Archive for the ‘Economy’ Category
Offshoring of jobs to India will begin to decline starting 2014, and will reach the end of its lifecycle in eight years, according to US-based strategic advisory and research firm The Hackett Group released at the Nasscom Global In-House Centers ( GIC) Conclave being held here.
According to The Hackett Group, the traditional model of US and European companies moving finance, IT, and other business services jobs offshore will reach the end of its lifecycle over the next 8-10 years, and US and European companies will simply run out of jobs which can be moved offshore to locations like India.
The Hackett Group’s offshoring research, examined 4,700 companies with annual revenue over $1 billion and headquartered in the US and Europe. It found that by 2016, a total of 2.3 million jobs in finance, IT, procurement and HR will have moved offshore.
The Hackett Group’s Director Martijn Geerling said: “After the offshoring spike driven by the Great Recession of 2009, the well is clearly beginning to dry up. It’s critical for India to develop alternative sources of demand, to maintain growth of their business services industries.”
India is by far the most popular destination, with nearly 40% of the jobs being offshored headed there. Hackett predicted that India’s overall share will decline to 38% in 2013.
According to Nasscom, captive offshoring units of large banks, insurance companies and retailers contribute $14 billion to India’s $100-billion IT-BPO industry. According to The Hackett Group, only about 4.5 million of the 8.2 million business services jobs located in North America and Europe at the start of 2002 will still exist in 2016.
“By 2016, the number of potentially offshorable jobs will have been reduced to one million,” said Michael Janssen, principal and chief research officer at The Hackett Group.
KPMG disagreed with the Hackett’s research. “India currently has about 6% of world’s outsourcing potential. Even if we manage to double it by 2014, there will be enough headroom for more growth,” said Pradeep Udhas, Partner and Head ITBPO sector at KPMG. A partner at AT Kearney also echoed a similar sentiment.
The ignorance and corruption of our ministers, where can you miss of instances? If you survey the court, if you survey the country, if the church, if the city be examined, if you observe the bar, if the bench, if the ports, if the shipping, if the land, if the seas…all these will render you variety of proofs; and that in such measure and proportion as shows the greatness of our disease to be such that, if there be not some speedy application for remedy, our case is almost desperate.
– Sir John Eliot on England in 1628.
The state of the Indian union is probably approaching that desperation now. Never in the past two decades has the economic situation been so grim, not even during the global credit crisis in 2008.
Industrialists, investors and the commoners were expecting remedy in the Budget, but hardly anything came by that promises better days, at least in the near future.
Industrialists were disappointed and investors did not believe the numbers that finance minister Pranab Mukherjee presented. It is the track record of failed promises that’s causing the gloom.
We capture nearly a decade of promise versus performance and it is not rosy. Indeed, Mukherjee himself summed up the reality when he told Parliament: “I know that mere words are not enough.”
His realisation that credible proposals are the need of the hour did not translate into action, pushing many to conclude that it may be yet another year of missed targets. Policy flip-flops have been many, but this Budget added yet another dimension to it by amending the Income Tax Act with retrospective effect.
“There is nothing in this Budget that’s going to make people believe that India is now on a more credible long-term fiscal path,” said Jim O’Neill, chairman of Goldman Sachs Asset Management. “Some of the concerns and risks that many people would have had before the Budget, stay in place.”
The government enjoyed the benefit of doubt for many years. But its consistent missing of target is beginning to make investors fret. It spent more than budgeted in fiscal 2012, it doled out more in subsidies than estimated, it borrowed more, and raised less through disinvestment.
Prime Minister Manmohan Singh’s government has been long on promises, but short on delivery – be it fiscal reforms, or investment limit enhancement. Policy making has come to a standstill with businesses unwilling to take up new projects. But it keeps planning programmes that can wreck state finances.
“I doubt they can achieve the fiscal-deficit target,” said Robert Prior-Wandesforde, director of Asian economics at Credit Suisse. “We know from history that the government always overspends relative to its targets.”
Investments by global investors and the entrepreneurship of businessmen were the two pillars of the Indian economy for nearly two decades. Suddenly, that too is turning shaky.
If the government begins to deliver on the promises made it can help the economy take a giant stride. If fiscal 2013 turns out to be yet another year of unfulfilled promises, then it may be a long grind for businesses, investors and citizens.
Estimated Tax Receipts Versus Collections
Tax revenue estimates, like most other parameters, often go awry. However, over the years, the gap between the estimates and the actuals has narrowed significantly.
One notable trend is that tax revenue tends to exceed estimates during the years when the economy has done well. While they tend to be below budget estimates in years of slower economic growth.
Budgeted Government Borrowing and Actual
Historically, the government seldom stuck to its borrowing targets.
But this gap was sought to be curtailed in the initial years of the enactment of the Fiscal Deficit and FRBM Act in 2003.
Immediately after the Act was passed, actual borrowing was lower than the estimates.
However, it started overshooting estimates after the financial crisis of 2008. But this gap was sought to be curtailed in the initial years of the enactment of the Fiscal Deficit and FRBM Act in 2003.
Immediately after the Act was passed, actual borrowing was lower than the estimates.
However, it started overshooting estimates after the financial crisis of 2008.
Projected Fiscal Deficit to GDP and Actual Deficit
Successive governments have been profligate. But they got serious about controlling deficit after the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, which sought to restrict fiscal deficit to 3% of GDP.
For a few years, there was some reduction in deficit. But it again slipped after a massive dose of stimulus, following the financial crisis in late 2008.
Revenue Foregone Versus Subsidies
The government may have raised tax rates, but there are many economic activities that go untaxed due to various exemptions, which is revenue forgone. If some of these activities are taxed, justifiable subsidies could be met. Many of the tax incentives and exemptions have outlived their purpose and most benefits go to large companies that don’t deserve them.
Many reforms have been in discussion for years now. But the govt takes one step forward and then two steps back
Mumbai as Int’l Fin Hub, Anyone?
In 2007, the then finance minister P Chidambaram in his Budget speech said that the country’s financial capital has the potential to be a global financial centre. As is the governmental practice, he also set up a committee headed by World Bank economist Percy S Mistry.
Within just two months, in April 2007, the committee made a host of recommendations with alacrity to enable Mumbai join the league of London and New York, while Dubai was slowly becoming Asia’s financial capital with the advantage of surplus oil money from other Gulf states pouring in.
It proposed migration to full capital account convertibility, preparation of an exit strategy by the government for withdrawing from ownership of financial firms, gradual reduction of equity stake in public sector banks, establishment of a robust derivatives market along with a currency spot market.
It also recommended opening up of the Indian capital market to hedge funds and alternative investment vehicles, while removing all impediments to outsourcing of asset management by banks, insurance companies, mutual funds, pension funds and foreign institutional investors. Four years later, no one is talking about it as Mumbai’s infrastructure is bursting at the seams.
Of course, the sign of things to come was apparent at one of the functions to debate on the topic. When Rakesh Mohan, the then RBI deputy governor, got up to speak on the topic, the sound system fell silent. In desperation, he asked: “Can this city become one?”
Tripped by Crisis, FRBM Yet to Recover
Running huge fiscal deficits was a ‘given’ in the days of Licence Raj. However, the need to improve the fiscal health of the economy started getting serious policy attention only after liberalisation and structural reforms, post 1991.
After several years of deliberation and debate by policy makers, the Fiscal Responsibility and Budget Management Act, or FRBM, was passed in 2003. The Act, among other things, sought to restrict fiscal deficit to 3% of GDP by focusing on revenue raising measures and expenditure reforms. Besides, revenue deficit was also sought to be eliminated.
The government was serious and was successful in consolidating its finances for a few years and also in achieving the targets stipulated in the Act. The Act was also adopted by various state governments and many of them had succeeded in fiscal consolidation.
However, after the global financial crisis of 2008, things started going off the mark as the government had to resort to massive stimulus to revive the economy, which was badly affected by the global financial meltdown in 2008. Almost four years after the stimulus, even as the central bank has unwound monetary stimulus, there has been little success in unwinding the fiscal stimulus completely.
The finance minister has proposed to introduce amendments to the FRBM Act as part of Finance Bill, 2012. However, given that 2013-14 is going to be a crucial year from the political perspective, with general elections due in 2014, its success may not be certain.
Bill to Amend Banking Act Hangs Fire
The amendment to Banking Regulations Act, which at that time was touted as a game changer, was proposed seven years ago, but is yet to see the light of the day.
Soon after the Bill was introduced in Parliament, the House was dissolved. The key proposal in the bill was to change the voting rights equivalent to that of the proportion of shares held by an individual. Voting rights are now capped at 10% per shareholder even though the holding is larger. This was to be the carrot for international investors and for strategic investors.
When the bill was re-introduced after the elections to the new Parliament, it was referred to the standing committee for review.
The Opposition and the Left objected to the amendments on removing the cap on voting rights on the grounds that banking is a sensitive business and it should be tightly regulated.
The finance minister has again promised to table the bill before Parliament, but this time he may face resistance not only from Opposition parties, but also from allies, who stall new measures. The bill also empowers the Reserve Bank of India to supersede the board of banks and has an enabling provision that no individual or an entity can acquire stake in a bank above 5% without their approval.
As of now, the Reserve Bank of India exercises these options under its power to issue direction, but not under the legal framework.
Public Debt Office Debate Continues
Separation of the public debt office from monetary management is being debated at policy level since as early as 1997, during which five finance ministers and three RBI governors have been at the helm. A working group on separation of debt management from monetary management submitted its report to the Reserve Bank of India in December 1997.
It had then recommended, the separation of the two functions and establishment of a company under the Indian Companies Act to take over the debt management function.
The issue was further revisited in 2001, when the finance ministry came out with a report of the internal expert group on the need for a middle office for public debt management. Subsequently, the issue was revisited again in 2004 by another finance ministry committee.
Things moved a little with finance minister P Chidambaram announcing the government’s intention to set up separate debt management office in his Budget speech of 2007.
Two finance ministry committees touched upon the subject subsequently. Besides, in 2008, another working group on debt management was set up to study the pros and cons of setting up a national treasury management agency, which again did not come out with any specific recommendations.
But it’s been four years since the proposals have gathered dust, with no policy level talk since 2007.
The budgeted expenditure of the Central government for 2012-13 is pegged at 14,90,925 crore, which will be financed by tax receipts to the extent of just over 52%, while borrowings will account for a share of 34%. Of this spending, a lion’s share will go to meet non-plan heads – 65.1%. Also, capital outlay, that is the amount allocated to creation of productive assets, will be a meagre 13.7%.To see this in perspective, while defence will claim only 193,408 crore,interest payments outgo is much higher at 319,759 crore and subsidy is only a tad lower at 190,015 crore. The ratio of the fiscal deficit to GDP is projected at 5.1% in the next fiscal as against 5.9% in the current year
A rising number of information technology firms are consolidating and re-aligning leased office spaces across the metros, hoping to save their rents and operating costs that will help them sail through the global economic storm.
Among the big-ticket lease agreements locked recently is that of Mahindra Satyam. The IT services provider, which operates from multiple locations in Bangalore, has taken up 5,00,000 sq ft of space in Manyata Tech Park in the city.
Following suit are IT majors, such as EMC, Cognizant, Persistent Systems and Nokia-Siemens, all of which have leased large office spaces to house multiple units under one roof.
According to real estate services firm Jones Lang LaSalle, 80-85% of the demand for office spaces in India comes from the IT/ITeS sector. The sector occupied 28 million sq ft of office space last year compared with 32 million sq ft in 2010.
“IT firms grew in sporadic manner as their clients were located in multiple locations,” said Ram Chandnani, deputy managing director at commercial real estate broker CB Richard Ellis. “Now companies are looking at moving into one or two locations to bring efficiency and reduce transport and other costs.”
While EMC, a provider of storage hardware solutions, has picked up 3.5 million sq ft of office space on the outskirts of Bangalore, Cognizant has taken up 250,000 sq ft in DLF Akruti in Pune.
The IT and BPO services firm has also rented three strategic sites to expand operations in Hyderabad. This is in addition to around 7,00,000 sq ft the company had recently taken on lease in Hyderabad’s K Raheja Mindspace SEZ.
Earlier, Persistent Systems, a software product development services provider, had taken up 4,70,000 sq ft of space on lease in Pune, while wireless equipment maker Nokia-Siemens rented 8.5 million sq ft in Bangalore’s Manyata Tech Park.
Real estate and transport of staff constitute about 24% of an IT firm’s total costs. Consolidating offices could translate into a 15-22% saving under this head, according to some analysts. Moreover, housing staff under one roof saves expenditure on energy and housekeeping and maintenance staff.
“Rental forms a large part of the total operational costs and we are looking at maximum utilisation of real estate,” said N Venkatraman, CFO of Sonata Softwares, which recently closed its facility in Bangalore’s central business district and moved to Global Village Tech Park. “Even if we can save a rupee on fixed costs, it will directly reflect on our bottom line. All our new headcount addition will be in the new campus.”
Sonata, a technology solutions provider, occupies 1,15,000 sq ft in the Global Village Tech Park. The company also owns a campus in Hyderabad besides the corporate headquarter in Bangalore.
Slowdown in the US and the lingering debt crisis in Europe have put nearly 85% of Indian IT firms’ revenues under a cloud. Experts say the global outlook will determine real estate spends by IT firms in the days ahead
The economic news is looking better lately. But after previous false starts – remember “green shoots”? – it would be foolish to assume that all is well. And in any case, it’s still a very slow economic recovery by historical standards.
There are several reasons for this slowness, with the most important being the overhang of household debt that is a legacy of the housing bubble. But one significant factor in our continuing economic weakness is the fact that government in the United States is doing exactly what both theory and history say it shouldn’t: slashing spending in the face of a depressed economy.
In fact, if it weren’t for this destructive fiscal austerity, our unemployment rate would almost certainly be lower now than it was at a comparable stage of the “Morning in America” recovery during the Reagan era.
Notice that I said “government in the United States,” not “the federal government.” The federal government has been pursuing what amount to contractionary policies as the last vestiges of the Obama stimulus fade out, but the big cuts have come at the state and local level. These state and local cuts have led to a sharp fall in both government employment and government spending on goods and services, exerting a powerful drag on the economy as a whole.
One way to dramatize just how severe our de facto austerity has been is to compare government employment and spending during the Obama-era economic expansion, which began in June 2009, with their tracks during the Reagan-era expansion, which began in November 1982.
Start with government employment (which is mainly at the state and local level, with about half the jobs in education). By this stage in the Reagan recovery, government employment had risen by 3.1 percent; this time around, it’s down by 2.7 percent.
Next, look at government purchases of goods and services (as distinct from transfers to individuals, like unemployment benefits). Adjusted for inflation, by this stage of the Reagan recovery, such purchases had risen by 11.6 percent; this time, they’re down by 2.6 percent.
And the gap persists even when you do include transfers, some of which have stayed high precisely because unemployment is still so high. Adjusted for inflation, Reagan-era spending rose 10.2 percent in the first 10 quarters of recovery, Obama-era spending only 2.6 percent.
Why did government spending rise so much under Reagan, with his small-government rhetoric, while shrinking under the president so many Republicans insist is a secret socialist? In Reagan’s case, it’s partly about the arms race, but mainly about state and local governments doing what they are supposed to do: educate a growing population of children, invest in infrastructure for a growing economy.
Under President Barack Obama, however, the dire fiscal condition of state and local governments – the result of a sustained slump, which in turn was caused largely by that private debt explosion before 2008 – has led to forced spending cuts. The fiscal straits of lower-level governments could and should have been alleviated by aid from Washington, which remains able to borrow at incredibly low interest rates. But this aid was never provided on a remotely adequate scale.
This policy malpractice is doing double damage to the United States. On one side, it’s helping lose the future – because that’s what happens when you neglect education and public investment. At the same time, it’s hurting us right now, by helping keep growth low and unemployment high.
We’re talking big numbers here. If government employment under Obama had grown at Reagan-era rates, 1.3 million more Americans would be working as schoolteachers, firefighters, police officers, etc. than are currently employed in such jobs.
And once you take the effects of public spending on private employment into account, a rough estimate is that the unemployment rate would be 1.5 percentage points lower than it is, or below 7 percent – significantly better than the Reagan economy at this stage.
One implication of this comparison is that conservatives who love to compare Reagan’s record with Obama’s should think twice. Aside from the fact that recoveries from financial crises are almost always slower than ordinary recoveries, in reality Reagan was much more Keynesian than Obama, faced with an obstructionist GOP, has ever managed to be.
More important, however, there is now an easy answer to anyone asking how we can accelerate our economic recovery. By all means, let’s talk about visionary ideas; but we can take a big step toward full employment just by using the federal government’s low borrowing costs to help state and local governments rehire the schoolteachers and police officers they laid off, while restarting the road repair and improvement projects they canceled or put on hold.
Facing an economic down turn due to steady fall in exports, China for the first time in seven years projected a lower growth, scaling down its GDP growth target to 7.5 per cent this year from last year’s eight per cent.
The lower growth target was projected in the annual government work report delivered by Premier Wen Jiabao at China’s Legislature, the National People’s Congress here today.
This is the first time for the Chinese government to lower its economic growth target after keeping it around 8 per cent for seven consecutive years.
“Here I wish to stress that in setting a slightly lower GDP growth rate, we hope to make it fit with targets in the 12th Five-Year Plan, and to guide people in all sectors to focus their work on accelerating the transformation of the pattern of economic development,” said Wen, who retires at the end of this year after a decade long stint.
Making economic development more sustainable and efficient, so as to achieve higher-level, higher-quality development over a longer period of time, he said.
Previously, China has announced to target a seven per cent GDP growth from 2011 to 2015, the country’s 12th Five-Year Plan period.
China’s economy expanded by 9.2 per cent in 2011 to 47.16 trillion yuan (USD 7.49 trillion) from a year earlier after it grew 10.3 per cent in 2010. In the fourth quarter last year, the country’s GDP growth decelerated to 8.9 per cent year-on-year, the slowest pace in 10 quarters.
The lower growth projections followed the adverse impact of the global economic down turn being felt by China hurting its export oriented economy.
The government has set the main theme of this year’s economic and social development as “make progress while maintaining stability” at a tone-setting central economic work conference in December last year.
Wen said China will continue to follow a proactive fiscal policy and a prudent monetary policy, carry out “timely and appropriate anticipatory adjustments and fine-tuning and make its policies “more targeted, flexible, and anticipatory”, according to the report.
“To achieve steady growth, we will continue to expand domestic demand and keep foreign demand stable, vigorously develop the real economy, work hard to counter the impact of various factors of instability and uncertainty at home and abroad, promptly resolve emerging issues that signal unfavourable trends, and maintain stable economic performance,” the Premier said.
Wen said the government has set the this year’s consumer price growth at around four percent.
The country’s consumer price index (CPI), a main gauge of inflation, rose 4.5 per cent year-on-year in January, down from a 37-month high of 6.5 per cent in July last year.
Kerala,and India,hasnt really cracked the full potential of this hard nut.But as the world wakes up to this rehydrating,natural,energiser,that could well change.It must
It was not what Suresh Nair ever wanted to do.But acute labour shortage had forced Nair,a coconut farmer in Alappuzha,Kerala,to attend a short-duration course in coconut palm climbing,organised by the Coconut Development Board (CDB).I hope to do the next round of harvesting on my own, says Nair,a member of the Coconut Producers Society (CPS),set up to promote coconut-based products,including tender coconut water.
Finally,the state that produces approximately 600 crore coconuts a year is in the process of setting up large plants to produce and package tender coconut water.And the timing isnt all that bad out there in the US East Coast,the beverage war has just moved from soda fountains to coconut groves.In New York and similar business hubs,tender coconut water is billed as the Next Big Thing.Reports citing industry estimates say that the US retail sales of tender coconut water rose to as much as $400 million last year.Thats a 100% growth from 2005.Besides Kerala,major producers of coconut are West Bengal,Andhra Pradesh,Tamil Nadu,Karnataka and Odisha while the big markets are Delhi,Mumbai,Ahmedabad and Bangalore.
The total production of coconuts in the country is estimated at 1,500 crore nuts per year.Of this only 15% is harvested as tender coconuts,a statistic that has persuaded CDB to set a production target of 25% tender nuts nationally.CDB also plans to launch 5,000 green coconut stalls across the country,mainly in hospitals,shopping malls and pilgrimage centres.
Yet,all those plans could come unstuck if states like Kerala cant overcome its legacy burdens: declining productivity due to small holdings and pests,migration to cash crops like rubber,levelling of farms due to rapid urbanisation,and acute labour shortage.Says Sreekumaran from Palakkad,who owns a coconut farm: Hit by labour shortage,I was forced to give the entire farm to wholesale traders. The price that the traders pay is 5.50-6 per coconut;if Sreekumaran had sold it directly to the market,he could have netted 8-9 per nut.All this when a tender coconut retails at 35-50 in places like New Delhis tony Greater Kailash.
Beyond a Nut Shell
The solution to these ills may not just lie in transporting the harvest straight to places like Greater Kailash.Corrections needed here are foundational,measures that could lift farmers from the tyranny of available options.In other words,facilities to process and preserve the produce;a search for that Holy Grail,the public-private partnership.In fact,in the organised sector,almost all the major processors have entered a phase of healthy growth,thanks to the rising demand for tender coconut water.Ajay Kumar Jain,managing director of Jain Agro Food Products,notes that the organised tender coconut water industry has been growing at a rate of 20% to 25%.The R A J Karnataka-based company which sells the Coco Jal brand of tender coconut water has found major markets for its products in Delhi and Rajasthan.
Jain buys his stock from Maddur in Karnataka,the largest local wholesale market for tender coconuts.He says that the demand growth has led to an increase in the prices in the wholesale market.The price for tender coconut is 10-12 compared with 5-7 in 2010.
The Kochi-based CDB feels that integrated coconut processing complexes are the right approach.Board chairman TK Jose has had enquiries from Coke,Pepsi and Zico for tender coconut water.But we did not have enough output to meet their requirement. He feels that apart from tender coconut water the processing centres can also produce coconut milk and milk powder,desiccated coconut and virgin coconut oil.
The Palm-top View
Can Kerala,and India,get ready to reap a global harvest considering that beverage majors such as Coca-Cola,Pepsi and Zico currently source their nuts from Indonesia and Philippines Well,if anything,our track record isnt really inspiring.
Kerala accounts for nearly 42% of the area under coconut and 37% of its production in the country.Yet,it does not have a single tender coconut waterproducing unit.In fact,we have only seven such units in the country,CDBs Jose says.Kerala plans to start 10 such units.
Age of Concern
For his part,CM Kamaraj,managing director of the Tamil Nadu-based Sakthi Coco Products,says the age profile of the coconut palms in Kerala are not suitable for tender coconut water production.However,a major plan to rejuvenate the coconut plantations by cutting the old,senile and diseaseaffected palms and planting the new varieties is underway in Kerala.Clearly,the state is planning for the future.
In Greater Kailash and Colaba Causeway,maybe even in LA,the thirsty ones would be waiting.
Tender Coconut Water as Health Drink
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