[OPE] The Crisis in India

From: Gerald Levy <jerry_levy@verizon.net>
Date: Mon Oct 27 2008 - 10:18:13 EDT

> Crisis - India - 43/2008
> ### Development of Crisis
> It was Black Friday on India's stock-market on 24th of October, the
> Sensex fell on a three years low (1). The main losing companies were
> those who symbolize the 'Shining India', who were the winners of
> neo-liberalist 1990s, e.g. Reliance Power, DLF, Ranbaxy. Within the last
> weeks the stock market lost one trillion USD, which is more than India's
> GDP. The Ruppe, too, reached a record level of depreciation and breached
> the 50-mark against the US dollar. On the back-ground of major capital
> outflow the Indian Rupee is devalued further. Early this year, when the
> market was at its peak, the rupee value stood at about 39.25 to a
> dollar. India's economy is squeezed between rock and hard place: in
> heavily depends on capital inflow in form of commodity imports (fuel,
> grain) and financial investments - the trade deficit is increasing
> rapidly (2). The government had to counteract the massive capital
> outflow and stock market slump by cutting interest rates, which in turn
> aggravates the Rupee depreciation and inflation, which in turn makes
> imports more expensive and startles foreign investors. The state debts
> are growing (3). The financial markets react by turning to the last
> resorts of speculation. After gambling on companies losses (Credit
> Default Swap) it's now gambling on state bancruptcy (Currency Futures)
> (4).
> ### State Reaction
> The state is in a lousy situation: the central bank cuts interest rates
> (5) and reduces the safety buffers of the financial system by cutting
> the cash reserve ratio (the ratio of money that banks have to keep with
> the central bank), but the commercial banks seem reluctant to pass the
> cheaper money on to companies and consumers (6). The government begs:
> please lend money! Given that the 'national banks' are tight on money
> the state wants to ease the rules for Indian companies to borrow money
> abroad and 'park' it in India more easily, which in turn will
> destabilize the Rupee further (7). The state has to attract more money,
> it increases the interest rates on foreign currency bank accounts of
> non-resident-Indians. The foreign currency reserves are shrinking, which
> was the final straw of the crisis in 1991 (8). In order to increase the
> money inflow the state wants to allow more foreign direct investments in
> the retail sectors, a move which had sparked major protest in the past,
> fearing the demise of millions of small traders (9). Facing up to the
> outcome of the crisis and of the state measures, the government changed
> the legal rules simplifying future company mergers and acquisitions -
> preparing the legal framework for future mass bancruptcies and capital
> concentration (10). In order to avoid a break-down of the national steel
> industry the central government plans to introduce a ten per cent import
> duty for flat steel products. At the same time there is a major row over
> central governments decision not to cut fuel prices, despite the global
> fall of prices.
> ### Announced Job Cuts or Closures
> The back-bone and indicator of industrialisation, the Indian steel and
> iron industry is cornered from all sides: Mital announced production
> stops in it's European steel works, the Indian iron ore exports to China
> dip and the steel prices fall (11). After years of rapid expansion the
> local car industry seems to be heavily effected by the global crisis:
> General Motors and TVS announce that planned investments are postponed
> (12), the major car manufacturer Szuki announces severe losses in
> profits (13) and Tata lays offs of hundreds of temp workers in its truck
> plant (14). The government speaks about a major export dip and rising
> unemployment figures in labour intensive sectors, such as textiles,
> carpets (15).
> ### Effect on Proletarian Living Conditions
> The newspapers write very little about the actual effects of the crisis
> on proletarian households. The spot-light is on the crisis of those
> parts of the 'winning' middle-classes, which were pushed up the ladder
> by the IT and outsourcing boom of the 1990s. They have to deal with wage
> cuts (16) and insecure job situations (17). It were these sections of
> society which were the actual 'modern consumers', e.g. able to effort to
> by a car or invest in real estate. Most of this consumtion took place on
> a credit base, e.g. 80 per cent of all sold Suzukis are bought on loans.
> The US banking crisis had an immediate effect on this sector, it will
> now be passed on to the local manufacturers of consumer goods.
> ### Struggles
> Of course there are dozens of news about working class struggles in
> India each day (18), but at least from the level of newspaper articles
> it is difficult to grasp whether and how they relate to the effects of
> crisis. Funnily enough the workers of the Reserve Bank of India decided
> to carry through their strike despite the major banking crisis (19),
> while the Air India employees - or their union - withdraw their strike
> call, facing the major attack from the air line companies (20). The
> other main question will be whether the crisis and state policies will
> deepen the divisions within the working class: after the crash of 1991
> the 'anti-muslim' riots in Gujarat followed. There are indications -
> like the attack of Maharasthtra nationalist on job-seeking 'northern
> Indian' students (21) - that this is still the option of the crisis
> regime.
> ### Sources
> The Hindu
> Economic Times
> Financial Express
> Labourstart
> www.gurgaonworkersnews.wordpress.com
> (1)
> Black Friday on Indian Stock Market - Sensex fell to three years low
> On Friday 24th of October the Sensex fell to 8700 points, main losers
> were the companies of the 'Shining India': Reliance Power, DLF (real
> estate), Ranbaxy (pharmaceuticals), Jet Airways. The investors' loss in
> the ongoing stock market meltdown has crossed the one-trillion dollar
> mark - a figure associated with the size of entire Indian GDP.
> (2)
> The weakening Rupee plus shrinking export growth results in higher trade
> deficit
> Due to strong growth in imports, especially oil imports, trade deficit
> stood at $14 billion in August 2008 compared to $7.2 billion during the
> corresponding month of 2007 (25th of October). Export growth dipped from
> 31% in July 2008 to 27% in August. Officials fear it may decelerate to
> 10% in September. India imports nearly 70% of its oil requirements and
> the oil import bill during the first five months of the current fiscal
> was $46 billion.
> (3)
> State deficit target not met
> The State Budget for 2008-09 targets to cut fiscal deficit to 2.5 per
> cent of GDP and revenue deficit to one per cent of GDP, the Indian
> government announced that I won't be able to meet these targets (22nd of
> October).
> (4)
> The rise in the volume of currency derivatives trading in India attracts
> more players. Seven Indian banks have joined hands with the Chicago
> Mercantile Exchange (CME) to form the fourth Indian exchange offering a
> platform for currency futures. A currency future is a derivative
> contract to exchange one currency for another at a specified date in
> future. The price at which the transaction is to be settled is the
> exchange rate prevailing on the last trading date. Typically, one of the
> currencies involved in the transaction is the US dollar. The
> rupee-dollar rate will, sooner or later, have to find its true level
> with a 22% depreciation leading to Rs 55 a dollar. This will set off a
> massive scale of asset sales in India. Locals and foreigners will sell
> assets to get money out of the country, to profit from taking money out
> at Rs 45 and then bring it back at Rs 55, thus earning a 22% profit.
> Land, shares, companies, factories, art: all kinds of assets will be
> sold off in the rush to get out while the government is giving a good
> deal. In this fashion, exchange rate management will convert a difficult
> situation into a full blown financial crisis. (22nd of October).
> (5)
> India's central bank cuts rates
> India's central bank unexpectedly cut short-term lending rates on Monday
> in response to continued pressure from the global financial crisis. The
> Reserve Bank of India has cut the so-called repo rate by 100 basis
> points to 8% to stabilise India's finances. This is the first cut in
> more than four years. The repo rate is the discount rate at which the
> central bank lends money to commercial banks to infuse liquidity into
> the market (20th of October).
> (6)
> Commercial banks reluctant to cut loan rates
> Bankers have said they would wait till the monetary policy is declared
> to take a call on lending rate cuts despite the RBI announcing a hefty
> 2.5 per cent reduction in cash reserve ratio (CRR). Only public sector
> lender, Punjab National Bank (PNB), announced a 0.5 per cent cut in its
> home, auto and education loan rates. With the rupee falling against the
> dollar, most bankers want to get a fix on liquidity before announcing a
> rate cut (19th of October).
> (7)
> Reserve Bank eases External Commercial Borrowings access for companies
> The government and the Reserve Bank of India (RBI) have eased the norms
> on overseas borrowing for Indian companies to boost inflows and help
> corporates raise funds for projects. The revised rules provide for
> companies to pay a higher interest of upto 500 bps over the six-month
> libor on external commercial borrowings (ECBs). Companies can bring in
> the proceeds immediately and can also use dollar borrowings for rupee
> expenditure. The norm of a minimum average maturity period of seven
> years for ECBs of more than $100 million for rupee capital expenditure
> by borrowers in the infrastructure sector has been dispensed with. At
> present, ECB proceeds are required to be parked overseas until actual
> expenditure takes place. Now, companies can either keep these funds
> offshore or keep it with the overseas branches or subsidiaries of Indian
> banks abroad or to remit these funds to India for credit to their rupee
> accounts with banks in India until it is used (23rd of October).
> (8)
> RBI likely to ease cap on foreign currency deposits
> With inflows tapering off, the central bank had eased the restrictions
> imposed earlier on the interest rate which banks could offer to NRIs on
> foreign currency deposits. Since this fiscal, foreign currency reserves
> have fallen by $35 billion, as overseas investors have sold stocks and
> with the central bank forced to sell dollars to prop up the rupee. A cut
> in the statutory liquidity ratio (SLR) — the proportion of deposits
> which banks have to invest in the form of bonds, gold and cash — has
> also been suggested. (22nd of October). Apart from the foreign
> currencies from the middle classes, also the workers wages from abroad
> are at stake: India is the highest recipient of remittance from abroad
> with USD 27 billion being sent to the country during 2007, the Rajya
> Sabha was informed on Thursday. The minister said Gulf based workers,
> including semi-skilled and unskilled workers, are the largest
> contributors who send 40 per cent of the amount (24th of October).
> (9)
> Govt may ease rules for more FDI inflow
> The Department of Industrial Policy and Promotion (DIPP) and the finance
> ministry plan to abolish the cap on FDI in single-brand retail and allow
> up to 100% foreign investments. As of now, the policy permits foreign
> investments up to 51% in single-brand retail. They are also working on
> increasing FDI in asset reconstruction companies (ARCs) beyond the
> existing 49%. The government is also looking at allowing foreign
> companies to buy shares from the stock market. As of now, only FIIs are
> allowed to buy shares from the secondary market through stock exchange
> deals (20th of october).
> (10)
> Preparing the capital concentration: Legal reform to simplify mergers
> and acquisitions
> Corporate Affairs Minister Prem Chand Gupta today said the government
> will introduce the new Companies bill this week, which seeks to replace
> Companies Act, 1956. The Companies Bill, which has already received the
> nod of the Cabinet, makes it mandatory to have 33 per cent of
> independent directors on the board of a listed company and has made
> various provisions relating to mergers and acquisitions and formation
> simpler and easy (20th of October).
> (11)
> Iron ore exports to China dip
> Trading in iron ore has been impacted by the prevailing credit crisis
> and a cut-back in production by major Chinese steel companies. India’s
> exports of iron ore — nearly 50% of which is supplied to China — have
> also declined sharply, with 30 million tonnes of iron ore bound for
> China reportedly stuck in various ports of the country. According to
> officials of the ministry of mines, total exports may decline to around
> 80 million tonnes this year. India exported more than 100 million tonnes
> of iron ore last year. From a high of $150/tonne, spot prices have gone
> down to $70-80/tonnes (20th of October)
> (12)
> Meltdown hurts: GM may defer Talegaon expansion, TVS Motor trims
> investment plans
> General Motors (GM), the world's largest auto-maker, is likely to defer
> the capacity expansion plans at its new Talegaon unit in Maharashtra
> amid the global liquidity meltdown. At present, its Talegaon unit can
> roll out 190-200 cars in a single shift. If a second shift were
> introduced, the plant will be equipped to manufacture 285-300 cars per
> day. Spread over 120 hectares, the Talegaon unit has been set up with an
> investment of over $300 million (20th of October). TVS Motor Co Ltd,
> India's third largest two-wheeler maker, has trimmed investment plans
> due to slowing demand and tighter retail financing, its top official
> said on Thursday. TVS, which was earlier planning to invest more than 1
> billion rupees annually on expansion, will now invest about 750 million
> rupees per year for the next two years, Chairman and Managing Director
> Venu Srinivasan said (23rd of October).
> (13)
> Suzukis profits down
> India’s largest automobile manufacturer Maruti Suzuki India saw its net
> profit slumping 37 percent in the second quarter this fiscal, as
> compared to same period last year
> (14)
> Tata Motors disengages 700 temporary employees in 3 days
> The company today let the contract of 400 temporary workers lapse,
> bringing down the strength of such workers to 1,200. The production of
> truck chassis has come down to 5,000 a month from 8,000 till some time
> ago. There are about 3,500-3,600 workers who are engaged by the company
> on rotational basis depending upon the requirement from time to time.
> Tata Motors is learnt to have cut production of the medium and heavy
> commercial vehicles (M&HCV). Industry sources said it could be as high
> as 50% (24th of October).
> (15)
> Meltdown fallout: India to see unemployment zoom
> NEW DELHI: Fears of the global economic slowdown hitting employment have
> deepened as government has reported a deceleration in labour intensive
> segments in recent data, a trend that might become more pronounced in
> the next weeks and months. Deceleration in exports of labour intensive
> products, particularly textiles, leather, marine products, carpets,
> sports goods and handicrafts during 2007-08 as compared to the previous
> year.The industrial growth, measured in terms of IIP, came down from
> 11.6% in 2006-07 to 8.3% in 2007-08 which led to a slower growth in the
> capital goods sector that makes equipment consumed by other sectors
> (23rd of October).
> (16)
> Job seekers may have to settle for lower pay
> A few weeks ago, when six top executives of a troubled American bank’s
> Indian arm started negotiating for jobs with a domestic financial
> services firm, it appeared life had come full circle for them. The
> domestic firm offered 50-70% lower pay cheques and— surprise surprise —
> the executives accepted. A 40-something executive director, who earned
> around Rs 1.2 crore a year at a leading FMCG firm, recently faced a
> similar dilemma. When the company asked him to put in his papers, the
> executive was forced to take a 30% salary cut in his new job with a
> pharma company. A programme manager at a global IT firm, who received a
> hefty salary and 200% bonus last year, got a 20% pay cut this time. And
> there’s simply no assurance of a bonus (23rd of October).
> Slowdown-hit IT cos prune staff cost
> “In the SLH (insurance) process, Saturdays used to be a great
> opportunity to earn overtime at Rs 150 per hour. But now, all Saturdays
> have been earmarked as compulsory holidays,” the source said. “Monthly
> targets have been reset to weekly targets, but we still don’t earn as
> much as we did working on Saturdays.” SAP too has been affected.
> Industry watchers say that even though the software giant is not laying
> off people in India, it has put its hiring plans on hold. The company
> has been asked not to hire replacements. “Until recently, we were
> provided with free transport to office and back. But now we have been
> asked to pay a monthly charge for the same,” said a SAP employee based
> in Bangalore (22nd of October).
> (17)
> Dark Diwali: Pink slips, pay cuts await realty staff
> Even as sales failed to pick up this festive season, most realty firms
> including DLF, Unitech, Omaxe, Parsvnath and BPTP, now plan to lay off
> staff in significant numbers soon after Diwali. “All real estate
> players, including us, will have to reduce manpower cost significantly
> if we are to survive in the current hostile market conditions,” says a
> top executive at a Delhi-based listed mid-size realty firm, which plans
> to reduce manpower by almost 20% (23rd of October).
> Summer of discontent at IIM-I as slump bites
> MUMBAI: The global economic slump has affected the summer placement at
> IIM (management school), Indore.
> Some students from the institute, which was the first business school to
> organise summer placements, failed to secure internships during the
> placement that ended on Monday. And those who have managed to get one
> have not got lucrative packages. The highest package was bagged for a
> two-month international internship with Vega Foods for Rs 1.15 lakh. The
> highest domestic offer stood at Rs 50,000 for a similar internship with
> Coca-Cola. The highest package last year was the double of this.
> Predictably, investment banks affected by the financial meltdown, like
> Lehman Brothers, AIG, Morgan Stanley and Merril Lynch stayed away this
> time (22nd of October).
> (18)
> www.labourstart.org
> (19)
> RBI employees strike affects banking operations
> Normal payment and settlement operations of the Reserve bank of India
> were affected on Tuesday as its employees went on a “mass casual leave”
> to press their demands on pension related issues. In the wake of the
> strike call, the apex bank had asked commercial banks to complete old
> transactions on Monday and had conducted two-day liquidity adjustment
> facility (LAF) auctions on Monday. The United Forum of Reserve Bank
> Officers and Employees alleged that there was a move to drastically
> reduce pension to retired RBI employees. Besides, the union demanded
> increase in the interest rate on Provident Fund and grant of family
> pension at the rate of 30 per cent. RBI had said that the mass casual
> leave is the cessation of work and concerted refusal to work. It had
> also noted that such an action amounted to an ‘illegal strike’ (21st of
> October).
> (20)
> Air India employees withdraw strike call
> Mumbai: A proposed strike by a section of Air India employees on issues
> relating to their carrier advancement was called off late on Wednesday
> night following talks with the airlines management (23rd of October).
> (21)
> MNS attack on Northern Indian workers
> Mumbai: A little less than 48 hours after north Indian students were
> attacked by Maharashtra Navnirman Sena workers, its president Raj
> Thackeray was arrested in Ratnagiri in the early hours of Tuesday. The
> arrest triggered violent protests by his supporters all over Maharashtra

ope mailing list
Received on Mon Oct 27 10:20:49 2008

This archive was generated by hypermail 2.1.8 : Wed Dec 03 2008 - 15:12:03 EST