Top 500: Building blocks of Indian Economy
D&B’s Top 500 companies impact on employment, tax contribution, exports and financing
India’s new Prime Minister Narendra Modi’s political campaign on TV during the run up to the 16th General Elections clearly sent out one message- to create as many jobs for the youth of this country. The campaign rightly touched those millions who are unemployed in this country with a population of about 1.2 billion people.
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Growth of the national income and employment rate are related and this is the basic principle of economics. Given that India’s real gross domestic product (GDP) has grown at a sub – 5.0% rate for seven consecutive quarters (till Q3 FY14), the employment picture is equally disturbing. Time bomb is ticking on the employment front.
Every year, more than 10 million jobs are needed to absorb newcomers into the labour market. The National Sample Survey data shows that between 1999-2004, 58 million jobs were created (with some spillover effect). Post 2004, only 15 million jobs have been added till 2012. Educated unemployment is on the rise. According to the National Sample Survey 16.3% of urban males who are graduates or above the age group of up to 29 years are unemployed. One of every three graduates in the country is unemployed. Unemployment rate in India has been climbing since 2011, when it was 3.5%, according to the International Labour Organisation (ILO) statistics. It rose again to 3.7% in 2013 and is expected to rise for the fourth consecutive year in 2014 to 3.8% according to global employment trends 2014 report.
Amidst this bleak nos., a ray of hope comes from the latest study by Dun & Bradstreet India in its premium publication India’s Top 500 Companies 2014 which indicates that the companies featuring in the Top 500 edition account for more than 10% of India’s total employment in organized sector. Secondly, number of employees of Top 500 Companies has gone up from 2,338,114 in FY08 to 3,134,505 in FY13.
The study takes into account the critical elements of the economy and business on which the Top 500 companies have a visible impact. According to the latest 2014 edition employment-job creation is one of the critical elements where the Top 500 companies have an impact. The other 3 areas being taxes-contribution to the ex chequer, exports and financing in order to give a holistic view about the impact of India’s Top 500 companies in the country.
The government needs to give manufacturing a big push, and along with that, it needs to devise policies that will encourage medium and small-scale enterprises. The study shows that manufacturing jobs outsourced by the featured companies in the edition have more than doubled going up from Rs 303,757.4 mn in FY08 to Rs 644,373.8 mn in FY13 growing at a CAGR of 16% for the mentioned time period. Indian is already acknowledged for its powerhouse of talent and entrepreneurship spirit. If this trend of creating employment opportunities at the individual and institutional level continues, Top 500 companies have a definitive role to play in taking the country to the next level.
Creaton of employment alone cannot be the only parameter for growth in this country. Tax collection is also an important apect as it is required to mobilise government finances. India should follow Kautilya’s principles. The ancient economists view on tax system was that it should be fair, and tax rates should reflect people’s ability to pay in terms of wealth or income or sales revenues. India’s Top 500 companies’ contribution to the ex chequer has been remakable over the years.
Over the last 10 years, the cumulative accrual to the Government Exchequer in the form of taxes comprising excise duty, income tax, dividend distribution tax, value added tax, entry tax, octroi and other State levies isnearly Rs. 1,00,000 crores[YJ1]. The role of D&B’s Top 500 Companies is underscored by the fact that in the latest edition contribute more than one third of India’s Gross Total Tax Revenue. Top 500 companies’ contribution is not just limited to paying taxes but also building investor confidence. In the latest study, equity dividend paid has almost doubled from Rs 556,506.5 mn in FY08 to Rs 1,103,992.3 mn in FY13, thereby showing a CAGR growth of 15% for the mentioned time period. Equity dividend as % of PAT (profit after tax) has gone up from 22.5% in FY08 to 29% in FY13. This clearly implies that the Top 500 companies, rather than accumulating their profits, prefer distributing it to the investors through dividends. Thus, Top 500 companies play a key role at the macro level i.e. government as well as at the micro level i.e. retail investors.
Building brand India has been on all the government agendas so far. One of the factors on which India has managed to make its presence felt in the global arena is on the basis of its export strength. Exports, in fact have been one of the largest drivers of India’s economic growth over the last few years. It is a positive sign that India’s exports which were concentrated on the developed countries for several decades are now changing their focus.
Historically, India has focused on exports largely to manage Balance of Payments, and in many ways it has been a residual sector in economic planning. In today’s global economy, exports must become one of the cornerstones of India’s economic planning and growth over the coming decades. Going forward, the importance of exports will only increase.
D&B’s Top 500 Companies in the latest edition account for, on an average, 30% of India’s total exports for last five years. India’s export basket has also been diversified. D&B Study shows that India’s overall exports have grown at a CAGR of 16.3% from FY09-13. For the same period, exports of Top 500 companies outpaced the country’s exports with 19.5% CAGR.
After having discussed the impact of Top 500 Companies’ impact on employment, its contribution to the ex-chequer and investors by way of taxes and dividends respectively, exports, we finally come to the important aspect that is banks and the financial systems that have been crucial to the country’s economic growth. In 2008 when the global economy went through its worst financial crisis, India was the only country that stood straight.
Banks remain the pillars of a robust financial institutional system in India. The sector especially plays an important role in present economic scenario of a country. The Indian banking sector has seen tremendous changes in past few years. The sector has seen several developments after the 2008 global financial crisis.
The 14th edition of D&B’s Top 500 companies shows 40 scheduled commercial banks featuring in Top 500 account for more than one third (39%) of the total credit given by the Indian scheduled commercial banks. The growth of an economy largely rests on the soundness of its financial system. And as India regains its growth trajectory, the role of banks featuring in the Top 500 edition will gradually accentuate to help India to achieve its aspirations in the near future.
[YJ1]This has been picked up from
The figures are of 2012. Can we please get updated figures?