Soaring cost of employees raises India Inc fears; here’s why

Source:The Financial Express Orignal Link


Employee cost of a majority of BSE 500 companies has risen at a much higher rate than their revenue growth between FY11 and FY16.

A detailed FE analysis of the financials of 442 companies that are a part of the BSE 500 reveals that while their revenue has grown at a CAGR of 8.6% between FY11 and FY16, their employee expense has risen at a CAGR of 13.4% during the five-year period. As a result, while employee cost accounted for just 7.6% of the revenue of this sample in FY12, the same has shot up to 11.3% in FY16, thereby putting pressure on margins. In fact, FY16 only saw further strengthening of this trend as a revenue de-growth of 4.3% was accompanied by a employee expense rise of 8.2%.

“In a scenario where revenue is falling, rising employee cost is a combination of adding new people and increment to the existing staff. In a growing economy like India, rise in salary comes first followed by an increase in revenue,” said Anandorup Ghosh, partner, talents and rewards, at human resource consulting firm Aon Hewitt.


He also added that, in India average salary increment is in the range of 10-11%. Export-driven sectors boast the sharpest increase in employee cost as IT and auto & auto ancillaries have witnessed the highest growth in employee cost between FY11 and FY16 — CAGR of 23% — followed by pharmaceuticals, which has seen an increase in wage bills at a CAGR of 22.5% in these five years. Not far behind are some of the top private sector banks.

For instance, the country’s largest lender by market value – HDFC Bank – added 11,000-odd employees to its headcount in FY16 and saw a 22.1% increase in wage bills. “Our employee strength, partly given the branch expansion, partly given a significant expansion in our retail lending businesses and, of course, all other functions which support those resulted in an increase of the headcount” said Paresh Dattatraya Sukthankar, deputy MD of the bank, after Q4 results.

Similarly, India’s largest IT firm TCS, which added 34,000 employees on a net basis in FY16, saw an increase of 7.9% in employee cost to `41,769 crore. “For FY17, we have announced the raise increase of 8% on average and going up to 12% for top performers for employees in India. In other geographies, the increase ranges from 2% to 6%” chief executive officer N Chandrasekaran had said in an analyst call post FY16 results.