Job cuts loom large as Modi plans strategic sales of ‘sick’ state-run companies4 min read . Updated: 06 Jan 2017, 08:23 AM IST
The Modi govt’s decision to offload several companies to the private sector has drawn criticism from opposition parties and warnings from economists over the potential fallout
New Delhi India’s plans to sell the government’s stake in several poorly performing companies have prompted trade union threats of a nationwide strike, laying out a test for Prime Minister Narendra Modi in the lead up to crucial state elections.
With thousands of jobs potentially at risk, the government’s decision to offload a number of companies to the private sector has drawn criticism from opposition parties and warnings from economists over the potential fallout.
While gross domestic product grew at one of the fastest paces in the world over the last two years, employment creation was the slowest on record in 2015, with just 135,000 new jobs in the formal sector of the economy against an estimated 12 million new entrants to the workforce, government data show.
The slow employment growth puts further pressure on Modi, who in 2014 won the biggest government mandate in three decades on the promise of improving the ease of doing business and faster job creation.
Among those targeted for sale is Scooters India Ltd., Bharat Pumps & Compressors Ltd. and Project & Development India Ltd. — all based in Uttar Pradesh, which will go to the polls from 11 February in what is viewed as Modi’s most significant electoral test this year. Other companies include Ferro Scrap Nigam Ltd. in Chhattisgarh, Pawan Hans Helicopters Ltd. and Hindustan Prefabs in Delhi, Bridge and Roof Co. Ltd., India Ltd. located in Gujarat, Maharashta and West Bengal.
The plans are part of the government’s quest to narrow Asia’s widest budget deficit without cutting public spending — seen as key to sustaining India’s growth rate of about 7%.
It has budgeted to make Rs56,500 crore ($8.3 billion) from disinvestment including Rs20,500 crore from strategic sales through March 2017 and the union Cabinet has given in-principle approval for divestment of several companies.
India’s factory output contracted for five out of 10 months in 2016, according to the latest government figures. And with the manufacturing sector continuing to perform poorly and not enough employment generated by the public or private sector, the impact of job losses on economy could be grave, says Madan Sabnavis, chief economist, CARE ratings.
“Looking at the flux post-demonetisation, in my view, the government may not aggressively pursue strategic sales," he said. “So disinvestment looks difficult in the current scenario."
Labor Bureau data shows new jobs in key eight labour-intensive sectors — textiles, leather, metal, automobiles, gems and jewellery, transport, information technology and hand loom — fell to a six-year low of 135,000 in 2015 as against 421,000 jobs in 2014. Add to that, growth in eight infrastructure sectors including construction — the biggest job creator — slowed to 4.9% in November from 6.6% the previous month.
Devendra Kumar Pant, chief economist, India Ratings & Research said, “In the current scenario where jobs are not growing, if a few people from this pool do lose their jobs, it does become a cause of serious concern for the government".
Bharatiya Mazdoor Sangh, trade union wing of RSS which claims to have 11 million members — the ideological parent of the ruling Bharatiya Janata Party — is opposed to the sale and disinvestment of public sector companies and has threatened an all-India strike if the government goes ahead with its plans.
The government must address the issue of job losses before it implements the proposal, Brijesh Upadhyay, the union’s general secretary, said in an interview. “We have not decided on the strike dates yet," he said. “We want the government to update the technology and diversify the sick units into other businesses so that they are revived."
His fellow union leader, D.L. Sachdeva, the national secretary of the All India Trade Union Congress which represents 3.6 million members from sectors including textiles, coal, engineering, steel and transport, said: “We are in consultation with public sector union federations and other stakeholders. If our suggestions are not taken on board, we will announce our strategy for strike."
“The potential for job losses and union protests suggests that the government will proceed with its divestment plans very cautiously rather than quickly selling off companies wholesale," said Sasha Riser-Kositsky, an Asia analyst with political risk firm Eurasia Group.
He added upcoming elections in Uttar Pradesh may complicate Modi’s divestment plans. “Ahead of the UP election the BJP can ill afford further opposition allegations that it is ‘anti-people.’"
The sale of the government’s stake in companies would be made on a case-by-case basis, finance ministry spokesman D.S. Malik said. “The government has not taken a final call yet and only in-principle approval has been given."
Jose K Mani, a Kerala Congress party member of parliament from Kottayam, has been campaigning against the strategic sale of one of the companies on the government’s hit list: Hindustan Newsprint Ltd.
It would not only affect the company’s estimated 2,200 employees, but also around 4,000 families settled around Newsprint Nagar, Mani said. It’s the source of employment for about 40 villages, and the trade that’s grown around it provides jobs to another 20,000 people.
“If it is sold to private sector, it will have an adverse impact of huge magnitude on the people and local economy." Bloomberg