As slowdown bites, firms turn cautious on hiring

If hiring is a sign of business optimism, then India Inc seems to be taking a cautious view. Data on employee numbers for 150 companies in the CNX500 index show that headcount grew at a tepid 3 per cent in 2014-15. This is much lower than the 6 per cent average rate of additions seen in the earlier three years. The trend was similar among Nifty companies as well.

Data for the first half of 2015-16 from job-listing service Naukri.com too point to a slow down in hiring. For instance, annual job growth in the media industry edged down from 59 per cent in the year ending September 2014 to 28 per cent in September 2015. Hiring in the banking sector was at a slower pace of 8 per cent in September 2015 compared with 36 per cent growth over the same period a year ago. Similar trends were seen in manufacturing and IT software sectors as well.

Many large companies even reduced the number of employees as containing costs became imperative to protect margins under tough conditions. For instance, there was a 19 per cent reduction in the number of L&T employees. Tata Motors showed a 5 per cent dip in headcount. Likewise, State Bank of India and ICICI Bank also reported a reduction in their workforce.

The key reason for this slowdown is the earnings hit these companies have taken. Profits were flat in 2014-15 for Tata Motors while L&T’s profits slipped nearly 3 per cent year-on-year.

Another cause could be the shift in strategy of companies to focus on productivity. “In the past, corporates focussed on headcount. Now, the emphasis is on quality,” says Mohit Gundecha, CEO of Jombay, which does candidate talent assessment. There is also a shift to hiring experienced people, particularly in the IT sector, says V Suresh, Chief Sales Officer, Naukri.com.

“IT companies are opting for people with three-seven years experience. The days of volume hiring from campuses are showing signs of slowing” he says. While headcount is falling, the amount spent on employees is rising. This suggests companies are offering generous hikes to staff or hiring fewer employees with more experience, which means higher compensation.

But for most companies, the lacklustre revenue growth has not been able to match the employee spend. Data show that employee expenses jumped 11 per cent for CNX500 index companies in FY 15. This outstripped the tepid revenue growth number of 3 per cent on average in 2014-15. For example, IT companies such as TCS reported revenue growth of 15 per cent in 2014-15 while their employee expenses rose nearly double that. But banks seemed to fare better. SBI, for example, reported 10 per cent higher revenue for a 4 per cent increase in employee expense.

Productivity, as measured by revenue per employee, improved overall in 2014-15. For instance, TCS, which employs about 3.2 lakh people, saw a near 9 per cent rise in revenue per employee. Each employee generated ₹30 lakh in 2014-15.

So, is the slow job growth the new normal? Market observers say that hiring may be picking up. Jombay’s Gundecha says that new graduate hiring from campus is improving and hiring momentum in new age companies such as mobile and analytics could boost job growth. However, sectors such as manufacturing and infrastructure are yet to see a meaningful pick-up.