[OPE] The Economic Crisis In India

From: Gerald Levy <jerry_levy@verizon.net>
Date: Sat Oct 18 2008 - 06:13:37 EDT

> Crisis - India - 42/2008
> Development of Crisis
> * No surprise: the major triggers of crisis are those sectors who have
> bubbled the boom - short term foreign investments, real estate - and the
> next Island seems to be much bigger and socially explosive: Pakistan
> * The Indian stock market is on two years low: The BSE Sensex has fallen
> by almost 50 percent in the course of the year, from a high peak of
> 20,873 on 8th of January to under 10,000 (18th of October 2008). Most
> effected shares: banks, real estate, airlines, telecommunication.
> * Foreign investors have left the Indian market in droves, selling off
> $9.6 billion worth of shares in the first nine months of this year. This
> is a sharp reversal of last year’s record inflow of $17.2 billion into
> the Indian capital market. Some analysts predict that the final outflow
> for 2008 could reach $13.5 billion.
> * India’s inflation rate reached a 13-year high in August of 12.63
> percent and is still hovering around 12 percent, exchange rate of
> Indian/Pakistani Rupee on lowest level since years (49/80 Rs - 1
> Dollar). The international community has agreed to provide USD 4 billion
> needed by Pakistan to avoid bankruptcy in return for Islamabad
> undertaking a series of tough economic reforms (18th of October)
> State Reaction
> * The crisis is answered by measures that would increase the
> vulnerability (lowering the share of money that banks have to keep with
> the central bank) trying to attract more foreign capital inflow (higher
> interest rates, lower limits for maximum investment sums) - although the
> short-term foreign investment has been part of the instability. The
> other major chunk of financial aid goes into the debt-misery of the
> agricultural sector
> * After first slump on 10th of October the Reserve Bank pumped 600
> billion rupees (about $US13 billion) into the financial system. The
> Reserve Bank has reduced the cash reserve ratio that banks need to keep
> with them and increased the interest rates on bank deposits held by
> non-residents in rupee and foreign currency by 50 basis points.
> * Finance ministry doubled the limit for investment in corporate bonds
> by Foreign Institutional Investors to $6 billion and released 250
> billion to banks to compensate them for agricultural debt waivers.
> Together, RBI and the finance ministry released 850 billion rupees
> through various measures (16th of October)
> Announced Job Cuts or Closures
> * Immediately hit sectors are call centres, airlines.
> * In India, around 60 percent of the companies operating in the IT-BPO
> sector have been working for American financial corporations. It
> predicted that 2.3 million young employees working in BPO and other IT
> sectors would be affected by the financial crisis. Recruitment for the
> banking and financial services vertical has come to a halt.
> * Biggest private air-line Jet announced dismissals of 1,900 workers
> (13th of October) and merger with Kingfisher air-line. The crisis might
> ripple back given that a major deal with Boeing was in the pipe-line.
> Air India proposes voluntary leave to 15.000 workers, which would mean
> no pay for three to five years. India's loss-making airlines are seeking
> $1bn (£500m) in government aid. On 17th of October - after public
> out-cry and some union demonstration - Jet takes back the sacked workers.
> * Bajaj Auto may cut production as it sees a slowdown in motorcycle
> sales. Bajaj also said the company was extending credit directly to
> dealers and making faster payments to suppliers amid tight liquidity in
> the financial system (16th of October)
> * Mass lay-offs in Surat's diamond industry (three quarters of global
> diamonds are polished in Surat, employing tens of thousands)
> * Cotton Price falls by up to 40 per cent. Exporting companies who had
> got cotton for November-December delivery were settling the contracts
> now since the demand was low in the international market too. Fall in
> textile apparel export by 5 to 10 per cent (18th of october)
> Effect on Proletarian Living Conditions
> * Quark City sacks 400 workers
> Chandigarh, October 15 One of the major Information Technology mega
> projects, Quark City India Private Limited, sacked almost 400 daily
> wagers and contractual workers from its ongoing construction work. This
> was part of the company’s decision to slow down the work on its project,
> confirmed Quark City spokesperson Gurmohan Singh. He cited the impact of
> the global meltdown on the country’s real estate sector as the reason
> behind pulling back the strings of the project (18th of October 2008).
> Struggles
> * Protests of unions against dismissals at Jet Airline, short wildcat
> strike at Hero Honda by contract workers asking for higher wages (16th
> of October), announcement of one day strike by employees of Reserve Bank
> of India for higher pensions (17th of October).
> Sources
> The Hindu
> Economic Times
> Financial Express
> Labourstart
> www.gurgaonworkersnews.wordpress.com

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