Labour turns costly for India Inc in 2009-10

Even as companies affected by recession have been trimming workforce to minimise costs, their labour costs have witnessed an upward trend this year.

The labour-output ratio, the cost of labour to value of production, of 1,846 companies (sales above Rs one crore), increased in 2009-10 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.

Sample this: Output of these companies increased 18.4% to Rs 25.41 lakh crore in 2008-09 from Rs 21.46 lakh crore in 2007-08 and further increased 5.8 % to Rs 26.89 lakh crore in 2009-10. The labour cost (salaries & wages, provident fund, gratuity etc)increased 21.5% to Rs 1.55 lakh crore in 2008-09 from 1.28 lakh crore in 2007-08 and further increased 7.8% to Rs 1.67 lakh crore in 2009-10. So the labour-output ratio increased from 5.95% in 2007-08 to 6.22% in 2009-10.

Of the sample companies , 816 did better with a decline in labour-output ratio, while 1014 experienced a rise in the year 2009-10 compared to 2008-09. Many of them , particularly those in big companies, showed an increase in the labour-output ratio, meaning that they spent more on labour per unit of output. Mention may be made of Bhel, which spent Rs 19 on labour for every Rs 100 worth of output.

Good performers in 2009-10 from the level of 2007-08 were Madras Aluminium, HMT,SAIL , Mcleod Russel, Celebrity Fashion and SPIC. The labour-output ratio of SAIL steadily decreased from 19.69% during 2007-08 to 18.97% during 2008-09 and further decreased to 13.76% during 2009-10. Companies which saw a sharp increase in the ratio from 2007-08 to 2009-10 were Manugraph India, Shanti Gears, CMC, Orchid Chemicals, KIOCL and Hind Organic Chemicals.Of the 31 industry group, 18 industries showed a decline in growth of their labour cost during 2009-10 as compared to 2008-09. Mention may be made of aluminium, cement, cigarettes, engineering, paints, paper, pharmaceuticals, refineries, sugar and tyres . The growth of labour cost of Tyre companies decreased from 23.6% to 6.4% during 2009-10

The growth of labour cost of textiles companies increased from 9.9% during 2008-09 to 11.1% during 2009-10. In terms of labour-output ratio, an increasing trend during last three years was seen in the case of aluminium, cement, chemicals, diversified,electric equipment, electronics, fertilizers, personal care, pharmaceuticals, refineries, solvent extraction and tyres. An opposite trend was seen in the case of gems & jewellery, engineering,food processing, paints, steel, sugar, tea and textiles.The ratio of tea companies steadily decreased to 18.97% during 2009-10.