Slowdown in certain sectors limit job options
The first quarter of 2019-20 has been marked by weak earnings, indicative of an overall slowdown
After automobile makers curtail production, biscuits major Parle Products has said it may have to lay off 8,000-10,000 employees following a decline in sales. Parle Products, which makes around 90,000 tonne of biscuits per month from 10 manufacturing units of its own and 125 third-party associates, has had to cut down its production by 7-8%, following a dip in sales in the quarter ended June.
Parle Products category head Mayank Shah said the price increase taken after an increase in GST did not go down well with consumers of low-priced biscuits (under Rs 100 per kg). The new GST regime clubbed biscuits in this segment (earlier exempt from excise duty) with those priced above Rs 100 per kg (the premium variety) at 18%.
"Consumers of this biscuit segment (under Rs 100 per kg) are extremely price-sensitive. It is this segment that witnessed a 7-8% decline in sales in the first quarter and pulled down our overall sales growth to 2.5% in April-June this year from 12% in the same period last year. When we cut production, it will have a commensurate impact on jobs as well," said Shah.
CIEL HR Services CEO Aditya Narayan Mishra said such a scenario could create a sense of panic in the job market. "The people laid off would find it tough to find meaningful career opportunities immediately. They would have to look at alternative industry sectors. For freshers passing out in April-July 2020, new opportunities could be limited," said Mishra.
Even while companies tread with caution, some recruitment firms believe this to be a temporary phase. Randstad India CFO Viswanath P S said, while some sectors like automobiles are battered, having a cascading effect on steel and aluminium, "we do not see a direct impact on hiring." Viswanath believes people will start spending during the ensuing festive season, and this could lift sentiment. "By October end, we will have a clearer picture on the jobs scenario," he added.
The first quarter of the fiscal year 2019-20 has been marked by weak corporate earnings, indicative of an overall slowdown in various industries and the economy. Based on a sample of 2,976 companies, a CARE Ratings report said there is a clear slowdown in growth of net sales and profitability of the companies. In Q1 FY20, the net sales of the sample companies grew at a lower (about 5%) rate compared with about 14% in the comparable quarter of the previous year. Similarly, the aggregate net profit of the sample companies has also grown at a moderate rate of about 7% (year-on-year) as against the nearly 25% expansion clocked in Q1 FY19.
An otherwise resilient FMCG industry too has witnessed a slowdown. Nielsen's growth snapshot revealed a decline in FMCG growth trends from 16% in July-September of 2018 to 10% in April-June 2019. The downstream impact, said Mishra, will be seen in logistics and the un-organised sector as well. This could eventually impact jobs.
Nestle India CMD Suresh Narayanan said, "The overall FMCG industry growth has been going southwards. But the kind of issues other sectors are facing may not get necessarily replicated in this sector because it offers essential low-budget items that are important for daily consumption."
The good news is that IT industry, unaffected by the slowdown, continues to witness hiring.
According to the CARE Ratings report, total expenditure of the companies grew at 4% in Q1 FY20, lower than 11% in the corresponding quarter of the previous year. The increase in expenditure is driven by higher expenses towards employee compensation (about 11% growth), while a decline in the cost of materials (-1%) has helped in lowering the expenditure of the companies during the quarter.