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Auto industry creates jobs but not too many permanent ones

By all accounts, the auto sector is the poster child for the Narendra Modi government’s ‘job-creation’ mantra. A CNBC-TV18 analysis has revealed that in the last financial year, while the country’s top 4 automakers – Maruti Suzuki , Tata Motors , M&M and Hero MotoCorp – together created over 13,000 new jobs – an overwhelming 70 percent were however on a contract basis, i.e. jobs lacking permanency.

Not just that, the share of contract or temporary workers to the overall workforce has also inched up in each of these four companies.

Picture this: in FY2015-16 Maruti Suzuki hired 2,685 workers, out of which nearly 2,100 were on a contract basis. M&M – the country’s largest SUV and tractor maker – brought on board 1,230 workers, but an overwhelming 966 of them were again contractual in nature. Tata Motors, that is clearly the largest employer, hired over 7,000 workers, but over half of these were not on company pay rolls.

A further analysis also throws up, how a surge in the hiring of contract workers last fiscal, has pushed up their share in the total workforce substantially, and in some cases as high as 70 percent.

Let’s take Maruti’s example again. Last fiscal, contract workers accounted for 42 percent of the company’s total workforce, a full four percentage point higher than in the previous fiscal FY2014-15.

For Hero MotoCorp, 70 percent of its total workforce are contract or temporary in nature up from 68 percent in the previous year.

Tata Motors, the country’s largest auto firm, saw the share of temporary workers reach 33.4 percent last fiscal from 30.6 percent previously. Even M&M now employs nearly 49 percent of its workforce on a temporary basis.

Source: Annual Report

But why the great fuss about contract workers? That’s because contract workers, unlike their permanent counterpart, are hired from external agencies normally for shorter-periods to meet sudden spike in demands, and are let go once the production normalizes. Hence, there is no permanency to these recruitments.

These temporary workers also do not qualify for basic entitlements that permanent or salaried workers do, and they cost companies far less.

A spokesperson for Maruti Suzuki explained the spike in contract hiring last year by underscoring the cyclicality of the industry. “The demand for automobiles in India fluctuates a great deal. The difference in demand between the peak season and the low season could be as much as 25 percent,” the spokesperson said.

Echoing similar views, a Tata Motors spokesperson said that the sudden shifts in demand patterns is the major reason for this trend in the auto industry.

Privately, industry executives blame rigid and inflexible labour laws for employing a higher share of contract workers. The inability to let go off workers when demand falls (one needs to seek clearance from the State before laying off any worker), they argue, hinders flexibility and thus companies prefer temps instead.

Sources told CNBC-TV18 that last fiscal was a year when industry demand finally started turning positive after two years of tepid growth, but owing to the fragility of the underlying demand companies were unwilling to invest too much capital.