INTRODUCTION

Meaning of Global Recession

A recession is a decline in a country’s Gross Domestic Product (GDP) growth for two or more consecutive quarters of a year. A recession is also preceded by several quarters of slowing down. An economy, which grows over of period of time, tends to slow down the growth as a part of the normal economic cycle. An economy typically expands for 6-10 years and tends to go into a recession for about six months to 2 years. A recession normally takes place when consumers lose confidence in the growth of the economy and spend less. These leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay-offs and a sharp rise in unemployment. Investors spend less; as they fear stocks values will fall and thus stock markets fall on negative sentiment. Risk aversion, deleveraging and frozen money markets and reduced investor interest adversely affect t capital and financial flows, import – export and overall GDP of an economy. This is what exactly what happened in US and as a result of contagion effect spread all over the world due to high integration in the global economy.

According to the International Monetary Fund (IMF)’s latest Global Financial Stability report (GFSR) widening and deepening fallout from the US subprime mortgage crisis have profound financial system and macro-economic implications.

While the US remains at the ‘epicenter’, the backwash effect of the American financial institution in other countries ‘reflecting the same overly benign global financial conditions, an inattention to appropriate risk management systems and lapses in prudential supervision’.

The global slowdown has its implications on the domestic economy. During the last three years Indian Economy grew at an average annual rate of 8.6 per cent. For the first time the economy has shown signs of deceleration and grew at 7.8 per cent in the first half year of 2008-09 (April-September). The service sector, which contributes more than 50% share in the GDP and is the prime growth engine, reported to be slowing down, mainly in the transport, communication, trade, and hotels & restaurants sub-sectors. The industrial growth has decelerated sharply during April-November, 2008 encompassing all the constituent sectors. In manufacturing sector, the growth has come down to 4.0 per cent in April-November, 2008 as compared to 9.8 percent in the corresponding period of last year. The slowdown occurred in the all the use-based categories, except consumer goods where it has accelerated.

Meaning of HRM

Humans are an organization’s greatest assets; without them, everyday business functions such as managing cash flow, making business transactions, communicating through all forms of media, and dealing with customers could not be completed. Humans and the potential they possess drive an organization. Today’s organizations are continuously changing. Organizational change impacts not only the business but also its employees. In order to maximize organizational effectiveness, human potential—individuals’ capabilities, time, and talents—must be managed. Human resource management works to ensure that employees are able to meet the organization’s goals.

Human resource management is responsible for how people are treated in organizations. It is responsible for bringing people into the organization, helping them perform their work, compensating them for their labors, and solving problems that arise. There are seven management functions of a human resources (HR) department that will be specifically addressed: staffing, performance appraisals, compensation and benefits, training and development, employee and labor relations, safety and health, and human resource research.

Global Recession and HRM

The financial downturn is impacting developed as well as developing economies are likely to get worse as the European countries, the US and others go into a deeper depression due to the increase in job losses which often follows recession. The slump in the market and increased job losses will have some important implications for the changing task of human resource professionals. As the unemployment continues to increase, HR professionals are likely to be dealing with more stressed employees who are the sole wage earners in their families.

As recession is becoming the part of the normal cycle of business. Therefore it makes just as much sense to plan for recession or downturns as it does to plan for good, economic times.

OBJECTIVE

This economic downfall has affected all the major sectors in India including IT, aviation, banking, real estate, tourism, outsourcing, telecommunication, etc with its consequence mainly on the HR policies of these industries.

This article discusses

1. Impact of economic slowdown on employment in India.
2. The emerging challenges of human resource management in the global recession situation.
3. The strategy adopted by HR personnel to deal with these challenges.

HYPOTHESIS

In today’s economic meltdown where job cuts, loss, pay reduction, last come first go, insecurity of employment atmosphere prevail, HR has special responsibility to create ease environment to the affected by counseling, displaying care and concern, preparing them for multi skill task, engaging and deploying in other required areas of functions like security, crisis management team, etc.

• Global recession has raised various emerging challenges for Human Resources Managers
• HR needs to be proactive & innovative and try to come up with early interventions as for any organization to survive during recession.

REVIEW OF LITERATURE

“The global economic crisis is expected to lead to painful cuts in the wages of millions of workers worldwide in the coming year. It predicts that the slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of the world’s 1.5 billion wage-earners, particularly low-wage and poorer households. Between the years 1995 and 2007, for each one per cent decline in GDP per 2 capita, average wages fell even further by 1.55 percentage point, a result that points to the possible effects on wages in the current crisis. [International Labour Office (ILO), 2007-08].

‘The economic slowdown of the advanced countries which started around mid-2007, as a result of sub-prime crisis in USA, led to the spread of economic crisis across the globe. Many hegemonic financial institutions like Lehman Brothers or Washington Mutual or General Motors collapsed and several became bankrupt in this crisis. According to the current available assessment of the IMF, the global economy is projected to contract by 1.4 per cent in 2009.Even as recently as six months ago, there was a view that the fallout of the crisis will remain confined only to the financial sector of advanced economies and at the most there would be a shallow effect on emerging economies like India. These expectations, as it now turns out, have been belied. The contagion has traversed from the financial to the real sector; and it now looks like the recession will be deeper and the recovery longer than earlier anticipated. Many economists are now predicting that this ‘Great Recession’of 2008-09 will be the worst global recession since the 1930s’.[Choudhari 2008]

“The financial downturn that is impacting developed economies are likely to get worse as the European countries, the US and others go into a deeper depression due to the increase in Job losses which often follows recession. The slump in the market and increased job losses will have some important implications for the changing tasks of human resource professionals. As the unemployment continues to increase, HR professionals are likely to be dealing with more stressed employees who are the sole wage earners in their families”. [Mujtaba, 2008}

“The global economic crisis has brought to the forefront of organizations the concepts of viability and survival which at these times can be desperate pursuit. There are three main reactions in organizations, namely the corporate reactions in organizations, namely the corporate reaction to remain viable, the employee reaction to survive the turbulence, and the human resources reaction ( including recruiting and hiring talent, corporate organization, training and institutional learning)”. [Kathleen Patterson & Gray Oster, 2008]

“In emerging economies, growth is projected to slow down appreciably but still may reach 5.0 percent in the year 2009. The overall recruitments are lower for the industry this time as companies remain cautious amidst the global financial crisis.” [Srivastav, 2009]

“Growth in real wages has slowed down globally in 2008 because of the economic crisis and the trend is expected to continue in 2009, despite signs of economic recovery. Growth in average wages reduced from 4.3 % in 2007 to 1.4% in 2008. Real wages in the first quarter of 2009 also fell in more than half of 35 countries, compared to the annual average of 2008, “Wage deflation deprives national economies of much needed demand and seriously affects confidence,” “Minimum wages are an important policy tool for social protection and proposes that minimum wages be combined with other income support measures and/or tax reductions”. [ILO,2009]

“The last time anyone faced a situation like this was in the 1930s, so if there is anyone who is 98 (assuming they should have been at least 20 then) and is coherent… the rest of us are figuring out and learning on the fly,” reasons Elango R, chief human resources officer, Mphasis. According to Elango, “Managing the unknown, visualizing into the uncertain future, constantly calibrating and tuning the variables… and hoping to high heaven that you are on the right path… are responsible for increasing stress levels.” He believes that the challenge is to take long term decisions without issuing the short term. This requires skills, knowledge and thinking that are not called on in a growth environment. “In a growth environment, one’s pre-occupations are different, and having seen growth for years most of us are skilled at this. The current business environment entails a delicate tightrope walk balancing both the business interests and employee interests.” [Elango R, 2008]

RESEARCH METHODOLOGY

Secondary Data collected from various sources like

* Economic & Political weekly

* HRM Journals

* ILO Reports

* Ministry of Labour & Employment Labour Bureau

ANALYSIS & INTERPRETATION

I. Impact of economic slowdown on employment in India.

Ø Ripples of recession leading to reduction in exports to developed countries are being felt by all the developing countries. Credit availability and its cost have become major areas of concern. The combined impact of all these factors would be loss of employment and reduction of income leading to social distress. The International Monetary Fund (IMF) placed the estimated world output growth at 3.75 per cent in the year 2008 and 2.2 percent in the year 2009 in World Economic Outlook (WEO), November 2008, which represented a significant slide from a level of about 5.0 per cent in the year 2007.

Ø The global situation deteriorated rapidly after mid September, 2008 following the collapse of Lehman Brothers, one of the top five investment banks in the US, the collapse of American International Group (AIG) Bank and also of the mortgage lenders Freddie Mae and Fannie Mae. There has been a massive choking of credit since then and a global crash in the stock markets.

Ø The deepening of the global crisis and subsequent deleveraging and risk aversion in the global markets affected the Indian equity and the foreign exchange markets. While the Indian economy has a sufficient internal ballast to withstand the impact of global recession because of overall strength of domestic demand and the predominantly domestic nature of financing of investment and exposure of exports to less than 20% of GDP, nevertheless some slowdown is inevitable.

It may be observed from Table 1 that the total estimated employment in all the sectors covered by the survey went down from 16.2 million during September, 2008 to 15.7 million during December, 2008 resulting in job loss of about half a million. It is seen that the employment declined every month during this period. It has also been observed that the employment in all the sectors/industries studied went up significantly over the period from March, 08 to September, 2008. Beyond September, 2008, it has however, decelerated at all industries/sectors level at an average rate of 1.01 per cent per month.

Table 1

Trends in Average Employment

Period Average Employment in Percentage

(millions)change

September, 08 16.2

October,08 16.0 -1.21

November,08 15.9 -0.74

December,08 15.7 -1.12

Average Monthly change -1.01

Source : Government of India, Ministry of Labour & Employment Labour Bureau, Chandigarh.

From the above data it is observed that the management people and employees may experience anxiety around a number of issues during an economic crisis or downturn.

The monthly average rate of employment loss during Oct- Dec, 2008 was 1.01 per cent whereas in January, 2009 the rate of decline has increased to 1.17 per cent. The increase in rate of change is mainly due to the decline in employment in IT/BPO sector in January, 2009 in contrast to the increase in employment during Oct-Dec, 2008 and also higher rate of unemployment in Automobile Sector. The month wise employment trends are presented in Table 1.2.

Table 1.2

Trends in Average Employment

Sl. No. Period % Rate of Decline

1 October, 2008 1.21

2 November, 2008 0.74

3 December, 2008 1.12

5 January, 2009 1.17

Source : Government of India, Ministry of Labour & Employment Labour Bureau

Chandigarh

The economic slowdown is expected to adversely impact the quality of employment besides the quantity reflected by decline in employment. The quality aspect is measured in terms of decrease in average wages received by the

employees. Hence information is also collected on the total 12 earnings of workers. The results of the survey reveal that the average monthly wages have also declined by 0.26 per cent in January 2009. The average monthly decline during Oct-Dec, 2008 was 3.45 per cent. During the current survey the average monthly wages for direct and contract workers are also collected. The findings of the survey reveal that average monthly decline in the wages are 0.25 per cent for

direct category of workers and 0.63 per cent for contract workers in January, 2009. The information is presented in Table 1.3.

Table 1.3

Percentage change in Average Monthly Earnings

SR.No. Period Percentage Change

1 October, 2008 1.74

2 November, 2008 -11.43

3 December, 2008 -0.5

4 January, 2009 -0.26

Source : Government of India, Ministry of Labour & Employment Labour Bureau

Chandigarh

Table 1.4

Month Wise Estimated Job Loss Sl.No. PeriodEstimated Job Cumulative Job