1/3<sup>rd</sup> of the world to seek jobs in India - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

1/3rd of the world to seek jobs in India 

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In this issue:
» Indian IT hit by US visa bill
» The biggest hurdle to FDI in India
» A homegrown competition to Visa, Mastercard
» Berkshire Hathaway's tryst with derivatives
» ...and more!!

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00:00  Chart of the day
The Indian central government imposes over 55 labour laws and the states another 150 or more. These could be the biggest challenge to an economy set to house one third of the world's workforce over the next decade. Yes, you read that right! As today's chart shows (as per the International Labour Organisation), the number of Indians in the workforce will increase by almost 80 m over the next decade. But if more women join the workforce, this figure could also swell to 110 m. Then, three out of every ten extra workers in the world will be Indian by 2020.

Data source: Economist

40 m of the incremental workforce in India may be absorbed by its service sector. But, what about the rest? India's manufacturing contributed 16% of the GDP in FY10. For the first time ever it outdid the share of agriculture. However, its contribution to employment is least impressive at 12% of total workforce. Extensive labour laws that discourage hiring temporary workers have forced manufacturers to opt for technology. Thus rendering thousands jobless. Even the most labour intensive sectors such as textile and jewelry making have halved their labour requirement.

China's workforce is becoming older and more expensive. The outsourcing contracts from the developed economies will soon look to exit the dragon nation. Only India has the numbers to match it. However, this opportunity can turn into a catastrophe unless the labour laws are modified to accommodate more employment.

Headwinds from US continue to blow southwards for the Indian IT industry. The US Senate has passed a bill to raise the H1B visa fees. The H1B visa (work visa for US) fees have been nearly doubled from US$ 2,000 to US$ 4,500. The Indian IT industry derives nearly 45-50% of its revenues from its onsite work resources. As per NASSCOM, this will increase the annual visa cost for the Indian IT industry by US$ 200-250 m annually. This will reduce the cost arbitrage that India offers to its clients in US. However, Indian IT firms cannot afford to miss the US markets. It is after all worth almost US$ 30 bn. But it will certainly impact their costs. Interestingly, India's working in the US already pay over US$ 1 bn annually in social security for which we do not get any benefits.

Berkshire Hathaway, Warren Buffett's flagship company, posted a 40% lower profit for the June 2010 quarter compared to the same quarter last year. This drastic decline was mostly on the back of a US$ 1.4 bn notional loss on its derivatives bets. Earnings purely from operating businesses on the other hand saw a 63% YoY.

Buffett has made a few but large and long term bets on stock market index derivatives. The value investing stalwart has mentioned in the past that he would any day trade in volatility in short term notional earnings for a big expected ultimate payoff on the investment. Further, many of the options he has wrote let him enjoy upfront cash in the form of premiums. These are his to invest before the maturity of the contracts. Some of these contracts have maturities upwards of 10 years. A cursory glance may make one twitch at the thought of 'Warren Buffett' having to do anything with 'derivatives'. But one needs to remember that Buffett is someone who has consistently made thousands of successful investing decisions over a span of 55 long years. One can safely assume that his bets are well thought out and very calculated ones.

90% of the time when anyone uses their credit card, they will be using the services of Visa or Mastercard. Whenever 'plastic money' is used at ATMs, malls or for online payments, banks have to pay facilitation fees to these giants for the processing of such transactions.

Well, these two American heavyweights may soon be facing a new competitor. IndiaPay, a new government backed payment processing platform will be launched in the next two years. This new service will help bring down transaction costs significantly. Its development is also being promoted by major Indian and foreign banks in India, as well as the banking regulator. Currently, around 40 m credit and debit cards are in circulation in India. This is only set to boom in the next few years. So, it looks like 'Visa Power' and 'for everything else there is Mastercard' will soon be replaced by a new 'desi' flavor.

If India has to grow by 10% plus on a sustainable basis, there has to be considerable development in the country's infrastructure and industry. This also requires substantial long term foreign capital. Thus making foreign direct investments (FDIs) all the more important. But the challenges for this capital to keep pouring in are immense. And one such challenge is land acquisition.

Take the POSCO project in Orissa for example. The state government has been ordered to stop buying land for South Korean steelmaker POSCO's proposed plant. It must be noted that five years ago POSCO signed an initial pact with the Orissa state government to build a plant with a capacity of 12 m tonnes a year at an investment of more than US$ 10 bn. This has now hit a roadblock due to tough forest laws and stiff opposition from the local people. These issues are not new. They have hampered several projects in the past. One needs to look no further than the Tata Nano fiasco in Singur, West Bengal for evidence of this. Thus, the government will have to ensure that problems such as these do not get out of hand lest FDIs begin to slowdown or halt in the future.

Indians are not known to be a philanthropic lot. However, now is our chance to do away with this adage. Billionaires Bill Gates and Warren Buffett who are currently wooing the American rich to donate atleast 50% of their wealth, have their next stopovers in China and India. This year, the Forbes list of the richest people features two Indians in the top ten. Although China has larger number of billionaires, ten of Asia's top 25 rich are from India, while China has one. It would be interesting to see if the likes of the Ambanis, Ruias, Birlas, Jindals and Mittals have a genuine philanthropic side.

Stock markets across the world witnessed a positive week as investors' sentiments improved on the back of companies reporting good earnings numbers coupled with rising forecasts. The top gainer this week was Hong Kong (up 3%) followed by Euro nations - France and Germany - which ended with weekly gains of about 2% each. US ended higher by about 2% as well. China and Singapore were the top underperformers this week, with gains of about 1% and 0.2% respectively. The Indian benchmark Index, BSE-Sensex, ended higher by 1.5% this week. A key reason for the same was an increase in tax collections, indicating higher consumer spending in the future. This week, smallcap spaces were in favour as the BSE-Smallcap Index ended with weekly gains of 2.5%. On the other hand, the Midcap Index ended higher by 1.7%.

Data source: Yahoo Finance, Kitco

04:50  Weekend investing mantra
"In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond." - Warren Buffett
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8 Responses to "1/3rd of the world to seek jobs in India"


Aug 9, 2010

The US Govt. may have done what was in their hand, i.e. to increase the visa fees. But Indian IT companies can inflict a big blow to them by using technology whereby the physical presence of software engineers may not be required in US. This will create more jobs in India. Indian IT giants can further be competitive while bidding for large projects because the cost will be lower. This way we can teach a lesson to America.

Like (1)

Murali Pitchai

Aug 8, 2010

Posco Project in Orissa: Singur is policitcal, but Tatas true to their culture kept off. But here, why should a state government go and make a commitment before evaluating ecological laws. I think time has come we need to weigh the ecologiocal laws and neceessities to preserve and honour such laws before we go and make a commitment to a FDI project. Again the sentiments of the local people need to be respected.Violation of ecology is worse evil compared to corruption, whihc we are widely condemning.

Like (1)


Aug 8, 2010

Surely I agree

Like (1)

Satya Oza

Aug 7, 2010

I believe that the POSCO project was rightly shut down.one cant cut forest cover as the lives of indegenious tribes are intertwined..Moreover with increase in spread of global warming, decrease in forest cover may have an adverse effect on nature.

Like (1)


Aug 7, 2010

The information about the Indian IT market numbers is very interesting. What Indian IT companies will benefit from this expansion, and are any traded in the US? Thanks for the excellent information

Like (1)

pintu yadav

Aug 7, 2010

thankyou for job but i not money

Like (1)


Aug 7, 2010

first time reading this article, really wonderful. It has envisaged the future so beautifully.

Like (1)

Adi Daruwalla

Aug 7, 2010

It would be good, if Thr Ruia group firstly would increase thier stake in all the Essar group companies to 60%. Also to do the same in subsidiary companies that Essar has a stake in. Then start rewarding investors, by giving good dividends, and bonuses for having kept the faith in their business skills. (Which has hardly been demonstrated by the Ruias.) Then start thinking about becoming philanthropic. After all they have been dancing on various forms of junta's money they have acquired.

Like (1)
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