By: Vinay Pandey, New Delhi


Sectors Most Affected BySlowdown Have A Disproportionately Large No. Of Employees


The country's economic environment looks a lot more gloomythan what the 1.7-percentage-point drop in the second-quarter economic growthwould suggest. The 7.6% GDP growth in July-September 2008 quarter doesn't seemto square well with increasing instances of job losses and dropping sales inmany sectors. The reason for the disconnect is that the sectors most affectedby the slowdown have a disproportionately large numbers of employees, more thantheir share in output would suggest. In other words, these sectors are labour-intensive,and a slowdown has adversely affected the welfare of a lot of people.


Textiles is one such sector that has been affected badly bythe recession in the US and the EU. If we take sales as a proxy of contributionto GDP, we find that textiles had a 3.9% share in sales of all manufacturingcompanies in 2006-07, but its share in compensation paid out by them was over7%. If we look at absolute numbers, the sales of petroleum product companies(Rs.6, 57,261 crore) was nearly 10 times that of textile ones (Rs.69, 637crore). However, petroleum product companies paid only Rs.7, 085 crore asemployee compensation against Rs.4, 796 crore given out by textile companies.Clearly, a downturn in textiles would have a much larger impact in terms ofsentiments than, say, in the case of the petroleum sector.


Gems and jewellery is another sector where impact on jobs would be disproportionatelyhigher. This is an extremely labour-intensive sector which has seen a severedemand fall, and job losses are feared to be running in lakhs. Readymadegarments, machinery, automobiles and leather are the other sectors where the lossof output is causing a much wider distress.


A similar story is playing out in the services space where growth is still over9% for many sectors. IT industry, which derives 60% of its revenues from the US, is faced with a serious slowdown. Given the linear relationship between its revenuesand employees meant the industry would hire in thousands to support their 30%-plusgrowth. Infosys has said it would freeze recruitments after meeting the currentyear's target of 25,000 as it expected growth to drop to 15%. Even if there areno job losses, IT sector employees would be reconciled to lower or possible nosalary hikes this year. Given the large numbers employed by the industry, thiswould further add to the gloom.


Hotels and recreation industry are the others where the slowdown -likely to beaccentuated by the recent terrorist attacks in Mumbai -could cause adisproportionately large distress given the employee-intensive nature of theindustry. The key issue is whether the downturn in sentiment would furtherdrive down consumption. The growth in private final consumption -or, simply,private consumption -had declined to 5% in the second quarter against 8% in thefirst quarter of the fiscal. More recently, automobile sales have droppedsharply in the last few months.


Written by Vinay Pandey in New Delhi


Originally published in "The EconomicTimes" dated December 05, 2008