India could see negative employment rates for 2020-21, according to Madan Sabnavis, Chief Economist, CARE Rating.
For their latest report on employment before the COVID-19 pandemic, CARE looked at the annual reports of 2723 companies and found headcount for the year ending 2020, went up only 2.2 percent annually from about 7 million to about 7.5 million.
Sabnavis is of the opinion that the employment numbers for 2021 would be even worse due to the laying off of labour by companies trying to cut costs.
"I would expect that in 20-21, we could actually see a decline. A large number of service-oriented sectors had also witnessed closures. Many just started working from January-February onwards with a capacity of around 40-50%. Therefore, I think the negative number for 20-21 cannot be ruled out," Sabnavis told BOOM.
The rate of job creation was low and disproportionate to the GDP growth even before the COVID-19 pandemic hit India.
One reason, said Sabnavis, could be certain sectors pivoting to technology over labour.
"We get a picture that if GDP was growing at 5.7 or 5.8 percent, jobs were being created at around 2.2 percent. One implication could be that companies were more technology oriented, were a bit more efficient, they were relying more on technology," Sabnavis said.
Edited excerpts follow
Tell us about this universe and its influence. The number of 2700 companies may appear a little small. But I am sure what it represents is much larger.
Madan Sabnavis: Actually, a sample of 2700 odd companies is representative of the corporate sector. Now how do we say this...that is because all the larger and medium companies are actually included and the ones that are very small and which probably do not have annual reports which give these kinds of details are the ones that have not been included. So, we would tend to think that it is fairly representative of the corporate sector. In fact, we have realised that if we are able to pick up the top 1200 companies, they generally drive the entire corporate sector.
So, if we want to know if employment or the head count numbers have increased, we just have to look at the top 1200 companies. By the time we go to 1500, 1700 we get a very very accurate picture. The rest of them will be smaller companies, which may not be big employers anyway. So, I think that is the basis of the sample.
What would this sample represent in terms of overall economic output of corporate India?
MS: If you look at overall corporate India, I would say this could be accounting for, I would say, 80-85 percent of net sales. So, it is a powerful sample and it includes both public as well as private sector companies.
Of course, the public sector companies only the listed ones for which the annual reports are available. And the criteria used was that we have data for the last four years. That is how we calculate the compound growth rate over a period of three years.
When we say that the headcount in this sample went from 7 million, from about 70 lakhs to about 75 lakhs what percentage would this represent of the total workforce of the country?
MS: See, for the overall country it will be a bit bold to take a call on it. But if you are talking in terms of the corporate sector my sense, is it would again be closer to the 80% mark. So, when I say the corporate sector, it includes public as well as private sector, excludes the government and unorganised sector.
Does it include unlisted companies and others?
MS: It will include the unlisted companies to the extent that their annual reports are available. We do have a good set of unlisted companies but it will not be comprehensive.
Why is this rate coming down or why was this rate coming down even before we went into the pandemic?
MS: I think this goes back to the issue where I think people used to debate even earlier about whether we are having jobless growth. So, this does not show whether we have jobless growth but definitely we get a picture that if GDP was growing at 5.7 or 5.8 percent, jobs were being created at around 2.2 percent.
It was definitely not commensurate with it. One implication could be that companies were more technology oriented, were a bit more efficient, they were relying more on technology. I think that is what we see in almost all companies, where you try to replace labour with technology.
So, I think that could be the reason for driving. And overall, when we look at or do a more granular analysis across various industries, I think that is where the real answer lies. Where we are looking at industries that are oriented towards the consumer, look at banking and finance, FMCG, IT--these are the sectors that have actually shown an increase in employment. But if you look at the other sectors the growth has been much much lower.
Is it possible that the sample outside of these 2723 companies has actually seen much higher employment growth as compared to this sample for the same period?
MS: Looks very unlikely because as I told you this entire sample would be covering almost 80% of total employment. Of course, in terms of number of companies there could be another 10,000 or 15, 000 companies which are not included.
But we should remember that they would largely be in the SME segment where on an average you will not be employing more than 10-15 persons. We are talking of 10-15 human beings employed in these units; therefore, they would not be adding significantly to this number.
So, I think the trend we are getting in terms of slow growth in employment relative to what is happening in the economy is a fair assessment to make based on this sample.
It is interesting that in your study you say that industries like telecom, hospitality have also shrunk quite a bit — minus 14 percent, minus 15 percent. Now telecom understandably because there is a huge consolidation that has happened, hospitality seems surprising.
MS: Yes, hospitality is surprising which actually means that the malaise was there even before we had the lockdown. It also gives you a sense that in 2021, which is also going to be replicated in 21-22, this was just one of the sectors that was affected the most, which means that there will be a further hit that will be taken on the headcount in this particular sector.
So, while we are actually talking of hotels and restaurants, basically the larger ones that are included and are listed, but we should remember that we have a large/equivalent number of restaurants, the quick service restaurants that are there, which would be in the unorganised sector that have been buffeted again for two successive years.
So, I think the problem will be more acute in the unorganised sector relative to the organised sector. Even in the organised sector, we are seeing, it is only today that some of the larger hotel establishments have actually been talking in terms of closing down or cutting down on their workforce.
These are small numbers. Minus 4 percent, minus 2 percent. Do they tell us something more than that because you would think that in a growing economy all of this should be growing as well.
MS: Actually, if we go back to see overall economic growth itself, it had started slowing down even earlier. So that is how we came to a growth rate of 4 percent in 19-20. There has been a kind of sequential decline in the growth rates.
Remember, we had a controversy over the new GDP base year of 11-12--whether it was overstated or was it on the right track. But that fact remains that the growth rate has been tapering. We have not seen the economy recovering in terms of both consumption and investment.
The investment rate has been coming down, which clearly gives an indication that at a general level, at the macro level, definitely there have been problems even before the pandemic set in.
What does this mean if you go and look at the data going back four years, 2017-2020, for 20-21, or 21-22?
MS: I think that the picture is going to be a bit more disturbing at least in certain segments. The aggregate number, my sense is that it would probably show a negative growth rate.
For 2021 we can actually see this number coming down. Another interesting thing that comes up in the data when we are talking of 2.2 percent, it has actually been sequentially a fall or dip in terms of the growth rate. It came down to something like 0.6 percent in 19-20.
I would expect that in 20-21, we could actually see a decline because even in terms of an impressionistic view we know that a number of companies had to lay off labour when the pandemic set in and they had to be shut down which lasted for almost 4 months before it started opening up in any meaningful manner.
A large number of service-oriented sectors had also witnessed closures. Many just started working from January-February onwards with a capacity of around 40-50 percent. Therefore, I think the negative number for 20-21 cannot be ruled out.
Now for 21-22 probably there could be some upside because once you come down to a certain level there were plans to hire and if we see the kind of information that we have in terms of the campus interviews being held and the kind of recruitment that is going on that does not seem to have affected in a decisive manner for 21-22.
So, there could be certain pockets of growth taking place but again my sense is it would be for the sectors that we had discussed, something in the service sector, when you are talking of banking, finance, IT--these are the sectors that may see an uptake in terms of employment.
These were the sectors that were growing, yet it bought the overall growth down to 0.6 percent for 2019-20. And the year before that it was 2.1 percent. So, the growth, as you pointed out, is steadily going down and this is really pre-pandemic. So, what is your overall sense now as we go forward. One is that there is a churn and some kinds of jobs will get created and others will get lost. How are you looking at this at a slightly macro level?
MS: At a macro level, I think, the issue is going to be serious. The reason I say this is during the pandemic time most companies have started leveraging technology more.
All companies are saying fine, let us work with fewer human beings, and let us work with more technology. And the very concept that all of us are working from home itself was one of the indications that all companies are going to use more technology.
So therefore, as a rule, companies are going to be a bit more parsimonious when it comes to employing people.
Of course, there will be certain sectors where that will require a lot of human interfaces, a lot of sales that goes on…. doorstep kind of sales, that is somewhere we will see employment picking up. Again, probably at a very higher level where the skill requirements are very high, you will see employment growing.
But I think at a lower level there will definitely be...let us look at the factories of the so-called non-essential goods, where generally you can say that these sectors have been buffeted and they have moved over a little more into technology, even if you look in terms of production, using more of artificial intelligence.
Even that itself could be a kind of setback in terms of demand for labour. Because I think even companies know very well, in case there may be a third wave, or a fourth wave later on, again you have a lockdown, they cannot keep employing people and asking them to stay home and probably laying off some part and cutting salaries--all this becomes a bit messy.
Generally, they would be a bit more calibrated approach when it comes to increasing the headcount in most companies.
This is now not linked at all in some ways to the economic growth that you are looking at or is there some linkage backwards or forwards and therefore how are you looking at economic growth as a whole?
MS: See, economic growth as a whole will statistically look better in 21-22. So that is mainly because we feel last year, the first time we have seen a negative growth in GDP. So all the numbers will numerically look better. But I always go back to saying that when these numbers look better, the question you need to ask is that are jobs being created?
Because the fundamental problems we have in the economy is lower consumption and this has been a problem years before we had the pandemic where we said that there is going to be consumer revival, demand is going to revive during the festival season.
It has not happened even though we have had good monsoons. It is simply because we have not created enough jobs to generate the kind of income that could be spent which keeps the consumer cycle ticking.