IMF cautions India against curbs on capital inflows

The International Monetary Fund (IMF) has cautioned India that curbing capital inflows too much could undermine confidence in the country’s very brilliant economy with consequences beyond India itself.

The warning came Friday from the new IMF chief Dominique Strauss-Kahn a day after the former French finance minister took over as the financial institution’s managing director.

It was important to enhance the transparency of the capital flowing into the country but limiting it may not always be good, he said at a press conference. The problem of this kind of thing is it may undermine the confidence in the Indian economy.

It will have an influence certainly on capital inflows but not always a good influence. I think the Indian authorities should think over several times before implementing this kind of instrument, Strauss-Kahn said.

The rupee’s appreciation to record highs this week reflected strong economic fundamentals and a keen interest by foreigners to invest in the country, he said, suggesting: The appreciation of the rupee is driven by a lot of international capital flow to India, and that is the good news.

So an inevitable consequence of that, an unavoidable consequence of that, you have an important inflow of capital to India with a consequence on the rupee, Strauss-Kahn said.

A lot of countries want to invest in India, a lot of companies want to have not only their back office now but much more than that, research labs and so on in India, and that reflects the way the Indian economy has grown and developed during the last years.

Even if it is not always easy to deal with an appreciation of your currency, as a European I can tell you, nevertheless it reflects good fundamentals, he said.

You do not have to do anything which will in one way or another undermine this good luck or the good appreciation, good forecast on your national economy, he said.

Noting that he had taken the job promising reforms, Strauss-Kahn said: There are definite questions which are at stake for the institution, namely ... what are we going to do in a changing world and how can we do that.

Those changes, he noted, have been brought on by the fast rise of emerging powers such as China and India that are now sources of economic growth and stability while the US and Europe grapple with slowing economic growth and the effects of recent credit and liquidity problems in world markets.

But that shift has never been reflected in the voting power of the 185-member fund, Strauss-Kahn said, suggesting the IMF’s reform had to go beyond simply increasing the stake of emerging economies.

A shift has to be significant from the developed and rich countries to the low-income and emerging market countries, that is clear, he said.

But it is not enough and so on my agenda we cannot stop with only the quota question, the legitimacy of the institution must go much further.

Source - Economic Times

Govt mulls scheme to make lay-offs easier

Suggests retrenchment insurance scheme financed by employers.

In a significant move towards labour law reform, negotiations have been reopened on the hire and fire policy with the government offering a unique scheme of insurance coverage for retrenched workers to overcome objections from trade unions.

Difficulties in retrenchment have long been a sticking point with employers and are widely regarded as a hindrance to more foreign investment in the country.

To make the amendment acceptable to the trade unions, which have steadfastly refused to accept any relaxation of the hire and fire rules under the Industrial Disputes Act, Labour Minister Oscar Fernandes has suggested a new formula to industry.

The industrial unit will make an advance calculation of the size of the work force required to be retrenched every year.

Compensation per head, instead of being disbursed individually, will be handed over to the government as an accumulated amount. The corpus will serve as the premium for an insurance scheme that will guarantee a better package for retrenched workers.

To work out the details of this scheme, the labour ministry plans to set up a tripartite committee with government, employers and trade union representatives.

Employers have agreed to provide compensation amounting to 45 days’ wages per year of service to the workers which is industry’s best offer so far. Under the Industrial Disputes Act, 15 days’ wages per year of service is to be given to every retrenched worker.

The second National Commission on Labour in 2002 had recommended 30 days’ wages per year of service.

The government would like the employers to provide 60 days’ wages but is realistic. Said Fernandes: Labour wants something in hand when it leaves. Employers are willing to spend only up to a limit. This insurance will try to find a match between the two ends.

However, trade unions are strongly opposed to the scheme. There can be no question of raising the limit of workers in loss-making units, says Tapan Sen, national secretary of the Centre for Indian Trade Unions (CITU).

We welcome the government move to discuss better retrenchment packages. But it can't be a barter deal for amendments inthe Industrial Disputes Act, he added.

Clubbing the insurance scheme and the amendment of the Industrial Disputes Act will be disastrous for workers. Moreover, we need to see what the scheme can really deliver, said Gurudas Dasgupta, general secretary of the All India Trade Union Congress (AITUC).

Trade unions have steadfastly refused to countenance any changes to the Industrial Disputes Act for easier closure of loss-making units.

In 1978, in the teeth of opposition from the unions, the government amended the law to enable units employing up to 100 people to close without taking permission from the government. The earlier limit was 25.

The Union Budget 2001-02 proposed increasing this limit to 1,000 workers. However, this was never implemented as both the union and the state governments are allowed to legislate on labour issues.

Trade unions feel that if the threshold limit for easy closure and retrenchment is extended to more workers, 80 per cent of establishments in India will become vulnerable.

Source - Business-Standard

India slips in competitive index

India has slipped six notches to 48 over last year in a global ranking of competitiveness spread across 131 countries. It has lost ground due to lack of macroeconomic stability and proper infrastructure facilities, the World Economic Forum (WEF) said in its survey.

Some consolation can be derived from the fact that India is ahead of Russia (rank 58) and Brazil (72), but behind China (34) in the WEF’s Global Competitiveness Index 2007-08, released here today.

The United States topped the list as the world’s most competitive economy. India has also been ranked third in terms of domestic market size.

One reason for India’s rank dipping from 42 last year was due to nine new countries being included in the survey this year, taking the total number to 131.

The quality of the business environment in India has improved tangibly in recent years, with increased efficiency of the goods, labour and financial markets, and greater innovation and sophistication of company operations.

However, a number of weaknesses persist which need to be addressed especially in the area of infrastructure, said Fiona Paua, head (strategic insight teams), WEF.

India has also received positive remarks for the state of its business clusters and the availability of local suppliers, as well as its reliance on professional management rather than friends and relatives.

Though the WEF lauded India’s quality of management schools (ranked eighth globally) and the availability of top-quality scientists and engineers (ranked fourth), it also highlighted the country’s poor performance on various social indicators infant mortality (106), life expectancy (104) and malaria incidence (101).

Enrolment rates in the educational system remain low, with primary education also receiving poor marks for quality, the WEF said.

The report also said that a high government deficit was dragging the country down in the competitive ranking. A lack of macroeconomic stability is a competitive weakness, with a government deficit that places the country 125th and inflation in excess of 6 per cent at a time when inflation has been much reduced around the world, it added.

Source - Business-Standard

Indian 'slave' children found making low-cost clothes destined for Gap

Child workers, some as young as 10, have been found working in a textile factory in conditions close to slavery to produce clothes that appear destined for Gap Kids, one of the most successful arms of the high street giant.

Speaking to The Observer, the children described long hours of unwaged work, as well as threats and beatings.

Gap said it was unaware that clothing intended for the Christmas market had been improperly subcontracted to a sweatshop using child labour. It announced it had withdrawn the garments involved while it investigated breaches of the ethical code imposed by it three years ago.

The discovery of the children working in filthy conditions in the Shahpur Jat area of Delhi has renewed concerns about the outsourcing by large retail chains of their garment production to India, recognised by the United Nations as the world's capital for child labour.

According to one estimate, more than 20 per cent of India's economy is dependent on children, the equivalent of 55 million youngsters under 14.

The Observer discovered the children in a filthy sweatshop working on piles of beaded children's blouses marked with serial numbers that Gap admitted corresponded with its own inventory. The company has pledged to convene a meeting of its Indian suppliers as well as withdrawing tens of thousands of the embroidered girl's blouses from the market, before they reach the stores. The hand-stitched tops, which would have been sold for about £20, were destined for shelves in America and Europe in the next seven days in time to be sold to Christmas shoppers.

With endorsements from celebrities including Madonna, Lenny Kravitz and Sex and the City star Sarah Jessica Parker, Gap has become one of the most successful and iconic brands in fashion. Last year the firm embarked on a huge poster and TV campaign surrounding Product Red, a charitable trust for Africa founded by the U2 lead singer Bono.

Despite its charitable activities, Gap has been criticised for outsourcing large contracts to the developing world. In 2004, when it launched its social audit, it admitted that forced labour, child labour, wages below the minimum wage, physical punishment and coercion were among abuses it had found at some factories producing garments for it. It added that it had terminated contracts with 136 suppliers as a consequence.

In the past year Gap has severed contracts with a further 23 suppliers for workplace abuses.

Gap said in a statement from its headquarters in San Francisco: 'We firmly believe that under no circumstances is it acceptable for children to produce or work on garments. These allegations are deeply upsetting and we take this situation very seriously. All of our suppliers and their subcontractors are required to guarantee that they will not use child labour to produce garments. In this situation, it's clear one of our vendors violated this agreement and a full investigation is under way.

Source - The Observer

Oil hovers near new record around $96

The price of oil rose to a new record above $96 a barrel Thursday after a surprise drop in U.S. crude stockpiles raised concerns about supplies for coming winter demand. Other energy futures also gained.

It was the second week in a row the U.S. Energy Information Administration reported a sharp and unexpected drop in oil inventories.

The decline in U.S. crude oil inventories has been a key driver of oil prices, said David Moore, commodity strategist at the Commonwealth Bank of Australia in Sydney.

Light, sweet crude for December delivery rose as high as $96.24 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore before dropping back to $95.59 a barrel.
Crude prices have reached inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $101 or more today.