Services sector firms led India Inc's job creation in FY23, says study

Service sector companies in the information technology (IT), banking and finance segments comprise nearly half of the new jobs created in FY23 by India Inc, while firms in the manufacturing, infrastructure and consumption sectors saw moderate job creation, according to the latest study by Bank of Baroda released on Friday.

Of the 8.12 million new jobs created by Indian companies, firms in these three services sectors created 3.91 million (48.2 per cent) employment during the year. The IT sector (2.06 million) led with the most jobs created, followed by banking (1.25 million) and finance (Rs 575,000), the data showed. 

The study by the state-run bank sums the number of employees of close to 3,000 companies in the corporate sector in the past five years. It starts from a normal pre-Covid year of FY19 and traces movements till FY23. Data is collated from the annual reports of the companies. 

“The aspect of employment has become important because it has been observed that in the last few years several companies have been rationalising their headcount to align the same with their business models. Also the greater use of artificial intelligence and machine learning does pose some challenges to job creation. Against this background the corporate picture gains more significance as this will be the first segment to be affected by both business cycles as well as the proliferation of technology,” the report reads. 

Besides, the report also mentions that between FY19 and FY23, the compound annual growth rate (CAGR) of the new jobs created stood at 3.1 per cent as the number of new jobs created grew to 8.12 million from 7.19 million in this four-year period. 

Madan Sabnavis, chief economist, Bank of Baroda says that employment is a critical factor in the growth process of the economy as it provides a base for the build-up of consumption and there has been a smart bounce back of the services sector which is also seen in the monthly Purchasing Managers’ Index (PMI), which is the closest indicator one gets on the growth in this sector. 

“[However] the manufacturing sector is yet to recover fully from the dual lockdowns in 2020 and 2021 and are yet to reach optimal capacity utilisation which normally is a prerequisite before more labour and capital are employed,” he added.  

Meanwhile firms in the sectors like healthcare (2.4 per cent), chemicals (2.1 per cent), infrastructure (1.7 per cent), plastics (0.8 per cent), paper (0.8 per cent) and hospitality (0.1 per cent) among others registered a CAGR below the national average (3.1 per cent) in the period under consideration. 

On the other hand, significant industries including construction material, agri industry, capital goods, power, non-ferrous, crude oil, media realty and auto among others saw job losses during this period. The report also notes that of the 2975 companies in the sample, it was observed that 1471 of them witnessed job losses. 

“This is an alarming number as it indicates that the overall growth of 3.1 per cent was brought about by the other half of the sample companies. These 1471 companies had witnessed a fall in headcount during this period by 0.82 million while the 1504 companies had seen an addition of 1.74 mn thus registering a net increase of 0.92 million,” says the report.