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MARKET WATCH 8 SEP 2017

NATIONAL

INTERNATIONAL

Manufacturing firms may cut 40% staff in 2017 COST CUTTING

Major manufacturing firms axed about 30 per cent of their staff in 2016 and retrenchment levels are expected to reach 40 per cent in 2017, said a survey.

Entry-level jobs face the most risk as companies continue to drastically cut costs and try to claw their way out of the current sinkhole of low growth, according to Team Lease Services, the largest human resource services company in the country. The survey was an internal assessment of more than 2,500 of the Fortune 500 company’s corporate clients.

The latest government data had shown economic growth hitting a three-year low in the first quarter of 201718. At 5.7 per cent, the growth was the lowest since the Narendra Modi government took charge. Demonetisation and massive de-stocking before the launch of the goods and services tax (GST) took a toll on the manufacturing sector, which grew just 1.2 per cent in the first quarter of 2017-18 against 5.3 per cent in the fourth quarter of 201617 and over 10 per cent a year ago.

Till 2015, the manufacturing sector had seen the highest share of new hiring at 75-80 per cent, which came down to 50-60 per cent in 2016, Munira Loliwala, the business head of the engineering, manufacturing and pharmaceutical division at TeamLease Services, told Business Standard.

Increasing automation continued to contribute to the shrinking of job opportunities, she said, but the sector was hit by low demand and a rise in costs.

On top of this, the slow pace of private sector investments over the past two years had hit critical levels when the demonetization exercise was started in November. As a result, she added, more than 60 per cent of Team Lease’s clients operating in the manufacturing sector saw losses last year as outputs fell.

Team Lease provides employment services to major corporates such as Dabur, ITC, Pfizer and Bayer, among others.

The unorganised segment has been increasing competition pressure. “While the number of small manufacturing units in the unorganised segment saw a rise of more than 45 per cent last year, the rise in jobs has not been commensurate with that,” a senior official of the ministry of micro, small and medium enterprises said.

A result of this has been underutilization of capacity, which the government hopes to address by bringing out a comprehensive manufacturing policy soon. Commerce and Industry Minister Suresh Prabhu has said this empty capacity would be reduced by focusing on exports.

Manufacturing activity, calculated as part of the Purchasing Managers’ Index (PMI), showed an increase in August to 51.2 points from 47.9 points in July. To cope with high workload, manufacturers hired extra staff at the fastest pace since March 2013, the survey showed. Nevertheless, worries about the possibility of unexpected policy decisions weighed on the confidence of those surveyed for the PMI and the level of sentiment fell from July’s 11-month high.

Source: Business Standard

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Rupee firms up by 5 paise

The rupee on Thursday strengthened by another five paise to 64.05 against the US dollar following sustained selling of the American currency by exporters and banks.

The home currency has appreciated by 7 paise in two days despite prevailing geopolitical uncertainties.

Extreme bearish dollar overseas also supported the rupee recovery momentum.

However, sluggish local capital markets along with massive capital outflows capped rupee’s gains to some extent.

The rupee today opened on a positive note at 64.04 as compared to overnight close of 64.10 at the interbank foreign exchange market.

The local unit gained past 64—mark to hit a fresh intra—day high of 63.98 in late afternoon deals before ending at 64.05, making a smart gain of 5 paise

According to provisional data, FPIs had turned net buyers in equity and debt markets yesterday after two days of selling which supported the rupee. They had invested Rs. 272.03 crore on a net basis yesterday.

Yesterday, the domestic currency rose marginally by 2 paise to 64.10 against the dollar even as geopolitical worries continued to cast shadow over forex trading.

Source: Business Line

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DIPP to move cabinet note on guarantee fund for startups

The government will use the fund to stand guarantee for loans given to startups.

NEW DELHI: Keen to ease the flow of loans to startups, the Department of Industrial Policy and Promotion (DIPP) will move a cabinet note on a credit guarantee fund for budding entrepreneurs.

The government will use the fund to stand guarantee for loans given to startups. The fund was announced by Prime Minister Narendra Modi as part of the Startup India action plan in January 2016.

Accessing capital is one of the primary challenges faced by startups. The fund managed by the DIPP has a corpus of Rs 2,000 crore and will enable greater financial support to startups.

“We have finalised the details of how the fund has to be managed. A cabinet note will be moved soon,” a senior government official said. Only startups recognised and certified by the DIPP can access the credit guarantee fund. So far, the industry department has recognised 2,865 applicants and 60 of them have been approved for a tax holiday.

Startups, once certified by the government, can avail of income-tax exemption for three consecutive assessment years in a block of seven years. A ‘fund of funds’ of Rs 10,000 crore managed by Small Industries Development Bank of India has committed Rs 623 crore to alternative investment funds and financed 67 startups.

The idea behind the fund was to leverage the institutional credit structure to reach out to underserved sectors, including SC/ST and women entrepreneurs. Each startup will be eligible for loans up to Rs 5 crore without collateral under the credit guarantee scheme. The foreign direct investment policy circular 2017 includes for the first time provisions for startups in line with the government’s push to the sector.

It has spelt out provisions that allow startups to raise money from overseas from venture capital funds and others through instruments such as convertible notes.

The startups will have to obtain government approval in sectors where FDI is not under automatic route to issue convertible notes. The government recently broadened the definition of startups to include “scalability of business model with potential of employment generation or wealth creation.”
Source: Economic Times

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Time for India to exit RCEP trade pact

Good negotiating skill is not just about delivering results. It is also about realising when saying ‘yes’ ceases to be an option. In the ambitious Regional Comprehensive Economic Partnership (RCEP) pact India is negotiating with 15 other nations including China, the rising pressure for opening up markets in goods is making negotiations unsustainable. India will not be able to justify its continued efforts to reach a compromise.

As trade ministers from the 16 member countries — including the 10-member Asean, India, China, Japan, South Korea, Australia and New Zealand — prepare to take stock of the negotiations in the Philippines this weekend, New Delhi needs to get assertive about what it cannot agree to, even if it means getting isolated in the talks.

Over to Prabhu

The meeting, scheduled on September 10 in Manila, has added significance as it could be the last ministerial meeting of RCEP countries. The plan reportedly is that the ministerial will be followed up with a meeting of the RCEP technical network committee in South Korea in October. This will come up with an implementation paper based on which outcomes for the future negotiations would be set.

Commerce and Industry Minister Suresh Prabhu, who took charge this week, needs to take urgent note of the fact that what he agrees to or opposes at Manila, could have a significant impact on the final result of the negotiations, which members hope to conclude early next year.

For most RCEP members, the sky seems to have become the limit as far as ambitions in opening up markets for goods go. As has been reported, many members have demanded that import tariffs on goods — both agricultural and industrial — must be reduced to zero for more than 92 per cent of tariff lines. This would mean that India has to phase out duties on most items and dismantle the wall protecting its industry and farmers from indiscriminate competition. What is less known is that some RCEP countries have further suggested that tariffs should be reduced to less than 5 per cent on an additional 7 per cent of lines which would take the total coverage of items to 99 per cent.

To make matters worse for India, which is grappling with the demands already on the table, countries like Australia and New Zealand which want India to lower tariffs on items like wheat and dairy, are now insisting that the offers should not be just linked to tariff lines but to the value of the items. This means that agreeing to eliminate tariffs on a large number of items is not enough. The items should be of significant trade value too.

Rising pressures

For a country with a large number of sensitive agricultural crops and labour-intensive industry sectors, bending to such demands is a near impossibility. What is especially giving Indian industry sleepless nights is the thought of unhindered flow of goods from China with which it already has a annual trade deficit of over $50 billion. A Free Trade Agreement (FTA) with no duties on most products could increase the deficit significantly.

One may ask why India participated in the negotiations for so long if it is not in a position to offer zero tariffs on many items. The answer is that New Delhi was never averse to the idea of eliminating tariffs on a considerable number of items — the length of the list depending on the country for which it was making the offer. However, it had no clue that it would be pressured into treating all members equally and offering tariff elimination or reduction on an exceptionally long list of items, giving it very little scope to protect its sensitivities.

The gradual cornering of India by RCEP partner countries is reflected in how the negotiations have progressed over the last two years. India’s first set of offer for tariff elimination based on a three-tier system — 42.5 per cent of tariff lines for China, New Zealand and Australia, a higher 65 per cent for its FTA partners South Korea and Japan and the highest offer of 80 per cent for Asean — was rejected by all members, including Asean.

Last August, India was forced to give up its proposal for a three-tier system at the ministerial meet in Laos in favour of a single offer for all. India had to satisfy itself with members agreeing to allow deviations to protect its vulnerabilities with respect to certain members (read China). The caveat, of course, was that the deviations can’t be too high.

Over the past year, despite fierce opposition from its farmer groups and industry lobby, New Delhi has indicated to RCEP members that it could offer to eliminate tariffs on about 70-75 per cent of items for all members with certain deviations for countries like China, Australia and New Zealand with which it does not have FTAs.

One-sided deals

But the offer proposed by India has not satisfied the RCEP members. At the recent negotiating round in Hyderabad, India was pushed incessantly to improve its offers with Australia and New Zealand, insisting on increased market access in items like wheat and dairy. The existing situation is exactly what the Indian industry and farmer groups, protesting against the RCEP pact, were apprehensive about.

India’s expected gains in goods from the RCEP pact are not significant, given the fact that the existing levels of tariffs in member countries are relatively low and there wouldn’t be significant gains from further cuts. This is the main reason why India’s gains in goods have been much lower than that of the partner countries in its FTAs with Asean, Japan and South Korea.

While India’s gains in RCEP are to mainly come from services liberalisation, including easier work visa norms, the offers in the area have been almost non-existent. The Asean countries have refused to offer even the level of openness that exists among the 10 member group.

Moreover, many RCEP members are now insisting on inclusion of substantial commitments in the area of e-commerce and investment facilitation — the two areas where India wants to preserve its sovereign right for policymaking.

Why fear exit?

With the clock continuing to tick, it is high time India asked itself why it needs to be part of a pact where it runs the risk of putting the future of its industry and farmers at stake while getting almost nothing in return. Its fear of being the only major economy not part of a mega trade deal is no longer real. Negotiations on most large trade pacts such as the Trans Pacific Partnership, Transatlantic Trade and Investment Partnership and a new NAFTA have hit major road blocks after President Donald Trump took over in the US.

New Delhi has to realise that there is no shame in getting out of a bad deal. There is a world of wisdom in exiting while there is still time rather than signing a bad deal.

A free trade pact between the RCEP countries accounting for 45 per cent of the world population and over $21 trillion of GDP does seem attractive, but not at the price India is being asked to pay.

Source: Business Line

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Telangana seeks more CCI cotton purchase centres

A group of MPs from Telangana, led by the state’s irrigation minister T Harish Rao, recently asked Union minister Smriti Irani to instruct the Cotton Corporation of India to open more purchase centres in the state as bumper harvest is expected this year. Irani has decided to send the textiles secretary to the state to take a call on the demand.
Around 30 lakh metric tonnes of cotton is expected this year as farmers had raised the crop in over 50 per cent of the sown area in khariff season, media reports in the state quoted Harish Rao as saying. The state minister had met Irani in July to discuss this issue.

The central government has sanctioned only 83 purchase centres but the state wants the number to be raised to 143. The centres should also be kept open for at least six consecutive days, Harish Rao said.

He met union environment secretary AN Jha and requested him to expedite the environmental clearance for the Kaleswaram project. He also requested union agriculture minister Radha Mohan Singh to release Rs 132 crore pending funds to the state for construction of additional godowns. (DS)

Source: Fibre2Fashion

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Crisil revises Indian GDP forecast to 7% for FY18

Crisil, an Indian ratings agency, has revised the GDP growth forecast for the country to 7 per cent from 7.4 per cent for fiscal 2018, owing to the implementation of the Goods and Services Tax (GST). The new tax regime that came into effect in July in the country, is expected to impact the economy for a few more upcoming quarters as per the agency.

The quarter ending in June witnessed a steep decline in the growth rate of the country to 5.7 per cent, resulting in India losing the tag of the fastest growing economy title yet again to China. The growth in this quarter was the lowest in the past 3 years. Disruptions due to GST can be expected throughout this fiscal, according to Crisil.

"We scale down our GDP growth forecast for fiscal 2018 to 7 per cent, from 7.4 per cent earlier. We believe GST- related disruptions will limit the upsides to growth for a few more quarters because there are uncertainties around the possibility of changes to the given tax structure and as businesses adjust to this new regime," said media reports quoting the report.

Contribution of exports to the economic growth of the country will be limited and manufacturing growth can also slump down to 7.6 per cent from 7.9 per cent in the current fiscal, notes Crisil.

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Risk averse traders blamed as Gujarat sees sharp fall in cotton forward contracts for exports

Gujarat is seeing a sharp decline in forward contract of cotton for export in the new season. The state, which accounts for about 25-30% share in India’s total exports, is witnessing less activity in new forward cotton contracts on account of hesitation by exporters who have had bad experiences in past few years and have faced losses due to advance commitment of cotton buying.

According to sources, India has exported about six million bales of cotton so far during cotton year 2016-17 and of it nearly 30% exports have been from Gujarat alone. “Usually a month before the new season, exporters commit advance orders with the ginners and cotton suppliers for exports in November and December. However, in view of unfavourable experiences in recent years , exporters are not taking risks in forward contracts resulting in virtually no forward contracts this year,” said Arun Dalal, an Ahmedabad-based cotton trader and exporter.

In addition to this, the industry is also expecting huge production in the current year. Good monsoon has increased cotton sowing by almost 18% nationally and 10.50 % in Gujarat. Higher sowing has brightened the expectation of better production.

Bharat Vala, president of Saurashtra Ginners’ Association said, “Prices will go down during November and December as the arrival of new crop will be in full force. Production is also expected to be better than last year. All these factors are preventing exporters from entering advance commitments for cotton exports.”

According to the latest data, as on September 1 area under cotton has increased to 11.98 million hectares as against 10.17 million hectares in corresponding period last year. Gujarat which is leading cotton producing state has sown cotton on 2.63 million hectares as on September 4, as against 2.38 million hectares in corresponding period of 2016.

The International Cotton Advisory Committee (ICAC) in its recent global stock position stated that cotton production in the US is forecast to increase by 20% to 4.5 million tonne. India will remain the world’s largest cotton producer in 2017-18 with 4% increase in output at 6 million tonne. Fluctuation in cotton prices is being seen as one of the factors for less forward contracts this year. Currently, cotton is traded at Rs 43,000 per candy of 356 kg in Gujarat. Traders are expecting fall in prices to Rs 38,000-40,000 once new cotton arrival begins in October. On the other hand, at present domestic cotton prices are higher than international markets which has also limited the demand.

Mumbai-based cotton trader and exporter Shirish Shah of Bhaidas Karsandas and Company said, “Domestic cotton prices are ruling high at this time compared to international markets which has kept the buyers away from India and as result very few export inquiries are there. While India is offering at about 90 cents, globally cotton prices are ruling at 72-75 cents. Cotton prices will decrease to `40,000 or below that in October and November and at that period international cotton will also fall from current level.” According to Shah, India’s cotton production would be around 36 million bales of 170 kg for the year 2017-18 as against 34 million bales in 2016-17.

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Xinjiang’s 10-year textile plan poses serious threat to Pakistan’s textile sector

ISLAMABAD : Unlike the impression that China Pakistan Economic Corridor (CPEC) will open new doors of development in Pakistan, the textile sector here has started fearing of the stiff competition after the introduction of a 10-year textile development plan by China in its Xinjiang Uygur Autonomous Region — which is also sometimes called East Turkestan.

As 35 per cent textile units have already shut down for various reasons, including the higher cost of doing business, becoming uncompetitive in international market etc, the huge investment on textile park at bordering region of China are posing serious threats to the textile industry which is already struggling hard to compete with the international challenges and other major forces in the industry.

According to the ten-year plan, by 2023, Xinjiang will build China’s largest cotton textile production base and the largest garment export processing base. By 2023, Xinjiang will become the largest cotton textile industry base of China and the most important clothing export base in Western China.

“Pakistan has never analysed the challenges to its own industries and manufacturing sector after execution of CPEC. No safeguarding measures have taken in the bilateral agreements of CPEC to save the textile sector which contributes 60 per cent to overall exports of the country,” said an official source at Textile Division adding that exporters of the country may become traders after the massive investment by China in textile processing, from cotton to ginning, spinning, fabric, processing, made-ups and garments.

“At least 140 textile mills have so far been shut down during the past four years of this government. The machinery worth Rs 10 million in the spinning sector is being sold out at Rs 50000 in scrap,” Mian Zafar Iqbal, who is associated with the business of textile spinning and is an executive member of FPCCI, said.

According to him, on the contrary, latest machinery was being imported by Chinese investors to install at Textile Park in Xinjiang. “Despite our repeated appeal made to the higher authorities in government no safeguarding measures have taken to save the textile sector which contributes nearly one-fourth of industrial value-added, provides employment to about 40pc of the industrial labour force, and consumes more than 40pc of banking credit to the manufacturing sector and accounts for 8pc of GDP. Despite being the 4th largest producer and 3rd largest consumer of cotton globally, Pakistan is feared to become a major supplier of raw material instead of value added products after the CPED related developments,” he said.

“The anticipated glut of textile and garment from the Xinjiang textile park in the export as well as domestic markets of Pakistan poses a serious threat to Pakistan’s textile sector already struggling to remain afloat. Setting up of the textile park at Xinjiang will give a heavy blow to Pakistani textile exports,” he added.

According to sources, with the consideration of CPEC, China has placed it primary focus on the Xinjiang province, bordering Pakistan. The province accounts for 60 per cent of China’s seven million tons of cotton production. Previously underdeveloped, the province is now witnessing speedy industrialisation and on a very large scale. The main focus of this development is to formulate a major textile hub.

In addition to funding the textile industrial parks and clothing factories, Xinjiang will subsidise local cotton and electricity in qualified industrial parks.

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Pakistan : Comprehensive package being implemented for textile sector

Islamabad : A comprehensive package is being implemented to improve performance of textile sector. Talking to Radio Pakistan, spokesperson for the Textile Ministry has said that under the package, seven percent duty drawback is being provided on garments and six percent on made- ups. Processed Fabric is getting 5 percent and Yarn and Greige Fabric 4 percent duty drawback.

He said that customs duty and sales tax on cotton imports have also been withdrawn while there is zero rating of textile machinery imports. He said sales tax of five export oriented sectors textile, leather, sports, goods, surgical goods and carpet has been made part of the zero rated tax regime.

The spokesperson said that facility of duty free imports of textile machinery will continue while the mark-up rates on Export Refinance Facility have been brought down to 3 percent.—APP

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USA : Chinese textile plant coming to Forrest City will consume all cotton farmed in state, news report says

A single factory will devour Arkansas's entire harvest. It will also create 800 jobs. Voice of America reported yesterday on the gigantic textile factory soon coming to Forrest City, courtesy of Chinese industrial giant Shandong Ruyi. It's expected to create 800 jobs, potentially transforming the Delta town.

We noted the project when it was announced back in May by the Arkansas Economic Development Commission. But the VOA story highlights one remarkable figure that bears repeating: "Ruyi’s project will consume ... nearly all the cotton the state grows each year."

A single factory will absorb all the cotton farmed in the state? Indeed, the company said it expects to process 200,000 tons of Arkansas cotton annually, and Arkansas cotton farmers produced about 840,000 bales in 2016. A cotton bale is 500 pounds. How will that affect other commodities grown in Arkansas? How will it affect land use?

AEDC communications director Jeff Moore said the Shandong Ruyi plant is projected to begin production in mid-2018. In other Chinese-textiles-in-Arkansas news, Bloomberg Businessweek recently profiled the factory to be opened in Little Rock in 2018 by apparel manufacturer Tianyuan Garments Co. That deal was announced last fall by AEDC. The state is giving economic incentives to both Shandong Ruyi and Tianyuan Garments, which will create about 400 jobs at its Little Rock plant.

Why exactly are Chinese companies opening plants in the U.S. when labor in China costs so much less than labor in America? Bloomberg has the answer: automation. The U.S. produces robots that can do the job cheaper, and with fewer complaints, than any human, Chinese, American, Mexican or otherwise: “Around the world, even the cheapest labor market can’t compete with us,” Tang Xinhong, the chairman of Tianyuan, told the China Daily about the factory in July. The company, one of the biggest apparel makers in China, supplies Adidas, Armani, Reebok, and other major brands.

“The Tianyuan story shows that the labor cost for each T-shirt in the Arkansas plant is unbeatable,” says Jae-Hee Chang, a researcher in advanced manufacturing at the International Labour Organization (ILO) in Geneva.  Capital. It does remarkable things. It's also fickle.

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