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L&T Layoffs the Tip of the Iceberg

Nov 23, 2016

In this issue:
» Incentivizing Digital Payment Methods
» Why Corporate Philosophy Matters
» Market roundup
» ...and more!
00:00
Tanushree Banerjee, Co-Head of Research

33,000 per day...1,000,000 per month...12,000,000 per year...

That's the number of "new" workers looking for jobs in India! And these numbers are expected to potentially grow in the years to come.

In case this surprises you, well, this crisis has already hit us. It's just that few talk about it. Most don't fully understand its impact as yet.

Here's what should surprise you...

As if this problem of job creation to absorb new workers was not challenging enough...for various reasons existing jobs are at risk. And in large numbers.

Startups, which were large recruiters in recent years, have suddenly become profit conscious. Many startups are on the verge of shutting down. Those that survive are generally not doling out job offers and big pay packets as they were earlier. Public sector enterprises, one of the biggest employers in India, are still trying to shed excessive workforce. And then there is the impact of mechanization, robotics and digitization. These three put together have hit existing jobs hard.


L&T, which reportedly decided to lay off 11.2% of its total workforce, almost 14,000 employees, attributed it to business slowdown, digitisation and redundancies that led to downsizing. We are not surprised.

In fact, we believe the situation could actually get worse.

Consider this...

First, Trump's win in the US. This has put India's IT sector in the spotlight. IT service companies, the last straw of hope in the critical job scenario, are themselves expected to lay off thousands in the years to come. And the situation could turn out to be even worse. We don't know as yet.

Second, the demonetization-led economic slowdown which has brought corporate activity to almost a screeching halt. Even if it takes six months to adjust to this black money move, you can imagine the impact on job seekers and their families. Not to mention potentially huge job losses in the unorganized sectors.

Now, it's not that the government has taken any tangible steps yet to improve the jobs scenario in India. Initiatives like Make in India and Skill India have failed to make any difference. And the plight of thousands of jobless youth is slowly converging into an economic crisis of gargantuan proportions.

But in our view, it's not enough. In fact, if we were even a bit more skeptical, we would say that there is NO PLAN to deal with this crisis.

As the unemployment numbers keep adding up, we believe it will have a snowball effect on India's future. In fact, my colleague Vivek Kaul has been tracking this trend for a few years now and he has put down all details about this trend, and the specific impact it could have on you, in a note. I strongly recommend you read the complete note here...

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03:45 Chart of the Day

The Reserve Bank of India (RBI), had earlier this year, shared a concept paper on the usage of card acceptance infrastructure in India. The paper provides essential data to understand how transactions are carried out in our country. Take for example, the usage of debit cards. These debit cards which can process payments using the infrastructure of Visa, Mastercard or our own RuPay, are primarily used for cash withdrawals at ATMs.

Debit Cards Are Used Primarily for Cash Withdrawals


This essentially means that we are indirectly promoting cash transactions in the economy. The whole purpose of using digital payments was to encourage people to go cashless by using Point of sales (POS) terminals setup at the merchant location. However, we feel that the government needs to be proactive in incentivizing and facilitating digital payments in India. There is a cost which is currently borne by the merchants who use POS terminals. So, efforts should be made to reduce them.

Doing this will bring in higher accountability for large transactions which generally evade getting taxed and thus leads to creation of black money. This will also intensify the war against black money which the government has now begun. Vivek Kaul, has shared a special report on what the war on black money means to you. Be sure to grab a copy of Demonetisation - The Good, Bad and Ugly.

04:20

What matters more? A sound corporate philosophy or corporate governance? Equitymaster founder Ajit Dayal penned a brilliant piece in The Honest Truth on why more importance must be given to sound corporate philosophy. According to him, corporate philosophy is equivalent to how you contribute or how your actions affect the society as a whole. The objectives of which are difficult to measure and actions for which may or may not be positive in the long run. While corporate governance is akin to following a checklist of items on a sheet of paper. It is possible for a crooked management to do what is legally right while morally questionable and still receive high marks on corporate governance. The Tata group is presently embroiled in a bitter battle to justify who has wronged whom. These words by Ajit hopefully provide much needed answers.

  • Corporate governance is important, but ensuring that the nature of the animal - the corporate philosophy - is not compromised, is a far superior responsibility. And no rubber-stamping service provider can fix that. Just as a lawyer fighting a brief for any client without any moral judgement on what is right or wrong cannot bring "justice"; the lawyers can merely apply the law.
04:45

After opening the day on a flat note, Indian equity markets continued to trade above the dotted line. At the time of writing, BSE Sensex was trading higher by 127 points and NSE-Nifty was trading higher by 39 points. Sectoral indices are trading on a positive note with stocks in the capital goods sector and metal witnessing maximum buying interest.

04:55 Today's Investing Mantra

"You only have to do a very few things right in your life so long as you don't do too many things wrong." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Tanushree Banerjee (Research Analyst) and Rohan Pinto (Research Analyst).

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4 Responses to "L&T Layoffs the Tip of the Iceberg"

Someshwar Nath

Nov 25, 2016

The increasing number of work force in the country is an issue that has been building up all these years. It is directly attributable to the population explosion. No political party or , for that matter, our thinkers, have considered it worth their while to address this issue. I was amused and frustrated all these years by reading some columnists who were writing about 'demographic dividend'. Half-fed, malnourished, ill-educated youth cannot be the demographic dividend that will take the country forward.Very sad to say, any effort to control the population by disincentives was never looked upon favourably in India.

Even now, we should put in firm measures to control the population like China did. This will save the future. For the present, there is no alternative other than to skill the 'unemployable youth' as the PM has envisaged.L&T may be laying off workers to reduce cost by outsourcing some work. Thereforce, jobs will increase at the outsourced level.

Like 

KD

Nov 24, 2016

Government literally shut down the country for 2 months. WHAT DO YOU EXPECT FROM THEM?

Like (2)

SRINIVASAN CHANDRASEKHARAN, BAHRAIN

Nov 23, 2016

Well said and thanks to TANUSHREE. As she has rightly said, Initiatives like Make in India and Skill India are all long drawn ones and in the meanwhile jobless youth are growing very fast and in startling proportions. Government's urgent attention is required as the problem is getting worse by each passing day.

Like (2)

Sudip Parikh

Nov 23, 2016

Dear Ms.Banerjee,
I am an avid reader of your & Vivek's news letters. They are informative.

With regards to cashless economy, read a few comments. May be I can share at length my experience but over phone which media has to highlight before GOI.
1 Read report on BBC under Technology section of ATM being hacked
2 Bangladesh lost $81million & hardly some they could recover.
3 We want to go cashless & its a laudable move but are we ready with necessary changes e.g.
A Timely execution of paper work by bank
B Timely lodging claim with insurance company
C Timely disposal of claim by the insurer
D Timely Police investigation
E Timely settlement / credit given to customer who suffered
F Timely disposal of case by judiciary
G Technology to fight against Cyber crime

One of my family member lost some amount & even after about 75 days there is no indication from the bank as to when FULL amount will get credited. He has sent emails to bank's chairman, RBI governor & all the concerned officers of bank but no worthwhile reply is forth coming. In an era of internet bank took more than 1 month to get report from USA (card holder was in India & money was withdrawn from his account from New York). Our PM talks about Digital India but in factual reality situation is very different & difficult. Imagine a person loosing a large amount & settlement being unduly delayed. What will happen to him & does a working person have time to follow up on a regular basis.

Unless immediate action is taken to address above cashless will lead to more load on banks,insurance, police, judiciary etc. And after all this a dissatisfied customer.

I look forward to have your views on this comment.

I hope Equitymaster can bring to the notice of appropriate authority/s.

Best Regards,
S.Parikh

Like (2)
  
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