Hard put, India Inc reins in staff costs

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Mumbai | Published: June 29, 2015 4:28:11 AM

Employee costs grew at the most sluggish pace in six years last year, a time when India Inc reported its worst performance since the financial crisis of 2008...

Employee costs grew at the most sluggish pace in six years last year, a time when India Inc reported its worst performance since the financial crisis of 2008, reports Devangi Gandhi in Mumbai. For a group of 3,630 listed companies, aggregate employee expenses in FY15 rose 10.8%, the slowest rate since 2009-2010. To be sure, the top line for this sample saw a fall of 560 basis points year-on-year to grow at a meagre 3.9%. But employee costs saw a much sharper decline of 1,198 basis points or (11.98 percentage points) as companies cut back on costs.

Indeed, in a weak demand environment, few projects took off and many stalled. “As a result there was very little fresh recruitment and given the pressure on cash flows many companies chose to limit increments,” observed the HR head of a large firm. Sectors such as real estate and construction in particular have been in the grip of a slowdown for close to two years now and have reined in expenses on wages and salaried; this is reflected in the fall in employee costs many listed companies. For instance, companies such as DLF, Unitech, and Jaiprakash Associates saw a decline in their staff expenses last year. Unitech reported a 15% decline in its staff expense to Rs 181 crore in FY15.

Cairn India, which is grappling with a 40% plunge in benchmark crude oil prices saw a 60% decline in its staff costs last year to Rs 110.5 crore. The explorer is believed to have cut 250 jobs, or more than 10% of its workforce. Cairn thus joined global explorers like BP and Cairn Energy who have reduced their headcount besides reducing capex. In media interactions, Cairn India executives indicated that the company will not be downsizing its employee base any further if the price of crude oil stays at $60 per barrel level.

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While HR experts confirm a slow-down in hiring in certain sectors, they also point out that momentum has picked up as companies keenly await the government’s policy framework to support economic activity.

According to Amit Agarwal, Associate Partner at Stanton Chase India, the hiring momentum which was slowing since the last three to four years seems to be improving even as certain sectors play catch up.

“Real estate is one  sector which can do better and an improved interest scenario is likely to perk the market. Hiring in automobile sector is fluctuating. E-commerce space has witnessed a lot of hiring momentum but it may take some time before we know that it is a sustainable trend,” added Agarwal.

Several PSUs, who generally lead spending and hiring trends, especially in the manufacturing space have also seen a drop in their wage bill in FY15. BPCL, BHEL, ONGC and NTPC are among those that have reduced their employee costs by anywhere between 4% and 25%. The BHEL management had said the lower employee costs in Q4FY15 were the result of natural attrition and hiring at junior levels at lower salaries.

Even though Engineers India, NMDC and even SAIL reported negative to moderate growth in their employee costs,  bluechip PSUs like Coal India, GAIL, IOCL and HPCL reported a 7% to 18% growth. The collective outgo for a set of 61 PSUs in FY15 increased by a moderate 3.7% increase in FY15 compared to a 0.3% yoy decline in FY14.

A slow-down in aggregate employee cost notwithstanding, as many as 140 of the BSE 200 companies raised FY15 outgo related to employees. Services sector maintained higher employee spending with IT companies, Mphasis, TCSInfo Edge India and Just Dial, as well as financial services players, Shri City Union, SKS Microfinance, IDFC, Bajaj Finserv  and L& T finance holding reporting more than 25% jump in their annual staff cost.

Arguing that the overall hiring market cannot be driven by several sectors where companies have gone into “wait and watch mode” due to either cash flow problems or in wait of pick-up in demand, Kunal Beotra, CMD, Callan group says that employment market in India is set for a better year in terms of hiring trend.

“ The overall market cannot be driven by just a  clutch of sectors. Availability of employable pool is a more dominant factor that is impacting the hiring trends in India. In the last two years the market has moved from being client driven to candidate driven,” adds Beotra.

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