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The rise of flexible employment in India

LiveMint logoLiveMint 25-09-2017 Harsha Jethmalani

The Indian organized flexi-staffing industry is set to get much bigger, with the transition to the goods and services tax (GST) expected to have a positive influence.

Indian flexi staffing penetration levels are far lower at ~0.5% than some developed countries and the global average (~1.6%).

The chart alongside has the details.

“A convergence to the global average itself can triple the industry,” wrote Sagar Lele, an analyst at Motilal Oswal Securities Ltd, in a note last week.

How will GST help?

In a post-GST scenario, the client (firms) will be able to take input tax credit from the government only if the staffing agency that services the client pays the service tax to the government, according to Motilal Oswal. This will force firms to shift to organized staffing agencies that comply with rules and pay taxes.

Some believe flexi-staffing is a euphemism for casualization of labour. The increase in casualization is a trend that is evident in the formal sector for quite some time now. As labour law reforms evolve, it is expected that there will be increased flexi staffing.

Flexi staffing is expected to work out relatively cheaper even in case of exhaustive labour law reform by the central government.

According to brokerage firm Ambit Capital Pvt. Ltd, even in this scenario, flexi staffing turns out to be cheaper than permanent recruitment over the average life time of an employee in an organization.

Flexi staffing is of course beneficial both for firms hiring flexi staffing services as well as organized flexi staffing firms. Firms will save on employee costs and enjoy the flexibility to hire and fire while staffing firms also gain.

But as the flexibility lets firms hire more temporary staff, the focus will shift from creating permanent employment. This doesn’t augur well for providing good and well-paying jobs with benefits and a clear career progression, nor is it good for developing skills.

On the other hand, for most people, such jobs have always been a pipe dream. Indeed, for them, flexi-staffing firms provide their entry ticket into the formal economy.

“In the current scenario, where employment opportunities are not keeping pace with rise in working population, a surge in temporary staffing should be seen as a positive because it is better to be employed for some months than to remain completely unemployed,” pointed out Madan Sabnavis, chief economist at CARE Ratings. Around one-fifth of the people who take up temporary staff jobs do get absorbed into the organization, but for the rest, the uncertainty about jobs remains, added Sabnavis.

Rituparna Chakraborty, president, Indian Staffing Federation, expects a total of 50,000 jobs to be created in the flexible staffing space, including the current month and going up to February end. These will be driven by consumption-focused sectors such as retail and consumer good firms among others. “The largest chunk of demand for jobs would come from e-commerce and logistics since the demand for delivery boys is higher than any other profile currently,” added Chakraborty.

Needless to say, firms such as TeamLease Services Ltd and Quess Corp Ltd, which are engaged in the flexi staffing business in India, will benefit.

Stock performances reflect the optimism. So far this fiscal, shares of Teamlease and Quess Corp have outperformed the benchmark Sensex, with the Teamlease stock appreciating at a much faster rate.

Currently, Teamlease and Quess Corp stocks trade at about 43 times each, based on Motilal Oswal earnings estimates for this fiscal. That high price/earnings (PE) ratio is a clear indication of the scope for flexible employment in the country.

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