With recession raging in the US, many sectors are now on high alert, cutting costs - and employees. HNN evaluates the economic repercussions across sectors
Barely a year ago, the Indian economy was riding an unstoppable wave. The stock market reflected sentiments across sectors, as it surged forward at a scorching pace. But suddenly, the buoyant wave came crashing down - and took several people with it. As a generation that had received a legacy of opportunities, education and exposure to the world, on a proverbial platter, young students and professionals weren’t quite prepared for the slump.
Today, in a recession-threatened economy, while some sectors have witnessed large-scale layoffs and rising unemployment, others are showing signs of anecdotal downsizing. Here’s a brief update on the sectors that were once hot, and now perhaps, are not.
AVIATION
Although the aviation sector in India climbed to the ninth position in the world aviation market in 2007, 2008 witnessed the aviation sector
battling multiple demons - rising jet fuel prices, and later, the slump in business, as travellers chose cheaper modes of travel under threat of recession.
Kunal Vasudeva, Head, Kingfisher Training Academy, states, “From an output perspective, are most airlines recruiting? The answer is no. Will they recruit in the near future? Hopefully, yes. While earlier, airlines may have recruited 15 students, today just three or four make the cut. However, what’s important is that the current batch of students will graduate next June or July, and hopefully, the economy will tide over by then. The slump we’re witnessing right now is temporary.”
However, things aren’t quite as easy for students, who’ve already graduated. Ratan K* has completed his pilot training course, but has been unable to land a job as a pilot. He says, “There are no openings right now. Although we hope for the situation to improve in a couple of months, the fact is that there are about 6000 people looking for jobs, with maybe about 120 to 130 openings available only.”
BPO
Deepak Kapoor is Founder-CEO of www.bponews.in, and has also served on the board of the Call Centre Association of India and chaired its PR Committee. Kapoor acknowledges that although the sector is growing, it is doing so at a slower pace than before. He explains, “The banks that have been bailed out have to close a lot of bad loans. This process, called foreclosure, involves a great deal of paperwork, as does litigation work, another fallout of bad loans. If you look at operation floor ratios, you will find that the new work coming in is concerned with these two areas. This work is set to increase. Hence, larger companies are still getting a lot of high-value work. The challenge is to get our agents and employees trained in this work that is coming in.”
Kapoor adds that while employees are taking salary cuts of 10 to 15 per cent for a predefined period, there is no real risk to jobs. “You need customer support in various areas. However, selling has gone down, because indiscriminate selling of loans and credit cards is what has got banks into this situation in the first place.”
Vrinda P*, who works with an established BPO in Mumbai reveals, “There has been cost cutting on a large scale. For instance, though transport was available 24 hours a day previously, the schedule has changed to make it available only at certain times of the day. Also the appraisal cycle has changed for junior and mid-level employees from six months to one year.”
FINANCIAL SERVICES
In recent years, a career in the financial sector became the most coveted placement for innumerable MBA graduates, who could expect to land staggering packages, exceeding Rs one crore. However, the collapse of Lehman Brothers started a domino effect across the sector, with some areas being affected more than others.
Jyoti Vij, Director, Financial Sector, Federation of Indian Chambers of Commerce and Industry (FICCI), clarifies, “Insurance may not be as lucrative as it was a few months ago, but it is safer compared to other segments and will experience great growth in the future. Capital markets, brokerage firms and mutual funds are very dicey areas right now. However, private equity is growing fast. I think investment, venture capital, insurance and hedge funds will do well.”
According to Rishi Gupta, Chief Financial Officer, Financial Information Network and Operations (FINO), the economic downturn can be an opportunity for public banks to make a mark. He reveals, “Foreign banks have always been very selective, never indulging in mass recruitment. Moreover, while domestic, private sector banks have always recruited at a very high rate in order to meet the pace of growth, this pace has now slackened. Hence, public sector banks, for which public sentiment has been steadily improving, can now capitalise on this trend. In fact, I believe the State Bank of India has announced its plans to hire some 30,000 people, and UBI and Bank of Baroda are also on the same track.”
HOSPITALITY
Although India as a destination found its place in every tourist’s wishlist in 2007, in 2008, the hospitality sector has to contend with a double whammy - impending recession that cast a gloom over the sector, and then the 26/11 terror attacks that prompted a UK daily to include India in the list of the top 20 most dangerous places to visit, along with war-ravaged nations like Iraq and Afghanistan. However, the situation is not quite as bleak as one may
imagine.
Kanishk Malhotra, Managing Director, Hotel Solutions India, elucidates, “An occupancy of 70 to 80 per cent is generally considered a healthy occupancy level for a hotel, whether budget, luxury, or leisure. So far, according to reports, there has been a 20 per cent dip in the segment. If I have a 500-room hotel, I need a certain number of people to service rooms. If occupancy is down by 20 per cent (100 rooms less), I really don’t gain by terminating 20 to 30 people.”
Malhotra acknowledges though, that there has been a significant reduction in travel, more so in the commercial segment than in the leisure segment. “Companies involved in offshoring, IT, etc, are obviously cutting back on costs. Hence there have been changes in international and domestic travel,” he says.
HEALTHCARE AND PHARMA
As a sector that is driven by need, healthcare has been fairly recession-proof. India acquired the reputation of ‘First-world treatment at Third-world prices’, making it a hotspot for medical tourism. At last count, a US$ 35 billion industry in India, it is however, expected to eventually feel the pinch. Dr Aashish Contractor, Head, Preventive Cardiology and Rehabilitation, Asian Heart Institute, explains, “Healthcare involves a lot of elective procedures, which one does not necessarily have to do. I think ultimately, recession might affect areas that do not deal with lifethreatening problems, like cosmetic surgery or routine health check-ups for instance, which people believe they can postpone.”
A K Jain, Executive Director, Ipca Laboratories, asserts, “Pharma has been recession proof so far, because medicines are a must. You cannot delay treatment if it’s a serious situation. In fact because of lifestyle-related health problems, like stress, there will be more business. There may be some affect felt for three to six months due to currency fluctuations, and companies may delay plans for new investments, due to liquidity issues, but recession will not create a great impact. In fact, pharma companies can capitalise on this situation because production is now cost-effective due to lowered prices at all levels.”
IT & ITes
Instrumental in influencing the way the world today views India and its tremendous mind power, the IT sector placed India at the forefront of the international knowledge economy. The domestic IT market achieved a growth of 43 per cent in the fiscal year 2008, going from US$ 16.2 billion in FY 2007 to US$ 23.1 billion in FY 2008.
This formerly ‘stable’ sector, coveted by students and their parents, the IT sector is known to have taken a beating during the current economic downturn. Since it is exportfocused, the economic turmoil in the US has ensured a few months of uncertainty for the IT industry. At a press conference earlier this month, NASSCOM acknowledged that tech spending had definitely declined, and Som Mittal, President, NASSCOM was compelled to reiterate that the body would have to revise its forecast for the sector for this year (it had previously forecast a revenue growth between 21 and 24 percent to about $50 billion in the year to March 2009).
Ajoy Mukherjee, VP and Head, Global HR, Tata Consultancy Services, avers, “Current conditions are volatile, but we see significant opportunities for growth even in a tough economy. New opportunities are emerging in new growth markets and our services will play a significant role in global economic recovery. We remain cautiously optimistic about the external environment, and our hiring pattern reflects the same. We have added over 18,500 people in the first six months of the current fiscal, and are well on our way to meet our recruitment targets in the current financial year. We have also made over 24,000 campus offers in this year.”
Deepak Deshpande, former President, HR Infotech Association, an association of HR professionals in IT and ITes companies, adds, “According to a research report, there has been a sizable decline in anticipated hiring activity, although there has been no blanket ban on hiring. All said and done, the situation in India is not quite as gloomy as it is across the globe. There is still active hiring happening, and recruiter confidence is strongest in India.”
REALTY
The real estate sector is the second largest employment generator in India, after agriculture, and makes a sizable contribution to the GDP (five per cent). Moreover, it can be credited with the growth of several supporting industries like the cement or steel industries. At last count, the realty sector was enjoying an enviable growth rate of about 35 per cent, and was valued at approximately US$ 15 billion.
Today, the breakdown of the US housing market has spelled trouble for the sector in India. Sanjay Dutt, CEO (Business), Jones Lang LaSalle Meghraj, which offers leasing, consulting, research, and property and development services, asserts, “The residential real estate space has been severely affected because of the combined pressure from high interest rates and high property rates. There is also a slowdown in commercial real estate development, especially with IT, ITes and retail companies that are putting their expansion plans on hold. It is true that employers in the real estate space are letting people go, and this is happening across the board. There is now a liquidity crunch, as well as dwindling demand, making it difficult to complete projects. This is the time for realism. Investors have more or less left the market, leaving only real-end users, who do not buy for speculative purposes, only when there is a genuine need.”
RETAIL
The fifth largest retail destination globally, the Indian retail sector was ranked second after Vietnam as the most attractive, emerging market destination for investment in the retail sector, by AT Kearney’s seventh annual Global Retail Development Index (GRDI), in 2008. Moreover, according to ASSOCHAM, the Indian retail sector touched US$ 300 billion in 2007.
However, industry biggies acknowledged that the retail shimmer has dimmed somewhat,
Sanjay Jog, Chief People Officer, Future Group (Pantaloon, Big Bazaar), admits, “There is a slowdown in recruitment, but recruitment for front end operations (floor manager and below), are in full flow, as much as last year. We are not hiring in certain categories like merchandising, HR, finance, accounting and supply chain management. We had actually frozen recruitment six months ago, before recession, and were leveraging the resources we had.”
Jog clarifies that the value retail side (supermarkets) are not as affected as the lifestyle segment, although there are rationalisation of employee costs, like travelling economy instead of first, or staying at a guest house instead of a hotel. Prof Dr Uday Salunkhe, Group Director, Welingkar Institute of Management, agrees, saying, “Certain verticals within the retail sector may be impacted more so than others. Consumer electronics for instance does not appear to be as affected as the food and grocery segment.”
Nisha S*, who works with a major retail chain, reveals, “There are salary cuts in some organisations, and layoffs in support areas like IT, or in speciality formats, which companies believe are not working out as planned.”
MEDIA
The advertising industry recorded a growth of 22 per cent in 2007 to reach US$ 4.75 billion, contributing 38 per cent of the media and entertainment industry revenues. Abhinav P*, an executive with an international advertising group, presents a heartening picture for the sector, stating, “While market conditions may be adverse, companies are now looking to make more strategic investments in communication, to get people to get out and buy, since buying is, in fact, the only way out of a recession. We believe we’ll see this storm out.”
However, the US$ 5.48 billion TV industry and the US$ 3.62 billion print media segments may not be as fortunate. Dhrishti K*, a sales executive with a major, international television group, reveals, “Business is bad, revenues have dipped tremendously, and recruitment has been frozen, although layoffs haven’t begun yet. There is rumour of newer, smaller channels shutting shop. Media sales is now a tough area because the first place that companies budget is ad expenses. If they first advertised on five channels, they will now divert monies to only two in every genre, and thus, the fight for monies begins.”
No matter the situation with various sectors today, insiders believe that the Indian economy will be able to live out this phase, and when economic conditions improve, start another glorious cycle. What remains for us to do, is to strap in for the ride, and make informed choices while we wait out the storm.
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