Contract Workers Are The First Victims Of Auto Slump

“I was shocked. I have a big family to take care of two brothers and two sisters, and I’m the eldest of them,” he told BloombergQuint over the phone. “We knew things were bad as shifts on the production line were reduced from three to two.”

Bellsonica, a supplier of chassis parts to India’s largest carmaker Maruti Suzuki India Ltd., has laid off 400 of the 600 temporary workers like Kumar since December, Ajit Singh, vice president at the workers’ union, told BloombergQuint. The company isn't alone.

BloombergQuint’s conversations with employees and union members of six automakers and parts suppliers in the Gurugram-Manesar belt of Haryana revealed that at least 1,800 such employees have lost jobs. That comes as Indians cut spending on everything from cars to shampoos as the economy slows down. The nation’s GDP growth fell to a 20-quarter low in the three months ended March. And job situation is also grim. The Periodic Labour Force Survey of the National Sample Survey Office revealed that the unemployment rate stood at 6.1 percent, the highest in more than four decades.

The Gurugram-Manesar belt is one of the most important hubs which now extends till Jaipur in Rajasthan. It contributes 80 percent of the automotive revenue in north India, according to Vinnie Mehta, director general of Auto Component Manufacturers Association. The companies in the region, said Suresh Gaur, the local head of All India Trade Union Congress, employ six to seven lakh contract workers.

Nearly half of the auto industry's labour force comprises such workers, according to government's annual survey data. They’re not on payroll and get no benefits apart from salary. Hired depending on production cycles through outside agencies, they're usually retained through the year. But things have turned difficult because of production cuts. And the situation could become worse if the slowdown persists.

A contract worker at Rico Aluminium and Ferrous Auto Component Ltd. has seen his monthly wage fall by a third since Diwali last year. He makes about Rs 9,000 a month, down from Rs 14,000, including incentives last year, said the worker on the condition of anonymity. He didn’t want to be identified out of employment concerns. “It’s not easy to sustain like this.”

Netrapal Singh, union president at Rico Aluminium, said sales have fallen by 20-25 percent in April alone. “This kind of slowdown we haven’t seen in a really long time. It reminds me of the 2008 crisis, when the auto industry went through a difficult phase.”

According to Singh, the auto parts maker gets half of its business from Hero MotoCorp Ltd. and employs about 400 on payroll and nearly 1,200 casual workers. Another company employee told BloombergQuint on the condition of anonymity that it had laid off about 250 contract workers. But Singh denied that.

Rico Aluminium didn’t respond to BloombergQuint’s emailed queries.

At the nearby Sunbeam Auto Pvt. Ltd., a bunch of union workers were discussing the sudden change in shifts. The supplier of parts for makers of cars and scooters employs 1,700 casual labour and nearly 1,200 permanently, they said.

“We are seeing poor demand from Hero MotoCorp Ltd., which accounts for 65 percent of the business,” Hari Om, general secretary at the union, said. The rest of the business largely comes from Maruti Suzuki India Ltd., India’s largest carmaker, and exports.

Not just Hero MotoCorp, demand is poor everywhere, according to the union members. Last month, shifts were reduced to five days a week from six because of production cuts, they said.

The situation was bad in March-April and production is down 20 percent even in May, said Om. While there have been no layoffs yet, contract workers are worried, he said. “If the situation persists, panic might start to kick in.”

At Honda Motorcycle and Scooter India Ltd.’s facility Manesar, the impact is even more acute. The maker of Activa scooter has laid off nearly 1,200 contract workers, Ramesh Pradhan, general secretary of its employee union, told BloombergQuint. Production has fallen 5,500-6,000 vehicles a day to 4,000, he said, adding: “There is a fear among other workers.”

Maruti Suzuki India and Hero MotoCorp have so far not laid off contract workers, union leaders told BloombergQuint. While Hero has nearly 4,000 contractual workforce and 1,500 permanent employees, Maruti has 1,800 on payroll and more than 5,000 on short-term contract, they said. But they too are worried, particularly with layoffs around them.

Maruti Suzuki declined to comment, while Hero MotoCorp, Sunbeam and Honda Motorcycle have yet to respond to BloombergQuint’s emailed queries.

Contract labour is designed to adjust the workface to the market, according to Vishnu Mathur, director general at SIAM. There's no doubt the industry is going through a slowdown, he said, adding that companies are trying to adjust their inventory. But he is optimistic.

Pramod Kumar, who worked at Bellsonica, is hopeful, too. Originally from Mirzapur, Uttar Pradesh, he hasn’t left Gurugram. “I have been hunting for a job for four months,” he said. “I don’t want to go back jobless.”