Economic crisis in India 2013 | ALL Updates & News

[shuttler]

Rubbing salt in the wounds？

Adding insult to injury？

Or as our old sayings goes - hitting a man when he is down - hauling stones at a man who has fallen into a well？

Hmmm we know who our friends are, right?

 

[Lightningbolt]

What's damaging Indians more is their pride has been hurt pretty badly. I can sense it among many Indian members here.

 

[shuttler]

That is a huge blow to Indian economy and Indian people's morale. At this speed, rupee will cross 70 tomorrow. I think they should ask IMF for help immediately to protect their economy. It's painful but it has to be done right now.

no other ones are to be blamed. A textbook example of the consequences of an ultra expansionary economic policy, spending beyond means!

 

[Lightningbolt]

Rubbing salt in the wounds？

Adding insult to injury？

Or as our old sayings goes - hitting a man when he is down - hauling stones at a man who has fallen into a well？

It was Indians that started their 'China collapse' campaign. Now that their economy and currency are failing, their confidence and sheer arrogance has been destroyed.

I would be sympathetic at the problems India is going through if they didn't make fun of us earlier when our economy was slowing.

They deserve everything they get for insulting us.

 

[by78]

India Rupee Falls Most in 20 Years to Record; Stocks, Bonds Drop

India Rupee Falls Most in 20 Years to Record; Stocks, Bonds Drop

India’s rupee plummeted the most in two decades to a record as a surge in oil prices threatened to worsen the current account and push the economy toward its biggest crisis since 1991. Stocks and bonds plunged.

The U.S., France and the U.K. are considering limited military action against Syria after concluding the regime used chemical weapons against civilians, fanning concern unrest will disrupt Middle East oil supplies. The tension has worsened a rout that’s seen global funds pull $8.7 billion from local debt since end-May on bets the Federal Reserve will pare stimulus. An 8.9 percent jump in Brent crude this month is set to boost costs for India, which imports almost 80 percent of its oil.

Enlarge image
A customer counts Indian one-thousand rupee banknotes before depositing them at a branch of the HDFC Bank Ltd. in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg


4:42
Aug. 28 (Bloomberg) -- Kelvin Tay, the Singapore-based chief investment officer for the southern Asia-Pacific region at UBS AG’s wealth management unit, talks about India's economy and financial market. Tay also discusses Indonesia and China's economies and markets. He speaks in Hong Kong with Angie Lau and Rishaad Salamat on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

“The markets are down on the imminent possibility of a U.S.-led strike on Syria,” said Samir Lodha, senior partner at QuantArt Market Solutions Pvt. in Mumbai. “The Indian market is in a super-panic stage.”

The rupee slumped 3.1 percent to 68.31 per dollar as of 11:52 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. The currency dropped as much as 3.9 percent to an unprecedented 68.7550 earlier, the biggest intraday drop since 1993. It has lost 13.1 percent this quarter and 19.5 percent this year, headed for the worst annual loss since a balance of payments crisis in 1991 forced the nation to pawn gold to pay for imports.

The yield on the benchmark 7.16 percent government bonds due May 2023 jumped 10 basis points, or 0.1 percentage point, to 8.96 percent, according to the central bank’s trading system. The rate surged 52 basis points yesterday. The S&P BSE Sensex (SENSEX) of local shares slid 1.6 percent to 17,684.45, after touching the lowest level since September 2012.

‘Crisis Proportions’

“India’s macro muddle is fast approaching crisis proportions,” Richard Iley, an economist at BNP Paribas SA in Singapore, wrote in a research report today. “Downward pressure on asset prices is unlikely to abate until the rupee becomes decisively cheap, maybe weaker than 70, or the authorities deliver ‘shock and awe’ tightening.”

India’s budget and current-account deficits are responsible for the rupee’s slide, Finance Minister Palaniappan Chidambaram said in New Delhi yesterday. The government is taking steps to contain the shortfall in the broadest measure of trade to within $70 billion in the year through March 2014, he added, compared with an unprecedented $87.8 billion the previous period.

Prime Minister Manmohan Singh won a rare victory by passing a landmark bill through the lower house of parliament yesterday that expands the world’s biggest food program, a key plank of his party’s re-election strategy. The plan involves spending about 1.25 trillion rupees ($18.3 billion) in subsidies each year, potentially worsening the fiscal gap.

Oil, Economy

The nation’s petroleum imports averaged $14.2 billion in the first seven months, compared with $13.9 billion a year earlier, official data show. The government will devise by mid-September a plan to cut energy imports, Oil Minister Veerappa Moily said in New Delhi today.

India’s gross domestic product probably rose 4.6 percent in the three months ended June 30, the least since the first quarter of 2009, according to the median of 41 estimates in a Bloomberg survey before official data due Aug. 30. BNP Paribas today cut its growth forecast for India for this fiscal year to 3.7 percent from 5.2 percent, after the Reserve Bank of India engineered a cash crunch last month to shore up the rupee. That would be the slowest pace since 1992.

Indian stocks may fall further as the nation’s external deficits and the capital flight from emerging markets threatens the currencies of developing nations, according to Goldman Sachs Group Inc.

Rising Risk

“We are not yet prepared to say we have hit the lows and therefore it’s time to go and turn more positive” on Indian shares, Timothy Moe, Chief Asia Pacific Equity Strategist at Goldman Sachs, said in an interview with Bloomberg TV India.

One-month implied volatility in the rupee, a measure of expected moves in the exchange rate used to price options, jumped 349 basis points to 20.82 percent, the highest since January 2009.

Credit-default swaps insuring the debt of State Bank of India, considered a proxy for the sovereign, against non-payment climbed 111 basis points this month to 371 as of Aug. 27, CMA prices show. The contracts jumped 64 basis points last quarter, the most since the three months to Sept. 30, 2011. MCX gold futures climbed to a record today, as investors sought a store of value.

Three-month onshore rupee forwards fell 3.6 percent to 70.00 per dollar, data compiled by Bloomberg show. Offshore non-deliverable contracts dropped 3.6 percent to 70.45. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.

To contact the reporters on this story: Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net; Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net






Indian rupee falls to new low against US dollar - BBC

Indian rupee falls to new low against US dollar

28 August 2013 Last updated at 03:32 ET There are concerns that a weakening rupee may result in a jump in consumer prices in the country
The Indian rupee has dropped by nearly 4% to a new low of 68.7 to the US dollar amid growing concerns over the health of the country's economy.

The decline comes a day after India approved infrastructure projects worth $28.4bn (£17.7bn) to try to revive the economy and prop up its currency.

The rupee has lost 20% of its value this year and is one of the world's worst-performing currencies.

It has also been hit by fears that the US will scale back stimulus measures.

The US central bank has sought to increase liquidity in the US economy, through its policy of quantitative easing, in an attempt to boost growth.

A part of that liquidity has flowed into Asian markets, such as India, and lifted stock and asset prices.

However, the Federal Reserve has said it will scale back the programme if the US economy improves, with some analysts expecting this "tapering" to begin as soon as next month.

That has seen investors pull money out of emerging markets, hurting currencies and stocks in those countries.

Stocks markets in India, Thailand, Philippines and Indonesia have seen big declines since May this year. The currencies of these countries have also been highly volatile and weakened significantly against the US dollar.

Oil worries
India's currency has also been hurt by a range of other factors, not least the country's burgeoning current account deficit.

A deficit happens when the country's import bill is bigger than its earnings from exports.

A widening deficit not only puts a strain on the nation's foreign exchange reserves and but also indicates that it may need to borrow more money. That has triggered fears that India may not be able to trim its deficit.

A jump in oil prices in the wake of the fears of a military action against Syria has also complicated the situation for countries such as India.

India imports almost 80% of its oil and there are concerns the higher prices will lead to higher inflation and a worsening of India's deficit.

A slowdown in India's growth rate - which has hit its lowest level in a decade - has also hurt investor confidence.

Continue reading the main story
International investors have withdrawn nearly $12bn in shares and debt from India's markets since the beginning of June,

Analysts said the combination of all these factors was hurting the rupee and that the currency may fall even further.

"This is unprecedented and we are in unchartered territory for the rupee," said Vishnu Varathan, an economist with Mizuho, adding that he expects the rupee to fall to the 70 mark against the US dollar.

Piecemeal efforts?
For its part, the Indian government has taken various steps to stem the rupee's decline.

India's central bank has imposed restrictions on the amount of money that companies and individuals can send out of the country.

It has also increased the duty on gold imports, one of the biggest contributors to India's current account deficit, three times this year.

Recently it increased the interest rate at which it lends money to other banks and also put a cap on their daily borrowings.

However, despite those steps the rupee has continued to slide.

Mr Varathan said that investors were looking for more concrete action.

"The measures were very piecemeal, ad hoc, and there was some government flip-flopping, which didn't inspire a great deal of confidence," he said

 

[by78]

Rupee tumble dents India’s confidence

Rupee tumble dents India’s confidence

Palaniappan Chidambaram, the embattled Indian finance minister, recalled wistfully this week how five years ago the fast-growing economy had added a record $92bn to India’s foreign reserves in a single year of his previous stint at the ministry.

Conditions had since changed markedly for the worse, he acknowledged on Tuesday as he outlined a 10-point plan to save the economy, but there was light on the horizon. “I see some glimmer of hope,” he told parliament.

By Wednesday morning, a renewed collapse of the rupee beyond Rs68 to the dollar had made even Mr Chidambaram’s tentative expression of confidence seem wildly optimistic.

Mr Chidambaram and Raghuram Rajan, the incoming central bank governor who takes office next week, now face an array of intractable and interconnected financial difficulties exacerbated by the decline of the rupee and the impact of the Syrian war on the dollar prices of India’s two main imports – oil and gold.

Indian inflation, nearly 10 per cent already, could rise by two or three percentage points if commodity prices and exchange rates remain at these levels, economists say.

The cost to the exchequer of fuel subsidies is soaring, which threatens to derail the government’s target of limiting its central budget deficit to 4.8 per cent of gross domestic product in the current financial year. High international oil and gold prices also make it harder to cut the current account deficit to the $70bn target Mr Chidambaram has set for this year, down from $88bn in the previous 12 months.

For business, the rupee’s sharp fall increases the strain on Indian companies with foreign currency debts, weakens the banks and complicates the picture for global businesses operating in India, whose contributions to revenues and profits at their parent companies have been eroded.

“If you look at the perspective of a foreign investor, you suddenly realise that you run a huge forex risk when the currency moves like this,” says the head of one major international business based in India, speaking on condition of anonymity.

“Three years ago our company was worth so many billions of dollars, and despite growing a lot since then, this year we will still be worth about the same in dollars, if we are lucky. That is kind of a disaster, isn’t it? You grow a lot but it is all being swallowed by the rupee.”

Along with other emerging market currencies such as the Indonesian rupiah, the rupee has been weakened by the expected “tapering” of the US Federal Reserve’s ultra-easy monetary policy, a shift that is sucking investors’ money back to the US from countries such as India.

Many of India’s woes, however, are self-inflicted. Annual growth has halved in three years to less than 5 per cent largely because manufacturers and other direct investors – Indian and foreign – have tired of the country’s corruption and bureaucracy and shoddy transport infrastructure.

The current account deficit has ballooned partly because court orders have closed Indian mines for iron ore and coal, reducing exports and necessitating imports of those products. And the fiscal deficit is worsened by official subsidies for fuel, fertiliser, jobs and food – with the food cost likely to rise further when a new Food Security Bill passed by the lower house of parliament this week becomes law.

For Surjit Bhalla, chairman of financial advisory firm Oxus Investments, “the ineptitude, brazen populism and lack of appropriate policies from the government” are the big problems. “You really get a feeling that no one is in control, and the markets are responding to that,” he says.

Goldman Sachs suggests that India should tighten fiscal and monetary policy and curb imports if it wants to reach a “sustainable” current account deficit of around 2.5 per cent of gross domestic product, down from an estimated 4.8 per cent of GDP in the last financial year.

You really get a feeling that no one is in control, and the markets are responding to that
- Surjit Bhalla, Oxus Investments

However the bank expressed doubts that Prime Minister Manmohan Singh’s government would take such measures – which would further restrict economic growth – in the run-up to an election due by May 2012. “The best thing would be to use fiscal policy to tighten as well, but that looks very difficult given the political environment,” says Tushar Poddar, Goldman’s chief India economist.

Mr Chidambaram’s 10-point plan embraces most of the suggestions of economists and business leaders, even if the two Congress-led coalition governments in power since 2004 are heavily criticised for not having implemented them sooner.

Nine of them are at least feasible. He told parliament India should cut the fiscal and current account deficits, revive investment by approving delayed projects, encourage capital spending by state companies, recapitalise state banks, make the most of good monsoon rains to boost agriculture, promote manufacturing, boost exports and resolve the land issues and environmental problems limiting the output of mines and power stations.

The tenth – “We must add to our reserves,” he said – is likely to prove the hardest. India’s foreign reserves are adequate and cover seven months of imports, but at $279bn in mid-August they had already fallen by nearly $14bn since March.

With India needing to finance its large current account deficit, foreign investors running for the hills, and the rupee in need of timely central bank intervention in the form of dollar sales, Mr Chidambaram is unlikely to stage a repeat of the reserve accumulation he managed the last time he was finance minister back in 2008.

 

[eastwatch]

What a joke!

Rs 54,000 crore worth foodgrain wasted in country each year


Bella Jaisinghani, TNN | Aug 1, 2013, 10.53PM IST

MUMBAI: A panel discussion in Mumbai recently threw up the startling fact that approximately Rs 54,000 crore worth of foodgrain and farm produce is wasted in the country each year.

Contrasting visuals of rotting foodgrain and starving children are abundantly seen in most states in India. However, the Indian Merchants' Chamber (IMC) seminar on '2013 Monsoon: Impact on Agriculture and Food Prices' formally showed criminal waste in a country whose government believes that Rs 27-33 is adequate for a family to meet its daily expenses.

Congress leaders Rashid Masood and Raj Babbar had recently created a storm of public anger and protest by saying a square meal in Delhi and Mumbai comes for Rs 5 and Rs 12 respectively.

At the seminar, Kishore Tanna, vice chairman, IOPEPC (Indian Oilseeds & Produce Export Promotion Council), an organisation engaged in promoting oilseeds and oil, said, Wastage is a major concern. Approximately Rs 54,000 crore worth of grains and farm produce is wasted. Plugging this hole in itself would be a great achievement.''

He said, As far as the 2013 monsoon reports are concerned, we have news that planting for the kharif crop has been completed all over India and the bumper harvest should bring down prices. What remains to be seen however is who will benefit, farmers or consumers.''

The panel also included Dr S K Goel, additional chief secretary, agriculture, Samir Shah of the NCDEX and Madan Sabnavis of CARE Ratings.

Rs 54,000 crore worth foodgrain wasted in country each year - The Times of India

credit: news.mydosti.com

A mess of pottage

A huge cheap-food scheme to influence voters will not end malnutrition
Aug 24th 2013 | DELHI |From the print edition

Seeing the pictures make me wonder why SA bureaucrats and most of all the Indian bureaucrats can be so irresponsible and so callous. How the govt people in India can procure food grains without first building necessary warehouses?

The inefficient bureaucrats and politicians left the food grains to rot under the open sky. What a site!!!!

 

[by78]

BNP Paribas cuts India's GDP forecast to 3.7 percent | Reuters

BNP Paribas cuts India's GDP forecast to 3.7 percent | Reuters

Wed Aug 28, 2013 1:04pm IST

Reuters Market Eye - BNP Paribas sharply cut India's GDP forecast to 3.7 percent for fiscal 2014 from 5.2 percent previously. The new forecast, if met, would mark India's lowest growth since fiscal 1992.

RBI's cash draining measures have increased risks to economic growth at a time when the economy was already slowing sharply over the summer, BNP says.

Recent data has been little short of "disastrous", BNP adds, noting falls in industrial output and PMI indicators.

However, the economy could recover to 5.3 percent by fiscal 2015, BNP argues, as the weaker rupee should allow a recovery in industrial production and export growth while RBI should be able to reverse quantitative easing and eventually resume monetary easing.

(Reporting by Subhadip Sircar)

 

[Beast]

It was Indians that started their 'China collapse' campaign. Now that their economy and currency are failing, their confidence and sheer arrogance has been destroyed.

I would be sympathetic at the problems India is going through if they didn't make fun of us earlier when our economy was slowing.

They deserve everything they get for insulting us.

Troller like jayatl is the sole responsible of India collapse. Thanks to his hard trolling and smearing campaign against China. The heaven saw his evil doer and decide to punish him.

He shall post post something like "China is superior and Indian is super crap lousy" ,100 of such articles to reverse the trend if he wants to save India economy.

 

[+4vsgorillas-Apebane]

Seeing the pictures make me wonder why SA bureaucrats and most of all the Indian bureaucrats can be so irresponsible and so callous. How the govt people in India can procure food grains without first building necessary warehouses?

The inefficient bureaucrats and politicians left the food grains to rot under the open sky. What a site!!!!

Dafaq is wrong with the Yindoo government? There aren't even enough tarps to cover the bags!
It looks like they are getting ready for trench warfare using bags of grain for the parapets.

 

[Chinese-Dragon]

It was Indians that started their 'China collapse' campaign. Now that their economy and currency are failing, their confidence and sheer arrogance has been destroyed.

I would be sympathetic at the problems India is going through if they didn't make fun of us earlier when our economy was slowing.

They deserve everything they get for insulting us.

You are 100% correct.

 

[shuttler]

Seeing the pictures make me wonder why SA bureaucrats and most of all the Indian bureaucrats can be so irresponsible and so callous. How the govt people in India can procure food grains without first building necessary warehouses?

The inefficient bureaucrats and politicians left the food grains to rot under the open sky. What a site!!!!

Ugly sights indeed!

It is the biggest fogging shame for human race.

These disgusting rots have been going on for years. india has sent a team learning from us of how to properly store their grains some years ago:

Food storage problem: India eyes China-iChainnel

2010-06-18 18:24

Official reports reveal that India’s godowns are currently filled with 60 million tonnes of grains, and about 1.7 million tonnes are lying in the open in Punjab. “China has better storage technology although it uses traditional silos and flat godowns for storing food grain, just like we do. But their moisture and temperature control system is far superior,” Thomas was quoted here.

K.V. Thomas spoke on how China stores food grains for longer periods by making use of modern storage technology. Thomas recently returned from a five-day visit to China last week and had visited storage facilities at Dalian Port, Shanghai and Guangzhou in China.

He observed that China, one of the largest producers of food grains in the world, manages to store 150 million tonnes of food grains in its godowns.

He added, “The government will soon send a team of experts to China to study the applicability of its technology in India for large-scale food grain storage.” Maintained by the Food Corporation of India (FCI) and the Central and State Warehousing Corporations, food grains are stored in several godowns here in India. The government is now looking at various options to endorse construction of storage facilities through various schemes.

are the cheerleaders too stupid to learn from China or what?

They were tugging a 1/3-finished block of iron to the water celebrating their advance in hi-tech, getting ready to Mars, talking about investing billion rupees to become the first in super-computing while on the other end, wasting millions of tons of food due to poor management corruption and lack of proper storage methods.

Are they using rotten food as effective dampers for their ballooning nationalistic pride?

 

[VelocuR]

Indian currency has been raped tweets by famous Indian Novelist‏

Chetan Bhagat under fire over ‘rape’ comment

28 August 2013

Best-selling Indian novelist Chetan Bhagat faced nationwide anger on social media sites on Wednesday after tweeting that the country’s plunging currency had been “raped”.The comments by Bhagat, known for his romantic, funny novels which are popular with India’s middle-class youth, came amid renewed outrage over violence against women after the gang-rape in Mumbai of a photographer last week.

Twitter users slammed the former investment banker for the tweet — in which Bhagat said: “The rupee is asking, is there no punishment for my rapists?” — accusing him of trivialising a grave problem.“Making a fun of a serious offence rather an inhuman act & comparing with downfall of Rupee is NOT AT ALL funny,” wrote one user.India’s online news portal Firstpost told the novelist bluntly in a prominently displayed article: “Chetan Bhagat, rape jokes are just not funny”, adding they are “tasteless and just plain crass”.

The Mumbai attack rekindled memories of the fatal gang-rape of a 23-year-old student in New Delhi last December that sparked nationwide protests and brought to the surface anger about violence against women in India.The victim in the Mumbai attack was released from hospital on Wednesday.Bhagat swiftly deleted his tweet as the uproar grew, calling it “harmless” and saying he had referred to rape as a “metaphor” for the rupee’s troubles.

It came on a day when the rupee plunged nearly four per cent against the dollar to a fresh record low amid investor concern about a lack of economic reforms, a string of government corruption scandals, and weak public finances.“As all of you hunt for that (deleted) tweet realise that your economy is in a deep crisis. And do consider raising your voice about it,” Bhagat tweeted later.

Chetan Bhagat under fire over ‘rape’ comment - Khaleej Times

 

[by78]

India’s demographic challenge

Wasting time

India’s demographic challenge

India will soon have a fifth of the world’s working-age population. It urgently needs to provide them with better jobs

May 11th 2013 | PATNA, BIHAR |From the print edition

ONE of India’s bigger private-sector employers can be found in Patna, the capital of Bihar, a poor, populous state in the east of the country. Narendra Kumar Singh, the boss, has three gold rings on his right hand and arms big enough to crush rocks. His firm, Frontline, has 86,000 people on its books. They are mostly unskilled men from rural areas in poor states like Bihar; thanks to Mr Singh they have jobs in cities all over India.

There is lots to celebrate about this. Mr Singh’s business has sales of $185m and its employee base has grown by 1,600% since 2000. He is looking for a Western partner and wants to expand to Sri Lanka and Bangladesh. He is providing paid work for part of the large cohort of young people now entering the workforce. And by shifting people from farms to cities he is helping urbanisation of the sort that underpinned startling progress elsewhere in Asia.

Yet Frontline is also a symptom of a colossal failure. For it is not supplying labour for a manufacturing boom of the kind that helped so many in China, South Korea and Taiwan out of poverty, or for the IT services at which India has excelled. Instead it offers relatively unproductive service-sector jobs—in particular, security guards. It has become de rigueur for every ATM, office, shop and apartment building to have guards. Across India millions of young men now sit all day on plastic seats in badly fitting uniforms with braids and epaulettes, unshaven and catatonically bored as the economic miracle passes by. This isn’t how East Asia got rich.

From a bomb to a boom and back

During the boom of the 1990s and 2000s, it became fashionable to talk of India’s forthcoming “demographic dividend”. This was quite a turnaround. In the 1960s and 1970s, the booming populations of states like Bihar were seen as a curse. “The Population Bomb”, a Malthusian bestseller by two American environmentalists, Paul and Anne Ehrlich, began by describing “one stinking hot night in Delhi”, and its horrifying number of “people, people, people, people”. In the 1970s there was a forced sterilisation programme. Sanjay Gandhi, a thuggish scion of the ruling dynasty, organised vasectomy camps near Delhi—one doctor boasted he could perform 40 sterilisations an hour.


In the 1990s, though, economic liberalisers evoked the experiences of East Asia and the demographic dividend it benefited from when previously high fertility rates began to decline. Working-age populations rose at the same time as the ratio of dependants to workers fell. An associated rise in the rate of saving allowed more investment, helping pay for the vast expansion in manufacturing that employed those workers and lifted hundreds of millions of people out of poverty. In the mid2000s the prospect of a similar dividend in India, where the fertility rate had dropped a lot in the 1980s and 1990s, was a key reason for investors’ optimism. The timing was particularly encouraging: India’s labour force was due to soar as China’s began to decline (see chart 1).


Now many are worried that India is squandering this demographic opportunity. This is partly because the economy is in a funk. Growth is at 4.5%, half the rate at the peak in the mid-2000s. Industry is 27% of output, compared with 40-47% in other big developing Asian economies. High inflation has prompted households to store ever more of their savings in physical assets rather than the financial system (see chart 2). The costs are clear. With few manufacturing exports, India has a chronic balance-of-payments problem. And India has created too few formal jobs in the past decade.

India’s leaders have long said they are committed to employment, but have shown little stomach for the economic upheaval rapid job creation entails. China’s policymakers accepted that the process of adding jobs overall often destroyed jobs in particular industries and places. For years India’s politicians have preferred economic palliatives such as NREGA, a giant scheme that guarantees work for the rural poor, and subsidies for the needy.

Now India’s borrowing has soared to queasy levels and welfare spending is being squeezed. There are worries that joblessness could be feeding the spasmodic unrest seen in some cities since 2011. Not all protesters were young. And their motivation varied from support for the anti-corruption guru Anna Hazare to disgust at a series of rapes in Delhi. But the protests added to a sense of youthful volatility.

An official report into the public finances in 2012 warned that a combination of slower growth and the demographic bulge could be “politically destabilising”. Rahul Gandhi, who is poised to lead the ruling Congress party in the general election due by 2014, speaks of the “angry” young and their “urgent demand for jobs”. The government’s economic adviser, Raghuram Rajan, says jobs are the biggest priority. Some in the elite seem to be waking up. But is it too late?

Quantity and quality

To see the scale of the challenge, consider that the working-age population, aged between 15 and 64, will rise by 125m over the coming decade, and by a further 103m over the following decade. On current trends a third of the growth will come from poorer and less literate states in the north, notably Uttar Pradesh and Bihar.

Not everyone of working age will be in the job market. More people aged 15-24 will remain in education—26% do today. Some adult women will stay at home; presently only about a third work, a low level by Asian standards. But India probably needs to create about 100m net new jobs in the next decade.

China’s boom created 130m net jobs in services and industry between 2002 and 2012. But India is no China. The most recent survey showed no net new jobs were created between 2004-05 and 2009-10, a dramatic slowdown on the previous five years, when 60m jobs were created.

These figures may not be as shocking as they seem. Fewer jobs were created partly because some folk voluntarily withdrew from the workforce. More women in rural areas decided not to look for jobs—perhaps because several fairly good years for farmers meant they did not need the cash. Wages for the unskilled have been rising, and though this is partly because of the NREGA guaranteed-work scheme, it suggests there has not been a collapse in the jobs market. For all these caveats, though, the headline data remain disquieting. Even during a boom few jobs were created. Now that the economy is growing more slowly things have got harder.

The rural poor seem likely to be frustrated, which will add to the number of migrants headed for the cities. The better-educated will suffer, too. By some estimates India produces twice as many new graduates each year as it can absorb. In a half-built private-run campus in Patna most students have modest expectations of their future salaries—typically $500 a month. Even so, their professor worries they won’t all get job offers.

The problem lies not just in the quantity of jobs, though; quality matters too. Statistics verify what the naked eye can see in any Indian city. They all have their armies of guards, peons, delivery boys, ear-dewaxers and men who sit on stools in lifts pressing the buttons. About 85% of India’s jobs are with “informal” enterprises—those organisations with fewer than ten staff which are not incorporated. Another 11% are casual jobs with formal companies. Only 16% of Indians say they get a regular wage. People with informal jobs are usually very poor. An official study of 2004-05 data concludes that 80% of informal workers got less than the then national minimum wage of $1.46 a day. There are some good jobs. But India’s IT firms, for example, account for only a few million jobs out of a total of half a billion.

All this seems to be closely linked to the lack of manufacturing. Although some 23% of Indian workers are categorised as working in “industry”, compared to nearly 30% in China and 22% in Indonesia, half of India’s “industrial” workers are in construction whereas the figure is just a quarter in Indonesia. Of the remainder almost all are in the “manufacturing” subcategory. But these are not jobs that involve exposure to modern machinery, techniques and training (crucial for unskilled labour let down by the country’s education system). More than half of Indians in the manufacturing sector work in facilities without electricity.

The obvious problem is a “missing middle”. Most of the jobs are in tiny operations. Most of the value added is in a few big, sophisticated firms that prefer using machines to humans. Some, such as Tata Sons and Mahindra, are well-known. Most of those seem keener on expanding globally than on building factories at home. For every dollar of foreign direct investment (FDI) made by outsiders in Indian manufacturing in the five years to March 2012, local firms invested 65 cents in manufacturing abroad. The number of jobs in factories (excluding the very smallest) has increased since 2005; but only by 2.8m.


What manufacturing FDI India does attract tends to be high-end—Volkswagen has a smart €570m plant full of robots. Meanwhile investment is pouring into Vietnam and Indonesia (see chart 3) as costs in China rise. Li & Fung, a big trading firm based in Hong Kong which buys goods in Asia and sells them in the West to retailers including Walmart, gets some 5% of its goods from India, compared with about 20% from South-East Asia.

Death on the shop floor

India’s missed opportunity is most evident in textiles and clothing, a labour-intensive industry that has been dominated by China. In 2011 McKinsey, a consultancy, found that purchasing managers at global clothing firms wanted to shift their sourcing from China; their favoured new destinations included Bangladesh, Vietnam, Indonesia and Cambodia—but not India. India’s textile exports have grown, but those from Vietnam and Bangladesh, combined, easily outstrip them.

Why don’t more people want to make things in India? Indian migrant workers are sought across the world, not least in the Gulf. But at home tricky labour relations are a problem.

In a dusty lawyers’ room in the industrial belt near Delhi, five workers explain how they were fired by Maruti Suzuki, a carmaker controlled by Suzuki of Japan, after simmering tensions on the shop floor led to a riot at a nearby plant in July 2012. A manager was burned to death. The men are in their 20s and from rural families. They have a strong sense of injustice. “We have told our families that they should consider us as behind bars and that they should make other plans for their lives. We are ready for a long fight.” The Maruti violence has so far been a one-off. But the episode unnerved businesspeople.

Economists have long identified arcane labour laws as the key to India’s manufacturing problem. Scholars have gleefully dissected India’s 51 central and 170 state labour statutes, some of which pre-date independence, to demonstrate how they make it hard for firms with more than a handful of staff to fire people and allow disputes to become legal endurance tests. Studies have shown how tighter rules impede growth in labour-intensive industries and prompt firms to remain small.

Two-tier world

Yet the industrial belt in which Maruti’s factory sits shows times have changed. Big firms can bypass labour law by using “contract” workers, technically employed by third-party agents. In the past decade they have used—or, workers say, abused—this kink in the rules a lot more. At three car and motorbike plants, based on discussions with workers, about 70% of 14,500 staff work on a contract basis. Their average wage is $5-6 per working day, a quarter of what permanent, unionised staff get. The minimum wage in Guangzhou, a Chinese industrial hub, is $10.5 per working day.

That might appear to be good news. If lots of factory workers can be hired at globally competitive rates, on flexible terms, manufacturing firms should pile into India. In practice the situation is unstable. As the Maruti riot showed, the two-tier workforce has caused anger—the five men in the lawyers’ room were permanent employees who say they were disgusted by the treatment of their contract colleagues. Maruti is abandoning the distinction. And from a financial perspective the contract system is not as good as it looks for employers. They must still hire unionised permanent staff, and though these may be in a minority they can account for the majority of a plant’s wage bill, lifting the average pay across all workers to Chinese levels.

The labour situation is a long way from the strikes and militancy of the 1970s, but it is unpredictable. That puts off potential manufacturers. And there are lots of other deterrents, too, from red tape to erratic electricity (see, for example, the monumental blackout across north and east India in 2012), a lack of land, bad roads and busy ports. One shipping boss thinks logistics add 20% to the cost of making something in India, compared with 6-8% in China. The Middle Kingdom hardly excelled on such metrics 20 years ago, but India does seem to be especially intimidating for industrial firms. Where non-labour problems have been tackled, notably in Gujarat, manufacturing does better. But Gujarat—population 60m—is not a big state by Indian standards.

Since 2000 India has tried carving out special economic zones (SEZs) to create islands with lower taxes and access to infrastructure, where manufacturers can feel at home. But these have been a limited success, with many dominated by IT firms. A new twist is a proposed industrial corridor between Delhi and Mumbai, inspired by the expressway between Seoul and Busan in South Korea. The project has Japanese support, but basic things such as access to land and water have yet to be settled.

In its frustration India is flirting with a more overt industrial policy. A new rule says that government offices must now buy computers with a chunk of components made locally. This is designed to improve the balance of payments and promote an indigenous industry. The government is also now offering subsidies that could be worth billions of dollars to attract a microchip foundry. There is a push to indigenise the defence industry.

The legislation on offer to try to change the situation more generally may not enthuse industry. There are noises about labour-law reform, but rather than liberalise the regime for permanent workers it may merely tighten the one for contract employees. A bill that is supposed to make it easier to buy land could make the process even more expensive and protracted, argue many businesspeople.

For robust jobs growth there must be a change of mindset among officials, judges and politicians. Although Mr Gandhi and others are talking about the challenge, not everyone is, partly due to the electoral system’s skew towards the countryside. Only 10% of legislators in the lower house have urban constituencies in which 75% or more of the population is urban, reckons the Centre for the Study of Developing Societies (CSDS), a think-tank. Jobs in factories in cities are not a priority for most politicians.


Failing gently

Could the voices of the young change this? There is a rising level of political involvement. A recent survey by CSDS and the Konrad Adenauer Stiftung, a German think-tank, found that nearly twice as many of today’s 18- to 33-year-olds say they are interested in politics as did in 1996. Some 20% of young rural men say they participate in protests, as do 22% of college-educated young men. Those with exposure to the media, from talk shows to social media, are most politically active. One of India’s big mobile-messaging sites, Nimbuzz, with 25m mostly young users, says traffic doubled in the aftermath of the rape scandal in Delhi in December and during the Anna Hazare anti-graft protests. But the young have little independent political identity; their party allegiance is much like that of their parents. Nor do they have any obvious muscle.

The lack of political resolve and of a clear signal from voters mean India is unlikely to summon up the single-minded dedication with which South Korea, Taiwan and China created industrial jobs. Its demographic dividend will yield only a fraction of what it could, and the problem of low-quality employment will fester. That would be an immense waste. Most policymakers and well-off people would deny that it is a deep threat, though. The country’s religions, its distinctive mix of hierarchical culture and populist politics and its durable family structures will ensure social stability, they say.

They are probably right. They might want to pay their security guards a little more, though. Just in case.

From the print edition: Briefing

 

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The plan to raise more money from NRIs has gone up in smoke. Not good, not good at all...

Analysis: India finds price of expats' patriotism elusive as growth fades

Analysis: India finds price of expats' patriotism elusive as growth fades

By Sumeet Chatterjee and Beth Pinsker

MUMBAI/NEW YORK | Thu Aug 29, 2013 3:13am IST

(Reuters) - The patriotism of wealthy overseas Indians has helped the country avert economic crises in the past and it is little surprise that embattled policymakers are turning to them again to plug a record trade gap that is battering the rupee.

This time, though, big investors among the more than 25-million overseas Indian community - the world's second-largest diaspora - are staying away as the economic outlook darkens and political instability looms ahead of national elections.

Shoring up inflows from the overseas Indians is a key weapon in Finance Minister P. Chidambaram's arsenal to prop-up the rupee that has lost 20 percent against the dollar so far this year and which dropped to a record low on Wednesday.

The rupee's crash has boosted remittances, mainly from blue-collar workers overseas - particularly in the Gulf - who can get more rupees for hard currency. However, it has not triggered a surge in high-value investments in real estate, private equity funds and stock markets, bankers and wealth managers said.

Underlining the hesitancy, flows from non-resident Indians (NRIs) into bank deposits in the April-June quarter dropped to $5.5 billion from $6.6 billion a year-earlier, central bank data shows.

Investments in real estate by overseas Indians dropped about 30 percent in the fiscal year that ended in March, according to the Confederation of Real Estate Developers' Associations of India (CREDAI), an umbrella group of local property developers.

"People feel like there are too many unknowns. The most recent government has been ghastly, and nobody quite knows what comes after it. I haven't been optimistic about India for quite a while," said Vasant Prabhu, chief financial officer of Starwood Hotels & Resorts Worldwide Inc (HOT.N) in New York.

"What makes it hard, you don't know what the bottom of the rupee is," he said in comments underscored by a rupee that stumbled from 63 per dollar on Friday to almost 69 per dollar on Wednesday - a sharp move over such a short period of time for a currency.

His comments were echoed by wealth managers and bankers in Britain, the United States and India who said non-resident Indian clients saw too many uncertainties despite the tantalising prospect of buying assets with a record-low rupee.

Economic growth is at its weakest in a decade and seen slowing further, New Delhi is struggling to close a record deficit in the current account - the broadest measure of a country's international trade - and a national election that must be held by May could tempt the government to spend to win over voters and so undermine its fiscal discipline.

In addition, emerging markets are losing favour with investors generally as the prospect of the United States reining in its economic stimulus draws cash into U.S. assets.

In a bid to attract funds, India liberalised bank deposit schemes and some banks raised rates for overseas Indians this month. They could secure interest rates of more than 8.5 percent on one-year rupee deposits and as much as 10 percent on three-year accounts, a relatively high return compared with many other countries where rates remain near historic lows.

"All these folks always had this strong belief that India is the safest country to invest and four, five years back when the rest of the world was collapsing India was still growing," said Anil Behl, head of wealth and strategy at lender IndusInd Bank (INBK.NS), referring to the global financial crisis.

"That mood has changed now," he said. "I can certainly feel that some NRIs are looking at dollar-based products from international stables ... they are very wary of pure rupee products."

GRAPHICS -

India rupee & RBI intervention link.reuters.com/vag78t

Asia money & markets link.reuters.com/var99t

India rupee, RBI intervention link.reuters.com/vag78t

Rupee, bonds, FX yields link.reuters.

LARGE HIT

The government goes out of its way to tug at the heartstrings of white-collar expatriates, such as those in Silicon Valley and at top investment banks in London, to raise funds and cushion the impact of slowing institutional inflows. There is even a ministry for Overseas Indian Affairs which has NRI investment as a core goal.

New Delhi has managed to lure them in the past with attractive deposit schemes and bonds. It issued a five-year Resurgent India Bond in 1998, raising more than $4 billion, and in 2000 it raised $5.5 billion through a deposit scheme.

India, Asia's third-largest economy, was the top recipient of remittances from diaspora in 2012 with about $70 billion, followed by China at $66 billion, World Bank figures show. India received about $63 billion in remittances in 2011.

Banks, including RBS (RBS.L), Barclays (BARC.L) and Morgan Stanley (MS.N), beefed up their teams in cities like New York, Singapore, Dubai and Hong Kong in recent years to advise overseas Indians on investment opportunities back home.

But many investors are now staring at losses as the rupee's plunge since May has wiped out gains they made on investments in private equity funds and mutual funds in the last few years.

"For people who are dollar-invested, that's a large hit," said Ajay Kaisth, principal of New Jersey-based Kai Advisors, which has $30 million under management, of which more than 60 percent is from Indian clients.

After trading broadly around 45 per dollar in 2010 and 2011, the rupee has dropped more than 30 percent.

LOSING FAITH

The economy is likely to grow even more slowly in fiscal 2013/14 (April-March) than the decade-low of 5 percent struck the previous year, as investment will stay weak due to a dearth of reforms and uncertainty ahead of the election, a Reuters poll showed.

The rupee has become the worst performer by far among Asian emerging-market currencies tracked by Reuters, despite frantic attempts by the government and central bank to support it.

Lalit Kumar Jain, chairman of CREDAI said property purchases by Indian expatriates were now needs-based rather than speculative, reducing what has been in the past a key type of demand.

As a portfolio investment destination, India also faces daunting competition as developed markets, including the United States, show signs of finally emerging from the global financial crisis, said Bundeep Singh Rangar, who advises individuals as well as companies on India investments as chairman of London-based IndusView Advisors.

"And that's a cause of concern because the biggest champion of India is its diaspora, and if they are losing faith you can imagine how much the non-Indian investor would be losing faith."

(Additional reporting by Suvashree Dey Choudhury; Editing by John Chalmers and Neil Fullick)






The rupee is where? Currency collapse confounds India Inc

The rupee is where? Currency collapse confounds India Inc

By Nandita Bose

MUMBAI | Wed Aug 28, 2013 8:37am IST

(Reuters) - Companies such as Whirlpool of India Ltd(WHIR.NS) say they can't plan more than a couple of months out as a fast-falling rupee currency drives up the cost of imports, forcing them to raise prices even as consumer spending crumbles.

The timing is particularly tough for consumer companies that were counting on India's September-to-December holiday season to spur sales. India's consumers, whose spending helped see the country through the global financial crisis in 2008, are closing their wallets, squeezing companies from carmakers to shampoo sellers.

Companies that import finished goods or raw materials are the worst hit as they scramble to hold onto margins while balancing the need to raise prices without deterring buyers.

"We are now planning for a month or three months at best unlike six months or a year earlier," said Shantanu Dasgupta, vice president for corporate affairs and strategy at Whirlpool of India, the local arm of Whirlpool Corp (WHR.N), the world's largest home appliance maker.

The rupee has tumbled 17 percent so far this year and hit an all-time low of 66.30 against the dollar on Tuesday, resisting a spate of interventions by the Reserve Bank of India (RBI) and the government as investor fears about emerging markets deepened in anticipation of reduced U.S. monetary stimulus.

"A week back in our office we were working at (a rupee exchange rate of) 62 and now it's at 64 and looks like soon it will fall more and hit 67. How can a business operate when the currency is on a free-fall?" H.S. Bhatia, head of the enterprise business at television maker Videocon Industries (VEDI.NS), said in an August 21 interview.

The currency sell-off has since intensified, compounding difficulties for Videocon. The collapsing rupee pushes up prices of goods, adding to inflation on top of meagre urban salary hikes and an economy growing at its slowest in a decade.

Videocon imports raw materials and is planning to raise prices by about 4 percent to 5 percent in the coming days, its second hike in 2 months.

The currency blow is landing just as consumer companies look toward a boost from their strongest annual sales period, which starts in September with Ganesh Chaturthi, when the god of luck and prosperity is welcomed into Hindu homes, followed by the Diwali festival and then Christmas.

India's total consumption expenditure, which includes private and government spending, grew 3.3 percent in Jan-March 2013 from 9.3 percent in the same period a year earlier, according to government estimates. Total consumption expenditure as a share of the country's gross domestic product fell to 65.9 percent in the fourth quarter of 2012/13 from 72.1 percent in the first quarter of the same fiscal year.

SLOW SLOW SLOW THE BOAT

Shoppers are not only cutting back on big-ticket purchases such as refrigerators, TVs or expensive branded apparel but even staples including soaps, ketchup and cosmetics.

A survey by the Associated Chambers of Commerce and Industry in June found monthly bills for the middle class jumped by 15 to 20 percent in a month across major cities as the falling rupee drove up prices of petroleum products and edible oil.

A paper in August by the same group found that even deep-pocketed consumers were cutting back, with five-star hotels and fine dining restaurants registering a decline of 20 percent in sales in the past three months after prices of imported food ingredients and spirits rose.

Makers of consumer goods like shampoos and soaps, popular defensive plays in weak economic times, are also feeling the pinch, with market leader Hindustan Unilever Ltd (HLL.NS) posting lower sales volumes for a fifth consecutive quarter in the June period.

"India is witnessing a slowdown and only recently in the past one quarter has it been so pronounced," said Manish Tiwary, executive director of sales and customer development at Hindustan Unilever.

Apparel retailer Provogue India Ltd (PROV.NS) has shut several stores in the past 12 months and is moving cautiously on expansion with a focus on franchisee-operated stores.

"It is a tough environment to operate in and Indian consumers are seeking even more value in the current market which impacts both sales density and margins," Provogue business head Timothy Eyon said.

The country's largest retail conglomerate, Future Group has an added problem as it tries to reduce the 40 billion rupees debt on its books.

Its plan to raise 6 billion to 8 billion rupees this fiscal year by offloading stakes in fashion brands to strategic and private equity players has been hit as the rupee volatility and weak capital market conditions have spooked investors, Group Chief Financial Officer C.P. Toshniwal said.

IMPACT WITH A LAG

While many consumer companies have resorted to price hikes to cope with the currency, long-term supplier contracts and hedging are helping some to bite the bullet for now.

Daimler AG's (DAIGn.DE) Mercedes-Benz has held off on a price hike even though it faces severe margin pressure from the sliding currency and rising fuel costs, but it may relent soon.

"We didn't get immediately affected by the weakening of rupee as we have a long-term hedging strategy. However the hedging period cannot be forever and we have to ensure that we run a sustainable business in the long term," Eberhard Kern, managing director at Mercedes-Benz India said.

Similarly, branded apparel maker Lacoste India is expecting a hit on its margins but will hold off on a price hike until the end of the year, Rajesh Jain, director and chief executive officer said. The company imports raw materials like yarn, but long-term supply contracts have so far insulated it from currency-related price increases of 15 percent.

However, that will be small comfort if demand stays weak.

"Growth has come to a grinding halt but that's not the only bad part," Whirlpool's Dassgupta said. "Demand is not likely to improve anytime soon and that's more worrying."

(Additional reporting by Aradhana Aravindan; Editing by Emily Kaiser)