During the last several years, corporate India has been trying to become slim and trim. When it comes to minimising costs, companies focus on bringing down labour costs too. Computerisation, competition and the introduction of new technology have together built up pressures for downsizing work force.
The labour-output ratio ie, the cost of labour to value of production, of 1,544 big companies (sales above Rs 10 crore), as a whole, increased in 2007-08 over the last two previous years. This indicates poor utilisation of labour by corporates. Moreover, this decreased labour productivity will also lead to lowered margins.
Output of these 1,544 big companies taken together increased by 24.87% to Rs 15.35 lakh crore in 2006-07 from Rs 12.29 lakh crore in 2005-06 and further increased by 16.15% to Rs 17.83 lakh crore in 2007-08. Labour cost (salaries & wages, provident fund, gratuity, among others) was up 21.34% to Rs 61,825 crore in 2006-07 from 50,951 crore in 2005-06 and further increased by 23.83% to Rs 76,560 crore in 2007-08. The labour-output ratio decreased from 4.14% in 2005-06 to 4.03% in 2006-07 and increased thereafter to 4.29% in 2007-08.
Of the sample companies in this study, 562 did better with a decline in labour-output ratio, while 982 experienced a rise in the year 2007-08 compared to 2006-07. Many of them , particularly those in labour-intensive textiles and tea and coffee sector, showed an increase in the labour-output ratio, indicating that they spent more on labour per unit of output. For instance, Raymond spent Rs 16 on labour for every Rs 100 worth of output. Good performers in 2007-08 compared to 2005-06 in terms of labour-output ratio were Tata Tea, Mafatlal Industries, India Steel and Saurashtra Chemicals.
The labour-output ratio of Tata Tea steadily decreased from 12.28% during 2005-06 to 5.58% during 2007-08. Companies which saw a sharp increase in the ratio from 2005-06 to 2007-08 were Wendt India, National Aluminium, Rane (Madras), Force Motors and Kinetic Motor.