Article (October-2019)


HR needs to be more proactive during slowdown

Yogesh Sharma

Designation : -   COO

Organization : -  Continental Engines, Bhiwadi


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How do you see the current economic slowdown, on a larger scale?

YS Economy is not good, but better than you might expect and worse than you might have hoped.

Four quarter ago when slowdown began knocking at the Indian economy's door, it was hard to imagine its sound and fury would be felt across industries as diverse as automobiles, consumer durables, FMCG, cement and real estate even financial services all at once. By that time 3 of the four engines of the economy had already collapsed. The latest and the most potent one being consumption accounts to 70 percent of our GDP. The engine number two - Private Investment had begun sputtering that far back. The third engine - Export had peaked in 2013 but had been on a downward spiral since then. For the past 5 years, the economy was chugging along with just two engines - Consumption and Private Investment, which is why the slowdown became so conspicuous as soon as consumption began falling about a year ago. This scenario could be another recession and it would be harder to tackle than one, 10 years ago.

The GDP growth was as lower as 5.7% in first Quarter of 19-20 which is now latest registered at 5%, so the slowdown is a clear and complex challenge. Even traders and businessmen seek support from government and non-profit organization i.e. ACMA, SIAM. With India's economic growth rate falling for third straight quarter, the fear of global recession have reemerged after a decade. The unending trade war between the United States and china has worsened the condition.

Coming to auto industry, it is facing an unprecedented slow down. Vehicles sale in all segments have continued to plummet for the last several months.

Is it restricted to India only because of localized circumstances or have reached to global level?

YS India is facing a slowdown and there are many who believe that we are just a year away from a full-scale world recession, as kind of repeat of what we saw a decade ago after the international financial crisis. The trade war was trigged by Donald Trump and his tariff barriers to the US economy are only hastening the process, impacting emerging countries like India the most. There are many elements that go into the making of a recession. An important one is consumer sentiments. If people sense bad times are coming, they crimp and save more than normal for a rainy day. They avoid spending on what they perceive to be luxury, and sometimes even postpone buying essential goods. Thus, result demands a hitting force on economic slowdown. With domestic conditions already bleak, a hostile global environment, tariff wars and rising protectionism could soon compound India's trouble.

Exports has also declined, sluggish global demands and US- china trade war are adding fuel to an already raging fire.With the economy losing steam, growth slowing across all major industries, a severe income crunch, a pick-up skilled workforce and business likely being driven away, there are signs that Indian could soon be looking at an entrenched slowdown, but globally the effect might be after 9-10 months.

What are the factors that have triggered this downturn?

YS Indian economy now resembles as a stalling aircraft losing altitude, red alert flashing, struggling to start up. Despite government stated commitment to make it a 5 trillion economy in five years from now, there is every indication that economy has an uphill battle at hand. From where it all started, it started at the time of demonetization in November 2016, when government announced demonetization, they expected a return liquidity of cash $ 50 lakh million but in actual they didn't receive. The real picture was the liquid cash in the market and was in the form of real estate and gold.

Now, if you see gold jewel industry has also applied a brake and has not witnessed any significant growth in last two years. Soring gold prices compared to last year has also curbed the consumers spending power.

The second major impact was (NPA) non-performing assets but how NPA does affects the Indian economy. As the NPA of the bank rise, it will bring a scarcity of funds in the economy. This will hurt the overall demand in economy, and will finally lead to lower growth in GDP and of course higher inflation because of higher cost of capital. Also, banks capacity to lend has been severely affected because of mounting NPAs. This indicates that an increasing proportion of bank assets have ceased to generate income for the bank, which is leading to lowering the bank's profitability and its ability to grant further credit. One of the leading factors amongst these is a decrease in global commodity prices.

Thirdly, crude oil price has increased by 21% by last year. It has a derail earnings growth of companies. Higher prices adversely impact on fiscal deficit. Fiscal deficit indicates the amount of money government has to borrow to meet its expenses. It poses a clear risk to India's fiscal health.

Fourthly, GST & Tax reforms had a knockout effect on exports growth in the year of implementation because of delay in refund from exporters. Thus, the GST law has brought under its ambit even the MSMEs.

How do you specify the relationship between economic downturn and job losses and how HR should address the challenge of job losses and maintain existing employees' morale?

YS Unemployment is the result of slowdown whereby as economic growth slows, companies generate less revenue and layoffs workers to cut cost. A domino effect ensues, where increased unemployment leads to drop in consumer spending, slowing growth even further, which forces businesses to lay off more workers.

Growth & employment go hand in hand. Growth in an economy is measured by GDP and the aggregate of all the goods and services in the company depends on two factors : consumer spending power and business investment. If consumer spending is robust, consumers might increase purchase of clothes, homes, car & devices and would spend on his luxuries. As a result, employment or job are created in industry leading to more demand and supply.

If economic outlook appears to be favorable companies tend to invest their business for upgrading businesses, adding new machinery etc. In doing so, companies hire workers to help with the added production which helps in increasing employment.

In case of recession, companies struggle with less cash and revenue, they first try to reduce their costs by covering wages or ceasing to hire new workers, which can stop employment growth with fewer consumers and business spending.

HR plays a crucial role during employees' job losses boosting staff motivation and morale is especially challenging when companies endure layoffs. HR should increase communication with employees frequently to maintain their morale. HR should emphasize more and more on their proven skills and their increased performance. HR can reassign the work and so that every employee is equally loaded with work. HR can have more open house sessions with small groups and individuals meeting to provide continued reassurance and coaching.

This is the right time when HR can focus on individual's development, skill up-gradation, and multi - tasking and learning new technique and skills to the employees. Since production volumes have lowered, this is the time when we can multi skill our workforce on the new engineering skills which can be utilized later. This is the time when organizations can focus more on cost saving project, lean manufacturing and improvements at shop floor. HR should focus that every individual is involved in quality circles and kaizen activities, so that we can improve upon our inefficiencies. This could be achieved by rewarding and recognizing employees' efforts. So key to success in this crisis is how HR keeps their human assets motivated and engaged with the company.

How HR should prepare well in advance for such massive job casualties?

YS During this period HR should become more agile as HR is not limited to its day to day activities. They are required to offer their inputs on high level business guidance, leadership strategy and market awareness in order to define the very future of work.

Looking into business scenario, HR is also aware about the market trend and could forecast the market. HR should gaze the pulse of the market and should have a close watch on the GDP and unemployment trend.

Reserve of 'Resilience' :- Resilience is the rubber ball factor - the ability to bounce back in the event of adversity. HR should develop resilience of each and every employee in order to cope with and rise to the inevitable challenges, problems and setbacks; you meet in course of life and come back stronger.

It is a time when hiring stops and recruitment is freezed. Here we can utilize our internal resources. Vacant positions can be filled through internal movement. Employees could be given transfer to multiple locations. It is a time, when one's job responsibilities can be enriched and enlarged. It is a time when we restructure our organization and maximum of the output can be cultivated.

We should have a human touch with every employee. All employees should feel as a stake holder of the company and work for everyone's benefit. It is employee and employer connect and employer should ensure that during this time its talent should not drain.

Who do you think suffers the most during recession - employee or the employer?

YS I would say both. it is hard time for employees as well as employer. It is a time when organization is looking for cost cutting and to improve organization PBT. It is when the organization just thinks how they can change the negative nos. to positive side. If you see from employers' point of view, the working capital gets invested due to business expansion, the inventory piles up and credit period decreases. The break-even point of the organization rises with current expenses in the organization. Thus, the focus is on to reduce cost and to achieve break-even point.

The company would work with fewer people. Hence, productivity per employee would increase but morale of employee gets a hit as hours become longer, work become harder and the biggest factor in the employee mind is danger of further layoffs.

Organization shall cut on incentive scheme, fringe benefits and focus on to reduce benefits. When employee sees job loss of any individual, he himself is scared of his job.Question of job security is in every individual mind which is turn de-motivates the employee. Employee losses his morale and the frustration drill down at family.

What are the jobs and domains that are most susceptible to economic slowdown? Are there industries or roles which are recession proof, in some way or the other?

YS As experts say, it is going to be big and global recession may hit by 2020. Seeing such kind of statement from economic experts, in my point of view no domain or industry will be spared. The industries which are linked with manufacturing sector would be hard hit. Times are tough, all business and corporate giants are struggling to stay afloat enough for a business to pick up.It is not only manufacturing industry but also the service sector which has been hit by the downturn because consumers are scared. Industry owners be it construction, textiles, auto components or services all are downsizing temporary hands. All COOs, CEOs are under tremendous cost pressure.

Industry like Health care, grocery items are the ones which will not be affected much because life will move on and necessary spending cannot be curtailed. This is a time one should watch his spending and unnecessary spending can be closely watched and curtailed.

Do you think that labour reforms have anything to do with enhancing job opportunities and why rolled out labour reforms are not able to improve business sentiment and help recovering industry from recession?

YS Reforming labour market is necessary for improving investment and generating employment and better wages in India. Labour policies can help different groups of workers acquire the right skills and ensure employment. With these right policies, India can ensure the greater GDP and can boost workers gains. Flexibility in labour laws create more conducive environment for growth of industry and employment generation. The improved labour reforms provide social security to people and other labour protection. The government schemes like ASDC, NATS, NAPS which promotes the skill development and employment from the rural areas as well. These employees are young blood willing to earn more and give highest of productivity. For developing nation like ours, India needs to create 55-60 lakhs job every year. The labour ministry is creating four labour codes - Wages, Industrial Relations, Social Security, and Industrial Safety & Welfare by simplifying and rationalizing the relevant provision of the existing labour laws. The government is working in favour of new start up and small-scale industries and promoting employment in rural areas. Though government is taking initiatives to make Stone Age legislation conducive to current business scenario, still a lot need to be done to improve upon industry sentiments.