Employment Growth May Turn Negative in FY21: CARE Ratings

Sectors like banks and finance, insurance, realty, and retail witnessed an increase in demand

Employment Growth May Turn Negative in FY21: CARE Ratings
Employment Growth May Turn Negative in FY21: CARE Ratings
Vishav - 11 June 2021

The average annual GDP growth between 2016-17 and 2019-20 was 5.8 per cent, but the period saw a CAGR of only 2.2 per cent in terms of employment, indicating that employment growth did not keep pace with the economic growth, CARE Ratings said in a research report on Friday.

The report comes in the backdrop of a larger debate on “jobless growth” with different indicators being used to draw conclusions. The report added that while the balance sheets of companies are available only till 2019-20, one can expect employment growth to become negative as even before the pandemic there was a decline in the annual rate of growth.

“The period FY17-FY20 witnessed a CAGR of just 2.2 per cent in headcount for a set of 2,723 companies. In absolute numbers, the headcount increased from 7.06 million in FY17 to 7.54 million in FY20. The interesting fact here is that during this period real GDP growth (CAGR) was 5.8 per cent which supports the view that growth in the economy did not lead to a commensurate growth in employment,” the report said, adding that higher use of technology and increased productivity could be reasons for this deviation and can hence be attributed to the concept of total factor productivity.

It further added that another disturbing sign here was that the annual growth rate has been coming down from 4 per cent in 2017-18 to 2.1 per cent in 2018-19 to 0.6 per cent in 2019-20. “Based on the trends witnessed in 2020-21, it can be expected that there would be degrowth in this year for certain,” CARE Ratings added.

In terms of sectors, the report said that the top seven sectors account for almost two-thirds of total headcount. This includes IT (19.7 per cent), banks (16.1 per cent), automobiles and ancillaries (6.7 per cent), mining (6 per cent), textiles (5.8 per cent), healthcare (5.7 per cent), and finance (5.6 per cent). If three other sectors are added i.e. agriculture, insurance and iron and steel, they would account for 74.3 per cent of total headcount.

The sectors which recorded higher than sample average growth rate in employment were finance (10.7 per cent), realty (7.8 per cent), IT (5.9 per cent), banks (5.4 per cent), retail (4.7 per cent), auto (4.2 per cent), electricals (4.2 per cent), durables and insurance (3.7 per cent each), non-ferrous (3.5 per cent). Those that were just close to the sample average were infra (2.4 per cent), healthcare (2.4 per cent), FMCG (2.1 per cent) and aviation (2.2 per cent).

Meanwhile, the sectors which witnessed a fall in employment were hospitality (-15.6 per cent), telecom (-14.7 per cent, alcohol (-5.7 per cent), plastics (-2.8 per cent), power (-3.2 per cent), agri (-4.8 per cent), mining (-4.1 per cent), logistics (-4 per cent), capital goods (-1.4 per cent), crude (-1.4 per cent), media and entertainment (-1.6 per cent) and textiles (-0.5 per cent).

“Sectors which require more people on the sales side and where there is considerable penetration into the rural areas have witnessed an increase in demand such as banks and finance, insurance, realty and retail. Those in the infra space like mining, capital goods, power, telecom have witnessed a decline. Hospitality is a customer-centric industry but was still on the decline in terms of employment even before the pandemic,” the report mentioned.

CARE Ratings said that given the rather fragile growth numbers even in the pre-pandemic period, it may be expected that there could be a fall in growth in 2020-21 as several sectors were under pressure due to the lockdown. While the second half of the year did see several sectors revert to normal in operations, the services sector was impacted quite perceptibly till the end of the year.

“It is true that the link between GDP growth and employment has not been one of proportion. Job creation is necessary to keep the consumption cycle ticking. One of the reasons why there has not been a sustained pick up in consumption is the limited growth in jobs which translates into lower spending power. Lower growth in consumption also dissuades investment and this is why it has been seen that even the investment rate in the economy has slowed down considerably in the last 7-8 years,” it said.

In FY21 it was seen that companies had worked on rationalising their employee cost to control profits as the growth in sales was uneven especially in the first two quarters. Moving to virtual platforms makes business easier and seamless but also reduces the dependence on labour. This will be a major challenge for the economy going ahead, CARE Ratings concluded.

Advertisement*