Many NRIs think of return, but prospects in India are no brighter

3 Nov, 2008, 0010 hrs IST, IANS

NEW DELHI: Ajit Singh, an investment adviser in Boston working for one of Europe's largest commercial banks, had it all good a year ago. Engaged to be married later this year, he now finds that his big fat Indian wedding has been called off, while his great American dream has come crashing down.

"The girl's parents called off the wedding when they heard about people losing jobs in the US. They were no longer sure about the stability of my job," Singh told IANS over phone from Boston.

His situation, perhaps, isn't as bad as it was for Karthik Rajaram, a Los Angeles-based financial adviser, who recently killed five members of his family and himself after his finances were wiped out in the stock market crash.

There is no place like home - this is a cliché that is appealing to a host of non-resident Indians in the US and Europe these days as they look for prospects back home, fearing large-scale job losses in the lands of their dreams.

But the opportunities in India are no brighter.

Kunal Banerjee, chief executive of headhunting firm Absolute HR Services, says cases like that of Ajit Singh were not isolated, as the number of jobless people in the US touched 9.77 million in September, the highest in 16 years, and has been worsening with each passing day.

"The number of resumes from people wanting to come back has doubled. The hardest hit are the ones employed in financial and IT services," Banerjee told media.

"It is too early to comment on whether we will witness a mass exodus. The actual picture, I guess, will get clearer by mid-November or so when companies start to gauge the real impact of the meltdown."

Kris Lakshmikanth, chief executive and managing director of the Bangalore-based staffing agency Head Hunters India, also feels that non-resident Indians will start coming back to India in droves.

"We have seen a more than 100 percent jump in NRI resumes since July," he said.

"The US and other Western economies are in bad shape and jobs will continue to disappear. The US unemployment rate, which is around six percent currently, could reach double digits by the first quarter of 2009."

Top executives at headhunting firms said the type of visa, especially to the US, was also a determinant of how quickly or in what desperation people will make that trip back home.

"A lot of them to the US, for example, have gone on H1-B or L-1 visas. Software companies typically sponsor these visas. But since their margins are under severe pressure, they have started laying off people," he said.

"For H1-B cases, the visas stand null and void and the person would have to come back unless he finds another employer. But for people working for Indian firms like Infosys or Wipro, they have to come back and join the Indian operations - that is, if the employers still want them around."

A quick guide to matters monetary from Home - Livemint.com

Mumbai: As India’s central bank has dealt or tried to deal with financial and economic turmoil, acronyms and phrases unique to monetary policy and banking such as cash reserve ratio (CRR), market stabilization scheme (MSS), statutory liquidity ratio (SLR) and repo rate have repeatedly made the headlines.

That situation is unlikely to change. The Reserve Bank of India (RBI) has been cutting its policy rate and CRR over the past few weeks to ease the pressure on liquidity (or the availability of money in the financial system) and lower the borrowing cost of companies and individuals.

Over the weekend, it also cut banks’ SLR for the first time since 1997 and promised to buy back government bonds offered under MSS.

If economists and analysts are to be believed, RBI isn’t done, yet.

The Asia Policy Watch of Goldman Sachs Group Inc., released on Monday, said: “We expect continued measures to ease liquidity through CRR and SLR cuts… The repo rate to be cut by an additional 200-250 basis points by mid-2009…as inflation continues to fall sharply.”

Rajiv Malik, head of India and Asean (Association of Southeast Asian Nations) Economics at Macquarie Capital Securities, Singapore, maintains that RBI is on the path of undertaking the “mother-of-all-monetary-easings”. “In our view, RBI will have to announce further cuts in CRR, repo rates and SLR.”

What do all these measures signify for the larger economy, the banking industry and consumers? Will they work? Can they actually prompt banks to lend and stem an impending slowdown? And what do they mean?

Mint presents a rough and ready guide on four key monetary management measures and their implications:

The repo rate

The repo or repurchase rate —RBI’s main short-term lending rate—has been cut by 50 basis points to 7.5%. This is the second repo rate cut in less than a fortnight. On 20 October, RBI had cut the repo rate by 100 basis points to 8%. One basis point is one-hundredth of a percentage point. With the latest cut, the repo rate has retreated to the January 2007 level.

Unlike other central banks, RBI has two policy rates—the repo rate, at which it injects money into the financial system or lends money to banks, and the reverse repo rate, at which it sucks out excess money or borrows money from banks.

If liquidity is abundant in the system, then reverse repo becomes the key policy rate, but when money is scarce—as is the case now—and banks borrow from RBI, the repo rate is the policy rate.

Also, these two rates create the corridor or band within which the overnight call money rate—the rate at which banks borrow from each other —should move.

By cutting the repo rate by 50 basis points, this corridor has shrunk to 150 basis points (the reverse repo rate is 6% now, unchanged since October 2006).

Following the cut, the overnight call money rate should be less volatile because it has less room to move about in. Ideally, it should vary between 6% and 7.5%.

But the overnight call money rate shot up to cross 20% last Friday when the repo rate was 8%.

This means the repo rate per se has no bearing on the market rates. In fact, the market rates depend more on the availability of liquidity than the policy rates.

Similarly, a cut in the repo rate does not necessarily signify lower bank lending rates. Again, liquidity plays a key role here.

Banks do not lend to companies and individuals by borrowing from RBI.

They borrow from the central bank to take care of their temporary asset-liability mismatches. To borrow from RBI, they need to offer government bonds as collateral. If they are short of government bonds, they cannot borrow from RBI and hence they need to turn to the overnight inter-bank call money market.

At best, a cut in repo rate is a signal to banks to pare their lending and deposit rates but its effectiveness depends on liquidity in the system.

The statutory liquidity ratio

SLR has been cut by 100 basis points to 24%, the first such reduction since 1997. Following the cut, banks will be required to invest 24% of their deposits in government bonds, instead of 25%. This means they will have more cash in hand to lend to industry.

By definition, SLR bonds are liquid assets that can be sold at a short notice to meet any unexpected demand from depositors. Higher reserve requirements such as CRR and SLR make banks relatively safe (as a certain portion of their deposits are always redeemable) but at the same time restrict their capacity to lend. To that extent, lowering of reserve requirement increases the resources available with a bank to lend.

Historically, SLR of Indian banks has been high as they need to bear the burden of the government’s fiscal deficit. The government borrows from the banks every year to bridge the fiscal deficit.

And since there is no improvement in the government’s fiscal health (in fact, it is worsening), banks will continue to buy government bonds and the cut in SLR may turn out to be an academic exercise. Currently, the industry’s SLR holding is around 27.5%.

Banks use government bonds held by them in excess of their SLR requirement as collateral to borrow from RBI. On 16 September, RBI had announced, as a temporary and ad hoc measure, that banks could get additional liquidity support from the central bank up to 1% of their SLR.

That amounted to a virtual cut in SLR. This reduction has now been regularized, releasing Rs40,000 crore to the banking system for lending.

The cash reserve ratio

CRR determines the proportion of bank deposits that is to be kept with RBI. It has been cut by 100 basis points in two stages. With this, RBI has brought down CRR from 9% to its January 2007 level of 5.5%.

The outstanding deposit portfolio of the Indian banking industry is Rs34.69 trillion. This means a 100 basis points cut in CRR releases Rs34,690 crore into the system.

However, the actual amount is more—close to Rs40,000 crore.

This is because banks keep funds with RBI on what is in monetary jargon called net demand and time liabilities. This includes certain other liabilities, besides deposits.

So, in the past few weeks, a 350 basis points CRR cut had released Rs1.4 trillion.

Banks can use this money to lend. A cut in CRR also increases banks’ income. RBI does not pay any interest on the cash balance kept with it. Banks can earn 13.5-14% from the freed-up money if they lend to corporate customers with good ratings or around 7.5% if they invest in government securities.

Theoretically, the level of CRR can be brought down to zero. This means, RBI can at best release Rs2.2 trillion into the financial system to ease the liquidity constraint.

The Indian central bank will probably feel the need to cut CRR again (and again) unless it stops intervening in the foreign exchange market.

RBI has been selling dollars to stem the fall of the local currency that has fallen 20% against the US currency since January.

For every dollar RBI sells an equivalent amount of rupees is sucked out from the system.

In other words, liquidity will remain in the system if RBI stops selling dollars and allows the rupee to depreciate.

This situation can also be achieved if the supply of dollars increases with foreign institutional investors (FIIs) buying Indian equities andlocal firms borrowing overseas.

The combination of adequate liquidity and low policy rate can bring the borrowing cost down for firms and individuals.

Market stabilization scheme

Till the time the rupee was rising against the dollar, RBI was aggressively buying dollars from the market to stem the rise of the local currency. This is because a strong local currency hurts exporters’ interest as their income, in rupee terms, comes down.

For every dollar RBI sold, an equivalent amount of rupees flowed into the system and that, in turn, was sucked out by bonds, floated under the market stabilization scheme.

RBI floated both dated securities as well as treasury bills under the scheme and the so-called MSS bonds were not part of the government’s annual borrowing programme that raises money to bridge the fiscal deficit.

RBI has now decided to buy back MSS dated securities to provide another avenue for injecting liquidity.

This will be calibrated with the market borrowing programme of the Indian government.

The government is slated to borrow Rs29,000 crore till the end of this fiscal under its annual borrowing programme but Union finance minister P. Chidambaram has hinted at fresh fund-raising by the government to bridge its rising fiscal deficit.

The outstanding MSS bonds in RBI book are worth Rs1.74 trillion and out of this, dated securities account for Rs1.35 trillion with the rest being short-term treasury bills.

RBI plans to buy back part of the MSS bonds to generate cash for banks which can reinvest them in government bonds that will be floated between now and March 2009.

In other words, banks will not be required to dip into their deposit pool to buy government bonds.

The buy back will help the banks generate liquidity and the government see its borrowing programme through. However, the response of banks to the buy back programme will depend on the price of MSS bonds.

Since interest rates can only go down in coming days, banks may find staying invested in MSS bonds makes business sense.

In a low interest rate regime banks make more money in bonds as their prices go up, pulling down their yields.

Oil prices plummet under $60 a barrel

31 Oct, 2008, 2321 hrs IST, AGENCIES

LONDON: Oil prices plunged under 60 dollars per barrel in London this week, while other commodities rose as traders tracked recession worries, volatile equities and the demand outlook for raw materials.

The price of oil has more than halved since scaling record heights above 147 dollars in July.

Oil prices dived to 17-month lows on global recession fears, hitting 59.02 dollars in London and 61.30 dollars in New York on Monday before clawing back some lost ground.

"Oil markets seem to be pricing in a deep and long recession that will derail oil demand growth this year and next," wrote UBS economist Jan Stuart in a research note to clients.

"Even though we still think that the credit crunch is exaggerating the real shift in oil demand trends, we have no way to know."

UBS also slashed its forecasts for average Brent oil prices to 60 dollars in 2009 and 75 dollars in 2010 from previous estimates of 105 and 116 dollars respectively.

Oil prices sank this week after data showed that the American economy -- the biggest consumer of energy in the world -- contracted at a 0.3 percent annualized pace in the third quarter as a global credit crunch saw consumers and businesses cut back on spending.

"Crude oil fell after the release of the US (growth) figures," said Dresdner Kleinwort analyst Peter Fertig.

"It is likely to head further down as declining US consumer spending could intensify the fear of falling oil demand. This would also be a drag on gold and other metals."

Crude prices had risen Wednesday after interest rate cuts in the United States and China boosted expectations of higher demand in the world's two leading energy consumers, analysts said.

Prices also found some support after the OPEC crude producers' cartel warned it could cut output further.

OPEC Secretary General Abdalla Salem El-Badri said Tuesday it could slash output again if prices keep falling. OPEC produces 40 percent of the world's crude oil.

At an emergency meeting in Vienna last week, OPEC ministers agreed to reduce output by 1.5 million barrels a day to 27.3 million bpd.

By Friday, New York's main oil futures contract, light sweet crude for delivery in December, had firmed to 64.50 dollars from 63.16 dollars last week.

Brent North Sea crude for December dipped to 62.07 dollars from 62.62 dollars last week.

U.S. auto sales plunge to near 25-year lows

Tue, Nov 4 02:55 AM

By Kevin Krolicki

DETROIT (Reuters) - U.S. auto sales plunged near 25-year lows in October, led by a 45 percent drop at General Motors Corp, with no sign the industry's year-long slump had hit bottom and doubts persisting that all the major automakers can survive.

Hurt by tighter credit and deepening uncertainty about the strength of the economy, U.S. sales fell to their weakest monthly level since 1983, based on early sales results.

European auto sales also tumbled for October, with sales declines of 40 percent in Spain and 19 percent in Italy.

Adjusting the figures for the population of the United States, GM said October was the industry's weakest month since the end of World War Two.

Sales for Toyota Motor Co was off 29 percent, Honda Motor Co fell 25 percent and Nissan Motor Co tumbled 33 percent.

"The financial crisis has generated an abrupt constraint on economic activity," said Ford economist Emily Kolinski Morris, who added that the No. 2 U.S. automaker did not think the third quarter represented the bottom of the downturn.

Ford said it could reduce production of passenger cars and crossover vehicles in the coming weeks by cutting overtime and suspending work at some of its plants.

Industry-wide U.S. sales of cars and light trucks were on track to come in below 900,000 units in October after dropping below the 1 million threshold in September for the first time in 15 years, according to initial sales data.

That raised the stakes for a more aggressive round of discounting in November and December as automakers prepared to clear remaining 2008 model-year inventory in exchange for cut-rate financing and other incentives.

GM said it would roll out a "Red Tag" sale with lower vehicle prices and cash-back offers starting on Tuesday.

Toyota, which has overtaken GM as the global auto sales leader, launched a zero percent financing offer in October backed by a high-profile ad campaign aimed to take advantage of the relative strength of Toyota's financing arm.

Nissan launched its own zero percent financing offer for November and December, and expressed confidence that would help its own results move higher from October levels.

"I think there's a lot of consumer uncertainty, but you've also got real-world stories from dealers about how credit has tightened up all around," Nissan division U.S. sales chief Al Castignetti said.

GM, CHRYSLER REMAIN IN FOCUS

GM's North American sales chief Mark LaNeve said auto sales were suffering from the fallout of an "unprecedented credit crunch."

"It was like someone turned off the lights in the month of October," said LaNeve, who estimated that tighter consumer credit standards at GM's affiliated finance company GMAC had cost the automaker up to 60,000 vehicle sales in the month.

The near-freefall in October sales represented the first results since word emerged last month of merger talks between GM and Chrysler LLC, owned by private equity firm Cerberus Capital Management.

GM had sought some $10 billion in government aid to support the merger, a request the U.S. Treasury Department rebuffed last week. That put the focus on whatever support the industry can win from the incoming White House after Tuesday's presidential vote, people familiar with the talks have said.

Chrysler Chief Executive Bob Nardelli said on Monday that while Chrysler had been in talks with other parties, its recent cost-cutting actions were needed to emerge from the downturn.

"The difficult actions we have taken in the past, and those that we have just announced, are for one purpose and one purpose only: helping Chrysler survive this economic trough," Nardelli said in a message to staff obtained by Reuters.

Meanwhile, auto sales were expected to fall by at least 10 percent in Germany, Europe's largest economy, when official figures are released.

In France sales fell 7.3 percent.

An iPod would cost the cheapest Down Under

Mon, Nov 3 06:15 PM

Melbourne, Nov 3 (ANI): The cheapest place in the world to buy an Apple iPod is Australia, owing to the dramatic fall in the country's dollar in the last several months, says a new study.

The study conducted by CommSec reflects its "iPod index", which measures the price of an 8GB iPod nano in 62 countries to compare currencies.

According to CommSec chief economist Craig James, Australia went to the cheapest spot after being placed 14th cheapest in July.

The study revealed that an 8GB iPod costs 131.95 US Dollars.

In July, a 4GB iPod, then considered the entry-level product, cost 181.50 US Dollars.

"It's quite remarkable, we are the cheapest by a long way. Our currency has fallen dramatically," the Australian quoted James as saying.

He added that a British tourist might get an iPod 25 percent cheaper in Australia than in their home country,

James claimed that, according to the iPod index, the Australian dollar might have fallen too far too quickly.

"It has become too cheap in a very short space of time," he said. (ANI)

Minister reports late, assaults airline staffer

November 04, 2008 01:11 IST

Union Minister and Rashtriya Janata Dal parliamentarian Akhilesh Prasad Singh allegedly beat up the station manager of Kingfisher Airlines at Patna Airport on Monday after he was not allowed to board Patna-Kolkata flight as he reported late at the airport.

A Kingfisher Airlines spokesperson, in a statement on Monday night, alleged that the airport manager was assaulted, abused and had to bear a barrage of foul language from Singh, without any provocation.

As per the statement, Singh, who is Minister of State for Food was scheduled to travel on flight IT 4580 from Patna to Kolkata. The flight was scheduled to depart at 08:30 pm and at 08:10 pm, the Kingfisher Airlines staff at Patna Airport were informed by Singh's travel agent that he would not be travelling on the flight.

At around 08:20 pm after all passengers were on board, Patna ATC gave start-up and push-back clearance to the commander of the aircraft.

The aircraft had just begun taxiing when Singh reportedly landed at the airport i.e. 10 minutes before the scheduled departure of the flight, the statement said.

'Under the circumstances, considering the fact that the aircraft had began taxiing, our airport manager told Singh the same and regretted that he could not join the flight as we were told that he was not coming,' the statement said.

Employees sacked over Facebook posts

LONDON: Virgin Atlantic said it has sacked 13 of its cabin staff after they criticised the airline and some of its passengers on social networking website Facebook.

The airline, controlled by Richard Branson's Virgin group, said yesterday the staff's behaviour was "totally inappropriate" and "brought the company into disrepute".

The action follows an investigation into the remarks posted on Facebook, which concerned planes flying from London's Gatwick airport and insulted passengers, as well as reportedly saying the planes were full of cockroaches.

"Virgin Atlantic can confirm that 13 members of its cabin crew will be leaving the company after breaking staff policies due to totally inappropriate behaviour," the airline said in a statement.

"Following a thorough investigation, it was found that all 13 staff participated in a discussion on the networking site Facebook, which brought the company into disrepute and insulted some of our passengers."

It said cabin staff who held such views could not uphold the expected standard of customer service.

"There is a time and a place for Facebook. But there is no justification for it to be used as a sounding board for staff of any company to criticise the very passengers who ultimately pay their salaries," a spokesman said.

Facebook allows users to share photographs, videos and personal information through online individual profiles and groups. It claims to have 110 million users worldwide.

Do I need to say more?

Not in public interest from Home - Livemint.com

It is quite curious. Just a week ago, science and technology minister Kapil Sibal acknowledged media and experts’ concerns and promised to review the flaws in a proposed new law. Yet, a cryptic official press release on Friday said the Union cabinet gave its approval to enact that very legislation —the public-funded R&D Bill, popularly known as the Indian Bayh Dole Act after its equally controversial US counterpart.
So, the Bill is set to be tabled in Parliament without the official draft having been released and publicly debated. The sad significance of this stems from two factors. First, it is all about patenting output of research financed by public money. Second, it is strictly geared to exclusive licensing for commercial use of what could be crucial innovations for public health. The scientist will have no say here. So, CSIR would not have the power to repeat past decisions such as not patenting an antimalarial compound that could make a low-priced drug available. As we’ve argued before, this Bill needs to encourage open source and non-exclusive licensing, too. Yes, minister?

Highest percentage increase in Indians living illegally in US

WASHINGTON: India has registered 81 per cent increase in the number of its citizens living illegally in the US in 2007, even as immigration from Mexico continues to dominate the unauthorized population growth.

According to the Department of Homeland Security the latest statistics on illegals shows that in 2007 the estimated population of Indians living illegally in the United States was 220,000 compared to 120,000 in the year 2000, thus recording one of the highest percentage increase.

An estimated 11.8 million unauthorized immigrants were living in America in January 2007 compared to 8.5 million in 2000. The unauthorized population increased by 3.3 million between 2000 and 2007 while the annual average increase during this period was 470,000.

Nearly 4.2 million (35 per cent) of the total 11.8 million unauthorized residents in 2007 had entered in 2000 or later. An estimated 7.0 million (59 per cent) were from Mexico.

California remained the leading state of residence for the illegal population in 2007 with 2.8 million, followed by Texas with 1.7 million and then Florida with nearly 1 million.

The DHS statistics show that Californias share of the national total declined from 30 per cent in 2000 to 24 per cent in 2007 but the greatest percentage increases of unauthorized resident population occurred in Georgia with 120 per cent, in Arizona, which was at 62 per cent and in Texas with 57 per cent.