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More layoffs likely as India’s manufacturing sales shrink

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Jobs-cut

New Delhi, February 27: Despite government’s efforts to attract investment under its Make in India campaign, sales of manufactured goods fell 3.7 per cent during 2015-16 — the first decline in seven years –sparking fears of layoffs and debt default in the months to come.

Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel.

As a result, in the six months to September 2016, engineering major Larsen & Toubro laid off some 14,000 employees. Companies such as Microsoft, IBM and Nokia were also reported to have cut back on their workforce in 2016-albeit on a smaller scale-blaming sluggish demand for downsizing.

In November 2014, just weeks after Prime Minister Narendra Modi launched his Make-in-India campaign, Nokia shut its factory in Chennai, rendering 6,600 full-time workers jobless.

Economists say the government must step in to support the manufacturing sector, which constitutes 15-16 per cent of the gross domestic product (GDP) and supports 12 per cent of the workforce.

Why sales are down? Investment falls, costs and import duties rise, demand contracts

A range of factors including falling investment, increased input costs, and higher import duties have caused demand for manufactured goods to fall, a trend that was visible before demonetisation and has strengthened since.

While the services sector grew by 4.9 per cent in 2015-16, faster than the 3.7 per cent recorded in the previous financial year, manufacturing contracted for the first time in seven years, from a growth rate of 12.9 per cent in 2009-10 to -3.7 per cent in 2015-16, Reserve Bank of India (RBI) data shows.

Small-scale private companies, with yearly annual sales of less than Rs 100 crore, have been more seriously affected as their sales have contracted continuously for the last seven years. Having registered an 8.8 per cent decline in 2009-10, their sales fell by 19.2 per cent year-on-year in 2015-16.

“Our sector is making huge losses as the price of electricity and raw material has gone up,” Shan Ali Syed, owner of a small-scale textile plant in the town of Bhiwandi, 32 km northeast of Mumbai, told IndiaSpend. “Hence, cost of final product also increases, and we are unable to compete with cheaper imported Chinese products.”

“Higher export duty and decline in demand has led to reduction in sales even before demonetisation,” Manoj Kishanchand Ahuja, a Mumbai-based small-scale gold jewellery manufacturer, said. “We were forced to reduce production. So, hiring of workers on contractual basis has also gone down.” He added that most of his business takes place in cash, and post-demonetisation, the situation has worsened.

Investment has fallen because of a decline in demand, leading to lower sales and profits. “New orders recorded a decline sequentially (quarter-on-quarter) as well as on a year-on-year basis and dipped into negative territory,” the RBI said in its latest report.

A cutdown in industrial output for the fourth straight month in December, along with a depressed investment outlook, could lead to more layoffs, industry captains have warned.

On top of that, net loans to the manufacturing sector, which account for 65 per cent of corporate loans, have declined by 77 per cent in the last six years, IndiaSpend reported in January 2017. Large-scale manufacturing units have been the worst hit, recording a fall of 69 per cent.

The fallout: Jobs and companies at risk

If sales do not improve, companies will act to cut costs, manufacturers and traders said.

“The most common way of cutting cost in India is to reduce the workforce,” economist Ila Patnaik, who has served as the principal economic advisor to the government of India, told IndiaSpend. “If the global economy and the domestic market do not improve, we can expect more layoffs in this sector.”

Companies forced to close down due to financial distress will also lay off workers. Closure of 186 industrial units led to net job losses of 12,176 in the manufacturing sector over the last four years, the labour ministry estimated in a December 2015 reply in the Lok Sabha.

Syed blamed the post-demonetisation cash crunch for falling sales as well as a shortage of workers due to mass exodus from cities. “Labourers have to be paid in cash as they don’t have bank accounts. Since we were unable to pay them in cash, the workers have returned to their villages,” he said.

In the first 34 days of demonetisation, micro- and small-scale industries have suffered job losses of 35 per cent and a 50 per cent dip in revenue, an All India Manufacturer’s Organisation study showed as the Indian Express reported on January 7, 2017.

Global upheavals have also caused problems for manufacturers, G.K. Jain, a large-scale manufacturer and exporter of readymade garments, said.

With sluggish growth and high unemployment hitting American and European economies, importers there want to pay lower prices to overseas manufacturers, squeezing exporters’ profit margins, Jain said.

There has been a rise in borrowings by vulnerable companies in the steel sector, the RBI report said. However, steel secretary Aruna Sharma said: “There was heavy investment in public and private steel sector in the past, and the investment takes place in cycles.” She added, “So, once the returns on that investment start coming, there will be big investments again.”

The RBI also noted that Indian manufacturers have collectively run up debt of Rs 6.9 lakh crore. The decline in sales and its impact on profit margins has impacted manufacturing industries’ ability to service their debt. In its study of the financial statements of 1,707 manufacturing companies over the last four years, the RBI revealed that the number of vulnerable companies whose debt-equity ratio is higher than 200 per cent has increased from 215 in 2012-13 to 284 in 2015-16-an increase of 32 per cent. A high debt-equity ratio means a company is aggressively using borrowed money to finance its growth, leading to higher risk for default.

The RBI’s analysis also showed that the debt at risk of default among private manufacturing companies grew nearly four-fold, from Rs 58,800 crore to Rs. 2.1 lakh crore ($32 billion) in the four years to March 2016.

What can be done: Invest in infrastructure, remonetise and increase overall public spending

Economists agree that the government must take steps to undo the damage caused by demonetisation by investing more in infrastructure, remonetising the economy and increasing the allocation for public-spending programmes.

It could take two to three quarters for the effects of the demonetisation-induced short-term shock to wear off and for normalcy to return, Patnaik predicted.

For longer-term support to manufacturing and job creation, new investment and enterprise are a must, economist Ajit Ranade said. “If we need to add two million jobs every month, then we need to create 20,000 to 50,000 new enterprises every month,” he said. “We need a big push in infrastructure.”

By Prathamesh Mulye (Indiaspend.org/IANS)

India

Government forms committee for regulation of online media

It will do so keeping in mind the existing FDI norms, programmes and advertising code for TV channels and norms circulated by the representative bodies of media organisations.

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Online News

New Delhi, April 5 : In a move to establish regulatory framework for online media and news portals, the Information and Broadcasting Ministry has set up a committee that will recommend formation of appropriate policy.

The committee, which has Secretary of the ministry as its convener, was set up a day after the ministry withdrew its guidelines on fake news following directions from Prime Minister Narendra Modi.

According to an order of the ministry of April 4, the 10-member committee includes secretaries of the ministries of Home, and Electronics and Information Technology, and the departments of Legal Affairs, and Industrial Policy and Promotion.

It also has a representatives from the Press Council of India, News Broadcasters Association and the Indian Broadcasters Federation.

The Terms of the reference (ToR) of the committee include delineation of the sphere of online information dissemination which needs to be brought under regulation, on the lines applicable to the print and electronic media.

The committee will recommend appropriate policy formulation for online media/ news portals and online content platforms, including digital broadcasting, that encompasses entertainment, infotainment and news and media aggregators.

“It will do so keeping in mind the existing FDI norms, programmes and advertising code for TV channels and norms circulated by the representative bodies of media organisations,” the order said.

The committee will also analyse the international scenario on the existing regulatory mechanism with a view to incorporate the best practices.

The order said the content on private television channels is regulated by the Programme and Advertisement Codes, while the PCI has norms to regulate the print media.

“There are no norms or guidelines to regulate the online media websites and news portals. Therefore, it has been decided to constitute a committee to frame and suggest a regulatory framework for online media/ news portals including digital broadcasting and entertainment/ infotainment sites and news/ media aggregators,” it said.

The Bharatiya Janata Party-led government had made a hasty retreat on Tuesday as the Prime Minister withdrew within hours of release of his government’s order that threatened to take away the accreditation of journalists involved in producing

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Business

Duty on China imports, GST slow down India’s solar additions: UN report

The 86-page report — Global Trends in Renewable Energy Investment 2018 — released by UN Environment, the Frankfurt School-UNEP Collaborating Centre and Bloomberg New Energy Finance blames Indian policies for slowing down the speed to tap solar power.

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UN Environment head Erik Solheim

New Delhi, April 5 : India’s imposition of duty on Chinese solar cells and modules shipped and levy of Goods and Services Tax (GST) on panels have significantly slowed down solar capacity additions last year, a UN report said on Thursday.

It says developing economies, comprising India, China and Brazil, committed $177 billion to renewables last year, up 20 per cent, compared to $103 billion for developed countries, down 19 per cent.

This was the largest tilt in favour of developing countries yet seen. It was only in 2015 that the developing world first invested more in green energy than developed economies.

A record 157 gigawatts (GW) of renewable power, excluding large hydro, were commissioned across the globe in 2017, up from 143GW in 2016 and far out-stripping the 70GW of net fossil fuel generating capacity added last year.

The 86-page report — Global Trends in Renewable Energy Investment 2018 — released by UN Environment, the Frankfurt School-UNEP Collaborating Centre and Bloomberg New Energy Finance blames Indian policies for slowing down the speed to tap solar power.

It says the solar activity was held back by an unexpected rise in PV module prices in local currency terms, due to a sudden reduction in the oversupply of imported Chinese units, exacerbated by the imposition of a 7.5 per cent import duty on modules and a local GST on panels.

There was also a slowing in the pace of solar auctions around India.

In the medium term, PV installations look set to increase sharply, as India seeks to hit its ambitious target of 100GW of solar by 2022.

However, that acceleration did not materialise in 2017.

The report says the ‘big three’ of China, India and Brazil accounted for just over half of global investment in renewables, excluding large hydro, last year, with China alone representing 45 per cent, up from 35 per cent a year earlier.

However, the report says India’s investment oscillating in the $6-14 billion range since 2010 but still not reaching the sort of levels that would be required for that country to meet Prime Minister Narendra Modi’s ambitious goals for 2022.

India came fourth in the world rankings by country for renewable energy investment last year, at $10.9 billion, down 20 per cent.

Solar took the biggest share, at $6.7 billion, with wind at $4 billion. These lead sectors were up three per cent and down 41 per cent in dollar terms respectively.

Venture capital and private equity investment in renewable energy fell by exactly a third in the world in 2017 to $1.8 billion, just a sixth of its 2008 peak of more than $10 billion.

However, India beat Europe into second place for the second time in three years.

India’s venture capital and private equity investment rose 27 per cent to $457 million, or 26 per cent of the total, while Europe’s fell 26 per cent to $287 million, a 16 per cent share.

India’s investment grew strongly because it secured three of the five largest deals.

Two of those were wind companies raising funds to expand in India, a fiercely competitive market with huge growth potential that is attracting many foreign investors.

The largest deal was secured by Greenko Energy, an independent power producer based in Hyderabad, which raised $155 million in PE expansion capital from GIC, the sovereign wealth fund of Singapore, and the Abu Dhabi Investment Authority.

The pair had already invested $230 million in the company in 2016.

Another Indian independent power producer, Hero Future Energies, raised $125 million in PE expansion capital from the International Finance Corporation and the IFC Global Infrastructure Fund.

The third large Indian deal was secured by Clean Max Enviro Energy Solutions, which claims to be India’s biggest rooftop solar developer, having installed 100MW since the company was founded in 2011.

“The extraordinary surge in solar investment, around the world, shows how much can be achieved when we commit to growth without harming the environment,” UN Environment head Erik Solheim said in a statement.

(Vishal Gulati can be contacted at [email protected])

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Africa

Indian-owned Swami fills Accra’s accommodation gap with $12 mn estate

Swami Group entered a market that has real demand and is perhaps providing what governments across the continent are not able to do.

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Knight Frank

Accra, March 31 : As the Ghanaian government struggles to find a solution to the country’s accommodation problem, Indian-owned Swami International has stepped in with a $12 million, 12.4 acre Paradise Estates township made up of 102 houses in the capital Accra.

This is part of the company’s $50 million investment in real estate across two other West African countries, Gambia and Senegal, its General Manager, Tarun Singh, told IANS.

Swami entered the West African real estate market two years ago, Singh said, in response to an African Development Bank (AfDB) report that the continent “was growing with an urbanisation rate of 3.4 per cent, with cities across the continent experiencing the fastest urban growth rate globally. Unfortunately, it looks like this is not being matched by the ability to provide affordable houses”.

He said the Swami Group entered a market that has real demand and is perhaps providing what governments across the continent are not able to do.

The international real estate group, Knight Frank, in a report on Africa’s real estate sector for 2017, said rapid population growth across Africa — faster than any other global region — together with urbanisation, is driving the property market activity across Sub-Saharan Africa.

Singh said the company had already completed a similar project in Senegal and had moved on to a second one at Diamniodo, a new development at the new airport.

“Our decision to come to West Africa is due to the peace and security we find in the countries that we are operating in,” he added.

Singh, however, said there were some problems that needed to be solved, including skilled workers to be engaged on large-scale housing projects and poor utility services, in order to attract more investors into the real estate sector in the three countries.

In addition to the provision of houses in Gambia, Singh said the company has also provided rural electrification and boreholes for the people. “In addition, we have also ventured into agriculture with the cultivation of potatoes in Senegal and bananas in the Gambia,” he said.

The AfDB has identified a huge deficit in the real estate sector which it said had hit the poor hard because of affordability and this had remained a key challenge to developing the housing finance market.

By : Francis Kokutse

(Francis Kokutse can be contacted at [email protected])

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