Impact of global recession on employment

by Rajagopal Venkatesan on Thursday 25 March 2010, 6:55 PM | Category: Human Resources| View: 5840 views
 
 
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Impact of global recession on employment opportunities

Introduction:

 

The term ‘global recession' broadly, refers to a period of global economic slowdown. The International Monetary Fund (IMF) takes many factors into account when defining 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 occurrence 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 per cent.

 

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.

 

Manufacturing sector:

           

Giving his assessment, Jasjit sawhney, CEO, Net4India 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) is 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.
  • Ready made garments, machinery, automobiles and leather are the other sectors where the loss of output is causing a much wider distress.

The chart 1 shows the impact of financial crisis on employment of workers sector wise. The selected sectors in 5 major states (April to June 2009) Chikan craft (textile), Gems and Jewellery, Engineering, auto-parts, home based garments, agriculture.

Sectors 1 – Gems and Jewelry 2 – Auto parts 3 – Engineering 4 – Garment 5 – Agriculture

              6 –  Chikan craft

Series   1 -  Unemployed present                    2 – Undertook similar work with lower income

              3 – Shifted to another sector/ work   4 – No change

Source: Survey on impact of financial crisis on selected sectors in five major states by CFDA

             (Centre for Development Alternatives), Ahmedabad.

 

 

and chart 2 shows the average monthly income of workers sector wise in the manufacturing industry.

             

Chart 2  Average monthly income of workers before and after crisis

    

Source: Survey on impact of financial crisis on selected sectors in five major states by

             CFDA (Centre For Development Alternatives), Ahmedabad.

            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.

 

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. In Feb 2009, Tata consultancy services (TCS) had asked about 500 employees to leave due to non-performance. Patni computer systems (PCS) has 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 2007.  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

 

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 lakh people in 2007-08. 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 2007.

            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 Vive – 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”

 

Implications:

 

Ø      Workers in the globalized sectors who earn more than 30 per cent of foreign exchange are thrown to the volatility of global market without any protection.

Ø      The impact is not short term, the recovery will take time to go back to the original employment and wage levels.

Ø      Small producers / own account workers are the worst sufferers among the producers in the recession.

Ø      No institutionalized arrangements to help workers to look for alternative jobs, leading to wastage of skills.

Ø      The work force in the private sector in their – 20s, 30s and 40s is largely unprotected in terms of security of jobs, investments, retirement and children's education.

Ø      Increased depressions, cases of suicides by workers, a few times with family.

 

Counter strategies:

 

  • Karthik Ananth, Senior consultant, business development Zinnov says, “There is already a shift in business strategies of corporate India. Large IT and BPO firms have started looking at other markets like Europe and domestic markets to spread risk and reduce the impact of the rising rupee.
  • Diversification of export markets, improving internal efficiencies to maintain cost competitiveness in a tight export market situation and moving up in the value chain to impart resilience.
  • Corporate India will have to spend lot more to develop markets and supply chain links in alternate markets like Asia and Europe.

 

  • This is the right time to hire as salary expectations of people have become realistic and referral system (giving referral bonus-an incentive to employees who refer people for slot that companies look for) helps identify suitable people.

 

Recession begins to fade:     

 

Economic times said that “Many companies have started reworking their hiring mandate. Infosys technologies, which previously planned to hire 18,000 persons this year, has said it will hire an additional 2000 during the third and fourth quarters of the current fiscal. A large number of product firms, R& D companies and mid tier MNCs have also started hiring.

A survey that Manpower Inc. released, covering 71,000 interviewees across 35 nations and 5,109 companies in India, showed that “ Indian companies are the most optimistic in the world” about hiring this January to March quarter”.

“Most companies are coming out of their shell”, said Cherian kuruvila, director operations at Manpower Services India Pvt. Ltd “2009 has been a year of restructuring. 2010 will see a mix of replacement hiring, to fill up vacant positions and hiring for new positions, signifying expansion.

  • Fresh jobs are being created in most sectors that depend on domestic consumption.
  • FMCG, Retail, Media and entertainment in particular are seeing aggressive recruitment.
  • Robust increments are being given to retain talent across sectors.
  • IT and ITES companies have pared recruitment, but are still doling out (decent) hikes.

 

Recommendations:

 

ü      Universal social protection to workers – need to ensure legal, institutional and financial support.

ü      Ensure employment services to all workers.

ü      Use employment guarantee to address such crisis.

ü      Skill training and skill up-gradation.

ü      Problems of small producers need to be addressed.

 

 

Conclusion:

 

            In today's economy job security isn't going to be the same as employment security. When the economy predominantly consisted of government and other public sector jobs, job security(not getting sacked) was high, but employment security (finding a new job if you were sacked) was low. In the new economy, the reverse will be true – people will get sacked more easily than before, but they will also find a new job more easily than before. It is just that living between the two stages will take some getting used to. For the moment, the job market appears expanding and market watchers expect momentum to sustain in the short to medium term even if economic growth tapers off marginally.

It was a lesson learnt the hard way. We should concentrate and analyze the failure of economic reforms globally to be able to put a finger on the exact causes leading up the recession. That painting was never meant to be. The botched up job has already added permanent morbid shades in varying depths to the canvas. There is no magic sponge to clean in every blot of the culprit paint. But certainly a thinner can be applied to lessen further damage and brighten further vistas. New prospects can be sown into the recovering panorama. Let's hope for their blossoming into fruit bearing healthy economy in the near future. World over!

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References:

 

  1. Rishi Joshi, “Employee's market, still”, Business Today, May 4 2008, P 78.
  2. Saumya Bhattacharya, “Job Loss Are you Next?” , Business Today, March 8, 2008,

Pp 42 – 48.

  1. Cover story : “Atlas shivered”, Outlook, 27 Oct, 2008, pp 44-55
  2. Ashish kumar sen, “Severence packaged”, Outlook, 27 Oct, 2008, P 56.
  3. Satyanarayana.G and Y.Kesava Reddy, “Global financial crisis and Indian economy”, Southern economist, July 15, 2009, pp 31 – 32.
  4. Anitha Selvaraj, “Global financial crisis: Its impact on Indian economy”, Southern economist, May 15, 2009 pp 5- 8.
  5. Mahalingam T.V., “Managing the slow down: IT services, people power”, Business Today Oct 5 2008, p 68.
  6. Venkitaraman.S, “Global financial crisis: Reflections on its impact in India”, The Hindu Online edition, Oct 18, 2008
  7. Mohit Sharma, “Recession takes 2 lives as job market shrinks”, Indian express.com, Feb 17, 2009.
  8. Mansi goyal, “BPO firms hit by US financial crisis”, The Times of India, Oct 1, 2008.
  9. Sreekala.G and Sai Deepika Amirapu, “IT Companies raise referral bonus amid crisis”, The Economic times, Dec16, 2008.
  10. Vinay pandey, “Hurt labour intensive sectors pull down sentiment as well”, The Economic times, Dec 5, 2008
  11. Chandrasekar C.P and Jayati ghosh, “India and global financial crisis”, The Business line, Oct 21, 2008.
  12. Website: www.wikipediaencyclopedia.com

 

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