Why we need a Recession?
Siddhartha Banerjee

“It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to changes.” – Charles Darwin

Economic recessions are times of reality check, a period of rigorous self-analysis and scrutiny; often resulting in foundational shifts in the way business is conducted. Every recession, including the ones in the early 1980s and early 1990s, has proved the point.

The 1981-82 recession presaged the end of the ‘job for life’ notion, resulting in a fundamental change in the relationship between an employer and an employee, replacing ‘job security’ by ‘flexibility’. From an employees’ point of view, the focus shifted from ‘employment’ to ‘employability’. Similarly, the 1990-91 recession (in concurrence with Prahalad and Hamel’s ‘core competency’ theory), marked the beginning of a large-scale shift towards outsourcing, both in the manufacturing as well as the service sector, resulting in massive job losses in the developed economies while creating new opportunities for emerging economies, and hence, propelling a new wave of globalization. In fact, employment patterns in countries like India, Ireland, China, etc. in the last two decades have changed significantly as a result of the 1990-91 recession. Such large scale and long-term are the impacts of economic recessions.

Now, as we are in the midst of another one, touted by the pundits as one of the most deep-rooted in recent times, it may not be a bad idea to try to understand how (or whether at all) this recession may influence us in India over the next decade or so. Though it may be a bit early for such an analysis, yet, there are a few cues which can be probed.

At the onset, let’s look back at the employment pattern over the last two decades. There’d been a mass shift of quality talent towards jobs in sectors like IT and Finance, leaving core sectors like Construction, Manufacturing, Oil & Gas, etc. with no choice but (in most cases) the residual workforce. This is not a desirable trend in an emerging economy like India where the focus is on developing new infrastructure, setting up new industries, building refineries and power plants, creating a sustainable industrial base. While both the existing and the newly set up industries (like the new steel plants in Eastern India) desperately searched for the right people, while the newly commissioned projects (Highways & Roads, Power Plants, SEZs, Aiports) starved for quality manpower, our state sponsored higher education institutes continued churning high quality talent by hundreds, only to be lost forever in the vast underbelly of the Barclays, the Morgan Stanleys, and the Lehmans. The loss (if only in terms of opportunity cost) to India’s long-term socio-economic development has been significant.

However, the bursting of the Lehman (and their brothers’) bubble, followed by a series of job losses (and closing down), and an increasing uncertainty about the future has brought down the desirability of jobs in the financial sector to a realistic level. To add on, the IT companies, heavily dependent on the US and Western European market, has gone slow on recruitment. As a result, this year, the core sectors, and even some PSUs, were able to recruit quality talent from the IITs, NITs, and the top B-schools. While for the recruits themselves this may just be a last resort while they waited for the situation to improve so that they can move out, it may also mark the beginning of a long-term trend if managed properly. Even in countries like the UK and France, there had been a significant shift in recent times towards jobs in the government and core sectors.

Typically governments, driven by the Keynesian axiom, tend to spend (or invest) more during recessions. This means more spending on long-term projects, more jobs, and also, a greater appetite for high quality talent. For the private companies (atleast the big Indian conglomerates), though they’ve mostly put expansion projects on hold and are focusing on cost-cutting, this is the right time to pick up quality talent which they’ve always needed but never got. The new recruits can be effectively utilized in internal projects like developing/ streamlining systems and processes (most Indian companies anyway need it), developing innovative ideas, etc. These initiatives will generate long-term benefits, much beyond the current recession.

However, from an HR point of view, attracting the right talent is only the first step. The more important (and difficult) task is to be able to retain and effectively utilize the pool. In this respect, the recession will not be able to help much. Many Indian companies (especially a big chunk of the family-owned companies) fail to provide a work-environment/ work-culture conducive for professionals to work successfully. Many of these companies are driven solely by dictums of the owners/ family members, work through legacies of nepotism, and pay compensation way below the market level. The PSUs and government departments, on the other hand, are plagued their own set of problems like corruption, attitude issues, stagnancy, etc. Hence, while the recession is providing the external impetus which is re-directing the much needed talent to these institutions, the institutions themselves need to significantly realign themselves internally to hold unto this talent pool and leveraging long-term benefit from it.

Fortunately, many family-owned Indian companies, realizing the need, have already embarked on the journey to professionalize themselves. Similarly the PSUs are making a painstaking effort to reorient and revitalize themselves. In both cases, however, the beginnings were made much before the current recession. However, now with recession making quality manpower available, the benefits of these changes can be accentuated if they can make their culture and environment conducive for talents to sprout and flourish.

To conclude, this recession, like all the previous ones, is more than just a period of pessimism, apprehension and lull; it is also creating new trends which can be far reaching and can be tapped for long-term benefits. It is, however, upto the companies to understand the opportunities and implications of these trends and effectively capitalize on them.

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