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Falling Economic Tide in India Is Exposing Its Chronic Troubles

September 4, 2013 by

Its economy now stands in disarray, with the prospect of worse to come in the next few months.

Vinod Vanigota, a Mumbai wholesaler of imported computer hard drives, said sales dropped by a quarter in the last two weeks. The rupee, India’s currency, has been so volatile in recent days that he began revising his price lists every half-hour.

Business activity at Chip Com Traders, where he is the managing director and co-owner, has slowed so sharply that trucking companies plead for business. “One of the companies called today and said, ‘Don’t you have a parcel of any sort for us to deliver today?’ ” Mr. Vanigota said.

The economic decline has laid bare chronic problems, little remarked upon during the recent boom. An antiquated infrastructure, a sclerotic job market, exorbitant real estate costs and bloated state-owned enterprises never allowed manufacturing, especially manufacturing for export, to grow strong.

The rupee fell further and faster in August against the dollar than any of the world’s 77 other internationally traded currencies as investors in affluent countries took their money home for higher returns. It was down 20 percent since May, a period in which the stock market followed suit and fell almost 8 percent.

The real estate market is teetering after soaring to vertiginous heights over the last few years. Cranes on Mumbai’s skyline perch nearly immobilized as developers struggle for cash.

The things the emerging middle class coveted, Chevrolets, iPhones and foreign vacations, have all jumped sharply in price in recent weeks.

The price increases threaten to worsen consumer price inflation — already among the highest in Asia at an annual rate of almost 10 percent — and widen the country’s already large international trade deficit and government budget deficit.

India’s government is now bracing the country for a swift increase in the price of diesel fuel and other imported necessities priced in dollars. Diesel is the lifeblood of the Indian economy, from the trucks that crawl along the country’s jammed, potholed roads to the backyard generators that struggle to compensate for the high-cost yet unreliable electricity grid.

Some economists say that they hope India will have only a V-shaped economic downturn, with a rebound starting by early next year if a weak rupee rejuvenates India’s struggling exporters.

“India is not Greece — we never binged on debt on a grand scale,” said Ajay Shah, a prominent economist at the National Institute of Public Finance and Policy in New Delhi.

The root of the problem is India’s failure to create a vibrant industrial base with the strength to export. As Western buyers scour Asia for alternatives to increasingly expensive Chinese factories, India and its enfeebled manufacturing sector are mostly ignored.

Soeb Z. Bandukwala, a managing director of Ansons Electro Mechanical Works, a maker of water pumps and electric motors, wonders how a recovery can arrive, given India’s structural problems. He runs a business that has been in his family since 1967 and has grown to four factories.

Yet he keeps each factory at fewer than 50 workers and has maintained some metal grinding machines and other equipment in use since the 1970s without replacement. His worry is that if he exceeds 50 workers or surpasses certain benchmarks for total investment, he will become subject to extensive labor legislation.

“There is a fear, and the fear is the labor laws,” said Mr. Bandukwala, who is also a regional leader in the Confederation of Indian Industry.

Infrastructure is also a problem. Ansons is only 35 miles from the port through which it exports machinery to Europe. Yet trucks require four to seven hours to reach the port because promised expressways have never been built.

Speeds barely faster than walking at least help protect pumps and motors from harm. “If the speed is greater, damage will take place because of the potholes,” Mr. Bandukwala said.

Neha Thirani Bagri contributed reporting.

Article source: http://www.nytimes.com/2013/09/05/business/global/indias-falling-economic-tide-exposes-its-chronic-troubles.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

A Financial Lifesaver Thrown by Creditors Weighs Cyprus Down

July 13, 2013 by Leave a Comment

“My boss was very straight,” Mr. Pilakoutas said. “He explained that he was having a cash problem.”

By April, the problem had become a crisis as the Cypriot economy went into a nose dive. The plumbing company failed. Mr. Pilakoutas lost his job along with all the other employees, as they became the latest casualties of harsh economic medicine that, across wide swathes of Europe, has often left the patient feeling only sicker.

Unemployment in Cyprus, according to figures released this month by Eurostat, the European Union’s statistical agency, was 16.3 percent in May, up 16.4 percent from before the March bailout deal between Cyprus and a group of three international lenders. It has gone up further since, economists say, though official numbers are not yet out. The rate for people under 25 is more than 30 percent.

Instead of fixing Cyprus’s problems, a tough rescue package for the Mediterranean nation has helped turn what began as a banking fiasco into a deep slump across an economy that, according to forecasts by the International Monetary Fund, will shrink by 9 percent this year and 4 percent next year.

That is bad enough, but, given the I.M.F.’s record of underestimating the pain to be suffered by earlier bailout recipients like Greece, the bleak forecast could prove too optimistic. In a June report, the fund acknowledged that Greece’s economic contraction between 2009 and 2012 — around 17 percent instead of the forecast 5.5 percent — “was much greater than anticipated.”

Sapienta Economics, a consulting group based in Nicosia, believes that Cyprus faces a cumulative economic decline of more than 24 percent this year and next. That would be the most precipitous slump in the European Union since the economies of the now 28-nation bloc began to shudder under the impact of a rolling debt crisis more than three years ago.

With an annual economic output of only around $23 billion, Cyprus is of little consequence to Europe’s overall economic condition. But it has outsize importance as a testing ground for Europe’s response to its seemingly unending crisis.

“This is a big experiment, and we are the guinea pigs,” said Alexandros Diogenous, the head of a company in Nicosia that imports German cars. “The guinea pig is in critical condition.”

Cyprus’s president, Nicos Anastasiades, said much the same thing in a letter sent last month to the so-called troika of creditors behind the bailout deal: the European Central Bank, the European Commission and the I.M.F. The Cypriot economy, he wrote, has been “driven into a deep recession” and will only get worse unless the group of lenders revises some of its terms. “I urge you to review the possibilities in order to determine a viable prospect for Cyprus and its people,” Mr. Anastasiades said.

In an interview, the president said that Cyprus intended to stick to its side of the bailout deal, which includes deep spending cuts, the overhaul of decrepit state companies and, most controversially, the effective confiscation of billions of euros deposited in Cypriot banks. But, he added, “I am not a magician.”

When Mr. Anastasiades took office in early March and decided to tackle the problems that his predecessor, a Communist, had largely ignored, he turned to the European Union for help, restarting stalled negotiations for emergency aid to shore up his country’s teetering banking sector.

After an all-night meeting in Brussels in mid-March, the troika agreed to provide around $13 billion on the condition that Cyprus “bail-in” the banks that had caused so many of the country’s troubles and force their creditors and depositors to take heavy losses. An initial proposal to confiscate money from insured deposits under $130,000 was quickly dropped, but the final plan, which shifted the burden to wealthy depositors and imposed tight restrictions on moving money, left much of the banking sector in a catatonic state. It also shattered public trust.

“We don’t trust banks, we don’t trust politicians, we don’t trust the legal system. We don’t trust anybody now,” said Christos Nicolaou, the director of a hotel and property company. “There is a big question over everything: What might happen next?”

Mr. Nicolaou said tourism, a pillar of the economy, was down by more than 10 percent compared with the same peak period last year but was still a relative bright spot. A wave of bankruptcies across Cyprus has so far been limited mostly to small companies and shops; bigger enterprises have stayed afloat by slashing wages and staff. But, Mr. Nicolaou said, “we are all on the list.”

Facing a particularly uncertain future is the financial services industry, a once-booming sector turbocharged by money from the former Soviet Union.

Article source: http://www.nytimes.com/2013/07/14/world/europe/a-financial-lifesaver-thrown-by-creditors-weighs-cyprus-down.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

California Shows Signs of Resurgence

November 28, 2012 by Leave a Comment

California reported a 10.1 percent unemployment rate last month, down from 11.5 percent in October 2011 and the lowest since February 2009. In September, California had its biggest month-to-month drop in unemployment in the 36 years the state has collected statistics, from 10.6 percent to 10.2 percent, though the state still has the third-highest jobless rate in the nation.

The housing market, whose collapse in a storm of foreclosures helped worsen the economic decline, has snapped back in many, though not all, parts of the state. Houses are sitting on the market for a shorter time and selling at higher prices, and new home construction is rising. Home sales rose 25 percent in Southern California in October compared with a year earlier.

After years of spending cuts and annual state budget deficits larger than the entire budgets of some states, this month the independent California Legislative Analyst’s Office projected a deficit for next year of $1.9 billion — down from $25 billion at one point — and said California might post a $1 billion surplus in 2014, even accounting for the tendency of these projections to vary markedly from year to year.

A reason for the change, in addition to a series of deep budget cuts in recent years, was voter approval of Proposition 30, promoted by Gov. Jerry Brown to raise taxes temporarily to avoid up to $6 billion in education cuts.

“The state’s economic recovery, prior budget cuts and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges,” the report said. “Our economic and budgetary forecast indicates that California’s leaders face a dramatically smaller budget problem in 2013-14.”

And 38 percent of Californians say the state is heading in the right direction, according to a survey this month by U.S.C. Dornsife/Los Angeles Times. For most places, that figure would seem dismal. But it is double what it was 13 months ago.

California’s recovery echoes a rebound across much of the country; the state suffered not only one of the longest downturns but also one of the most severe. Economists say the turnaround, should it continue, is a positive harbinger for the nation, given the size and diversity of the state’s economy.

Democrats here have been quick to argue that the improvements in fiscal conditions that the state is now projecting after voters approved the temporary tax increase may embolden other states, and Congress, to raise some taxes rather than turn to a new round of cuts.

Yet California still faces major problems. The economic recovery is hardly uniform. Central California and the Inland Empire — the suburban sprawl east of Los Angeles — continue to stagger under the collapse of the construction market, and some economists wonder if they will ever join the coastal cities on the prosperity train. Cities, most recently San Bernardino, are facing bankruptcy, and public employee pension costs loom as a major threat to the state budget and those of many municipalities, including Los Angeles.

A federal report this month said that by some measures, California has the worst poverty in the nation. The river of people coming west in search of the economic dream, traditionally an economic and creative driver, has slowed to a crawl.

Still, the fear among many Californians that the bottom had fallen out appears to be fading. Economists said they were spotting many signs of incipient growth, including a surge in rental costs in the Bay Area, which suggests an influx of people looking for jobs.

“I think the state is turning a corner,” said Enrico Moretti, a professor of economics at the University of California, Berkeley. He said that the recovery was creating regional lines of economic demarcation — “We are going to see a more and more polarized state,” he said — but that over all, California was emerging from the recession.

Article source: http://www.nytimes.com/2012/11/28/us/california-shows-signs-of-resurgence.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

Detroit Pushes Back With Young Muscles

July 2, 2011 by Leave a Comment

THE rooftop party was in full swing when midnight approached on a warm Friday evening. Kerry Doman, 29, founder of an event planning business; Justin Jacobs, 28, head of a citywide recreational sports league, and Ara Howrani, 29, a photographer who runs a commercial studio, knocked back beers, while a group of office friends from a nearby dot-com chatted about the scratch-and-sniff wallpaper in their colorful new headquarters.

In another circle, a group of real estate brokers excitedly discussed the renovation of a 1920s office tower called the Broderick into a 127-unit apartment building with a restaurant, lounge and retail stores.

“I want the penthouse,” Jeffrey Hillman, 37, said jokingly as he pointed to the building’s ornate Baroque-style top in the distance. “I’ll fight you for it,” retorted Hank Winchester, 37, a local TV reporter.

The scene might have been run of the mill in Seattle or Williamsburg, Brooklyn, or other urban enclaves that draw the young, the entrepreneurial and the hip. But this was downtown Detroit, far better known in recent years for crime, blight and economic decline.

Recent census figures show that Detroit’s overall population shrank by 25 percent in the last 10 years. But another figure tells a different and more intriguing story: During the same time period, downtown Detroit experienced a 59 percent increase in the number of college-educated residents under the age of 35, nearly 30 percent more than two-thirds of the nation’s 51 largest cities.

These days the word “movement” is often heard to describe the influx of socially aware hipsters and artists now roaming the streets of Detroit. Not unlike Berlin, which was revitalized in the 1990s by young artists migrating there for the cheap studio space, Detroit may have this new generation of what city leaders are calling “creatives” to thank if it comes through its transition from a one-industry.

With these new residents have come the trappings of a thriving youth culture: trendy bars and restaurants that have brought pedestrians back to once-empty streets. Places like the Grand Trunk pub, Raw Cafe, Le Petit Zinc and Avalon Bakery mingle with shops with names like City Bird, Sole Sisters and the Bureau of Urban Living.

Those familiar with past neighborhoods-of-the-moment recognize the mood. “It feels like TriBeCa back in the early days, before double strollers, sidewalk cafes and Whole Foods,” said Amy Moore, 50, a film producer working on three Detroit projects. “There is a buzz here that is real, and the kids drip with talent and commitment, and aren’t spoiled.”

The rooftop party was hosted by a group called Move Detroit 11/11/11, started with the aim of getting 1,100 new people to move to Detroit by November.

“The Broderick project is huge because, believe it or not, there is not enough housing in the greater downtown area for all the young people moving to Detroit,” said Kevin Wobbe, 37, a founder of the group.

Kendyll Myles, 24, is one example of a new arrival. “I am mentoring young schoolgirls after work, modeling for a new fashion design company, and if I wanted, could be out every night at a different launch party or cultural event,” she said.

After finishing her master’s degree in public health last year, Ms. Myles had job offers from hospitals all over the country, including in Washington. Her family urged her to go anywhere but Detroit. “They thought I would be robbed and shot here,” she said.

But when she saw IAmYoungDetroit.com, a Web site profiling residents under age 40, she decided Detroit was the city for her. Those featured on the site (which she found after typing into Google “anything positive about Detroit?”) included Emily Doerr, 26, an M.B.A. candidate who recently opened Hostel Detroit, where guests pay as little as $18 a night for a bed; and Sean Gray, 29, who reimaged a British slogan, “Keep calm and carry on,” into posters and T-shirts for Detroiters. The site’s publisher, Margarita Barry, 26, this month will open “71 POP,” a retail gallery showcasing the work of 71 emerging artists and designers on the ground floor of a previously abandoned building that now has 30 environmentally friendly lofts and artists’ studios. (Rents start at $710 a month.)

Article source: http://feeds.nytimes.com/click.phdo?i=2779c0a2abbb4463eddd85f32408bf1d

Filed Under: Economy News Tagged With: , ,