The hints of negative job creation

Mon, 7 Oct Pre-Open

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The job growth numbers in India are on a decline. As per Economic Times, job creation at Indian companies has hit a three-year slump. Half of the companies forming part of the S&P BSE-500 index - those who have been reporting employee strengths consistently - have increased hiring (net figures) by only 3.5% YoY in FY13. The same figure in FY12 and FY11 stood at 5.7% and 6.4% respectively.

Companies from the power generation, metals and telecom spaces have in fact seen a negative addition in FY13 as compared to the previous year. This is because the employee addition (net of layoffs and resignations) is negative during the year. In fact, even during FY12, the scenario was the same in the power generation space. It only goes to indicate the overall sentiments of the sector which is marred by delays and slowdown across. On the other hand, the information technology sector seems to be continuing its hiring spree, albeit, at a slower pace as compared to the previous year.

Barring finance and auto ancillary sectors, the hiring figures for FY13 have come in lower than the previous year. The sharpest decline was seen in the automobile sector where in the growth figure came in at 0.7% YoY in FY13 as compared to an increase of 12.6% in FY12. Given that automobile sales volumes have been poor for many months now, this does not come in as a big surprise.

The sectors worst affected by the hiring slump - power generation, automobiles, capital goods are all interrelated and have something in common. That they are all related to the infrastructure space. As long as the overall scenario in the infrastructure space does not pick up, the growth in these sectors will remain subdued.

The affected sectors only form a minor portion of the overall trend. As such, we believe the actual numbers may be worse as earnings of smaller companies are more impacted during periods of economic slowdown. Which is what makes the long term outlook quite frightening. Especially considering the dwindling GDP growth rates at present and the new normal that is likely to be set in at lower rates (as compared to past decade). A prolonged slowdown in economic growth would possibly be a danger to society if the increasing workforce in India does not get absorbed into gainful employment. We will be looking at a scenario where nearly 400 m people are either without jobs or in an uncertain employment scenario. Not to mention the fact that more than half of the country's population is employed in the agriculture sector which itself contributes to just about 15% of India's GDP. The trend of negative job creation has the potential to become India's biggest undoing.