Coal India Ltd’s (CIL) workers have demanded a 100% hike in their salaries, news media reported on Tuesday. CIL paid Rs4,872 crore in the June quarter as wages and salaries, a number greater than its reported profit after tax of Rs4,130 crore. The numbers are similar for the March quarter. In other words, if salaries are doubled, it would wipe off the company’s net profit.
While CIL might be an extreme example, it shows that India’s famed demographic dividend—a favourite yarn used by investment bankers and brokers to sell the country to foreign investors—may at least partly be a myth. Perhaps it might well prove to be true in the long run, but things are tough for companies in the near to medium term.
Also See | Jobs Contraction (PDF)
In the last two quarters, employee expenses of firms have raced ahead of their growth in net profits. In the three months ended June, wage costs for BSE-500 firms grew 19% compared with a 4.6% rise in profits. In the March quarter, salaries rose 22.42%, while profits gained 13.5%.
Sure, part of this increase can be attributed to the normal price-wage spiral in these inflationary times. But the deeper problem is that Indian firms are not able to staff their shop floors. In an interview with Bloomberg, HSBC Holding Plc’s India chief executive officer (CEO) Stuart Davis laments about a “limited pool of talent”. Note that India already has the largest wage inflation among Asian economies for the last couple of years, as surveys by human resources consultancy AON Hewitt indicate.
HSBC Markit’s purchasing managers’ index surveys reinforce this point as the accompanying chart shows. While the July survey points to a slight growth in manufacturing sector employment, the first since October 2010, it was offset by a decline in services sector jobs. The study indicated that managers were complaining about “lack of suitable workers” as the key reason for not filling vacancies.
Although employment is mostly considered a “soft” variable in analysing firms (except perhaps for, say, the IT industry), it will increasingly become a risk factor that can’t be ignored. It’s become a fashion now to say that CEOs are India’s biggest exports and tom-tom about India’s managers being among the world’s best. But if steps aren’t taken to alleviate the skill deficit, local executives might find themselves to be generals without foot soldiers.
Graphic by Yogesh Kumar/Mint
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