17 February 2003 00:00 [Source: ACN]
Let me introduce you to Ravi Shah, an 18-year-old confused student from Mumbai, India. Ravi needs help in making a crucial decision - should he opt for a chemical-engineering course or follow his friends and enrol for a degree in electronic engineering?
His heart is in chemical engineering, but his friends have presented convincing arguments on why it would be foolish to pursue his heart's desire. There are not many jobs available for chemical engineers, they say. They also point out that salaries in the chemicals industry are far lower than in the information technology (IT) or electronics industries.
To get a better picture of job prospects, Ravi attended a seminar on career opportunities in the chemicals industry. Unfortunately, the speakers - top executives from some of the established Indian companies - talked only about the role chemical engineers would play in shaping the future. There was no mention of how many jobs were likely to become available in the years ahead. The seminar left Ravi even more confused.
Let us leave Ravi for a while and examine what really is happening in the Indian chemicals industry. We need to go back a little in time, to the early 1990s, when the Indian government decided to throw open the doors to the economy.
Waves of reform and liberalisation followed, forcing Indian companies to shape up or ship out. After decades of operating in a protected environment, some companies were forced to close shop.
But there were also success stories. The more agile companies were quick to transform themselves. Unfortunately, for every success story there was more than one failure. Today, industrial parks in Gujarat and Maharashtra, the chemicals belt along the west coast of India, house more closed units than operational ones.
The major closures include National Organic Chemicals Industries Ltd's (Nocil) cracker complex at Thane, Maharashtra. The company obtained the state government's permission to shut its 63 000 tonne/year complex in August 2002. The complex included units that produced 60 000 tonne/year of hdPE, 12 000 tonne/year of ethylene vinyl acetate copolymer, 14 000 tonne/year of ethylene oxide and 14 000 tonne/year of acetone.
Nocil, which built India's first cracker in the 1960s, is typical of many Indian companies that have been unable to keep up with the changes in India's business environment.
Its plans for a modern greenfield cracker to replace an old cracker failed to take off as it could not rope in a foreign investor. Faced with an acute shortage of cash, which prevented it from going solo, the company was finally forced to exit the petrochemicals business.
There is a growing realisation that the local chemicals industry is not competitive in some areas. One area is the cost of manpower as a percentage of sales, says RM Pandia, managing director of Schenectady Herdillia.
This ratio rose rapidly in the 1980s and the 1990s and even exceeded 10% in some companies. This was due to the socialist background of many Indian companies, which were employment- rather than equipment-oriented.
'Sometimes, however, surplus manpower was not intended; it was more the result of factors such as companies being forced by government regulations to convert contract labourers into salaried workers,' states an industry source.
There was also pressure from the government, especially on public-sector companies, to employ more staff than they needed. For instance, former state-owned Indian Petrochemicals Corp Ltd (IPCL) had no choice but to offer jobs to the local people who were displaced when it built its cracker complexes at Baroda, Nagothane and Gandhar.
The company had around 12 000 employees in the financial year ended 31 March 2002 and its manpower-related costs were 7.5% of its sales turnover.
In comparison, Reliance Industries' manpower costs are less than 2% of its turnover. And newcomer Haldia Petrochemicals Ltd (HPL), which operates a 450 000 tonne/year cracker on the east coast of India, has fewer than 1000 employees.
Reliance, which acquired IPCL last year, now faces the burden of trimming manpower costs at IPCL. Its telecommunications project can absorb some workers, and some IPCL personnel have been transferred to this division in the last few months. Many of the people have been asked to move for a short period to help Reliance launch its services. It remains to be seen if they will be brought back to petrochemicals.
One way of reducing costs at IPCL is to bring down the retirement age to 55 from the current 58. But the unions are reportedly resisting this move.
There are a number of other Indian companies that, like IPCL, are saddled with surplus and, often, unqualified staff. And although these companies understand that cuts in employee numbers are vital for their survival, the pace of change is slow. This is, after all, India where, for better or for worse, things move slowly, say industry players.
The concept of 'downsizing' is still very new. The close-knit family culture of many smaller companies also makes retrenchment difficult. The more socially conscious employers are often hesitant to sack older workers who may well be the only breadwinners in their families.
Walk into the offices of an Indian company and chances are you will still find an overstaffed reception desk and some peons whose only job is to fetch tea or coffee, photocopy or fax papers and run personal errands. Many companies still employ typists whose jobs include typing e-mails for managers. Also common are huge numbers of security guards as closed-circuit cameras are not very popular.
To be fair, it should be said that there are companies that make do with fewer workers. Unfortunately, there are more companies still stuck with surplus manpower and finding it difficult to shake them off.
In the last few years, voluntary-retirement schemes (VRS) and compulsory-retirement schemes (CRS) have become popular. The schemes offer money to employees who retire early - voluntarily or otherwise.
There are many stories of how these schemes have gone wrong. In some cases, the compensation packages were so attractive that many more employees than expected applied for VRS. In other cases, the more productive workers that companies would prefer to retain applied for an early retirement.
Those who have opted for early retirement have taken a calculated risk. Some have successfully found alternative employment. Others are still struggling. One former employee of a chemicals company decided to launch a catering business. But he admits that there is stiff competition in this sector too. He is hoping his former company will come to his assistance by giving him the contract to serve food at the company's canteen.
A source at a chemicals company which completed a voluntary retirement exercise recently says the decision to introduce VRS was not easy, especially as many of the workers had been with the company for over 20 years. But the company's management did decide that it would counsel workers and retrain them so that they could find another job.
The source admits that there are some former employees who are frustrated as they have been unable to find a suitable job.
One chemicals industry veteran moans that some companies have taken the easy way out. Instead of developing new projects that could keep their surplus staff gainfully employed, managements have preferred to hand out cash and bid their workers adieu, he says.
The absence of new projects is the crux of the problem. Barring some segments of the chemicals industry, such as pharmaceuticals and speciality chemicals, growth has been slow in the last few years.
For instance, no new cracker projects have been announced, despite impressive projections by the industry that the current surpluses in some products will disappear soon. The argument often heard at industry meetings is that, with a population of over 1bn and a per capita polymer or fibre consumption that is less than half of that in the developed countries, India's growth potential for petrochemicals is enormous. The arguments sound convincing, but where are the investments?
Reliance appears to be preoccupied with its ambitious foray into telecommunications. On the petrochemicals front, no mega-plans have been revealed so far, although expansions are widely expected at IPCL's cracker complexes at Gandhar and Nagothane. IPCL's oldest cracker at Baroda is long overdue for replacement and this should also materialise.
As for other petrochemical players, HPL can grow only after it completes its much-delayed restructuring while Gail India obtained board approval last year to expand its 300000 tonne/year cracker.
The new-project scene is not very different in the downstream sectors. The issue for Indian companies is competitiveness. A steady fall in duties makes it increasingly difficult to compete with international players who have access to low-cost feedstock, capital and infrastructure.
A second industry player points out that, even if the government maintains import tariffs at 15-20%, it would still not offer enough protection to domestic players as they struggle with high costs of power, fuel and infrastructure. Until recently, the cost of capital in India was 12-13% and, although this has since eased to around 10% with bigger companies able to obtain funds at slightly lower rates, it is still higher than in the developed countries.
'The effective rate of duty protection is therefore much lower or, in some cases, even negative,' he says.
A study conducted by the Confederation of Indian Industry and the World Bank concluded that India's marginal competitive advantage in cheap labour is eroded by massive disadvantages in power costs, interest rates, delays at custom houses, infrastructural bottlenecks and regulatory hassles.
According to the study, Indian managers in India spend 15.9% of their time dealing with government officials on regulatory and administrative issues. In comparison, managers in China spend only 9% of their time on these issues, while in developed countries the figure is even lower at 5.8%.
Foreign majors are also slow to invest in India. Most of them prefer to queue at China's doors or to build in Southeast Asia.
And sources in the Indian industry say it is not just infrastructure weakness that is driving foreign companies to China. One reason is India's labour policy and the lack of will on the part of the government to implement changes, says Pandia.
'With liberalisation, there has been tariff reduction and there is talk of bringing down tariffs to the levels in Asean countries. But labour laws should also be similar to those in Asean,' he adds.
Indian labour laws impose a number of restrictions on Indian employers in hiring and firing workers, and companies have long been lobbying for changes.
Given this difficult scenario, it is easy to understand why there are few jobs available in some sectors of the chemicals industry. The situation is not so different in many of the other industrial sectors.
A widespread belief in the country is that, while reforms have helped ease poverty, they have not generated sufficient employment opportunities.
A recent report by the International Labour Organisation states that, during 1993-2000, India's GDP (gross domestic product) grew at 6.6%/year, but employment growth was only 1%/year. In sharp contrast, GDP grew at 5.4%/year and employment by 2.1%/year during 1983-1993.
The report concludes that one of the reasons for the lacklustre employment growth is slower growth in industry and more retrenchments in the public sector. Together, they worsened labour market conditions.
The flip side of the human-resource coin is that chemical companies need not fear possible problems in finding manpower. Attracting, nurturing and motivating talent are not issues now and unlikely to be so in the future.
Companies had problems retaining talent in the late 1990s during the software-industry boom. Chemical companies lost people to the IT and e-commerce ventures, but since the collapse of the software bubble, many of them are attempting to find their way back. And with a number of chemical companies closing shop or trimming staff, a large pool of experienced and trained manpower is readily available.
Some players in the chemicals industry say there is no need to be unduly pessimistic about job opportunities. The industry is cyclical and has not been doing well globally. This, they say, has clouded judgement.
They urge new entrants to look for openings in the better-performing sectors such as pharmaceuticals, bulk drugs and speciality chemicals. As for the other sectors, they are confident growth will return, as imports can never meet India's requirements fully.
The second National Commission on Labour estimated that the chemicals industry employs about 4.5m workers. In a report prepared last year, it said the industry also generates indirect employment of around 12m.
India's main competitive strength, it added, lies in speciality chemicals. But in future, the country would increasingly face competition from China. The commission concluded that, despite current pressures, the industry would continue to offer many job opportunities.
The exit of uncompetitive businesses should also help the industry. Only the serious players who have a commitment to the business will survive, says an industry analyst.
Returning to Ravi Shah, can these arguments help ease his confusion? Maybe not.
At the Indian Institute of Technology (IIT) in Mumbai, out of the 58 chemical-engineering students who will be graduating this April, only 34 had been placed as of early February.
As for the 47 postgraduate students who completed their course recently, only 20 had firm job offers.
The IIT is India's premier engineering institute. If its students are finding it difficult to get jobs, there is little doubt that the going will be tougher for students from other colleges.
Placements are about 10% lower this year, says NS Rathi, assistant placement officer at IIT Mumbai. Interestingly, of the 13 companies that offered jobs, only four were chemical companies.
Rathi says IT companies have dominated the recruitment scene for the last 5-6 years. Chemical engineers have also been more interested in joining IT companies because of good growth prospects and significantly higher salaries.
Ravi still has some time to consider the various arguments that have been presented. But it is quite likely that he will follow his friends. And chances are that, even if he decides to pursue chemical engineering, he will end up working for a software company.
It is unlikely that India will ally itself with the US on the issue of disarming Saddam Hussein by force as it has a lot to lose in the event of a second Gulf War.
Escalating crude oil prices during the first Gulf War resulted in a rapid depletion of the country’s foreign-exchange reserves, forcing it to turn to the International Monetary Fund for emergency aid. And although this time India’s reserves are much healthier (around US$72bn at last count) and its crude-oil stocks are higher, few people doubt that a war will hurt the economy seriously.
It is not just the oil shock that the country fears. An equally great threat is the possible return of the large number of Indians working in the Gulf countries. More than 3m Indians are employed in the Gulf. Over 600 000 are working in Saudi Arabia, 300 000 in the United Arab Emirates, and 85 000 in Kuwait.
In the event of a full-fledged war, many of these workers would try to find their way home. It is difficult to estimate the number, as it would depend on how the war is fought and which countries in the Middle East are involved.
In 1991, over 80 000 Indian workers fled Kuwait. Tales abound of how low-skilled workers had to borrow more than US$1000 each to get home safely. The Indian government had to intervene to deal with complaints of maltreatment and to ensure that employment contracts were honoured.
And it is not just the issue of having to cope with a huge number of returnees. There is also the threat of losing the funds that workers send home regularly.
Jobs in the Middle East have traditionally been valued for their immense savings potential. Technically qualified people have found jobs in the region’s refineries and petrochemical plants. And even carpenters, plumbers and construction workers have headed west, often shelling out their life savings to middlemen for jobs that promised to transform their lives.
Social constraints as well as restrictions by employers have forced many Indians to leave families behind. As a result, they send home 50% or more of their salaries.
The possible loss of income, in case of a war, would be hard for the families as well as the country. And finding alternative employment in India would be an even greater problem.
Take the chemicals sector. Given the limited openings available now, those leaving jobs in refineries or petrochemical plants would be forced to sit at home or settle for lower-paying jobs.
A protracted war would have other implications as well.
While the ambitious plans for new projects in the Middle East are a competitive threat to Indian companies, they represent job opportunities to workers. A war could delay or jeopardise projects.
Indian workers hoping to find work in the Middle East should note, however, that, war or no war, job opportunities there are likely to become more scarce because most of the countries are promoting the use of local talent.
For instance, Saudi Arabia’s native workforce will have grown to 8m by 2020 from 3.2m in 2002. With the unemployment rate at 15%, more and more Saudis are willing to accept the lower-paid jobs that have traditionally gone to foreign workers.
Salary slips in India are complex bits of paper. Government restrictions on salary levels and high income taxes have, in the past, forced most Indian companies, including those in the chemicals sector, to develop innovative compensation schemes.
Although these restrictions have been lifted, many of the old ways still continue.
In many companies, the annual salary paid to an employee accounts for less than half of his compensation package. Some perks are usually offered to attract and retain talent.
It is common for companies to subsidise an employee's housing bill through a rental allowance. This could amount to 12-15% of his basic salary. At senior levels, the company may foot the entire housing bill.
Some companies have built entire townships near their factories. Indian Petrochemicals Corp Ltd (IPCL) has a township near its cracker complexes in Baroda, Gujarat, and Nagothane, Maharashtra. Reliance Industries has one at its Jamnagar refinery and petrochemical complex. These sprawling 'villages' offer employees not only highly subsidised housing, but also access to a mind-boggling range of free or almost-free facilities.
Senior managers are also likely to receive a car and a driver to negotiate the Indian traffic maze. And just to ensure that the families of the more valued employees do not feel neglected, a second car and driver may also be part of the compensation package.
Those on the lower rungs of the corporate ladder may be given a transport allowance to cover the cost of train/bus tickets or petrol.
A company-paid telephone at home and a mobile phone are usual perks for middle and senior managers. No self-respecting senior manager would settle for less, while some would even expect club memberships and paid overseas holidays for the entire family.
Some daring companies pay senior employees a portion of the total compensation package in a sealed envelope under the table every month. A chemical industry source tells of how one employer suggested that he should take at least 50% of his annual compensation in the form of cash. The source declined the offer, as he was wary of inviting trouble with the income-tax authorities.
Employee stock options are not common, especially in the chemical industry. They were prevalent in the information technology industry during the boom period in the late 1990s. But employees have since then realised that it is perhaps wiser to take the money upfront.
Other interesting perks that may be offered include allowances for the purchase of books, furniture and appliances such as washing machines, television sets or microwave ovens. Some companies also offer soft loans for the purchase of a house or a car, pay for the education of their employees' children, dole out money for the purchase of uniforms, reimburse medical expenses, or provide group medical insurance.
Not surprisingly, salary slips are complicated: they often have more than 40 sections to account for the various allowances and reimbursements.
Given the wide variety of perks on offer, a smart employee often negotiates hard to ensure he is compensated in the form of a number of tax-free allowances.
But the government is aware of what is happening. Slowly but surely, the laws are changing and many of the cherished perks are no longer totally tax-exempt. For instance, a ceiling has been set for house-rent allowances. Anything over this amount will be taxed.
It will be interesting to see if companies can stay a step ahead of the government. The challenge will be to ensure that an employee's take-home pay does not fall with higher taxes. At the same time, companies will have to ensure that basic salaries do not rise, as any increase would add to their pension-fund burden.
It is probably time to think of even more innovative perks. Any suggestions?
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