India Inc's manpower-output ratio increases despite slim-down efforts

Even as corporate India is trying to minimise costs, especially manpower costs, the manpower-output ratio that indicates personnel cost compared to production value has been rising indicating lower utilisation.
As observed in the study carried out by FE, output of 25 major corporate houses increased by 14.3% to Rs 53.22 lakh crore in 2007-08 from Rs 46.55 lakh crore in 2006-07, and increased further by 19.8% to Rs 63.78 lakh crore in 2008-09.
The manpower cost that includes wages, provident fund and gratuity, increased 21% to Rs 3.93 lakh crore in 2007-08 and 19.5% to Rs 4.70 lakh crore in 2008-09. Hence, the manpower-output ratio increased from 6.98% in 2006-07 to 7.37% in 2008-09. The net profit margin (net profit as a percentage of sale) of the 25 houses decreased to 9.96% during 2008-09 from 12.39% during 2006-07.
From a sample in the study, 10 industrial houses managed to do better and saw a decline in the ratio, while and 15 experienced a rise in 2008-09 compared with 2006-07. Many witnessed an increase in the manpower-output ratio, indicating they spent more on personnel costs per unit of output.
As a sample study of good performers, Tata Group spent Rs 16 on labour for every Rs 100 worth of output. Essar, Murugappa Group, Videocon (VIDEOIND.NS : 234.05 -4.6), BK Birla, Welspun and Pantaloon were good performers in 2008-09 as compared with 2006-07. The manpower-output ratio of Murugappa Group steadily decreased from 5.48% during 2006-07 to 3.17% during 2008-09.
Houses that witnessed a sharp increase in the ratio from 2006-07 to 2008-09 were the Tata group, Aditya Birla group, OP Jindal, Sterlite, Wipro (WIPRO.NS : 700.05 -9.4), Mahindra, Hinduja, RP Goenka and Bajaj (BAJAJAUTO.NS : 2101.05 0) group.

The sharp increase in the labour-output ratio of Tata group during 2008-09 can be explained from the output figures. Output figures of Tata Group stood at Rs 8.77 lakh crore in 2006-07 increased to Rs 9.74 lakh crore in 2007-08 and increased further to Rs 11.23 lakh crore in 2008-09. Personnel cost increased steadily by 21.8% to Rs 1.51 lakh crore in 2007-08 from Rs 1.24 lakh crore in 2006-07 and increased further by 22% to Rs 1.84 lakh crore in 2008-09.
Of the 25 major houses, 14 houses showed a decline in growth of their labour cost during 2008-09 as compared to 2007-08. Mention may be made of Aditya Birla, Om Prakash Jindal, ADAG, Mahindra, Hinduja and Jaiprakash. The growth of labour cost of Aditya Birla group decreased from 24.7% to 15.7% during 2008-09.


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