Friday, August 30, 2013

India GDP continues slowdown; Spain youth joblessness at 56%; Australian aborigines have a dream, too

1 India GDP continues slowdown (BBC) India's economy continues to slowdown according to the latest government figures. For the April-to-June quarter, it grew at a rate of 4.4%, compared with the same period in the previous year. It was a weaker performance than most economists had been expecting and was a slowdown from the first three months of the year, when growth was 4.8%. A contraction in mining and manufacturing activity was behind the slowdown.
Friday's figures show the economy is now expanding at the slowest rate since 2009. It adds to the pressure on Indian Prime Minister Manmohan Singh, who earlier addressed parliament over the nation's economic problems. In his statement to parliament, made before the figures were released, the prime minister said India was not facing a repeat of the crisis in 1991. Back then, India's foreign currency reserves became so depleted that it had to borrow from the International Monetary Fund to pay its import bills.
The prime minister highlighted the impact of developments in the US, where the economy is improving and officials at the central bank have started to talk about cutting back on stimulus measures. The Indian government has raised the import duty on gold and increased deposit rates to stem the outflow of money.
2 Spain youth joblessness at 56% (Stephen Burgen in The Guardian) Youth unemployment in Spain has reached a new high of 56.1%, a quarter of the 3.5 million under-25s jobless across the eurozone, according to the latest Eurostat figures. The number of young Spaniards belonging to what has become known as the lost generation is up 2% since June to 883,000. Only Greece has a higher percentage of young people out of work, at 62.9%.

Among adult males, Spain has the highest unemployment at 25.3%, higher even than Greece. Despite the government's claims that the worst has passed and that employment reforms will encourage firms to hire, the figures suggest it will be a long time before any upturn in the economy is reflected in a declining jobless rate. With the holiday season coming to a close, the numbers are likely to rise as workers on seasonal contracts go back on the dole.
With close to six million Spaniards out of work, unemployment is so entrenched that there was no political reaction to the latest figures, neither from government nor the opposition. Indeed, mentioning the economy at all has become virtually taboo across the political spectrum. Meanwhile, Spaniards and recent immigrants are deserting the country in search of work, with 500,000 leaving in 2012, 60,000 of them Spanish nationals, most of them to Latin America and Europe.

The total number of unemployed across the eurozone is 19.2 million, 15,000 fewer than in June. Across the EU the figure was 26.7 million, down 33,000 from June. As the continent still grapples with the effects of the financial crisis five years on, a board member of the German central bank warned that the European financial system is still not equipped to cope with a bank failure of a similar magnitude to 2008's collapse of Lehman Brothers.
3 Australian aborigines have a dream, too (Sol Bellear in The Sydney Morning Herald) ''I have a dream'' was delivered in 1963, when Aborigines were still classed as ''flora and fauna''. It would take another half a decade before Australia voted to count Aborigines in the census, and afford us citizen status. But the great promise that the referendum held forth - justice and equality before the law - has never fully materialised. I'm not suggesting there haven't been some gains in Australia. The activism of the 1970s and '80s, strengthened by the determination of men such as King and women such as Rosa Parks, brought us modest land rights.

In NSW, there exists a land rights system that costs the taxpayer nothing, and which is leading economic development in many metropolitan and regional Aboriginal communities. The 1970s also saw the creation of Aboriginal Medical Services, community-controlled groups that resulted in Aboriginal people solving Aboriginal problems. The health services were also inspired by the US civil rights movement. The health of Aborigines today is among the worst on Earth, but there's broad consensus it would be far worse were it not run by Aboriginal people.

Why, 50 years after King's speech, does the most basic human right - self-determination - still elude my people? Why, today, do we seem further away from this dream than ever before?
Opposition Leader Tony Abbott recently promised to appoint a national indigenous council if he is elected to office. Hand-picking our leaders to get the advice you want to hear didn't work in the 1960s, '70s, '80s, '90s and 2000s. It won't work now. It's as far from self-determination as you can get.

And why is the other most basic of human rights - justice - still denied Aboriginal people? Mr Abbott is promising compensation for Australian victims of global terrorism, including legislation to compensate for victims of the 2002 Bali bombing. Aboriginal people have always had the solutions to Aboriginal problems. Martin Luther King dreamed of a day when his people would be judged not on the colour of their skin, but on the content of their character. Fifty years on, I dream of a day when Australians will face up honestly to the failures of their past, regardless of the kindness of their intent. I dream of a day when non-Aboriginal Australians demand not a dream about a future for my people, but a simple plan to restore our basic human rights.

Thursday, August 29, 2013

US growth revised up; India's salvation lies at home; India's war on its women

1 US growth revised up (BBC) The US economy grew at an annualised pace of 2.5% in the second quarter of the year, the Commerce Department said in revised figures. That was more than double the pace recorded in the previous three months, and above estimates of 2.2%. The rise, helped by an increase in exports, is a further sign that the economy may be getting back on track. The government had originally estimated that GDP grew at a 1.7% rate in the second quarter.
Housing and business investment, two key sectors of the economy, remained strong in the revised figures. Housing construction grew at an annual rate of 12.9%, the fourth consecutive quarter of double-digit growth. Meanwhile, business investment was revised up to a 16.1% rate. The positive news could make US central bank economists more likely to begin reducing monthly bond purchases later this year. The programme is one of the US's last stimulus measures.
2 India’s salvation lies at home (Abheek Bhattacharya in The Wall Street Journal) Plunging currencies and stock markets in some of the world's major developing nations can't be chalked up to the Federal Reserve or hot money flows alone. One big problem is the fundamental state of these economies. Take India, the worst-hit emerging market. The rupee is down about 20% against the dollar this year, making it the world's worst-performing major currency.
Certainly, talk of the Fed slowing down its bond purchases triggered the rupee's rout in late May. But the trouble is policy makers haven't addressed deeper difficulties. Growth has nearly halved from five years ago because policy makers delayed reforms. These include changing colonial-era land acquisition laws and socialist-era labor laws. The lack of reform especially hurts investment in much-needed infrastructure, which in the year ended March grew at half the average rate since 1991. India can only blame the Fed so much. It holds most of the answers to its troubles.
3 India’s war on its women (Sunny Hundal in The Guardian) It is undeniable that a mix of culture and religion perpetuates fixed views about how Indian women should behave, though Hinduism has seen waves of reform movements over centuries that have challenged orthodox beliefs and helped improve the status of women. But while religion is open to interpretation, it is also indisputable that cultural and religious practices are used as justification to control women under the guise of ‘honour’ and ‘purity’. The model of a pure and traditional Sita who is willing to fulfil her role as a daughter and wife still looms large.

From the moment they have children, Indian parents worry so much about ‘losing face’ in the community that while boys have all the freedom they want, girls are advised to avoid doing anything that would supposedly bring shame. It also means that when they disobey, women can end up paying a terrible price.

Wednesday, August 28, 2013

India, the wounded Asian Tiger; Emerging stocks' emerging problems; More Americans living alone

1 India, the wounded Asian Tiger (Khaleej Times) The Asian Tiger’s roar that once had the West sitting up and taking notice not so very long ago has been muted and India is now licking its wounds. The rupee is in a freefall and the government is in its customary funk. The economy is anything but healthy thanks to a deadly combination of global forces, petty power politics, scams, sheer complacency and missed opportunities.

Not since the balance-of-payment crisis of 1991 has the Tiger found itself cornered and trapped. But Indian policymakers won’t admit it and instead of taking some bold steps to arrest the rot that has set in, they prefer to bury their heads in the sand and hope the problems buffeting the country will go away. India is no longer shining. It’s slowly sliding into a crisis and there isn’t a glimmer of hope that someone, somewhere will prevent the bruised and battered economy from getting worse.

Everything is going south. The rupee is nosediving (13 per cent in three months), the stocks are tumbling, banks shares are shrinking, growth is limping (at 4-5 per cent), its current account deficit is ballooning — it was nearly 7 per cent of the GDP at the end of 2012 — much needed foreign capital is escaping and bad debts in state-run banks rising (according to a report in the Economist, “10-12 of bank loans are dud!”). So what’s going north? Besides the ire of 12 billion people, graft, red tape and multi-milliondollarscams is on the rise and so is inflation now hovering around the 10 per cent mark.

With elections to be held in May 2014, the biggest fear is that the government may resort to populist measures like the recently passed food scheme introduced to increase the vote bank. This is not the time for desperate measures or micromanagement. The government should focus on further liberalizing the market like it did during the boom years between 2003-2008, control inflation, hold down its deficit, cut down fuel subsidies, get public banks to recapitalise and get its infrastructure right. Will history repeat itself and see India slipping into crisis like it did in 1991? One can only hope not.

2 Emerging stocks’ emerging problems (Abheek Bhattacharya in The Wall Street Journal) For emerging markets, most of the pain has been in bonds and currencies. But this last week, foreigners began selling stocks in earnest, $12.3 billion worth. Take India. Foreign investors have been basically propping up the stock market, having piled in a net $12 billion this year, according to regulatory data. Without them, Mumbai's benchmark index, down 5% for the year, would have fallen more.

As outsiders keep accumulating stocks, their ownership of India's top 500 stocks hit a record high of 21.7% on June 30, says Citi. And that percentage has likely risen further since then. But foreigners' mood could be changing. Investors were spooked when Indian officials imposed capital controls on residents late last Wednesday. Between Monday and Thursday this week, the stock market had foreign net outflows of $517 million.

Another worry is the turmoil from the tumbling rupee is feeding through to tightening credit and slower growth. That has pushed locals to sell. In the past, according to flow data, foreign investors tended to pull money out only after they see stocks fall. A looming problem for emerging markets is that the Federal Reserve hasn't even started curtailing its bond buying yet. When it does, the outflows of the past few months could accelerate as investors abandon risky emerging-market assets for the higher safe yields of treasuries.

India's broader financial system is still protected by its foreign-exchange reserves and relatively low levels of foreign debt, so a full-blown crisis might not be in the offing. But as the Fed's bond purchases fall off, the beating that Indian stocks take may pick up.

3 More Americans living alone (Los Angeles Times) A growing share of Americans live alone, despite the economic woes lingering after the recession, a new report from the US Census Bureau shows. People living alone made up more than 27 percent of American households last year - a marked increase over the 17 percent who did so in 1970.

"The rise of living alone is the greatest social change of the last 50 years," said Eric Klinenberg, author of "Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone." The Census Bureau report underscores that despite costs, "Americans will pay a premium to have a place of their own," he said. Researchers offered several reasons for the long-standing trend: Americans are waiting until later in life to marry, stretching their years of singlehood. As a result, married couples have become much less common, dropping from 71 percent to 49 percent of American households between 1970 and 2012, the new report shows.

Elderly people are also spending more years alone. "Adults have been able to live longer, and as they're healthier, they can stay in their own homes instead of moving in with a family member" or heading to a nursing home, said Jonathan Vespa, one of the demographers who wrote the report.

"Living alone is not weird anymore," said Michael J Rosenfeld, associate professor of sociology at Stanford University. The fact that it has persisted through tough times, he said, "is a demonstration of how much the value of independence has grown."

Tuesday, August 27, 2013

Economy is recovering, pay isn't; Strikes roil South Africa economy; India, Pakistan and the economic theory of democracy

1 Economy is recovering, pay isn’t (Andrew S Ross in San Francisco Chronicle) You're going to have to be patient. Very patient. The wage "stagnation" workers are experiencing even as the economy and job numbers continue to improve is going to last considerably longer than expected, according to economists at the Federal Reserve Bank of San Francisco.

That wage increases come to a complete halt during recessions and don't recover immediately after is not unusual. But this time, the freeze and the decline in the real value of wages is "more pronounced than the pattern observed in past recessions. The economy has been recovering for four years and unemployment has declined considerably, but wage growth has continued to slow.

The upside: Could that be one of the reasons export manufacturing has been doing so well lately - its best in 50 years as a share of the US economy? Yes, according to the Boston Consulting Group, which says the declining "cost of labor" is a key driver in America's new global competitiveness. Companies like Toyota, Siemens and Rolls Royce, are locating export manufacturing facilities here. The good news for US workers: The shift will create up to 5 million new factory and service jobs here in the next few years, according to the BCG report.

So, what makes the US labor market "more attractive than that of all other major manufacturers among the developed economies"? Labor costs, factoring in productivity, are far lower; the US market has greater "flexibility" (i.e., less regulation); and it is "far easier and less costly to adjust the size of the workforce in response to business conditions."

2 Strikes roil South Africa economy (Robert Nicolai in Johannesburg Times) Sadly, our (South Africa’s) unions were years ago trained by then powerful and equally destructive British unions and are using irresponsible and destructive strike models. The picture is created that the union bosses do not suffer the dire consequences they create time and again for members who follow blindly. They still receive their salaries and drive the luxurious cars paid for by membership fees.

Admittedly, companies have in the past been too keen to pay out obscene amounts in bonuses to their directors and CEOs. But why did the unions not engage in a constructive manner to have caps and controls to curb this irresponsible practice?

Workers and unions should realise that when the mines, factories and the airlines become uneconomical, eventually the "economic tree" they have been sitting on will collapse, and nobody will have gained anything. (Erwin Schwentzek, by e-mail)

The biggest strike threats in three years are upon us. I want to point out to the unions that the world's economic growth has slumped since 2010, and the gold price has fallen from $1980 to about $1390. Protesting for a 60% to 130% pay increase will not help prices recover. Automobile workers know that automation and robotic assembly lines may be a large investment to make, but going on strike for above-inflation increases will make this seem like the only viable option.

3 India, Pakistan and the economic theory of democracy (Anjum Altaf in Dawn) A Seminal book of the 20th century, at least for academics, was An Economic Theory of Democracy, published in 1957. In it, Anthony Downs applied economic theory to the study of politics and, among other things, inferred what a rational government would do given its incentives. At its simplest, the theory claims that a government aims to stay in power and therefore, if it is democratic, adapts its policies and actions to appeal to a majority of the electorate.

In India, electoral strategy demands the amelioration of some constituency at the very least. Governments could guess wrong (as with the Shining India strategy) but none could afford to ignore all the constituents all the time. The complete apathy towards citizen needs in Pakistan is plausible in this perspective. A victim is the democratic process itself. Unlike in India, the real opposition is no longer represented by alternate political parties but increasingly by groups that reject the worldview of electoral politics altogether.

In exploring the fundamental divide in the politics of India and Pakistan, I often think back to the 300 years of the Mughal Empire. Half this period was dominated by the six Great Mughals whom everyone recognises. The other half was populated by dozens of emperors most of whom few can recall. This was the period dominated by behind-the-scene king-makers who shuffled puppet emperors at will, retaining them only for the legitimacy they conferred.

This could explain how democratic India and Pakistan both remain overwhelmingly dynastic and yet on different political trajectories. I am tempted to conclude that Indian politics is a continuation of the first half of the Mughal Empire while Pakistani politics resembles more the second — the rule of kings versus that of king-makers.

Of course, in the age of democracy kings don’t rule till they die or are deposed — they can take turns in office. From the viewpoint of incentives it makes a huge behavioral difference if a leader knows he has to remain at home when out of power as opposed to one prepared to flee abroad to seek a patron. These contrasting imperatives, incentives, and strategies have led to divergent political trajectories in Pakistan and India and thereby to the different fate of their citizens — the one ignored, the other appeased.

Monday, August 26, 2013

India is latest boom-to-bust story; US to hit debt ceiling in October; The out-of-control Indian farm; Debt drags on China's growth

1 India is latest boom to bust story (Jayati Ghosh in The Guardian) So now India is the latest casualty among emerging economies. Over the past 10 days, the rupee has slid to its lowest-ever rate, and the Indian economy may well be on the verge of a full-blown currency crisis. In this febrile situation, it is open season for rumours and pessimistic predictions, which then become self-fulfilling. This doesn't mean that a crash is inevitable, but clearly it is possible. The real surprise in all this is that investors and Indian policymakers are surprised. For some reason, they apparently did not foresee this turn of events, even though the story of every financial crisis of the past, and many in the very recent past, should have caused some nostrils to twitch at least a year or two ago.

The Indian economy has been in trouble for quite a while already, and only willful blindness could have led to ignorance on this. Output growth has been decelerating for several years, and private investment has fallen for 10 consecutive quarters. Industrial production has declined over the past year. But consumer price inflation is still in double digits, providing all the essential elements of stagflation (rising prices with slowing income growth).
The Indian economic boom was based on a debt-driven consumption and investment spree that mainly relied on short-term capital inflows. This generated asset booms in areas such as construction and real estate, rather than in traded goods. We should know by now that such a debt-driven bubble is an unsustainable process that must end in tears, but those who pointed this out were derided as killjoys with no understanding of India's potential. Something similar is occurring in a number of other Asian economies that are also feeling the pain at present, such as Indonesia. The current Indian problems may be extreme, but they reflect what should now be a familiar process in all major regions of the world.
All bubbles must eventually burst. All it takes is some change in perception for the entire process to unravel, and then it can unravel very quickly. The trigger can be a change in global conditions, or a sharp slowdown in domestic income growth, or political instability, or even economic problems in a neighbouring country. The resulting financial crisis hits those who did not really benefit so much from the boom, by affecting employment and the incomes of workers.

This is what has just started to happen in India, and is also likely to happen in several other emerging markets. But essentially the same process has already unfolded many times before in different parts of the world: Latin America in the 1980s, Mexico in 1994-95, south-east Asia in 1997-98, Russia in 1999-2000, Argentina in 2001-02, the US in 2008, Ireland and Greece in 2009, and so on. Why are we so startled each time? And why do we never, ever, see it coming?
2 US to hit debt ceiling in October (BBC) The US Treasury Secretary Jack Lew has said that the country will reach its debt limit by mid-October and called on Congress to act "as soon as possible" to avoid such a situation. The government will not be able to borrow if the limit is not raised. He warned that in such a case it will be unable to meet obligations such as social security payments, military salaries and Medicare reimbursements. The country's borrowing limit is currently capped at $16.7tn.
"Extraordinary measures are projected to be exhausted in the middle of October," Mr Lew said. "At that point, the US will have reached the limit of its borrowing authority, and Treasury would be left to fund the government with only the cash we have on hand on any given day," he said. The cash balance at that time is forecast to be about $50bn, which Mr Lew said, would be "insufficient to cover net expenditures for an extended period of time". He said: "Operating the government with no borrowing authority, and with only the cash on had on a given day, would place the United States in an unacceptable position."
3 The out-of-control Indian farm (MJ Akbar in Khaleej Times) If the great Indian animal farm of 2013 seems out of control, it is because the keepers have lost the map as well as the plot.  The economy is only one casualty of self-generated mayhem. The political stability of India is equally a shambles.

The recent behaviour of the UPA government has been utterly bizarre. The UPA, led by Mrs Sonia Gandhi and her faithful lieutenant Digvijaya Singh, for reasons that elude the comprehension of common sense, decided to kick up a massive storm over Telangana. Inevitably, dust from this storm blinded the monsoon session. Telangana has been on the anvil for four years; would another four weeks have mattered? In fact, the prime minister could have made the announcement on the floor of the House after the passage of food security; and if the rest of the session was washed out at the least this bill would have been home, high and dry.

Here is a little more to perplex you. Why did government suddenly abandon its opaque tactics of evasion and fudge over the missing coal scam files in the middle of the session? These “missing” files first came to public attention when last May CBI director Ranjit Sinha said publicly that he could not pursue investigations because he had not received them. We all know why. Government is in deep trouble over this colossal corruption. Its star industrialists in Parliament, like Naveen Jindal and Vijay Darda, are involved. There is nothing mysterious about the fact that files pertaining to these two are among those missing. It seems to be a case of theft compounded by abetment.

All careers, they say, end in futility — but only if you do not know when to quit. Dr Singh will understand this analogy, since he likes America and American businessmen. The share price of Microsoft just went up seven per cent after its chief executive officer, Steve Ballmer, announced he was leaving. Ballmer was once a hero of Microsoft, and an astonishing videotape shows him bouncing across the stage at a company gathering, making cowboy noises, in the days when he took the job as an untarnished superstar. How much will the share price of India rise when the government of Dr Manmohan Singh quits?

4 Debt drags on China’s growth (Tom Orlik in The Wall Street Journal) As worries over China's debt problem mount, the burden of paying off those loans could be the trigger that tips runaway credit into slower economic growth and financial stress. Nationwide, four-and-a-half years of breakneck growth in lending has significantly increased China's debt burden. Outstanding borrowing by businesses and households rose to 170% of gross domestic product at the end of 2012 from 117% in 2008, according to data from the Bank for International Settlements. The 2012 figure for the U.S. was 157%.

Assuming interest rates of 6.9% on outstanding credit—the average in June—and repayment over the next decade, interest and principal payments on business and household debt currently absorb around a third of China's GDP. At the end of 2007, on the eve of the financial crisis, the equivalent debt-service ratio for the U.S. was 21%, a figure that was broadly unchanged at the end of 2012, according to the BIS.
China's central bank appears little fazed, explaining that it takes a while before credit gets into the economy, causing growth to pick up. Private analysts are less sanguine. The heavy debt load could also weigh on China's efforts to tilt its economy away from heavy spending on infrastructure, often paid for with borrowed money, and towards a rise in consumption.

5 Cartoon in Khaleej Times on emerging markets meltdown:

Friday, August 23, 2013

Shares surge as Ballmer quits Microsoft; India's urge to create smaller states; Why Nokia may leave India

1 Shares surge as Ballmer quits Microsoft (Rory Carroll in The Guardian) Microsoft has stepped into a new and uncertain era with the announcement that CEO Steve Ballmer will retire within 12 months, triggering a search for a successor to take over the software behemoth. The announcement surprised analysts and investors and sent shares surging, reflecting belief that the company will benefit from new leadership as it tries to innovate and chase the market for smartphones and tablets. "There is never a perfect time for this type of transition, but now is the right time," Ballmer said.

Ballmer, 57, who succeeded Bill Gates as CEO in 2000, will stay on until a successor is found. Gates, who is now chairman of the board, will be part of a small committee tasked with finding the successor. It will be chaired by John Thompson, the board's lead independent director, and consider internal and external candidates.
Ballmer's departure will likely draw a line under Microsoft's origins and traditional tenure. He first met Gates in 1973 when they shared a dormitory hall at Harvard university. He joined the company in 1980 – the company's 30th employee – after it landed a contract to supply an operating system to IBM and swiftly rose up the ranks. Under Ballmer the company developed successful products like WindowsXP and the Xbox 360. It grew to be worth $78bn and employ more than 100,000 people. It has more than a billion users and remains immensely profitable.
Over the past decade, however, its share price stagnated in contrast to the meteor-like performance of Apple, Google and Amazon. Once the world's most valuable company, Microsoft hemorrhaged more than half of its market value. Critics accused Ballmer of failing to anticipate the explosive growth in tablets and smartphones and the decline of personal computers.

2 India’s urge to create more states (Neeta Lal in Khaleej Times) Creating smaller Indian states could be an invitation to anarchy. If the US can prosper with 50 states, why can’t India with just 29?” a veteran Congressman riposted as we jaw-jawed over the pros and cons of India being disaggregated into smaller states. The UPA government’s recent decision to create the country’s 29th state — Telangana — out of the southern state of Andhra Pradesh, has unleashed a political storm. Just days after the announcement, regional ethnic and religious groups have upped their ante to ask for separation from their parent states.

India last redrew its internal boundaries in 2000, with the creation of three new states in the northern half of the country. But the moot point is: do smaller states work better in a pluralistic and heterogeneous country like India? If yes, then how should the states be carved up and administered? After all, India has five states with individual populations larger than Europe’s biggest nation, Germany. Even the country’s 16th largest state – Haryana -- has more people than the whole of Australia!

Besides, many of India’s 35 states and union territories are at demographic extremes. They are either monsters like UP and Maharashtra (their combined population of 320m is greater than that of the US), or minnows with barely one million people. Being a small state alone doesn’t guarantee good governance, economic performance and welfare of individuals. A basic research on various development parameters of the three states that were created in 2000 proves that small is not always splendid.

Nobody objects if the states are bifurcated on a scientific basis. But dividing them purely to accrue electoral gains is an invitation to chaos. The lust for political power seems to be eclipsing constitutional propriety. India’s unity may not be under immediate threat, but more and more states being disaggregated can rupture the national fabric. Eight Indian states are already under militarily governance. Long story short, division of India is the antithesis to any sensible reconstruction of constitutional federalism.

3 Why Nokia may leave India (R Jai Krishna & Sven Grundberg in The Wall Street Journal) According to a report in the Indian Express newspaper, the Finnish handset maker has said that India has become “the least favorable market” and it would rather exit and export its handsets from China. Nokia couldn’t confirm the contents of a letter apparently submitted to the government and cited by the report, but Nokia spokesman Brett Young said the company has been in discussions with the Indian government and the state government over ways to bring “greater clarity to the business environment in India.”

The report comes after the company ran into tax issues in India. In late May, Nokia lost an appeal against an order for 20.8 billion ($323.4 million) in retrospective taxes on software the Indian unit supplied to its parent firm. The company contends it has not received a tax refund it was promised as part of a pact with the southern Indian state of Tamil Nadu. The Helsinki-based company cited “political risk” of operating in the country that could impact its future investment decisions, the newspaper reported, citing a letter written by the company to India’s trade ministry in June.

Nokia has a facility to make handsets near Chennai, in Tamil Nadu, where the company said it has invested $285 million in manufacturing operations. Nokia was dethroned as the number ne handset maker by revenue in India last fiscal year after a decade by South Korea’s Samsung Electronics Co. according trade publication Voice & Data.  Nokia’s revenue from India also dropped 18% to 97.80 billion ($ 1.52 billion) in the year that ended March 31.

Thursday, August 22, 2013

Greece on course for third bailout; Miracles unlikely for India in short term; Connectivity as a universal right; Being proactive after job loss; One millionth child refugee leaves Syria

1 Greece on course for third bailout (Heather Stewart in The Guardian) Jeroen Dijsselbloem, the Dutch finance minister, is the latest senior politician to concede that Greece may yet need a third bailout, casting a shadow over news that eurozone companies are reporting their strongest growth for more than two years. Dijsselbloem told Dutch newspaper Het Financieele Dagblad: "The problems in Greece won't be solved in 2014, so something more will have to happen."

His admission echoed that of the German finance minister, Wolfgang Schäuble, who told an election campaign event earlier this week that the bailed-out country still needed more aid. The International Monetary Fund has suggested that there is an €11bn shortfall in the current rescue package for Greece.

The spectre of destabilising negotiations over a new bailout, though they are unlikely to get under way until after German elections next month, were a reminder that the eurozone is still not out of the woods, despite an upbeat survey suggesting economic recovery in the 17-member zone is gathering steam. The monthly purchasing managers' indices, which test the confidence of firms across the 17 member-states, showed both manufacturing and services expanding at their fastest pace since summer 2011.

2 Miracles unlikely for India in short term (Khaleej Times) It was ironic that on Tuesday, the day the Indian government rolled out its ambitious food security programme, the rupee plummeted once again, reaching a new low. The fall to 65.52 per dollar on Thursday also saw a downgrading of the sovereign rating from “overweight” to “neutral” by JP Morgan, reports of price hikes and brakes on domestic spending, a major prop of the Indian economy. The central bank’s measures to arrest the slide — like easing liquidity ratio to give banks more funds for lending and selling dollars — are short-term shots when the need is for a long-term cure.

India’s current account deficit has reached 4.8 per cent of GDP, pushing up the price of the dollar. Finance Minister P. Chidambaram’s plan to trim it down to 3.7 per cent by slashing imports, especially of gold, silver, oil and non-essential items, may not be realised. It’s because while the Indian government attributes its economic woes to the global economic crisis, Prime Minister Manmohan Singh’s coalition government’s failure to halt corruption and step up reforms has singlehandedly contributed to the rupee’s weakening.

Scandals in sectors like telecom, coal and retail, protracted delays in land acquisition and other clearances, and non-transparency in foreign direct investment and tax regulations have increased foreign investors’ jitters. A hurried exodus since May has seen them jettison $10 billion in Indian government debt, holding on to only 43 per cent of the $30 billion limit.  

Even if the government tries to pursue reforms in earnest now, it will be shackled by the elections looming next year and an aggressive opposition shutting down parliament frequently to take advantage of the situation.  Between now and next year, miracles are unlikely and the economy will have to wait it out. Meanwhile, growth prospects have been pared to 5.5 to 6 per cent from the earlier optimistic forecasts of 6.1 and 6.7 per cent.

3 Connectivity as a universal right (Benny Evangelista in San Francisco Chronicle) Calling Internet access a basic human right, Facebook co-founder Mark Zuckerberg and a coalition of mobile device companies have embarked on a project that seems equal parts altruism and capitalism: ensuring that all of Earth's 7.1 billion inhabitants can connect to the Web. The chief executive of Facebook, which already reaches one-seventh of the world's population, announced his company has joined with tech giants including Samsung, Nokia and Qualcomm to form, which will strive to lower costs and other barriers to delivering basic Internet access via mobile phones.

To be sure, the group's founding members, which also include Ericsson, MediaTek and Opera, all figure to profit if the market of 2.7 billion people who now access the Internet keeps growing, especially as more transition from desktop computers to mobile devices. But in a white paper posted on his Facebook wall late Tuesday, Zuckerberg argues that there's a greater good in connecting the 4.4 billion men, women and children who now don't access the Internet to a world increasingly powered by "the knowledge economy." 

That would include people in developing countries where access to basic necessities such as clean water, food and health care is a problem. "Is connectivity a human right?" Zuckerberg asked in his post. Zuckerberg, who helped start a controversial political action group this year called, outlined the new organization's "rough plan," which has three overarching tech solutions for making less-expensive Internet access more widely available: Making Internet access affordable by making the overall delivery of data more efficient, making sure apps and other Web experiences use less data, which would also improve their delivery, and helping businesses develop a new model to get people online.

4 Being proactive after job loss (Kim Thompson in San Francisco Chronicle) Recently lost your job? You’re likely not over the initial shock, even if you know it’s coming as part of a down-sizing process. Getting finances in order, launching a job search, establishing a new routine all take some time, thought and effort. Often, people find themselves wondering where to start.

My advice is to take things slowly. Take some time to digest your change in employment before making any big changes. It’s easy to fall into panic mode. Sometimes a job loss is a relief, but many times, it’s a shock.  In either case, take the time you need to absorb the loss. Going through a degree of sadness is part of the healing process. Avoid building stress by analyzing how much you need to do to land a job; just focus on one step at a time, particularly in the first few days or weeks.

Don’t do these: Make big decisions, speak ill of your previous employer, spend all your severance pay at once, call everyone you know and ask for a job, hide from your friends out of embarrassment, or jump at the first job offer without consideration. But do discuss major decisions with family or friends, take the time you need to move through your job loss, practice what you want to tell others about your job loss, take the high road when describing your experience with your former employer, focus on the skills you acquired, and seek professional help if you stay in a state of sadness and struggle with moving forward.

5 One millionth child refugee flees Syria (Khaleej Times) The number of children who have fled war-torn Syria hit one million on Friday, while two million kids have been displaced within their homeland’s borders by the conflict, the UN said. “This one millionth child refugee is not just another number. This is a real child ripped from home, maybe even from a family, facing horrors we can only begin to comprehend,” said the head of UN children’s agency UNICEF, Anthony Lake.

Children make up half of all refugees from more than two years of conflict in Syria, according to United Nations figures. Most Syrian refugees have found a haven in Lebanon, Jordan, Turkey, Iraq and Egypt, but they are increasingly fleeing to North Africa and Europe. The UN’s most recent figures show that some 740,000 Syrian refugees are under the age of 11. Inside Syria, meanwhile, more than two million children have been driven from their homes in the face of the conflict, which has morphed into a vicious, sectarian civil war.

Wednesday, August 21, 2013

India wrestles with policy as rupee sinks; Gen Y and Boomers suffer the most; HP revenue growth 'unlikely'

1 India wrestles with policy as rupee sinks (Sudeep Jain & Nupur Acharya in The Wall Street Journal) The Reserve Bank of India's varying stance in recent weeks reflects shifting views about what poses the biggest immediate danger to the economy of the world's second-most-populous country: a weaker currency or slower growth. It is a question confronting central bankers around the developing world, as investors pull back from emerging markets in anticipation of an end to the easy-money policies of the US Federal Reserve and other big central banks.
For India, whose large external economic imbalances make it especially vulnerable, the impact has been severe. The rupee fell to an all-time low of 64.52 to the US dollar on Wednesday afternoon. It is down 16% since May. Other countries that, like India, have large current-account deficits, from Thailand and Indonesia to Turkey, have also seen currencies and markets come under pressure.
In India, much of the weight of the decision-making has fallen on the Reserve Bank's governor, Duvvuri Subbarao, known through much of his tenure, which began in 2008, as an inflation fighter.
The central bank tried to reassure investors by saying that it would reverse its tightening steps when the rupee stabilized. But the currency kept falling, and investors became increasingly fearful that the higher effective interest rates would stall India's economy recovery. India's financial markets have since been feeding off each other, with the falling rupee bringing stocks lower, and in turn hurting the currency. Foreign investors have pulled $1.9 billion out of Indian stocks and bonds since mid-July.
Investors now are waiting to see how Raghuram Rajan, former chief economist of the International Monetary Fund, will manage when he takes over as the new governor starting Sept 5. Mr. Rajan is already in Mumbai, working closely with Reserve Bank officials. Mr. Rajan faces the task of choosing among three policy goals: boosting growth, keeping inflation low and stabilizing the rupee. Under Mr. Subbarao, the RBI has tried to juggle all three.
2 Gen Y and Boomers suffer the most (Catherine Rampell in The New York Times) As my colleague Robert Pear reports, a new study from Sentier Research finds that four years after the start of the economic recovery, the median American household income is still down 4.4 percent. Incomes have risen a little since their recent trough in August 2011, but not enough to make up for the losses sustained earlier.
The declines were not distributed evenly. One of the more striking findings from the report was the variation in changes in median income by age group: Those in the 65- to 74-year-old group are the only demographic in the entire study to have incomes rise by a statistically significant amount in inflation-adjusted terms. (Householders 75 and older also reported higher incomes, but the change was not statistically different from zero.) On the other hand, those under age 25 and between the ages of 55 and 64 (roughly the baby boomer demographic) suffered the biggest hits.
By contrast, another study found that people who lost their jobs in the few years before becoming eligible for Social Security (in today’s case, that baby boomer cohort) lost up to three years from their life expectancy, largely because they no longer had access to affordable health care. The young, meanwhile, sustain long-term declines in their incomes as a result of entering the job market during a recession. In the wake of this recent recession, young people have also ended up moving back into (or never leaving) their parents’ homes in large numbers, and have suffered major wealth losses as well.
3 HP revenue growth ‘unlikely’ (BBC) Meg Whitman, the chief executive of Hewlett-Packard, has warned that the firm is "unlikely" to see a revenue growth next year. Her comments came as the firm reported a 8% decline in revenue for the quarter ending 31 July, from a year ago. HP has struggled amid falling global PC sales and rising competition. It was displaced by China's Lenovo as the world's top PC maker last year.
"What has changed about 2014's outlook is a couple of things - Enterprise Group's performance especially during the quarter," Ms Whitman told analysts during a conference call after the results. "Weak execution has amplified the market challenges we know exist. It's unlikely... that we'll see the growth in 2014 that I had hoped," she added.
HP reported a net profit of $1.4bnfor the quarter, reversing a loss of $8.9bn during the same period last year. The massive loss last year occurred as the firm wrote down the value of some assets, mostly related to its purchase of Electronic Data Systems, which it bought in 2008.

Ms Whitman, who took charge of the firm in late 2011, had previously said that it was possible for the company to see its revenues grow next year. However, global PC sales have been declining, as customers continue to switch to smartphones and tablet computers. Worldwide PC shipments have now fallen for five quarters in a row, making it the "longest duration of decline" in history, according to research firm Gartner.

Monday, August 19, 2013

India on financial brink; Summer of troubles dents India's confidence; Age can be a curse in Silicon Valley

1 India on financial brink (The Guardian) India’s financial woes are rapidly approaching the critical stage. The rupee has depreciated by 44% in the past two years and hit a record low against the US dollar on Monday. The stock market is plunging, bond yields are nudging 10% and capital is flooding out of the country.

In a sense, this is a classic case of deja vu, a revisiting of the Asian crisis of 1997-98 that acted as an unheeded warning sign of what was in store for the global economy a decade later. An emerging economy exhibiting strong growth attracts the attention of foreign investors. Inward investment comes in together with hot money flows that circumvent capital controls. Capital inflows push up the exchange rate, making imports cheaper and exports dearer. The trade deficit balloons, growth slows, deep-seated structural flaws become more prominent and the hot money leaves.

While the Indonesian rupee and the South African rand are also feeling the heat, it is India – with its large trade and budget deficits – that looks like the accident most likely to happen. On past form, emerging market crises go through three stages: in stage one, policymakers do nothing in the hope that the problem goes away. In stage two, they cobble together some panic measures, normally involving half-baked capital controls and selling of dollars in an attempt to underpin their currencies. In stage three, they either come up with a workable plan themselves or call in the IMF. India is on the cusp of stage three.

2 Summer of troubles dents India’s confidence (Gardiner Harris & Bettina Wassener in The New York Times) A summer of difficulties has dented India’s confidence, and a growing chorus of critics is starting to ask whether India’s rise may take years, and perhaps decades, longer than many had hoped. “There is a growing sense of desperation out there, particularly among the young,” said Ramachandra Guha, one of India’s leading historians.

Three events last week crystallized those new worries. On Wednesday, one of India’s most advanced submarines, the Sindhurakshak, exploded and sank at its berth in Mumbai, almost certainly killing 18 of the 21 sailors on its night watch. On Friday, a top Indian general announced that India had killed 28 people in recent weeks in and around the Line of Control in Kashmir as part of the worst fighting between India and Pakistan since a 2003 cease-fire. 

Also Friday, the Sensex, the Indian stock index, plunged nearly 4 percent, while the value of the rupee continued to fall, reaching just under 62 rupees per dollar, a record low. The rupee and stocks fell again on Monday.  Each event was unrelated to the others, but together they paint a picture of a country that is rapidly losing its swagger. India’s growing economic worries are perhaps its most challenging. 

“India is now the sick man of Asia,” said Rajiv Biswas, Asia-Pacific chief economist at the financial information provider IHS Global Insight. “They are in a crisis.” In part, the problems are age-old: stifling red tape, creaky infrastructure and a seeming inability to push through much-needed changes and investment decisions. For years, investors largely overlooked those problems because of the promise of a market of 1.2 billion people. But after more than a decade of largely futile efforts not only to tap into India’s domestic market but also to use the country’s vast employee base to manufacture exports for the rest of Asia, many major foreign companies are beginning to lose patience. And just as they are starting to lose heart, a reviving American economy has led investors to shift funds from emerging-market economies back to the United States. 

India has fewer than 100 ships, compared with China’s 260. India is the world’s largest weapons importer, but with its economy under stress and foreign currency reserves increasingly precious, that level of purchases will be increasingly hard to sustain. The country’s efforts to build its own weapons have largely been disastrous, and a growing number of corruption scandals have tainted its foreign purchases, including a recent deal to buy helicopters from Italy. Unable to build or buy, India is becoming dangerously short of vital defense equipment, analysts say. 

3 Age can be a curse in Silicon Valley (Andrew S Ross in San Francisco Chronicle) In 2012, three high-tech companies in Silicon Valley announced they were laying off a combined 48,000 employees. Layoffs continue this year, including last week's announcement that profitable Cisco Systems was letting 4,000 people go. At the same time, the total number of jobs in the valley and in San Francisco's tech hub is on the rise.

But if demand is outstripping supply, how come so many skilled IT professionals in the Bay Area are out of work? In a nutshell, job experience in the tech industry matters far less than it once did. In fact, it can work against you.

"It's been quite a shock, coming out of my last job, which I had for 11 years," said Robert Honma, 49, of Sunnyvale, his resume filled with senior tech positions in multinational companies and small startups. He's been out of work for 10 months. "The Facebooks, the Googles are driven by the young." Mark Zuckerberg agrees. "I want to stress the importance of being young and technical," Facebook's CEO (now 28) said in 2007. "Young people are just smarter. Why are most chess masters under 30? I don't know. Young people just have simpler lives. We may not own a car. We may not have family. Simplicity in life allows you to focus on what's important."