PRIVATE SECTOR TO BE THE “STIMULUS”

about 4 years ago

 

The Govt’s various “stimuli” have been a damp squib. Infact even when we hear that “something” is going to be announced, if it is coming from the FM, well, all our expectations are kind of tempered down. Now we understand the meaning of living life without expectations!

The point is that even if the Govt is not giving any meaningful stimulus, looks like the private sector companies that are doing well are bringing in the much-needed cheer.

With Reliance signing up multi-billion dollar deals ever since the lockdown started, its good that the company, instead of rewarding itself with high dividends, is looking out for its employees, sharing some of its riches.

Yesterday, Reliance Industries announced that it is rolling back the salary cuts for its employees with retrospective effect - more than 3.5 lakh employees will get their arrears due from 1st April, 2020.

This apart it is also giving them a performance bonus that was deferred on account of the pandemic.  RIL’s employees are being offered an advance 30% of its variable pay from next year’s as a goodwill gesture for working during the pandemic.  These payouts/bonus will come into effect along with the October 2020 salary.

Apart from RIL, over the past few weeks, we have already seen how IT companies, which are on a good growth trajectory, are offering pay hikes to their employees. In most companies, when the lockdown began, pay hikes and incentives were rolled back. Now that many have won major big deals, hikes and promotions are being rolled out, most effective 1st Oct. This is coming from not just large cap IT companies but even the mid cap ones.

The benefit is huge. TCS has 4.5 lakh employees, Infosys has 2.4 lakh, HCL Tech has 1.53 lakh and Wipro has 1.85 lakh. Just between these four, some 10.28 lakh employees are expected to benefit. What if most mid cap companies too do the same?

Get the gist of this? If all companies, all those who are doing well, give their employees pay hikes or bonuses, won’t that in itself act as a great demand booster?  Even if there is no pay hike or bonus, companies restoring salaries back to pre-covid levels in itself is a great positive signal – that sense of insecurity will reduce which in turn will prompt repressed demand, especially during these festive months.

According to a survey done by AON on HR practices of 2,000 companies globally and 425 in India found out that 12% had already restored salaries and another 20% have made similar announcements or are about to make the same. In auto component companies where employees were given as much as 30% haircut, salaries have been restored by as much as 10% every month since August.

Govt stimulus or not, if all employers restore salaries back to pre-covid levels and those doing well, reward employees with bonus and pay hikes, the economy will automatically bounce back.

Thus all responsibility cannot be that of the Govt alone; if the private sector too helps pump up demand, surely Q3 could well turn into a cheerful festive quarter – at least that is what the writing on the wall currently indicates.