01-Jun-2020
Executive
Summary
- Business leaders are faced
with unprecedented challenges as the COVID-19 pandemic continues, intensifying
the need to holistically evaluate all the opportunities and risk to remain
resilient and survive the crisis.
- With the current migrant
exodus, Labour availability will become a critical factor as the lock down eases
and operations starts picking up.
- Labour unavailability will
directly impact the ability to fulfill the demand and hence increase the risk of
losing on revenues in these difficult times.
- Companies need to adopt a
systematic and proactive approach to attract back and retain the much-needed
workforce for the operations continuity.
- Innovative ways of
productivity linked incentives, provision for accommodation, food and
transportation, health and safety assurance with lot of genuine care for these
workforce would pave the path of workforce assurance as need in this complex
and uncertain time.
- While certainly there would
be additional cost impact to provide for the labour welfare cost, the risk of
revenue loss would be much higher in comparison.
- Moreover, only the companies
sensitive to its workforce would be able to win back the trust of its
customers.
Countries which have managed to control the spread of
COVID19 are seeing a gradual movement back to normalcy. Within India, the major
consumption centres are expected to recover faster. However, ironically, the
larger question that the country is going to face in the coming days is ? Will the industry be able to fulfill the
demand?
The Indian Industry is staring at one of its biggest
challenges ? Labour availability. India has always been seen as a place with
abundant supply of cheap labour and hence the Industry has never experienced
such a challenge in the past and is largely under prepared to handle the same.
Possibility of losing Sales, in these critical times,
due to shortages in manpower in its supply chain at its factories and
warehouse, which traditionally has been labour intensive, is something that is
going to keep Corporate India awake at nights in the days to come.
COVID-19 has changed migrant workforce
landscape in India
The nationwide lock down in India which started on March
24 to curb the spread of corona virus has impacted nearly 40 million internal
migrants, according to World Bank.
Lock downs, loss of employment, social distancing and
fear of corona have forced majority of migrant workforce to reverse migrate to
their natives.
India has no central registry of migrant workers despite
passing legislation 40 years ago to establish such a database, However
estimates suggests Uttar Pradesh and Bihar account for the origin of 25% and 14%
cent of the total inter-state migrants, followed by Rajasthan and Madhya Pradesh,
at 6% and 5%.
This translates to around 4-6 million people would be
wanting to return to Uttar Pradesh, and 1.8-2.8 million to Bihar.
Another 700,000 to 1 million would be wanting to return
to Rajasthan and 600,000-900,000 to Madhya Pradesh.
On one hand we have the biggest humanitarian crisis
looming on us and on other hand most of the Indian business sectors with high concentrations
of migrant workers ? construction, manufacturing, services and logistics have been
seriously affected by this exodus of migrants.
The normal migration corridors are likely to change.
Long-distance migration will be affected. Somebody coming from the northeast to
Kerala in the south may not come anymore.
Communities where we operate are also reeling under
fear of migrant labours adding to the COVID spread and hence not welcoming
outside workforce to enter the locality.
Migrant labour themselves are too scared of their own
health and safety and are pivoting to stay closer to their natives rather than
risking their lives.
Depending upon how they were treated during the
lockdown, chaos and pain of getting back home and emerging new opportunities in
domicile states, many of these migrants may never return back.
Reopening of the businesses would require the labour to
be available and going by the current realities there may be a major supply
crunch in the labour market for a stretched period.
Early impact of this labour supply crunch has already
started becoming visible. Many of the businesses which could open up their
businesses during the period, have already been forced to pay extra salaries
and incentives to get the required manpower.
One may argue, that this may be a temporary phase
driven by lock downs and operating restrictions, let?s not forget the
possibility of a second wave of infections and monsoons. For at leas next two
quarters the situation is going to remain uncertain and hence the availability
of labour. Oct-Dec 20 period becomes highly critical as the consumption may get
a boost during the festival times and labour unavailability during this period
will jeopardize the little opportunity to review the revenue growth.
Labour unavailability directly impacts the throughput,
risking the ability of business to fulfil the demand (and may be pent up
demand). For every 100-basis points reduction in labour availability,
throughput productivity will decrease by 125-150 basis points.
In the above context, the pertinent question that
arises is what can organisation do differently in order to have the workers
back, offering a safer and healthier work environment
and ensuring business continuity thereby creating a win-win scenario.
In the above context, the pertinent question that
arises is what can organisation do differently in order to have the workers
back, offering a safer and healthier work environment
and ensuring business continuity thereby creating a win-win scenario.
We need a proactive approach to attract,
retain and win the confidence back of these migrant workforce
After taking into considerations the likely migrant
workforce scenario, evolving govt. guidelines on COVID measures, social
distancing norms, and possible uptick in demand, we have summarized a set of
recommendation for workforce assurance while living with COVID.
1. Increment in Daily/monthly wages
We have
already mentioned the incremental salaries, many companies are paying
currently. As per a recent report by Trading
Economics, wages in the long-term, the India Average Daily Wage Rate is
projected to trend around 372.33 INR/Day in 2021 and 397.00 INR/Day in 2022. Govt.
has already made provisions in its latest stimulus package for migrants to increase
the wages by 10-15% and its highly likely that the rates may be increased again
by 15-20% in a couple of months.
Organisations can consider this and also make relevant
increase in the daily wages to its workers given the current crisis and ensuring
that they are retained.
We recommend a location specific increment wage structure
with productivity linked incentives.
2. Hygiene Food, Transport & Accommodation
The workers also need to be provided with hygienic and
health food to ensure they don?t have to spend on food every day or go out of
the work premises everyday looking for food. Right nutrition assurance will
ensure their good health as well leave them with adequate money to take care of
the families.
Most of the migrants live in rented accommodations in
closed and unhygienic conditions and usually in groups. Many organisations are
arranging for accommodation of its workforce within the work premises or close
by to ensure that they have safe environment and do not have to travel hence
reducing the COVID risks. Given the local transportation may be restricted for
some time and even after the risk of COVID spread is high, many companies have
made arrangement for local transportation of the workers.
We recommend provision of functional shared accommodation or
rental reimbursements, provision for two healthy meals at the workplace and
company transport to and fro from their accommodation.
3. Job Security
In uncertain times, everyone is looking for some sort
of assurance. The assurance not only around jobs but also for safety of
workers. Something that can provide a calming impact and revive sentiment. We
recommend constant communication and assurance around job security linked with
productivity and ability of the organisation.
4. Safe working environment/ PPE
Need for personal hygiene, sanitation and safety is at
the highest; Providing for the workers to get all the required safety equipment
like mask, hand sanitisers, gloves & temperature screening on arrival to
reduce the fear of being infect with the virus.
We recommend provision for adequate PPE/ Sanitation and
Hygiene as the minimum operating standard across all the facilities.
5. Periodic Health Check-ups, OTC medication support
and Health Insurance
While the health check-ups and temperature monitoring
is a requirement for all at this stage of pandemic, regular health check-ups
and OTC medication support need to become part of organisation health
protocols. Most of the workers are at the risk of contracting the virus and
have been asking for assurance on medical expenses and life risks due to
working during COVID.
We recommend quarterly health check-ups for all migrant
workers at company cost, provision for OTC medication kit and an adequate life
and health insurance coverage (COVID specific) for a cover of 3 lakhs for the
employee and their family.
Workforce wellbeing and assurance
can be achieved at a marginal cost by implementing the above recommendations.
Executing the proposed value
proposing would require an additional outlay of Rs. 5-10,000 per associate per
month depending upon the locations and extend of benefits offered. This cost
impact is adequately negated by the improved throughput and productivity. In
absence of these measures we will end up paying more in terms of throughput
costs. Below table clearly illustrates the impact of total cost as % of sales
in the three scenarios.
While Normal Demand has drastically dropped down (Post
Covid Demand), it will come back to its original level once the lockdown and
restrictions are eased. However, the shortage of labour will result in the
inability to fulfil this demand (Serviced Demand) This will result in sales
loss.
Labour costs post covid are expected to increase
between 20% and 30% due to the welfare measures to retain labour. However, the
cost of not doing this will be larger in terms of margin loss on Sales loss.
The
employee welfare costs will help to insure against the loss of sales and a
small cost increase will enable the organisation to maintain its profitability
and growth
Envisaged Benefits
1)
Assurance of labour availability
2)
Assurance of throughput productivity
a. No loss of Sales due to manpower unavailability
3)
Compliance with Govt. directives
4)
Employee Health and Safety
5)
Moral and Ethical Satisfaction
6)
Showing our genuine care and affection for the people who are
foundation of our businesses.
Conclusion
COVID-10
has changed the way or working and more importantly the operating cost
structures. Navigating the new normal would require us to revisit all business
cost assumptions and proactively make appropriate and adequate provisions to be
better prepared than competition to fulfil market demands and capture a larger
market share.
Let?s
partner together and act to assure value creation for all our stakeholders.