1. Larsen & Toubro sacks 14,000 staff: Wake-up call for govt

Larsen & Toubro sacks 14,000 staff: Wake-up call for govt

The news that L&T has laid off 14,000 employees over a period of six months comes as a rude shock. Such large lay-offs are rare in Indian industry and typically take place when a plant or factory shuts down altogether.

By: | Published: November 24, 2016 6:27 AM
Larsen & Tourbo The engineering giant has let go of just over a tenth of its workforce, attributing the rightsizing to both a slowdown in the business as also to operations becoming increasingly digitised. (PTI)

The news that L&T has laid off 14,000 employees over a period of six months comes as a rude shock. Such large lay-offs are rare in Indian industry and typically take place when a plant or factory shuts down altogether. The engineering giant has let go of just over a tenth of its workforce, attributing the rightsizing to both a slowdown in the business as also to operations becoming increasingly digitised. That Indian industry is going to progressively mechanise operations in its efforts to boost productivity is a given—CEOs of software services companies, for instance, have already articulated how the use of AI is going to reduce the need for people. In other industries too—logistics, for instance—robots will soon become commonplace. However, as in the L&T instance, the slowdown in the economy, too, is limiting employment opportunities. So, even as it creates job opportunities, the government must work on improving the environment so small businesses can flourish; it needs to encourage entrepreneurship more than ever before by easing rules and regulations. It is clear that there are not enough jobs for the million people entering the workforce every month.

At the same time, it must quickly take some damage control measures to minimise the disruption to the economy due to the shortage of cash following demonetisation. Sectors such as real estate and construction—which alone have the potential to create the kind of jobs India needs—are expected to be the worst-hit by the cash crunch. Builders are already in trouble since they are sitting on huge inventories and, consequently, demand for steel and cement is tepid. In Q2FY17, ACC, Ambuja and Ultratech all reported a y-o-y fall in cement sales. One way out is to step up investments in the roads sector where the pace of awards and construction both are lagging targets; in the first seven months of FY17, awards are lower 12%

y-o-y. In general, private sector investment is down to a trickle and government capex hasn’t been large enough to offset this; the government’s capital expenditure between April-August contracted 0.7% . The story isn’t very different in the states—data from 13 large states shows only 22% of the budgeted capital expenditure being spent in the April-July/August period. In fact, at 7.1%, GDP in the April-June quarter was lower than the 7.9% clocked in the January-March period. By the old series, the growth was an anaemic 4.2%

y-o-y. The headline numbers apart, there are several other signs demand is patchy; sales of commercial vehicles, for instance, are up just 7% y-o-y between April and October. When seen in combination with data on railway freight traffic which has been contracting every month for more than a year now, it is clear growth is running well below potential. At L&T itself, while order inflows picked up in Q2FY17 to 8.7%, the slower growth before that is what made the company not just trim its revenue forecasts but also its workforce. If this is not a wake-up call for the government, nothing is.

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