Flipkart, Infosys, AskMe: Why recent spate of job cuts should worry us


August 24, 2016

New Delhi – In the last few days, newspapers have had screaming headlines of loss of thousands of jobs across the services sector.

On Monday, The Indian Express reported Infosys, the country's second largest software exporter, has cut 500 jobs after the company recorded poor quarterly results were and lost a contract from RBS.

August 24, 2016

New Delhi – In the last few days, newspapers have had screaming headlines of loss of thousands of jobs across the services sector.

On Monday, The Indian Express reported Infosys, the country's second largest software exporter, has cut 500 jobs after the company recorded poor quarterly results were and lost a contract from RBS.

Over the weekend, reports said about 4,000 people were about to lose their jobs due to a suspension of operations at e-commerce website AskMe. Earlier Flipkart had asked about 700 underperformers to leave. Meanwhile, Snapdeal is shutting down a luxury fashion portal which could lead to loss of hundreds of jobs. Taxi aggregator Ola has shut down operations of TaxiForSure, a company it had acquired in March 2015, again resulting in hundreds of lay-offs.

Should a few thousand jobs getting axed in the services industry worry us? It should, indeed. The services sector has been the key jobs creator in India, since manufacturing has not been a big draw. Remember, about a million Indians reach the employment age every month. Finding employment for them is in itself a daunting task and the enormity of the problem becomes larger when seen in the context of job cuts in the sectors which were seen as most employment friendly.

Already, the government's own data show job growth slowed to a six-year low in 2015 under the NDA government. There is no data to show if the decline has been arrested in the first six months of this calendar year since the Labour Bureau is yet to release these figures.

Let us look at the IT sector, one of the largest services sector employers. This story points out that India's IT industry is faced with one of the leanest years of growth in its history and the lower demand for IT services is driving down hiring numbers. Automation is adding to the worries. Companies like Infosys and Wipro have become selective in hiring even freshers – a departure from the traditional "mass hiring" strategy that IT firms have followed for the last two decades.

In the ecommerce space, jobs are being lost in large numbers as the sector begins a painful consolidation drive. Unconfirmed reports have already suggested that one of the poster boys of India's ecommerce industry may be looking to merge with another biggie – if this were to happen, there could again be a massive realignment of jobs.

D K Joshi, chief Economist at Crisil says India needs to create high-value added jobs as lower level jobs are already getting eliminated on increased automation. Joshi was one of the authors of a 2014 Crisil report on jobs which predicted a slowdown in employment generation in the coming years. The decline in employment creation has been compounded by falling labour intensity in the economy as automation rises.

This is because the GDP growth in recent years has been driven by less labour-intensive services such as IT/ITeS, business and financial services and the capacity of labour intensive sectors such as manufacturing to absorb labour has diminished considerably in face of rising automation and complicated labour laws.

Sectors such as IT/ITeS require only around 1-2 people to produce Rs 1 million of real value-added GDP so that higher growth in these sectors does not create large-scale employment. Also, the labour dependency of the manufacturing sector – which once used to be the most labour-intensive sector barring agriculture – has diminished considerably as automation has increased.

According to this report, the 'Internet of Things' is expected to take away close to a lakh jobs in India in the next five years because of technological innovation.

A report by HDFC Bank on India's tapering jobs growth says that "employment elasticity" in the economy is now close to zero – for every one point rise in GDP, jobs grow only 0.15.

Fifteen years ago, it was 0.39. The economy's job creating potential has shrunk 60 percent during the last decade-and-a-half. Put simply, we are close to literally achieving "jobless growth."

The Crisil report has also predicted a sharp decline in employment generation in the non-agriculture sector in the coming years as the economy treads a lower-growth path.

"CRISIL estimates that employment outside agriculture will increase by only 38 million between 2011-12 and 2018-19 compared with 52 million between 2004-05 and 2011-12. Due to insufficient employment creation in industry and services sectors, more workers will become locked in the least productive and low-wage agricultural sector. We estimate that 12 million people will join the agriculture workforce by 2018-19, compared with a decline of 37 million in agriculture employment between 2004-05 and 2011-12."

Madan Sabnavis, Chief Economist at Care Ratings, had pointed out earlier that job creation has been slow in the last few years because of a virtual stagnation in manufacturing sector growth.

"There has been limited job creation in the last couple of years despite India's GDP showing an uptrend. This is because in the physical segment, we have not seen similar growth commensurately". He pointed out that the government has really offered no new jobs in PSUs etc whereas even the private sector has seen layoffs or some replacement jobs at best these last few years.

Already, overall job creation has been suffering under the Modi Government despite India's galloping GDP, as the government's own data show. Last available data of the Labour Bureau for the December quarter of 2015 show no new jobs were created but there was actually a decline ocf 20,000 jobs across eight labour intensive sectors.

Remember, the September quarter of the same year had added 1.34 lakh new jobs across the same eight sectors and was still the slowest quarter in the previous six years (barring 2012 where quarter wise data was not available). Now, with the December quarter data in, the total number of new jobs created across the eight sectors between January-December 2015 stood at just 1.35 lakh. This is the slowest pace of new jobs being created since 2009.

Here's some easy math for grasping the enormity of this slowdown in jobs under the NDA: The Modi government took charge in mid-2014 and for that full year, 4.93 lakh jobs were added across these eight sectors.

So job addition in the first full year of this government fell to just a fourth of 2014 and was only a tenth of the growth seen in 2009, when the UPA was in power.

Joshi of Crisil says the government is not oblivious to job creation and points to the recently announced package for the textiles sector to boost jobs. The textile and apparels industry employs over 100 million people directly and indirectly and is thought to have the potential to create 50 million more jobs by 2025. But India lags in competitiveness to even Bangladesh in textiles and reaching the target of 10 million additional jobs over the next three years looks tough.

Employment in the textiles and apparels sector fell 0.11 percent in April-June 2015, rose 0.18 percent in July-September and 0.23 percent in October-December 2015, according to Labour Bureau estimates. Hardly the pace at which the expected job creation will happen.

Jobless growth is a reality staring India in the face. The government and industry must work together to solve this crisis.

Courtesy: Firstpost