Panel cautions against excessive haste in liberalising capital a/c

Panel cautions against excessive haste in liberalising capital a/c
S Kalyana Ramanathan / London February 03, 2009
The Committee on the Global Financial System (CGFS) in its report on "capital flows and emerging market economies" released today said that excessive haste in liberalising capital account has the potential to compromise financial or monetary stability in emerging market economies (EMEs).
The CGFS headed by Reserve Bank of India Deputy Governor Rakesh Mohan was, however, quick to add that excessive rigidities in capital account management can also lead to difficulties in macroeconomic and monetary management.
The CGFS concluded its one and a half year study of more than 20 emerging market economies, starting from the Asian economic crisis of 1997 to the recent credit squeeze in the global economy.
"In principle, the flow of capital between nations brings benefits to both capital-importing and capital-exporting countries. However, very large flows can also create new exposures and risks. This has become apparent with the extraordinary surge in capital flows - total capital inflows reached $1,900 billion in 2007, four times as large as in the period before the Asian crisis - and the subsequent very large reversal of foreign investment in emerging market assets in 2008," said a media release issued today by Bank for International Settlements under which the CGFS was constituted.
Large foreign currency inflows have had major consequences for the liquidity of domestic financial systems. The report discusses the advantages and drawbacks of central banks' market and non-market instruments. It notes the complex interrelations between monetary policy, exchange rate objectives, forex intervention and domestic financial balance sheets.
There is a strong two-way link between capital flows and the resilience of the financial system. Capital flows do most good and least harm when domestic financial markets are developed and local financial firms are strong. At the same time, the greater presence of foreign investors should improve the operation of local financial markets.
The report argues in favour of a combination of policies - sound macroeconomic policies, prudent debt management, exchange rate flexibility, effective management of the capital account, the accumulation of appropriate levels of reserves as self-insurance and the development of resilient domestic financial markets - provides the optimal response to the large and volatile capital flows to the EMEs. "How these elements are best combined will depend on the country and on the period: there is no "one size fits all," Mohan said.

'Helping a big group like Tatas is a big dilemma for govt'

Q&A: Brendan Barber, Chief of UK's Trade Union Congress

S Kalyana Ramanathan / London 3, 2009,

Brendan Barber, the 57-year-old chief of United Kingdom’s apex labour union, Trade Union Congress (TUC), is in sharp contrast to the fire-spitting, red flag-waving union leader common in India. For the starters, he is also a non-executive member on the board of the Bank of England.

This is a difference Barber is conscious of and says he will not lecture on what his comrades in emerging markets should do or how they should do their job. Barber shares with S Kalyana Ramanathan his thoughts on the recession in the United Kingdom and the rest of the world and hints at challenges British companies owned by non-British groups may face in getting the UK government’s support to tide over the recession, even as he treads carefully not to sound nationalistic in a globalising world.

Do you have your own prescription to tide over the present recession in the UK?
The government has been addressing some of these issues, though we are yet to see the impact of some of the decisions that have already been made. There is still work to be done to see the banking system working — to try and get banks to lend properly. A lot of financial institutions are withdrawing to the home base to try to build up their balance sheets again. In the case of British companies, 30 per cent of the lending came from international banks.

In terms of stimulating the economy and trying to keep people in their jobs, the idea is to make big investments in major public works, which the government has talked about but has not yet been able to deliver. I would attach a lot of importance to that. We still have major social housing needs in Britain. We still have many problems with transport infrastructure that need attention without making work for the sake of making work.

Hence, I will kind of group the major issues in three areas — banking and financial issues, public works issues and measures in the labour market to try and help workers through these difficult times.

How does the TUC reach out to large emerging industrial economies like India?
If British companies are trying to set up business in India, they should have an open and friendly approach to labour (issues) and be open to trade union organisations. So when some of the big banks offshore to India, we make sure that they are open to unionisation.

Are they doing it?
Yes, to some extent. Barclays, for example, is doing it.

Tech companies in India have predominantly stayed outside the ambit of trade unions. Cases like Barclays seem to be an exception.
I would say it is an exception. As you say, unions have struggled to establish (themselves) in growing (tech) sectors. We are assisting where we can and trying to assert some influence.

Is ownership of companies like Corus and Jaguar-Land Rover making it difficult for unions to push their agenda given the job cuts declared by companies like these in the recent past?
It is not viewed as a major issue. But clearly, for the government being asked to provide substantial financial support to a huge global company like Tata, the government wants to be convinced that the company could not itself provide the additional funding to tide its British operations through a difficult time.

So there is that extra dilemma that if it is a wholly owned British company whose accounts are totally transparent, it is easier for the government to make a judgment about how much help is needed from the tax-payers and not quite so easy to make that judgment if you are dealing with a massive global conglomerate like Tata.

Are you suggesting that the ownership of these companies is working against them now?
No, I don’t think that necessarily. We were not opposed to Tata taking over (these companies). They have the capacity to make major investments and develop these companies. Clearly, the problem in the steel industry is huge on a global scale, and in the car industry as well. I am simply describing the different complexities for the government being asked to provide major support if it is dealing with a company with interests spread around the world.

Corus axes 3,500 jobs :: Union pledges to fight to reverse the decision.::

S Kalyana Ramanathan / London January 27, 2009, 0:58 IST

Corus, Europe’s second-largest steelmaker, today announced plans to cut 3,500 jobs as part of a new strategic initiative launched to enhance competitiveness. “It should bring annual improvements in operating profit of more than £200m," a statement released by the company said.

Corus currently employs about 42,000 people and a little over half of them are stationed in the United Kingdom. A company spokesperson told Business Standard that jobs will be cut in three plants — 1,100 in South Wales, 1,400 in the United Kingdom and another 1,000 in Holland.

Tata-owned Corus is the latest steel maker to announce downsizing of its workforce. Faced with an economic slowdown, steel makers the world over are cutting output, cancelling investments and reducing their workforce. ArcelorMittal, the world’s largest steel maker, plans to eliminate as many as 9,000 jobs and curtail production by a third.

Corus CEO Philippe Varin said the structural changes have been carefully considered and are essential for the future of the business. "This will ensure Corus is in the best possible shape to compete strongly in the future," he said.

The new initiative includes sale of Corus' aluminium smelters in Germany and the Netherlands (announced on January 21) and sale of a majority stake in Teesside Cast Products. The group proposes "mothballing" of the Llanwern hot strip mill and the restructuring of engineering steels into two businesses — a specialty steels business at Stocksbridge and a bar business at Rotherham.

Community, the Corus union, in a strongly worded media release expressed its disappointment over the job cuts and said it will continue to hold dialogue with the company to avoid this.

"This announcement is a devastating blow to workers and contractors at Corus and will have a knock-on effect for thousands in steel communities across the UK,” Michael J Leahy, the general secretary of Community, said. “This is no reflection on the workforce, which has consistently delivered productivity improvements year-on-year."

Later, a Community spokesperson added that there will be dialogues with the management of Corus to ensure that the job cuts are either avoided or minimised.

JLR denies preference talks over UK aid

JLR denies preference talks over UK aid
S KALYANA RAMANATHAN / London January 29, 2009, 0:25 IST

The Tata group-owned Jaguar-Land Rover (JLR) has denied reports in the media that yesterday's £ 2.3-billion credit relief (as loan guarantee) announced by the UK government will benefit it more than rest of the automobile industry in the UK. Reports in the media that followed UK Business Secretary Peter Mandelson's announcement suggested that JLR and Vauxhaull Motors (a subsidiary of General Motors) would get more than 50 per cent of this fresh relief provided by the government.

Tony Woodley, joint general secretary, Unite (union), yesterday said, "£2 billion sounds like a lot of money, but at least half of this will be taken up by Vauxhaull and Jaguar-Land Rover alone, leaving little or nothing for the hundreds of component companies."

JLR’s position on the neutrality of providing loan guarantee to all UK auto makers was further reiterated by Paul Everitt, chief executive of SMMT (The Society of Motor Manufacturers and Traders), the industry body for UK's automobile companies. He said ownership of the car marker will not be a factor in providing the loan guarantee by the UK government.

A JLR spokesperson today said that these were speculations by the media and the relief package announced by the UK government was only loan guarantees. The spokesperson said that representations to the government made by the group were more as part of the UK automobile industry. According to SMMT, UK's apex automobile lobby, there are 27 cars and commercial vehicle manufacturers in the country, employing nearly 800,000 people with consolidated production of 1.75 million cars and trucks.

Apart from seeking assistance from the government to overcome the current recession, JLR has also put in place a voluntary redundancy programme. Over the last six months, as many as 2,000 job had been removed and an additional 450 jobs are expected to be axed in the next few months. Of these 450, 300 would be managers in JLR and another 150 from the agency supports or contractors.

In calendar 2008, Land Rover had witnessed a 17 per cent fall in sales while Jaguar improved its sales by 8 per cent during the same period, according the group's representative in the UK.

UK jobless number near 2 million mark

UK jobless number near 2 million mark
SKALYANA RAMANATHAN London, 21 January
Calendar year 2009 has opened with a whimper in the United Kingdom with the unemployment number racing towards the two million mark.
The UK government’s Office of National Statistics today released the updated labour market data for the three months ending November 2008, which showed the unemployment number has increased to 1.923 million, up 0.9 per cent from the previous year’s number.
Nearly 225,000 jobs have been cut in the said period, an increase of 50 per cent on the previous quarter.
Trades Union Congress (TUC) General Secretary Brendan Barber said, “Compared with a year-ago (period), the picture is even worse —the unemployment rate is higher for both men and women, for every age group and for every part of the UK except Northern Ireland. More importantly, these figures stop at November 2008 and do not take into account the redundancies announced over the past eight weeks at companies like Woolworths, Santander, Barclays, Denby, Land Rover, JCB, Burberry, Zavvi, Grattan and Empire Direct.” “Unfortunately, it seems certain that unemployment will continue to rise for at least the first six months of 2009, with a very strong chance it will pass the 2.5 million mark by June,” said Barber. TUC is UK’s federation of trade unions with 58 affiliated units and membership of 6.5 million people.
Institute for Employment Studies Director Nigel Meager said, “Looking at the months ahead, the picture will be bleaker for new entrants to the labour market. Recently laid-off workers are likely to enjoy an advantage in the competition for the shrinking number of job vacancies, and young people coming out of education and training, especially those with lower levels of qualifications, will struggle to get the jobs they had hoped for.” The official data released today also showed there were 31.53 million workforce jobs in September 2008, down 134,000 over the quarter. Most sectors showed decreases in jobs over the quarter.
Nearly 225,000 jobs have been cut in the said period, an increase of 50 per cent on the previous quarter

SATYAM COMPUTER SERVICES: That sinking feeling in London office

That sinking feeling in London office
SKALYANA RAMANATHAN London, 12 January
The underground rail services to Canary Wharf is once again jam-packed as financial services professionals head back to work after a long festive holiday in Europe – like their counterparts in most other western markets. The mood outside No.1 Canada Square hardly reflects the sombre outlook for the tenants on the buildings 10th Floor.
This floor is occupied by Satyam Computer Services, which had last week managed to earn the unenviable title of "Indias Enron" for doctoring its balance sheet and overstating its liquid assets balances by a billion dollars.
Even as heads rolled back home in India, nervous IT professionals and their more swanky colleagues in the sales teams in Satyam London offices are taking interviews with competing Indian IT companies who also have operations in Europe.
The offshore development centre for Satyam in London is at Basingstoke, Hampshire, while the Canary Wharf office is considered more a "hot seat office" used by travelling sales team to park their laptops to hook up to the companys global network. Satyams current staffers in Europe who spoke on the condition of anonymity said that there is clear sense of despondency among them. Above all, most feel completely let down by their senior management in India. They have more questions in their mind than answers to give a reporter.
The biggest question among Satyam employees here that remain unanswered is this — when the mandate from senior management does not allow them to sign on deals with gross margins less than 30-35 per cent, how can net profit margin can be in single digit.
"Unlike Infosys or Cognizant, we had to fight a tough battle within our own offices to sign in new accounts. The guidelines were way too stringent to ensure that only the best and wellpaying clients were booked. All that seems to be a waste now," said an employee.
A former Satyam employee from Europe adds that until last quarter collections from the European operations was in the order of $30 million a month. A Satyam spokesperson in Secunderabad confirmed that 20 per cent of the companys $2 billion global revenue, which is around $400 million, does come from the European operations. Until the bolt from the blue hit the company last week, both current and former employees of Satyam had no clue of the internal problem that Raju made public.
The ones worst hit are those sitting on large stock options with this company. "Since the stock market slide and until Raju confessed of his misdemeanour many of us have lost a few crores of our personal savings. My life savings have been wiped out for no fault of mine," says another Satyam employee.
The re-constitution of a new board at Satyam does bring a sense of confidence among those left fighting-fire at Satyam. "We have some great clients in Europe and the cash flows are good too. What we need is a good top management to return to normalcy which is what we expect from the new board," says a senior member of Satyams European operations.
Some of the premium clients of Satyam in Europe such as FIFA, ArcelorMittal, Unilever have not made any statements on their future relationship with the Secunderabad-based IT company.
PHANTOM TOWER: No. 1 Canada Square, on the 10th floor of which Satyam has its office in London SKALYANA RAMANATHAN

Americans all ready to buy All-Indian car....

285 US dealers sign up to sell Scorpio

S Kalyana Ramanathan / Chennai December 13, 2007
To invest $178 million in setting up sales and service outlets.

In a little over a year, Mahindra & Mahindra’s (M&M’s) all-Indian utility vehicle, Scorpio, will enter the quality-conscious US market, which is also the largest in the world with 15 million vehicles in annual sales.

The company already has firm orders for 45,000 units of Scorpio for the first year, which is more than the 40,000 it sold in India in the last financial year.

More importantly, 285 US dealers have signed up to sell the vehicle and are investing $178 million in setting up sales and service outlets.

Mahindra & Mahindra had spent $120 million on developing the Scorpio platform five years ago, and there are 140 Scorpio dealers.

The enthusiastic response to the vehicle in the US comes amid a clamour of protest by US dealers against selling Jaguar to an Indian company for the fear that it would erode the image and sustainability of the brand.

“The timing of M&M’s entry into the US is perfect. With the price of the fuel going up, Americans want to buy SUVs and trucks that are not too costly to operate,” John Perez, the chief executive of Alpharetta, Georgia-based Global Vehicles, which will be handling Scorpio sales in the US, told Business Standard over the phone.

Starting March 2009, three diesel variants of Scorpio will be sold in the US. “We already have 45,000 bookings for the first year. All of them are backed by letters of credit,” said Perez, adding that Scorpio would not be priced cheap. He hinted at a tag of $25,000.

Pawan Goenka, the president of the automotive division of M&M, said he was not surprised by the demand for Scorpio in the US, though he conceded that it had exceeded the company’s target.

The current annual capacity of 52,000 units of Scorpio in India will have to be expanded to meet the US demand.

“It could either be in Nasik or Chakan (near Pune). We have not decided that,” he said, adding that the company would spend $50 million on upgrading the vehicle to meet the US National Highway Traffic Safety Administration requirement.