eight selected sectors i.e. Textiles including Apparels, Leather, Metals, Automobiles, Gems &Jewellery, Transport, IT/BPO and Handloom / Powerloom are briefly summarized as below:- It may be observed from the enclosed statement that the upward trend in employment has been continuously observed since July During the quarter April to June 2011, the employment has increased in respect of all sectors except Textiles including Apparels and Transport and the overall employment have increased by 2.15 lakh during the quarter. At the sectoral level, the maximum increase of 1.64 lakh in employment during the period June, 2011 over March, 2011 is in IT/BPO sector, followed by increase of 0.53 lakh in Metals, 0.18 lakh in Automobiles, 0.13 lakh in Gems &Jewellery, 0.01 lakh in Leather and 0.01 lakh in Handloom/ Power loom sector. The maximum increase in overall employment by 1.90 lakh is seen in the Direct category of workers as compared to 0.25 lakh in the contract category of workers at overall level during the period June, 2011 over March, In the export oriented units, the employment at the overall level has increased by 0.67 lakh whereas in the non-exporting units, it has increased by 1.48 lakh during the period June, 2011 over March, ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 4

5 While comparing the results of the last four quarterly surveys conducted during i.e. June 2011 over June 2010, the overall employment has increased by lakh, with highest increase in IT/BPO (7.00 lakh) followed by 1.31 lakh in Textiles including Apparels, 0.96 lakh in Metals, 0.78 lakh in Automobiles, 0.16 lakh in Transport and 0.13 lakh in Leather during the period. 4. Objective of the Study: The objective of research paper is to study the effect of economic recession on the employment scenario in India. In order to fulfill the objective, following hypothesis is formulated: Hypothesis: There is no effect of economic recession on the employment scenario in India. 5. Impact of Economic Recession on Employment In India: The term global recession largely, refers to a period of global economic slowdown. The International Monetary Fund (IMF) takes many factors into account when crucial a global recession, but it states that global economic growth of 3 percent or less is "equivalent to a global recession". Recessions and financial crisis are a regular occasion around the world. In the age of globalization, no country can remain isolated from the fluctuations of world economy. Heavy losses suffered by the major international banks are affecting all countries in the world as these financial institutes have their investment interest in almost all countries. However, one positive point in favor of India is the fact that Indian banks are more or less secured from the ill effects of sub-prime mess. IT industries, financial sectors, real estate owners, car industry, investment banking and other industries as well are confronting heavy losses due to the fall down of global economy. Inventory industries like garment, gems, textiles, chemicals and jewellery had cut production by 10 per cent to 50 percent. 5.1 Impact on Indian Job Market: The impact of global slowdown on India s economy is impacting the employment scenario in India. In fact the rising joblessness in India has assumed worrisome proportions. With overall economic growth sharply slowing down, the ranks of those without work are growing by the day. Five hundred thousand people were rendered jobless between October and December 2008, according to a first of its kind survey conducted by the Ministry of Labour and Employment. It is often said that when the U.S sneezes the rest of the world catches a cold. Those sectors whose fortunes are closely linked to the fate of the global economy are feeling the heat. ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 5

6 5.2. Manufacturing Sector: Giving his assessment, Jasjit sawhney, CEO, Net 4 India Ltd. told SME times, The major impact of recession or slow down is with the small exporters and importers in the country as most of them are facing the problem of heavy duties. Companies are looking to cut costs by boosting productivity through higher utilization. At the junior levels companies have drawn up retrenchment plans. It is the labour intensive sectors where job cuts cause biggest noise, because such decisions impact a greater number of people. Some sectors badly hit by the slowdown are: Textiles (chikan craft) are one sector that has been affected badly. Although the share of textiles in GDP (in terms of sales) is not significant, its share in compensation paid out by them was over 7%, double the sales. Gems and jewellery is another sector where impact on jobs would be disproportionately higher and job losses are feared to be running in lakhs. Readymade garments, machinery, automobiles and leather are the other sectors where the loss of output is causing a much wider distress. The manufacturing sector had been calling for action to cushion the recessionary impact. Dunlop India Ltd. asked all 1,171 employees at its Sahagunj unit and 917 staffers at Ambattur (West Bengal) not to report to work for an indefinite period. What is strange about this directive is that it is neither suspension of work nor lay-off. The textile giant, VF-Arvind has started releasing employees, from the imported brands section as there are few takers. Around 80 employees have been pink-slipped under its downsizing programme. An off-shoot of this impact is being felt on warehouses which are being vacated due to inventory control. 5.3 Service sector: Worst affected in the US crisis will be the service industry of India. Under service industry comes IT, ITES, BPO, KPO etc. service industry contributes about 52% to India s GDP growth IT / ITES: Before the recession began there were more than 1500 software firms in the country, while the employee base of the sector had grown to 553,000(from 415,000 in FY 06). More than 1300 IT companies were operating in Bangalore alone. This sector has been adversely affected by the global crisis. ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 6

7 In Feb 2009, Tata consultancy services (TCS) had asked about 500 employees to leave due to nonperformance. Patni computer systems (PCS) have laid off around 400 employees or nearly 3% of its 14,800 work force on the same ground. According to estimates by Teamlease services, a staffing solution company, in the first quarter of 2008, hiring slowed by 50% in the IT sector compared to same period in This uncertainty has brought the annual hiring plans to complete halt. Recruitment firms have stopped getting annualized data on hiring; usually companies have this identified in advance. Increments too have been impacted, last year companies were giving hikes of 15 to 20 per cent. Now, we are likely to see wage moderation with increments coming down to single digits says, Som Mittal, president NASSCOM. The United States Citizenship and Immigration Services (USCIS), the visa controlling agency, is tightening to screw on screening and issuing L1 visas and L1 extensions. L1 visas are three year visas meant for intra company transfers, with some 50,000 Indians estimated to be currently in the U.S on the visas. About a third of them are coming up for renewal this year for a further two year extension. This sector should review its priority and focus on product innovation (as opposed to merely providing services), since a majority of Indian IT firms derive 75% or more of their revenues from the U.S. 5.5 BPO: The sunshine industry of the Indian economy, the BPO firms is the worst hit by the current global economic turmoil. According to a report released by NASSCOM, the BPO and KPO industry together generated Rs. 1,160 crore revenue and provided employment to 7 lakhs people in The share of the U.S in the Indian BPO-KPO export market was 61 per cent making it the largest contributor to exports in the segment in Gurgaon based KPO, The Smart cube has 130 employees at present, and it is expected that the employment rate of the firm will go down by 30% next year. The Smart cube managing director Sameer Walia says Future hiring rate of BPOs will be far worse off as compared to KPO firms. The BPO employment rate is projected to decline by 60% within a year. Lokendra Tomar, Senior Vice President, Integreon, a BPO firm says, Small BPOs, which are operating at a net margin of 7-8 percent, will find it difficult to survive Table: 1 ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 7

8 Sector-wise Changes in Estimated Employment Industry / group Changes in Employment during the Quarter October to December July to September April to June 1.Mining (-) 0.11 * * * * * * * * * * 2.Textiles including apparels (-)1.72 (-) (-) (-)1.19 (-) (-) Leather * (-) (-) (-) Metals (-) 1.06 (-)0.29 (-) Gems &Jewellery (-) (-) (-) Automobiles (-) Transport (-)0.96 (-)0.04 (-) (-)0.02 (-)0.02 (-) (-) IT/BPO ) Handloom & Powerloom * (-)0.05 (-) (-) Overall-All the above sectors (-) (-) Source: Labour Bureau, Tenth Quarter Survey. 6. Effect of Recession on Government Jobs in India and Recession Proof Job: In the month of June 2009 AIR INDIA employees haven't received their salaries. The numbers of employees have also been slashed down due to recession. So it is not only the private sector but also the government jobs in India that are getting jolts from the US recession. So all government jobs are not recession proof, although the impact of US recession on government jobs in India is too low. This is the one side of the coin but if we look at the other side of it then we will find that Indian youth is shifting towards government jobs as they need security rather than money in corporate or private sector. Since 2008 Indian youth is seeing and facing recession that has given birth to such urges. Banking today has become the most promising sector in India as there are numerous jobs in banking. In 2009 State Bank of India (SBI) has announced 1200 posts and hired deserving candidates. Even Dena Bank has declared around 2500 posts for different sectors this year. Now if we look at the private sector then most of the IT companies in India were not hiring in 2009 so India has become the valley of job seekers. Moreover most of the IT companies were doing layoff that has led to this paradigm shift. Because of this vary reason people are now moving towards the government jobs in India as these are comparatively more stable and have additional ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 8

9 advantages of PF and stuff like that. Most of the engineers, IT trained professionals, fashion designers, and retail sector professionals are finding government jobs in India. But there is also a good news as Global Manpower Survey is showing that year 2010 will see more jobs in India. A survey of 3600 employers was done in the first quarter of 2009 which has shown that 63% of employers won t change the hiring pattern. The survey has also shown 6% increase in hiring. List of Recession Proof Jobs according to Forbes; I. Sales Representative II. III. IV. Software Design and Development Nursing Accounting Executive V. Accounting Staff VI. VII. VIII. IX. Networking and System Administration Administrative Assistant Business Analysis and Software Implementation Business Analysis Research X. Finance Staff 7. Conclusion: Indian economy has been hurt by the global financial recession, but India may be in better position with quick recovery and for future growth than many of the other economics as Indian banks did not have significant exposure to Sub-prime loans in the U.S. RBI s decisions to appropriate use of a range of instruments such as CRR, Repo/Reverse Repo rate, SLR MSS and LAF are in the right direction and taken in time. There is currently a high level of activity amongst the business support community with a key focus on ensuring businesses survive the downturn. A challenging and critical focus on the basics, or fundamentals of businesses, is likely to give local companies the best chance of survival over the next year. After watching so many positive points we Indians are quite in a safer place in comparison to many developed countries economy. To conclude lets hope for a stronger India by rectifying all its economic weaknesses after this so called financial crunch. Hence, the growth of the public sector and the narrow reliance on financial services for growth needs to change, with manufacturers and exporters having particular attention paid to them. After watching so many positive points we Indians can ourselves that we are quite in a safer place in comparison to many developed countries economy. ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 9

10 The critical analysis of figures itself says that due to economic recession their is a huge loss of employment in all the industry sectors like mining, textiles, metals, gems and jewellery, automobile, transport, IT/BPO etc. The research paper finds that due to economic recession in the international as well as domestic market, employees are losing their jobs in almost all the sectors. The negative trend in the business results not only in job loss but also reduction in the salary or compensation of the employees. Thus, the hypothesis that there is no effect of economic recession on the employment scenario in India is rejected. Hence, we can conclude that there is a significant effect of economic recession on the employment scenario in India. References: Abhijit Kar, at during-down-turn-1.html, on June Articles published in various news papers Business India Business Today Business Environment - Aswathappa Business Environment- Francis Cherunilum Business Standards (Delhi) Chandrasekhar, C. P., Down and Out, Cover Story, Frontline, March 13, 2009, p.4 7 Economic Times (Delhi) Indian Journal of Marketing Indian Journal of Finance Jhunjhunwalla, Saloni; Business India, Issue No. 806,February 8, 2009; When the going gets tough, p Kothari, C. R. (2007), Research Methodology: Methods & Techniques, New Age International (P) Limited Publishers, New Delhi. Kumar Mritunja, at economics/recession-2008.htm on September 26, 2009 Kumar Mritunjai, at economics/recession-in-india.htm on September 26, ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 10

11 Mujtaba, Bahaudin G., The Impact of a Slowing Economy on Human Resource Professionals: Managing Workplace Stress and Coaching, HRM Review The ICFAI University Press, Volume IX. Patterson, Kathleen and Oster, Gary; H.R.M. Review, Volume - IX, Issue V, May 2009; The Global Economic Meltdown Impact on Corporate Human Resources ; The ICFAI University Press, p Issue V, May Vaidyanathan, A.; Economic and Political Weekly, Volume XLIV, No. 6, February 7-13, 2009; Reviving the Economy: Problems and Prospects, p Visit jobs-lost-to-recession-in-3- months-govt/54329/ on, on September 11, Visit on April Visit Visit Visit Visit ijars/ Vol. I/ Issue II/Sept-Nov, 2012/235 11