May 27, 2013

government's fixing of the stock market

It never fails to amaze me how finance ministers of our country only want the domestic equity market to keep rising.. forever..

Here is an editorial I wrote, on a related issue, in the newspaper I work for presently:

Let the stock market be

Growing government impatience with even small market corrections is a severe setback for free markets

It is not the first time, and unfortunately it does not look like it will be the last, that our finance minister has intervened with stern remarks against equity market traders when there is the occasional scary fall taking place in the stock market. So, on Thursday morning, when there was a series of small meltdowns rocking Asian markets, including our own when it opened for trading, our current finance minister, P Chidambaram, rushed in to admonish market traders for hitting the panic button in what he evidently thought to be in a mindless manner. "The Indian market should read the situation correctly rather than be influenced by something happening elsewhere," is how this admonishment came from the country's finance minister at a hurriedly press conference on a day when Japan's equity market went into a tailspin with a four per cent fall by around the time the Indian stock market opened for trading. 

It is noteworthy that by this time other Asian markets had not fallen as much, with their declines being around 1-2 per cent only. These eastern markets typically look at how the western-most US market fared the previous day and what they saw was 1.7-2.1 per cent fall in US equity indices in the latter half of Wednesday. While Ben Bernanke's statement that if the US economy maintained momentum the US Federal Reserve would scale back in its monthly $85 billion bond buying program was the primary trigger, the Asian markets were also reacting to domestic events such as a sharp rise in Japanese government bond yields or Chinese. Even the Indian equity market opened low and had fallen by just 1.7 per cent by noon. 

Except for Japan's equity market, Asian markets, including India's, were not exactly crashing. Which is why it was surprising to observe the hasty intervention by our finance minister who one is to assume is a very busy man. But more perplexing was his admonishment that Indian market should not be influenced by something happening elsewhere. 

Chidambaram had himself opened his February 28 budget speech with this: "I shall begin by setting the context. Global economic growth slowed from 3.9 percent in 2011 to 3.2 percent in 2012. India is part of the global economy: our exports and imports amount to 43 percent of GDP and two-way external sector transactions have risen to 108 percent of GDP. We are not unaffected by what happens in the rest of the world and our economy too has slowed after 2010-11." 

So, clearly the FM does not expect the  country's economy to stay unaffected by what happens in the rest of the world but he expects the country's stock market traders to not get influenced by happenings elsewhere. 

Finance ministers of our country have never lost sleep during bull runs in the stock markets. Towards the end of 1991 when the market was in the grip of bulls which included the  scamster Harshad Mehta, the then-finance minister, Manmohan Singh had remarked that he did not lose sleep over stock market movements. But even during bull runs the markets need to take a pause and inhale some breath. Instead of scolding them like a school principal the finance ministers would do well to welcome market falls and corrections today or else they stand a chance of having to tackle scam-like bust ups in the markets tomorrow. Growing intolerance for even small market fall such as the two per cent fall we saw last week does not augur well for a free market economy, now does it.

May 19, 2013

excessive consumerism & exploitation of labourers

There is a definitive link between the excessive consumption demand from people (most, int terms of volume, coming from affluent citizenry) and the exploitation of labourers in several industries such as textiles and automobiles (cars etc).

Below are two recent news reportb by newsmagazine, Outlook, on the conditions for people employed in garment units in India:
Floors Wet With Sweat
Labour is bought cheap, treated cheap—in India’s garment factories as at Bangladeshi ones

Pragya Singh

Even as the world remains morbidly fixated on the  tragedy in Rana Plaza on the outskirts of Dhaka—the collapse of the textiles sweatshop three weeks ago  buried 1,127 workers and sparked off a global outrage—it is business as usual at India’s textile hubs. And you don’t have to travel far from the city centre to find that out. All you have to do is visit an urban village in the heart of Delhi.
Mohammed Saddam Hussain and his co-worker Sanjay show up as usual in their one-room, windowless dyeing unit in Delhi’s Shahpur Jat. Their routine: dip yards of cloth into bubbling vats of chemical dye, morning to evening. Wait, there’s a snag. The LPG cylinder that fuels their water-heater has sprung a leak and the cramped room is filling up with flammable gas. Manoj, their employer, plugs the leak somehow and they resume work, immediately lighting the stove, unmindful of any risks.
Many such units, often catering to agents who supply to international ord­ers, litter the crowded streets of Shahpur Jat. Here, incomes of garment unit owners have ballooned in recent years, thanks to high-paying sub-contracts. Their prosperity is apparent from the glitzy storefronts. “I came to work in Delhi 13 years ago, and was a worker then—it’s just fate that made me successful,” says Manoj, who owns many of the tailoring units in Shahpur Jat, which he runs under the brand name Rimjhim.
But the workers—the ones embroidering, finishing or stitching the merchandise—have remained underpaid, overworked and in the same cramped conditions. For western observers, the most prominent and visible symbol of an Indian “sweatshop” is child labour. Hussain says he’s 20, Sanjay says he’s 15, both past the 14-year age limit past which 

Jitender Gupta

Tied down A garment factory in Delhi business: labour

children can work, though not in hazardous industries. Both refuse to talk about their wages.
“The textile sector in India is one of the worst offenders in terms of working conditions,” says C.K. Sajinarayan, national president, Bharatiya Mazdoor Sangh, one of the country’s largest trade unions. “The smaller units have an especially serious problem. There, exploitation is rampant.” Bad working conditions inc­lude wages so low they can’t meet basic needs, long hours, forced unpaid work, punishment for not meeting targets, and lack of emergency exits, ventilation or lighting.

Although laws are aimed at striking a balance between labour and business, workers always end up at the bad end.

“The term ‘sweatshop’ is slang, mostly used in the context of international trade between developed and developing countries,” explains Dr Helen Sekar, coordinator of the National Resource Centre on Child Labour with the V.V. Giri National Labour Institute. “What we have to look at is whether the laws are being followed or not—for instance, whether child labour is illegally emp­loyed in a unit, or if safety requirements are not being met,”  she says. In India and Bangladesh, as they battle neck-and-neck for expensive contracts to supply western retailers, working conditions are getting worse. As textile units in both countries vie to drive costs lower and lower, often companies find cruel or unusual ways to stay competitive. “In Tamil Nadu, some textile units make children work without pay until they reach marriageable age. Then the employer pays a ‘dowry’, a pittance, instead of wages, and hires a fresh batch of children,” Sajinarayan says. The government, usually silent on children employed in textile units, is working on the draft of a new, stronger legislation against child labour. This law, it hopes, will encourage children to go to school instead of work. The draft in December 2012 proposed a ban on hiring children up to 14 years old in any industry, except where they help their family after school. For a new category of “adolescent” workers, the bill proposes a list of hazardous industries where the ban will be absolute. If these changes come through, Mohan, of Shahpur Jat, Delhi, will have to fire Sanjay, or face six months in jail and/or a penalty of Rs 50,000.
During the slowdown, more than 5 lakh Indian textile workers lost their jobs in just the last six months of 2007. The average wage of a textile worker in north India was $50-60 at the time. The same year, workers in Bangladesh rioted over low payments, which were $45 on average. Wages have since been revised in India, but the industry remains in the throes of intermittent mass sackings. Earlier, workers could switch jobs to escape bad work environments, but that opt­ion is now limited. Even training, which in any other business opens up options and raises income, doesn’t alw­ays have the expected outcomes in the textile business. “Workers only ask us one thing when we tell them to train with us—‘Am I going to be upgraded after the training?’ All we can say is no, but you’ll learn something new even if your income doesn’t increase,” says B. Basu, who heads Sasmira, a training centre in Bhiwandi at which the government trains textile workers.
It isn’t just compliance, though, which leads to bad working conditions. Regulation in India is also notoriously complex, with the government stepping in only now, and cautiously, to smoothen norms. “We are working with the government towards simplification and codification of laws related to textiles. There are over 100 regulations at present, of which 40 have been identified as the minimum statutory requirements,”  says Sajinarayan. Tex­tile units need to maintain 40 different records of returns and registers, which, the unions and government agree, must be narrowed to one or two.
The flip side, unions say, is that “simplification” should not be taken for hire-and-fire, which only makes the situation worse for workers. Dr Sekar points out that labour and industrial laws impose strict conditions with good reason—“in India the law is imp­lemented, that’s why you don’t see large-scale tragic incidents like in Bangladesh,” she says. There are also social and legal compliances, unlike in Bangladesh where textiles owners often flout safety regulations.

But there’s obviously no need to get com­placent. Smaller incidents, even fac­tory fires and collapses, often go unn­o­ticed, says Pratibha, vice-president of the Garment and Textile Workers Union. Worse, the Eur­ozone crisis has hampered Indian textile’s prospects. If things slow down fur­ther, those working in India’s garment sweatshops will sadly bear the brunt.

The Telltale Signs

  • Low wages that aren't enough to meet basic needs
  • Long working hours
  • Forced labour
  • No overtime wages
  • Opposition to labour unions
  • Children below 14 working, or pledged away for labour
  • Dangerous working environment
  • Lack of emergency exits

Keeping count

  • 80 million The number of workers employed by the textiles sector in India
  • 4% Its contribution to the country’s GDP
  • 40% of Indian textile industry’s turnover is from export, much of it to retailers abroad
  • 5,00,000 Indian workers lost jobs in just the last six months of 2007
  • 50-60% of Indian textiles units are in the small-scale sector

Through The Smokescreen, This Side Up

Amidst the misery of Bangladeshi workers, strands that trail to India
Debarshi Dasgupta

Indian Connections
  • Thousands rendered jobless in Bangladesh after Lilliput Kidswear fails to pay $4 million to factories
  • Rana Plaza housed a unit, New Wave, that was outsourced work by an Indian supplier of Benetton
  • Tung Hai Sweater Ltd, where a fire killed eight, produced garments for Indian buyers
  • As imports from Bangladesh rise, Indian buyers are being asked to ensure they or their partners don’t abuse workers’ rights
  • India imported $57.51 million worth of garments from Bangladesh between July 2012-March 2013

Jamal Hossain, owner of a garment factory in Dhaka, was a pleased man when he bagged repeated orders worth several hundreds of thousands of dollars from Indian kidswear retail giant Lilliput. He had been paid around $600,000 between 2010 and 2011. That dream run soured in September 2011 when Lilliput, because of poor fiscal management, failed to pay $277,000 for the winterwear Jamal’s workers had stitched. “This has completely destroyed my business,” says an angry Jamal. “Given this liability, no bank is now willing to support me. Those workers who have not found jobs elsewhere are just sitting at home.”
In a crisis precipitated by Lilliput, Jamal is one of several factory owners in Bangladesh whom the Indian firm owe around $5 million. Shahidullah Azim, vice-president of Ban­gladesh Garments Man­ufacturers and Exp­orters Association (BGMEA), told Outlook that as many as 22 factories have been affected by the non-payment of dues in the past two months, and around 30,000 had lost their jobs. It has bec­ome a bilateral issue too. Outlook made several unsuccessful attempts to speak with repre­s­en­tatives from Lilliput. However, reports have quoted its founder Sanjeev Narula as saying that he hopes to clear his dues by mid-June.
The Lilliput affair may be just one of many worrying stories involving Indian garment buyers in Bangladesh. After the recent Rana Plaza building collapse, which killed 1,127, there is concern that Indian buyers, focused on cutting margins, could well be turning a blind eye to the many ills of the garment industry there. Even Rana Plaza, it now turns out, had at least one India connection. One of the establishments there—New Wave—had been outsourced a contract by an Indian supplier of Benetton. Chief executive Biagio Chiarolanza disclosed this in an interview to Huffington Post to address growing concerns after clothes with the firm’s label were found at the collapsed site.

AFP (From Outlook 27 May 2013)
Red rags A worker walks amid burnt clothes at the factory in Dhaka where a fire killed eight on May 8

When Outlook contacted BGMEA for names of factories supplying garments to Indian buyers, it sent a list of 19 names. One of them happened to be Tung Hai Sweater Ltd. This is where a fire killed eight on May 8, including its owner, who happened to be one of the BGMEA directors, less than fortnight after the Rana Plaza tragedy. While safety standards were relatively better at this unit, the dead were retrieved from the stairwell, where they suffocated from fumes from burning acrylic fabric. This raised concerns about poor structural designs that make stairwells ‘chimneys instead of lifelines’. Some have even alleged the unit had no working sprinklers or exterior fire escapes.

Given these incidents, and probably more unreported ones, can Indian buyers be abs­olved of the charge of exploiting Bangladeshi labour? The big draw for them is low salaries—a third of average salaries in India. However, some like Gurvinder Singh, operations director of Rattha Overseas, Chennai, which works with 15 Ban­gladeshi factories to export clothes to the West, thinks of it as a “lot of manpower”. “If you set up a factory in India, you will not find workers,” he says, pointing to the lack of trained people.

Rashidul Alam ‘Raju’, general secretary of Bangladesh Ind­ependent Garment Workers Union Fede­ration, thinks Indian buyers must engage renowned factories to ensure that they are not unwittingly a party to the abuse of workers’ rights. “One cannot just focus on profits, you have to do so on compliance too,” Rashidul says. With garment imports from Bangladesh growing at over 30 per cent, buyers here can hardly afford to have their fabrics dyed with blood.