The Capitalist

The Capitalist
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First Published: Thu, Oct 09 2008. 12 41 AM IST

Updated: Thu, Oct 09 2008. 09 53 AM IST
Although many people still grumble about working in India, the economic growth of the 1990s does appear to have reduced the temptation of Indians to work overseas. Though the table above is a bit dated, it does reveal some very interesting trends:
Watch the 90s when Indians migrated in large numbers making them the third largest population of migrants in the world. Then watch how both the numbers and the ranking dip in 2005 from 7.4 million to 5.7 million and the ranking from 3 to 8. Evidently, India could become a lot more interesting in the years to come.
Also See International Migrants’ (Graphic)
This fascination for India among Indians is likely to increase. One of the reasons for this is that many countries have upped immigration barriers when it comes to Indians. For instance, all countries in the European Union (EU) must first consider the job applications of unemployed EU citizens before looking at those of non-EU migrants.
There’s also the phenomenon of returning Indian migrants that began with IT professionals almost five years ago. Buoyed by the IT boom in India, they found that opportunities in India had began to match, if not better, those in other countries. A couple of years ago, construction workers and others from lesser paid professions began a return trek to India. Most of them often found West Asia a very attractive place to work. But the construction boom here made many of these Indians look towards India once again. For the past two years, most countries in West Asia have witnessed a reverse migration of Indian workers. Construction companies in India had increased the salary bar for skilled workers. Not surprisingly, costs of employing drivers, electricians and other such workers have spiralled in West Asia, particularly in Dubai and Riyadh.
Now, there is a third category. Finance sector employees are expected to return to India by the tens of thousands in the next two years, as the US begins regulating the financial sector there, and putting severe controls on companies engaged in creating or selling derivative products. Most of these people are likely to head back to India, where hopefully a growing banking sector will be able to absorb them. These prodigals may not be able to draw better salaries and may be returning primarily because they will have few options left.
Meanwhile, China is unlikely to change its approach to internal migration. It faces two challenges. The first is to find a way out of an export-driven growth (and reducing at the same time the $2.5 trillion (Rs121.75 trillion) pile of US paper it is sitting on).
The second is to find a way to allow domestic demand to grow without upsetting the two-passport regime it has in place. It may be recalled that China does not allow people who have rural identity cards to travel to urban areas where people have a different ID card. And selling consumer goods in the rural areas might stoke consumer expectations that existing income sources may not be able to match, thus fomenting social discontent and political unrest.
Metal, mineral prices cause worry
Mining and metal companies have begun to get the shivers. The plateauing, and in some cases the dipping, of prices of metals such as steel, and minerals such as iron ore has begun to worry many players. Some economists believe there is little cause for worry because by end September, global output of mines and industry had fallen by only 2% across the world since its peak in January. This, they add, is negligible when compared with the drop of 54% during the four years of the US Depression — 1929 to 1933.
But market men are worried. They point out that much of the decline in industrial and mining output during the Great Depression took place only towards the end — from 1932 to 1933. And the first brunt of any recessionary trend is experienced by real estate, minerals and metals. They also point to the slashing of imports from China, one of the world’s biggest consumers of metals and minerals during the past five years. And that alone could presage a precipitous slump.
Would that hurt India? After all, much of its industry is not export-driven. And there are good reasons to believe that domestic demand is likely to remain strong for the next decade at least — thanks primarily to the inevitable march of urbanization, as has been reiterated in these columns earlier. But export-oriented companies such as Sesa Goa have begun to hurt.
That could be music to the ears of integrated steel mills that can now hope to get raw material at lower prices. But the liquidity crunch threatens to prevent any major demand for their products, even at lower prices. This is because most infrastructure is financed by large funds, many of which have shrunk into their shells after the Lehman bankruptcy.
Now, they are praying for two programmes to be accelerated. One is infrastructure spending. That could keep both steel and cement companies smiling. The other is that credit strings are loosened in order to ensure that consumer spending does not flag. Will the Reserve Bank of India’s reduction of the cash credit ratio (CRR) do the trick? Or will the Securities and Exchange Board of India’s (Sebi) revision of norms for participatory notes (PNs) allow for an official window for India’s slush funds to bankroll such investments?
The dust could begin to settle in a few months’ time.
Speculation begins on US economic crisis
The financial contagion in the US, which threatens to engulf the world, has left many people baffled about what could happen next. It has also led to a great deal of speculation about the total quantum of losses that banks and financial institutions will have to write off. Kenichi Ohmae, the noted management guru, has gone on record stating that he expects the financial sector to incur losses of more than $5 trillion.
And Warren Buffet has mentioned that the outstandings on account of the credit default swaps alone could be around $60 trillion.
Whatever the figure, three things appear inevitable.
The first could well be a slew of financial regulations aimed at clamping down on junk bonds and fancy derivatives that caused this financial bubble to become so large in the first place.
The second could be to find a way to stabilize real estate prices, so that the underlying asset value of the collateral does not worsen in the coming months. The third, and the most important, will be to find ways to revive consumer confidence, and the credit cycle, so that consumption could allow businesses to get invigorated.
Today — with banks not willing to lend to other banks, which, in turn, has caused the Libor (London interbank offer rate) to climb — many money managers are beginning to worry whether this will lead to a change in the way in which banks function, and the very principles governing monetary policy. Some market watchers have begun wondering if the solution to the present crisis could well lie in the US opening up to migrants once again—of course, only after a new president gets elected. The trick, according to them, will lie in encouraging foreigners with money to emigrate to the US, without making it appear like a distress call, and thus trigger a purchase and consumption cycle.
Since reasonably well-off immigrants will need houses to stay in, it could provide the first push towards reviving this sector, and could catalyse other purchases as well.
Of course, no political party would dare talk about this as a solution now. A downturn in the economy invariably makes people quite xenophobic. And talking about allowing foreigners in and take up assets that have been seized from defaulting locals could be political suicide, especially when elections are just round the corner.
True, this is mere speculation. But in the absence of any solution in sight, speculation is something that comes easily to market men.
Tax exemption up to Rs4.5 lakh, right?
Now that the government has pushed up the eligibility criterion for other backward classes to incomes of Rs4.5 lakh a year, does that mean that all incomes of up to Rs4.5 lakh will be exempted from payment of income tax? Logically, they should be, because that is the income threshold for determining backwardness. Or will this result in another public interest litigation?
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at
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First Published: Thu, Oct 09 2008. 12 41 AM IST