Amazon, Microsoft, Meta, Twitter, OYO, Zomato, BYJUs, Udaan, Ola, Vedantu, Salesforce, Unacadmey, Ola, Cars24 are now household names and everyone knows about them. There is a commonality across all these brands. And this is not that they are coming closer to all of us, but they are in the process of downsizing their staff. Some of them are global decisions but the repercussions will be in India too as young professionals who joined these firms with stars in their eyes will now have to try and ensure they don’t fall into depression.
Actions taken by Indian and global companies have different motivations. At the global level, it is more a case of companies reacting to the recession which has enveloped the developed world, especially the US where business models are being revisited. Change in ownership at Twitter has caused large-scale layoffs, the effect of which is being felt here in our country too. This is the power of globalisation where India may be insulated from recessions in the west in terms of GDP growth (we still will be the fastest growing large economy), but will face the wrath of a slowdown through layoffs and loss of business (IT firms will face the heat here as export of services will get impacted).
The domestic story is different. Startup Tracker speaks of almost 18,000 jobs being lost in 2022 so far and this number will only rise. Start-ups as a rule, based on global experience, point to failure where 80% wind up within 3-5 years. This is because the models are not scalable and hence cannot be sustained. Start-ups generally tend to be in the fintech space and use technology to run their business. Online food delivery and education were big ideas that worked very well during the pandemic where it was felt that people will live life differently. The ultimate victory was online education and this is where there was proliferation in the number of players. Prima facie it appears to be a smart and efficient model; it works as long as there are business volumes. When children were at home and could not attend school or college, online education was the panacea. But with return to normal, things have changed, and from a hybrid model, most activities are moving back to the physical mode. This is where the business models need to change.
Several businesses like online retail and food delivery have worked well in the past where discounts were offered. Rates were lower than what the manufacturer or restaurant was charging, and with added advantages of returns (for retail), it went down well with consumers. But at the end of the day it is a zero sum game and the companies or start-ups took the discount on their books. It is little wonder that a large number of start-ups which went for an IPO had only losses to show besides a bright future, and got good valuations which failed subsequently. This has led to considerable downsizing and will be the way in the future too.
This highlights the serious problem of employment in India. With manufacturing down for almost 6-7 years now most jobs have been created in the low-income service sector where shopping malls and online delivery offered a plethora of low-paying jobs. The commissions offered to these staffers, or agents/associates as some were called, has come down sharply as companies are making consumers pay more and absorbing less of the losses. Those employed will find it hard to get other jobs and will continue doing delivery rounds on bicycles instead of scooters due to the absence of alternatives. The private sector while dishing out salaries of above Rs 1 crore to several fresh recruits will be balancing their head counts with employee cost. After Covid, most companies have shifted to greater use of technology through artificial intelligence and machine learning (AI and ML) which is a direct threat to future employment generation.
The Government is evidently cognisant of this problem. Notwithstanding the data provided by EPFO which shows more people employed, in October there was a rollout of 75,000 employment letters to various categories of staff by the government. This is part of the plan to provide 10 lakh jobs which was promised earlier. Interestingly the head count of Government departments has also undergone a transformation, where the focus was on austerity all this while. As of March 2019 there were 36.16 lakh central Government employees which has come down to 34.65 lakh in March 2022. The central bank has also lowered the head count from 18,132 in 2011 to 12,856 as of December 2021. Hence there has been a move towards bringing in higher efficiency with existing staff, and wider access to technology.
For an economy like ours which takes pride in the demographic dividend, it is essential to create meaningful jobs to ensure there are no social repercussions. For this we need the manufacturing sector to expand and provide more opportunities. Besides the social concerns of having less people employed, there is need to have more spending power to drive the economy. For this jobs have to be created on a sustained basis. Without income there will be less spending, which will keep investment at bay as no company will invest unless it sees future demand. This is the main reason why manufacturing stagnated outside the infra space even before the pandemic struck. The onus is on the private sector as Governments can only supplement the effort. Also, there may need to be less reliance on start-ups for creating jobs as the story so far has been more hype and less content.
Madan Sabnavis is Chief Economist, Bank of Baroda, and author of ‘Lockdown or economic destruction?’ Views are personal
