Affected by steel sector downturn, SAIL offers VRS to employees

At a time when the domestic steel industry is reeling under deep financial stress due to demand slowdown and surge in cheap Chinese imports, state-run Steel Authority of India Ltd (SAIL) has introduced a voluntary retirement scheme (VRS) starting 1 May for its employees.

The attempt by India’s second-largest steel manufacturer is part of its strategy to reduce costs and improve productivity. The gravity of the crisis can be gauged from the fact that the last such instance of VRS introduction by SAIL was during the global recession of 2008.

According to the terms of the VRS reviewed by VCCircle, it is applicable for those employees who have put in at least 15 years of service in the public sector unit and are at least 50 years old.

“The exact number of employees who will come under VRS will be known after the submission process of application is over,” said a SAIL spokesperson.

The Reserve Bank of India’s bi-annual financial stability report released in December 2015 pointed out that a macro stress test for sectoral credit risk showed that iron and steel industry’s gross non-performing assets ratio may increase from 8.4% in September 2015 to 11.5% by March 2017. Taking cognisance of the situation, the Union government is also putting in place a bailout package for ailing steel makers.

Patrika newspaper on 27 April reported that SAIL is going to implement VRS and applications for it will be accepted from 1 May till 30 June.

SAIL has a staff strength of 88,655, of which 13,968 are executives and the remaining 74,687 being non-executives such as welders and foreman, among others. The average age of SAIL employee is 47 years.

“The VR (voluntary retirement) compensation will consist of salary of 45 days for every completed year of service or the salary that the employee would draw at the prevailing level for the number of months’ service left, whichever is less,” the company said in the scheme document.

However, post voluntary retirement the employee wouldn’t be eligible for a job at either SAIL or other state-run firms. The company has also made it clear that an employee availing the scheme shall be eligible for benefits under SAIL’s pension scheme.

This comes in the backdrop of panic in the global steel market with China claiming a record high production of 70.65 million tonnes (MT) in March. India’s consumption of finished steel was 77 million MT for financial year 2014-15. Of this, imports accounted for 9.32 MT, a jump of 71% over the previous fiscal.

Structural demand slowdown and overcapacity has led to predatory pricing and dumping of steel products into India from various countries including China, Japan and Korea. As a result, domestic steel manufacturers have reduced prices considerably, thus eroding their profit margins.

SAIL has continuously made losses during the first three quarters of the last financial year. The company made a loss of Rs1,528 crore during the third quarter of FY16. It registered a net profit of Rs2,093 crore in 2014-15 compared with Rs2,616 crore in the previous fiscal. 

Experts believe that steps need to be taken by steel companies to be more efficient during the current scenario.

“Given the margin pressures and deceleration in growth, every steel company has to explore opportunities to be more efficient which can be attained through enhanced productivity and throughput,” said Anjani Agrawal, partner and national leader-metals and mining, EY India, a consultancy.

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