India to record the fastest growth in salaries - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

India to record the fastest growth in salaries 

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In this issue:
» Salary hikes on the cards in India
» Secrets to tumble from Swiss bank accounts
» How effective were the stimulus packages in India?
» India piling on the debt
» ...and more!

Job layoffs around the world may be taking place at a quick pace, but India can strut around with a feather in her cap. As per a leading business daily, India is expected to witness an average salary hike of 8.2% this year, the highest in the Asia-Pacific region. Following close on the heels of India are China (8%) and Thailand (6%). The sector which is likely to benefit the most is pharmaceuticals where salaries are estimated to rise by 13%, while retail will get the short end of the stick with the lowest hike of 5%. However, all is not necessarily rosy. While the increase in India is highest, it is still lower than the 13% rise in 2008. In fact, the pay increase this year is in single digits; a phenomenon that has occurred for the first time since 2002. Further, around 16% of companies in India have reported salary freeze in 2009.

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To what extent the two stimulus packages announced by government will benefit the Indian economy remains mired in doubt. While on one hand, the government data shows that the stimulus has actually started benefiting the country given the upsurge in demand in certain sectors like steel and cement, India observers believe that the benefits won't be long lasting.

Today's Economic Times has cited India's Cabinet Secretary, saying that sectors like cement and steel have shown recovery in the month of December 2008, after having faced demand related issues in the previous months. Growth has also been seen in demand for commercial vehicles, which has been among the worst hit sectors over the past few months.

On the other hand, as reported in the Wall Street Journal, some India observers believe that the stimulus might not be much helpful for India. And the reasons given are pretty valid. The report states - "Like elsewhere in Asia, Indian consumers, lacking an adequate welfare system, are likely to stuff any dole-outs in the mattress. And though Indian companies tend to save less than consumers, they now find themselves facing difficult borrowing conditions at home and abroad. They too may hoard the benefits of tax breaks rather than spend them."

Client confidentiality is one of the unique selling points of the Swiss banking system. But not when the world's only superpower is in no mood to tolerate financial thievery. As per the International Herald Tribune, Switzerland provided the UBS bank account details of hundreds of clients to the US government in connection with tax evasion charges. UBS is Switzerland's largest bank. It is expected that more bank accounts will be brought under review. In fact, a US court might expand it to 52,000 clients with assets of US$ 14.8 bn. Germany will be watching closely, as it does not approve of practice of secret Swiss bank accounts.

We wonder if the Indian government would ever ask for such disclosures. It seems unlikely. Firstly, most of the bank accounts would be of politicians. Secondly, the US has a much greater influence as it is a major market for UBS. India is nowhere as lucrative. In any case, it is interesting how the Swiss financial industry has been allowed to prosper by offering dubious features like secrecy.

The incumbent government recently stopped short of praising itself for having brought down the ratio of public debt to GDP to 39% in FY09 from 43% in FY04, while the ratio of all liabilities to GDP has fallen to 58% from 63% in FY04. However, it must not be ignored that the same has been possible thanks to sustained high rate of economic growth in recent years.

Now reckon this, as per an article in DNA, if the government were required to retire all its borrowings, as much as 49% of the annual income of the average Indian will have to be earmarked to this end in the case of public debt and 71% in respect of all the liabilities. That is because while the per capita income of an average Indian is Rs 38,084, the per capita public debt comes to Rs 18,510 and the per capita overall liabilities is Rs 27,173. Hence instead of patting itself, what the government should worry about is the fact that it has misused the debt funds in excess current consumption rather than deploying the same for capital formation. Going forward, the government's additional borrowing plans under the umbrella of stimulus packages can only spell doom unless carefully monitored in terms of deployment.

Nano, the car that is touted to put the motorization of India firmly in the driver's seat is expected to be launched before the end of the current financial year. In fact, Tata Motors has already sounded off its dealers to strengthen manpower and open as many showrooms as possible at the district level, an indicator of the confidence the management of Tata Motors has in the success of the car. Already, enough hints have been given that the focus for Nano would be on the rural and the semi urban markets. Bookings are expected to start by the end of this month and the little cutie will start rolling out of the showrooms by March 2009. On it will not only depend the near term prospects of Tata Motors but it will also turn out to be a good indicator of the sentiment prevailing in the broader economy.

The bad economy has changed the consumption patterns of the US consumer. People are now substituting more expensive foods with basic foods. So groceries are in and fine dining is out.
Image source: Wall Street Journal

The Dow slumped to its 6-year low yesterday. The low of the last bear market was in October 9, 2002. It seemed that late November last year would be the lowest point as the panic around the financial sector turmoil was its peak then. However, the bailout package has not cheered investors.

The race for market share in the direct to home (DTH) space is taking its toll. As per a leading business daily, Kunal Dasgupta, the CEO of Multi Screen Media (erstwhile Sony Entertainment Television), has resigned over a tussle between Sunil Mittal's Airtel digital TV and Anil Ambani's Big TV. Sony has IPL's rights for 10 years. Airtel digital TV was to be the presenting sponsor, while Big TV the ground sponsor. Big TV walked out in protest and the BCCI asked Sony to compensate for the loss. Mr. Dasgupta was caught in the crossfire between the telecom biggies. We believe that prolonged DTH wars will benefit consumers, but will cause a lot of grief for many stakeholders in the times to come.

The tiff between multiplex owners and film producers over sharing the profits of a movie surfaces from time to time. The Film Producers' Guild of India has now decided that no films will be released in multiplexes after the release of 'Delhi 6'unless they understand the realities of increased production costs. So dear readers, happy viewing this weekend! You never know when the next movie will release in a multiplex near you.

The Company Law Board (CLB) has approved of the sale of equity in Satyam to strategic investors. It has directed that an open bidding process should be used for the purpose. The CLB has also asked the company to seek permission from SEBI to waive the takeover code requiring the use of the past six months price in valuing the stake sale. This move will provide Satyam's board the price flexibility to attract prospective buyers.

If you thought that only salaried individuals had to worry about either job losses or reduced pay hikes, think again. Nearly 22,000 RBI staff has gone on a mass causal leave today to protest against a policy that could reduce monthly pensions of retired employees by Rs 1,000-6,000. The RBI expects that work would most likely be disrupted today. But we wonder whether there is a bigger problem brewing there.

The Indian benchmark index, the BSE-Sensex lost over 2% today. That was in line with most of its Asian peers, which also witnessed similar losses. This excludes China which was a gainer from the region. All the major European indices are also trading in the red currently, on pessimism about the recession deepening. The negative sentiment pervaded to crude oil as well, which fell on concerns that the decline in global fuel demand will outweigh production cuts by OPEC.

04:56  Today's investing mantra
"A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek." - Warren Buffett
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