Connect with us

Industry

More layoffs likely as India’s manufacturing sales shrink

Published

on

Jobs-cut

New Delhi, February 27: Despite government’s efforts to attract investment under its Make in India campaign, sales of manufactured goods fell 3.7 per cent during 2015-16 — the first decline in seven years –sparking fears of layoffs and debt default in the months to come.

Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel.

As a result, in the six months to September 2016, engineering major Larsen & Toubro laid off some 14,000 employees. Companies such as Microsoft, IBM and Nokia were also reported to have cut back on their workforce in 2016-albeit on a smaller scale-blaming sluggish demand for downsizing.

In November 2014, just weeks after Prime Minister Narendra Modi launched his Make-in-India campaign, Nokia shut its factory in Chennai, rendering 6,600 full-time workers jobless.

Economists say the government must step in to support the manufacturing sector, which constitutes 15-16 per cent of the gross domestic product (GDP) and supports 12 per cent of the workforce.

Why sales are down? Investment falls, costs and import duties rise, demand contracts

A range of factors including falling investment, increased input costs, and higher import duties have caused demand for manufactured goods to fall, a trend that was visible before demonetisation and has strengthened since.

While the services sector grew by 4.9 per cent in 2015-16, faster than the 3.7 per cent recorded in the previous financial year, manufacturing contracted for the first time in seven years, from a growth rate of 12.9 per cent in 2009-10 to -3.7 per cent in 2015-16, Reserve Bank of India (RBI) data shows.

Small-scale private companies, with yearly annual sales of less than Rs 100 crore, have been more seriously affected as their sales have contracted continuously for the last seven years. Having registered an 8.8 per cent decline in 2009-10, their sales fell by 19.2 per cent year-on-year in 2015-16.

“Our sector is making huge losses as the price of electricity and raw material has gone up,” Shan Ali Syed, owner of a small-scale textile plant in the town of Bhiwandi, 32 km northeast of Mumbai, told IndiaSpend. “Hence, cost of final product also increases, and we are unable to compete with cheaper imported Chinese products.”

“Higher export duty and decline in demand has led to reduction in sales even before demonetisation,” Manoj Kishanchand Ahuja, a Mumbai-based small-scale gold jewellery manufacturer, said. “We were forced to reduce production. So, hiring of workers on contractual basis has also gone down.” He added that most of his business takes place in cash, and post-demonetisation, the situation has worsened.

Investment has fallen because of a decline in demand, leading to lower sales and profits. “New orders recorded a decline sequentially (quarter-on-quarter) as well as on a year-on-year basis and dipped into negative territory,” the RBI said in its latest report.

A cutdown in industrial output for the fourth straight month in December, along with a depressed investment outlook, could lead to more layoffs, industry captains have warned.

On top of that, net loans to the manufacturing sector, which account for 65 per cent of corporate loans, have declined by 77 per cent in the last six years, IndiaSpend reported in January 2017. Large-scale manufacturing units have been the worst hit, recording a fall of 69 per cent.

The fallout: Jobs and companies at risk

If sales do not improve, companies will act to cut costs, manufacturers and traders said.

“The most common way of cutting cost in India is to reduce the workforce,” economist Ila Patnaik, who has served as the principal economic advisor to the government of India, told IndiaSpend. “If the global economy and the domestic market do not improve, we can expect more layoffs in this sector.”

Companies forced to close down due to financial distress will also lay off workers. Closure of 186 industrial units led to net job losses of 12,176 in the manufacturing sector over the last four years, the labour ministry estimated in a December 2015 reply in the Lok Sabha.

Syed blamed the post-demonetisation cash crunch for falling sales as well as a shortage of workers due to mass exodus from cities. “Labourers have to be paid in cash as they don’t have bank accounts. Since we were unable to pay them in cash, the workers have returned to their villages,” he said.

In the first 34 days of demonetisation, micro- and small-scale industries have suffered job losses of 35 per cent and a 50 per cent dip in revenue, an All India Manufacturer’s Organisation study showed as the Indian Express reported on January 7, 2017.

Global upheavals have also caused problems for manufacturers, G.K. Jain, a large-scale manufacturer and exporter of readymade garments, said.

With sluggish growth and high unemployment hitting American and European economies, importers there want to pay lower prices to overseas manufacturers, squeezing exporters’ profit margins, Jain said.

There has been a rise in borrowings by vulnerable companies in the steel sector, the RBI report said. However, steel secretary Aruna Sharma said: “There was heavy investment in public and private steel sector in the past, and the investment takes place in cycles.” She added, “So, once the returns on that investment start coming, there will be big investments again.”

The RBI also noted that Indian manufacturers have collectively run up debt of Rs 6.9 lakh crore. The decline in sales and its impact on profit margins has impacted manufacturing industries’ ability to service their debt. In its study of the financial statements of 1,707 manufacturing companies over the last four years, the RBI revealed that the number of vulnerable companies whose debt-equity ratio is higher than 200 per cent has increased from 215 in 2012-13 to 284 in 2015-16-an increase of 32 per cent. A high debt-equity ratio means a company is aggressively using borrowed money to finance its growth, leading to higher risk for default.

The RBI’s analysis also showed that the debt at risk of default among private manufacturing companies grew nearly four-fold, from Rs 58,800 crore to Rs. 2.1 lakh crore ($32 billion) in the four years to March 2016.

What can be done: Invest in infrastructure, remonetise and increase overall public spending

Economists agree that the government must take steps to undo the damage caused by demonetisation by investing more in infrastructure, remonetising the economy and increasing the allocation for public-spending programmes.

It could take two to three quarters for the effects of the demonetisation-induced short-term shock to wear off and for normalcy to return, Patnaik predicted.

For longer-term support to manufacturing and job creation, new investment and enterprise are a must, economist Ajit Ranade said. “If we need to add two million jobs every month, then we need to create 20,000 to 50,000 new enterprises every month,” he said. “We need a big push in infrastructure.”

By Prathamesh Mulye (Indiaspend.org/IANS)

Analysis

Actual sugarcane FRP hike is Rs 6, not 20: Agri activists

The government has approved a premium of Rs 2.75 per quintal for each 0.1 per cent increase in the recovery over and above 10 per cent.

Published

on

sugarcane

New Delhi, July 18 (IANS) The government’s decision on Wednesday to increase the Fair and Remunerative Price (FRP) for sugarcane for 2018-19 (October-September) season by Rs 20 to Rs 275 for a quintal comes with a rider that the new rate will be applicable only when the recovery rate is 10 per cent.

The recovery rate — of sugar from sugarcane — was 9.5 per cent when the government had fixed the FRP of Rs 255 for a quintal in 2017-18.

If the recovery rate of 9.5 per cent is considered for 2018-19, the farmers will get only Rs 261.25, which is a hike of roughly Rs 6.25, on year-on-year basis.

According to Union Food Minister Ram Vilas Paswan, 295 mills of the total 550-odd mills in the country have reported recovery rate of over 10 per cent.

“Earlier, the recovery rate was 9.5 per cent. But it is increasing now. There are 295 mills which have reported over 10 per cent recovery rate, 82 have between 9.5 and 10 per cent, while there are only 127 mills that have below 10 per cent recovery rate. As the majority is of 10 per cent, we have gone with it (while fixing the FRP),” Paswan told reporters here.

The average national recovery rate is 10.51 per cent, while it is 10.20 per cent and 11.47 per cent in major sugar producing states of Uttar Pradesh and Maharashtra, respectively, he said.

However, agriculture activists called the hike in the FRP “shameful”, saying the actual hike would be below 3 per cent.

“It’s like peanuts. It is not even 3 per cent since expenses on electricity, labour and fertlizer have gone up significantly. The hike should have been done rationally,” said V.M. Singh, president of Rashtriya Kisan Majdoor Party.

He said the remuneration at 10 per cent recovery rate in 2017-18 was Rs 268, which means the actual hike is only of Rs 7 this year.

There are about five crore sugarcane farmers in the country and about five lakh workers are directly employed in sugar mills.

The total remittance to sugarcane farmers by the millers would be over Rs 83,000 crore.

The government has approved a premium of Rs 2.75 per quintal for each 0.1 per cent increase in the recovery over and above 10 per cent.

According to the government, the production cost of sugarcane for 2018-19 is pegged at Rs 155 per quintal, so the FRP of Rs 275 per quintal would provide a return of 77.42 per cent.

The FRP is determined on the basis of recommendations of the Commission for Agricultural Costs and Prices (CACP).

Paswan said there will not be any reduction in case recovery rate goes below 9.5 per cent and farmers will get Rs 261.25 per quintal.

As per the Food Ministry’s figures, the cane arrears, which stood at Rs 14,538 crore at FRP (Rs 23,232 crore at state advisory price – SAP) on May 21, has come down to Rs 9,319 crore (Rs 17,824 at SAP) following the various steps taken by the government in May including the Rs 7,000-crore package.

“Our top priority is farmers. To ensure that millers can pay farmers their dues, we give them such facilities,” Paswan said.

Continue Reading

Business

Chidambaram slams government over ‘economic mismanagement’

“After 5-month-high inflation and 7-month-low industrial growth comes the news of soaring trade deficit.”

Published

on

chidambaram

New Delhi, July 14 : Senior Congress leader P. Chidambaram on Friday slammed the government over its poor management of economy, saying inflation is at five-month high, industrial growth at five-month low and the trade deficit has soared.

Chidambaram, a former Finance Minister, said in tweets that exports were lower in June compared to May and the imports higher.

He said despite the higher trade deficit, the government would continue to say that all is well.

“After 5-month-high inflation and 7-month-low industrial growth comes the news of soaring trade deficit.”

“June exports lower than May. June imports higher than May. June trade deficit higher by $2 billion. But the government will say all is well,” he said.

Chidambaram said the Congress leaders had estimated that demonetisation would lead to a cut in growth rate by 1.5 per cent and the outgoing Chief Economic Advisor Arvind Subramanian has said that purging high currency notes in November 2016 led to a definite slowing down of economy.

The official data showed on Thursday that retail inflation in India touched the 5 per cent-mark in June, compared to 4.87 per cent in May, even as industrial output in May grew at 3.2 per cent compared to the same month last year but declined as compared to rise of 4.9 per cent in April mainly on account of a decline in manufacturing.

Continue Reading

India

Online hiring for government jobs fell 20% in June: Report

Published

on

jobs-vanish
Representative Image

New Delhi, July 5: Online recruitment activity for government services, including public sector enterprises and defence sector, declined by 20 per cent in June on a year-on-year basis, a monster.com report said here on Thursday.

Overall online recruitment in June 2018 fell by three per cent on a year-on-year basis and eight per cent compared with May 2018, the Monster Employment Index for June 2018 said.

“Printing and packaging sector witnessed the steepest decline — 27 per cent year-on-year basis and 15 per cent month-on-month basis,” the report said.

In the agriculture-based industries, online hiring declined by 19 per cent in June 2018, compared with June 2017.

However, the production and manufacturing segment registered a 49 per cent rise in online recruitment. Home appliances segment registered a 27 per cent fall.

“Production and manufacturing (up 49 per cent) led all monitored industry sectors by the way of long-term growth for the third month in succession,” the report said.

IANS

Continue Reading
Advertisement

Most Popular