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After the large companies, it is the small enterprises in Gurgaon that may have to agree to the demands of workers for an increase in wages. Emulating their peers employed by auto giants located in Gurgaon, workers from auto ancillaries in India's northern auto hub are pressing managements for wage hikes.
But the small and medium enterprises (SMEs) that dominate the auto parts industry are finding it difficult to do so, having already been hit by a fall in sales in 2012-13.
"The OEMs (original equipment manufacturers) already have substantial inventories, so fresh orders are lower than earlier projected. Dwindling sales have made a dent on our profitability, so it is difficult for us to absorb wage revisions at the rate that the OEMs have offered their employees," said a supplier.
He revealed that the demand schedule provided by the OEMs for the month of April indicates a 15 per cent reduction compared to April last year. Most of the SMEs that Business Standard spoke to are operating at 60-70 per cent capacity.
"We are not averse to wage revision but it should not hit our bottomlines," said a vendor. The revision in fuel prices and power tariffs, shrinking demand and wage hikes have combined to put pressure on small enterprises.
Gurgaon is dotted with auto ancillaries catering to both the domestic and the export market. Both categories of ancillaries have been hit, but those supplying to overseas players are worse off.
According to Rahul Bhatia, managing director, Onassis Auto Limited, demand in the European market had been hit particularly badly. Those catering to the European market have seen their order books, as well as sales and profits, shrink by 25-30 per cent. Exchange rate fluctuations and hedging instruments offer some relief.
Those supplying to US-based OEMs are slightly better off, as the US economy has started showing some signs of recovery. Bhatia said that the OEMs in Gurgaon offer salaries that are five to six times the remuneration that SMEs pay their workers for the same jobs, adding that small companies cannot pay such compensation packages.
Another entrepreneur from the Gurgaon cluster pointed out that the first two quarters of 2013-14 are likely to see little or no growth, because OEMs would aim to exhaust their inventories in the first few months, and only then place fresh orders.
He added that the demand in the monsoon season remains sluggish, and so the second quarter may also not bring any revival. However, the third quarter may bring some relief, as it is marked by the festival season and the arrival of the kharif crop.
