Forget US. There's a jobless recovery in India too! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Forget US. There's a jobless recovery in India too! 

A  A  A
In this issue:
» Is China the next Greece?
» Gold comes crashing down
» US shale gas reserves estimate is dealt a huge blow
» Steve Jobs resigns as Apple CEO
» ...and more!

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00:00
 
Jobless recovery is a term we usually associate with the US economy. Such a condition arises when the economy recovers but growth in wages and employment remains as it is or even falls. The world's largest economy is indeed going through one such period we believe. However, we were taken aback a bit when a leading daily pointed out that the situation in India has been no different. The paper points out that there is no doubt that we have had five years of scorching growth rates. However, this impressive growth of ours has failed to create as many jobs as it should have.

Now here's something that really pulled the rug from under our feet. Most of us would have assumed that the jobs would have been difficult to come by and hence there was very little growth in employment rates. It turns out this is not the case. India's workforce growth numbers between 2004-05 and 2009-10 would have looked a whopping 50% better had all the vacancies with the Central Government been filled. Put differently, India's workforce grew by only 2 m between the years just mentioned. But there are over a million vacancies still lying unfilled at the Central Government level.

Mind you, not all vacancies have to do with low skill levels. There are quite a few that are for skilled professionals as well. Important to add here that it is not just Government that is unable to find enough skilled people. Quite a few corporates have also been warning about the same. This clearly is a huge contradiction and the one that gives rise to a few questions in our minds. Has the Indian growth story been driven to a good extent by cheap money and not improvement in productivity? Because had that not been the case, there should have been a good growth in skilled jobs as well. Furthermore, is the Government doing enough to enhance the skill levels of its people, especially of those at higher positions?

Sadly, the evidence at hand suggests that answers to both these questions tilts more towards the negative side. Although we applaud Government's efforts towards improving the living standards of the poor and also helping develop mid-level skills, it seems to be coming at the expense of high inflation and grossly insufficient pool of people with high skill sets. We hope that the Government takes some steps to address this anomaly. For no matter how tall a pyramid you build, if the base is not strong enough, it will eventually crumble.

Do you think we are likely to face skill shortage going forward? Share your your views with us or you can also comment on our Facebook page.

01:24  Chart of the day
 
With the tumble they have taken in recent weeks, everyone seems to have written off the Indian software stocks, at least for the near term. However, TPI, the world's largest third-party outsourcing advisory has provided a ray of hope for the battered stocks. It has argued that outsourcing deal signings in second half of year 2011 would be better than in first half. In fact, as shown in the chart below, it expects US$ 50 bn worth of contract signings in the second half as opposed to just US$ 37 bn in the first half. While we are not sure whether this may materialise or not, long term outlook though remains positive as ever.

Source: DNA Money
Note: Data for second half of 2011 are projections

01:56
 
Just three days back on Monday, international gold prices registered an all-time high of US$ 1911.5 per ounce. In Indian parlance, that translates to approximately Rs 32,316 per 10 grams of gold. But in a matter of just two days- Tuesday and Wednesday- gold prices slashed by US$ 160. In terms of percentage, gold corrected by 8.4% over two days straight. This kind of a steep fall is reminiscent of the commodity bubble crash of the 1980s; the previous largest two-day absolute drop being witnessed back in January 1980. During that commodity bubble that went on for more than a decade, gold prices had shot up by a staggering 2276%. But when the bubble finally burst, gold prices had lost 3/4th of their worth in nominal dollar terms in just two years.

We're not saying that gold prices have peaked out now. Maybe, the bull rally has a lot more steam left. But there are important lessons for investors. In the world of investing, everything is relative. There are absolutely no absolute rules. A so-called safe haven for investors may soon stop being one if everyone starts believing that the asset is indeed the ultimate safe haven. In gold's case, when investors blindly flock into it without paying any heed to the price, the safe haven starts getting risky.

02:37
 
Is China the new Greece? What a ridiculous question you may think! We were as apprehensive of the author's view when we stumbled upon an article on Chinese debt in Business Insider. You see, China's claims of its debt-to-GDP ratio standing at a healthy 17% can make one least suspicious of its leverage position. But going by the dragon nation's repute of poor disclosures, contradictory reports on China's debt levels seem noteworthy. Beijing-based consultancy Dragonomics estimates China's debt to GDP ratio at 89%! Worth noting that this number brings China's debt ratio at the same level as America's. Worse still, a growing number of analysts think the Chinese ratio was really 160%. At such astronomical level, China looks worse than Greece in terms of debt repayment abilities.

The wide discrepancy in estimates is due to the so-called hidden debts. Lot more skeletons are expected to stumble from the off-the-books obligations that have been incurred by local Chinese governments and state owned banks. The economy that spent its way out of a recession with huge stimulus packages needs to thoroughly restructure its accounts and improve its reporting. Else, it is only a matter of time before the contradictory reports on China's financial health get well factored into the country's sovereign ratings. And we all know to what extent markets have been punishing economies with rating downgrades these days.

03:20
 
There was a time when the disclosure of huge reserves of shale gas was billed as a watershed event for US energy security. However, the US Geological Survey's (USGS) recently released estimate of gas could be a huge blow to America's next great hope for energy. As per USGS, the gas reserves estimates in the giant rock formation known as Marcellus shale is 80% lower than the estimates by Energy Information Administration (EIA). This will have a huge impact on drilling costs. Not to forget the impact on valuations for US gas companies .In fact, we should be ready for some nasty surprises back home as well. Especially for companies like RIL that have entered into JVs that involve partial ownership of such assets in U.S.

EIA has without protest accepted the new estimate and will be incorporating the same in its own model. The extent of variation is ridiculous since it is this data on the basis of which policies regarding energy security are set and companies form their strategies. The recent development has led to questions regarding the validity of agency estimates. Given that shale gas is being glorified as the fuel of the future, this development should hopefully be an eye opener and lead to more transparency in how estimates are calculated.

04:00
 
If Apple today is the world's most innovative and valuable technology company, then the credit surely goes to its CEO Steve Jobs. With path breaking products such as the Apple iPod, iPad and the iPhone, Steve Jobs helped the company chart a new growth trajectory and immensely reward its shareholders. So it might come as a bit of a shock on hearing that Jobs has decided to resign as the CEO of Apple. He will continue to serve as its Chairman though and will be on its Board while Tim Cook will be appointed as the new CEO. With respect to his resignation, Steve Jobs stated, "I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first to let you know. Unfortunately, that day has come." The new CEO will have a lot of expectations riding on him and will have to ensure that the company continues to bring innovative products to the market going forward if it wants to stay at the top. Indeed, there are already talks of Apple becoming the first company ever to enjoy a market cap of US$ 1 trillion if it continues to sustain its present pace of growth.

04:40
 
Meanwhile, indices in the Indian stock market behaved in a volatile manner today with the Sensex trading lower by 74 points at the time of writing. Heavyweights like Infosys and HDFC were seen adding maximum selling pressure. Other Asian indices however closed mostly strong today. Europe too has opened on a positive note.

04:52  Today's investing mantra
"Being the richest man in the cemetery doesn't matter to me...Going to bed at night saying we've done something wonderful...that's what matters to me." -Steve Jobs
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12 Responses to "Forget US. There's a jobless recovery in India too!"

Aloysius

Aug 27, 2011

Things do not surprise. If we see the recent trend in the political parties is giving out freebeeies at the cost of anything. Free rice, laptops, household items, etc. We are slowly turning our society into a lazy and laidback citizens. Because the general public know that all parties want to come to power and they give all sort of promises and definitely they fulfill 50% of what promised which is sufficient. With these freebeeies even people are willing to work in the fields. There is huge dearth in farm workers and slowly agriculture is turning to a loosing entreprise. Which is also seen in the rate at which agricultural lands are converted into commercial plots and residential plots and people are trying to make money out of it. At this rate is India in the right path. Out politicians lack vision and true patriotism. If it is raining and mother nature is good to us it is because of few people like Anna. Let us pray for more such people to come.

Like 

kalabairava

Aug 26, 2011

I am not surprised at the lack of jobs. Let me get this straight. Somewhere, hunger is meant to be a necessity and ought to be the basic foundation of the economy. Once you remove hunger then the economy just perishes. Also food without work is also harmful.

The govt. instead of giving people work is trying to play vote bank politics by giving everthing free. The problem is that they have a created a whole lot of worthless middlemen who live for these freebies.

In short the economy has gone to the dogs. Why do you need jobs when you can get it free!!

Like 

C K Vaidya

Aug 26, 2011

We should not forget that the Central Government was to work on reducing thousands of posts along with the last Pay Commission implementation. Chidambaram gave into pressures from different quarters raising the burden on the exchequer but could not bring down size of the government.
So, maybe this is government's way to save on costs without formal announcement of job cuts.

Like 

Tamal Dasgupta

Aug 25, 2011

I have agreed with thsi veiew of yours for a long time now. The Indian govt is worse than the US Govt when it comes to handout and doles to the poor. Atleast the US does something for middle class. The Indain Govt knows its vote bank is mainly the poor and focuses only on welfare spending with no return other that avoidance of social upheaval in the short term.

Like 

Borkar M.R.

Aug 25, 2011

I think this shale gas reporting is confusing. Moreover the enveronment activists r getting restive as huge amount of fresh water laced with chemicals will be injected in ground for fracking the gas. Problems ahead. RILs Jt ventures might get affected.

Like 

aditya kumar

Aug 25, 2011

its true that our country is suffering from serious shortage of skilled work force at all the levels and perhaps in all the sectors and therefore we are walking towards or progressing towards a jobless growth.as an enterpreneur among small scale i never pushed myself to a precision devlopmental work by us. may be bcause of commercial nonviability and no support of our govt.

Like 

p.v.seetharaman

Aug 25, 2011

very interesting and informative.I admire Steve job for his thinking.

Like 

Sam

Aug 25, 2011

"There are over a million vacancies still lying unfilled at the Central Government level"...............and still all the work is done as before........fantastic. Are the vacancies not filled or the efficiency has increased due to new facilities? Statistics and its analysis can be very deceptive. It may be good to see that the rise in employment is lesser than the growth rate of economy!

Like 

girish

Aug 25, 2011

AT LAST THE BEAR MARKET IN INDIA HAS REMOVED THE PINK GOGS ON YOUR EYES--TRUELY AMAZING HOW MINDS GRADUALLY CHANGE WITH THE INDEX

Like 

shome suvra

Aug 25, 2011

Manufacturing industry should grow 2-4% greater than the growth rate of GDP to create jobs.India should leverage its attractiveness of growing market to increase domestic production where it is important that FDI is not ignored.Skill based manufacturing is important in the networked industry where scope is having a greater role than scale.

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