cost cutting by indian companies (manufacturing and the IT)

Recently there has been a lot of talk by the Indian companies about 'cost cutting'. Commerce minister of India, Mr. Kamal Nath, has said that the Indian companies are running on huge profit margin so they have flexibility of reducing profit margin and continue to operate as normal.

The problem is how much cost cutting is feasible, practically. When the demand is going down for all the commodities in market manufacturers can not keep producing. In the developed countries, there is lot of emphasis on firing the employees whenever the companies face any kind of crisis, financial crisis or even low quarterly profits. The tragedy of system is that the management is rewarded, at the share price go up in short term, for taking such drastic steps. It is a problem for the society when there are unemployed people around. But the social security or the unemployment benefits take care of the people before it becomes serious problem. But this option is not the first choice for Indian managers. India does not have social security system to support unemployed people.

But this cost cutting mantra does not seems to be relevant for the manufacturing companies in India. Most of the companies in organised sector are working very efficiently and the salary is a minor fraction of the total expenditure. It the operational cost that can be reduced by using some more efficient ways or just by stopping production when there is no demand. Bajaj Auto has operated only 4 days in a week after the crisis of 2001, dotcom bubble bust. Workers do not seek to exploit the companies beyond a point and coopearate when they understand there is real crisis. I am sure they will not ask for salary hike in the bad time.

It is completely different story for the IT companies. There employees' salary is the major portion of the expenditures. They generally do not own anything. Everything is on rent, desk chair and computers and the building of course. Most of the IT companies had lots of project from the BFSI (banking, financial services and insurance) sector and these projects were quite rewarding as well. Financial institutions pays well to everyone because it is not their money anyway. Most of the companies had big expansion plans and were recruting like crazy in the last couple of years. They had 10-20% on bench for future projects. They have big margin to cut cost by reducing the strength or keeping at same level as they are. Bonuses might go for the workers in this sector. The young generation that was looking for lucrative salaries in the IT sector will be quite disappointed in this recession time.