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Tuesday, 24 July 2012 00:00
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Hiring more permanent staff may not really help


Maruti chairman RC Bhargava set the cat among the pigeons when he said the company would not hire any contract workers—whether through contractors or Maruti’s HR department—for its core operations after March 2013. Given that permanent shopfloor employees earn R22,000 per month as compared to R10,000 or so for contract workers, expect a sharp hike in next fiscal’s wage bill. And given Maruti’s leadership position, presumably this means the practice will spread to other auto firms and, in time, to non-auto firms as well …

Getting to labour heaven, however, will take a lot more than just hiring permanent staffers. For Maruti, the costs won’t be a killer. If it replaces 3,000 of its contract staff with permanent staffers, this will lop off just 3-4% from current profits, and this will fall over time, given the expected productivity gains from experienced staff. But no company, least of all an industry leader like Maruti with significant exports, hires contract workers to save money—they are hired to give flexibility. Maruti’s sales fell by 11% to 8,55,730 in FY12 as compared to 9,66,447 in FY11—and sales in June 2012 were 30% lower than those in March 2012. So will Maruti hire permanent staffers keeping in mind FY11 or FY12 sales, the March or the June sales? The answer’s obvious. Indeed, if you look at Indian industry as a whole, you get a similar answer.

There is no overall data available on employment, so the best proxy is the labour bureau’s quarterly survey of 8 industries. That shows a 0.45% monthly hike in employment in Q3FY12 over Q2’s 0.68%, which is directly related to the fact that Q3 IIP growth was 0.87% versus Q2’s 3.3%. Indeed, of the units surveyed, exporting units added 2.67 lakh jobs in Q3 while non-exporting ones cut employment by 0.41 lakh, once again underscoring industry’s need for flexibility. An interesting case, in this context, is the textile industry where because of the seasonal nature of exports, the industry came up with a proposal that it be allowed to hire permanent workers with a guaranteed 200 days of work a year (double the MGNREGA minimum!), but the government turned it down. Which is why the industry tends to be a poor employer. At the all-India level, calculations by Centre for Policy Research professor Bibek Debroy show 12 million new jobs get created when GDP grows at 9% versus 9 million when GDP grows at a slower 6%. No one, not even PSUs, can afford to keep such large work forces unemployed when growth slows—central PSUs, in fact, saw employment fall from 14.9 lakh in FY10 to 14.4 lakh in FY11. While rigid labour laws force factories to hire contract workers, as our lead story today shows, the Haryana government has also cajoled Maruti to go soft on striking workers in each of the last few strikes. That’s a recipe for disaster.


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