Wednesday, May 6, 2009

Job Losses Hit India and Pakistan

According to an OECD report published in 2007, India generated 11.3 million new jobs per year on an average during 2000-2005.

India’s phenomenal growth and job creation of the last five years were fueled in large part by huge inflow of cash and investment. Investment accounted for about 39 percent of the country’s gross domestic product in fiscal year 2008, up from 25 percent five years ago. At its peak, more than a third of investment came from abroad, according to Credit Suisse. But in the last three months of last year, foreign loans and direct investment fell by nearly a third, to their lowest level in more than two years, according to a report in New York Times.

The decline in foreign investment has taken a big toll on sectors like real estate, manufacturing and infrastructure. In the last quarter of 2008, the economy’s growth rate plummeted to about 5.3 percent, the lowest in five years. While consumer demand has kept the economy growing so far, the sudden slowing in the flow of foreign funds and rising unemployment will make it harder for the country to grow fast enough to pull hundreds of millions of people out of grinding poverty.

With the economy expected to slow to about 5%, employment generation in India has fallen by 49 percent during January-March this year, largely due to a slow growth of services industries like IT and banking, according to an industry lobby survey.

"The Assocham placement parameter (APP) Index (the body’s index for measuring employment generation) has shown a steep fall of 49 percent and has came down to 509.72 from the base value of 1,000," the Associated Chambers of Commerce and Industry (Assocham) said in a statement.

The APP index Series consist of 26 sectoral indices and a composite index giving an overall picture. The composite index is developed on the principle of weighted average quarterly job creation and has a base value of 1,000.

The study, which tracked employment generation across various sectors throughout metro and non-metro cities, said most of the highest employment generating sectors have curtailed their hiring.

The worst performer in terms of job creation is the IT sector, with its share in the overall index falling to 34 percent from 41 percent, the original allocation for the segment in the base value.

"The IT sector is facing major challenges with contracted demand due to recession in the primary client countries of the US and Europe. The value of the APP IT index has substantially declined by 50.8 percent," the report said.

The sectors that have recorded maximum decline in employment generation include education, hospitality, IT and IT enabled services, real estate, banking, media, textiles, auto, construction, and engineering.

However, some sectors like telecom and fast moving consumer goods (FMCG) have bucked the trend and created more jobs during the same period.

The telecom sector was a leading job generator with its share in the composite index rising from 3 percent to 3.35 percent during the period.

"The pressure on employment, confidence and price levels would be more burdensome than in the past... Moreover, India could be impacted by the return of migrant workers or declining remittances," Citigroup India economist Rohini Malkani said in a recent report.

Citi further said that the Ministry of Labor has indicated that over 5,00,000 jobs were lost during October-December 2008, with export-oriented sectors such as gems and jewelery, autos, and textiles being most impacted.

However, the Citi report stated that this statistic only covers the organized sector, which comprises just 10 per cent of the country's workforce of close to 385 million.

Pakistan, too, has a huge youthful population as India: roughly 105 million out of 170 million Pakistanis are under 25 years old. It will be these people who drive Pakistan's economy in the decades ahead, according Pakistani economist Salman Shah, who talked with the Wall Street Journal recently.

Like India, Pakistan had an economic boom led by construction, manufacturing, telecom, banking and consumers during 2001-2007, under Musharraf-Aziz administration. With annual economic growth approaching 7-8%, it created about 2.5m jobs a year during this period. Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan said in his book titled "The Age of Turbulence" : “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam. The reason FDI has lagged badly in India is perhaps no better illustrated than by India’s unwillingness to fully embrace market forces. That is all too evident in India’s often statist response to economic problems. Faced with rising food inflation in early 2007, the response was not to allow rising prices to prompt an increase in supply, but to ban wheat exports for the rest of the year and suspend futures trading to ‘curb speculation’ — the very market forces that the Indian economy needs to break the stranglehold of bureaucracy.” (p. 322 of "The Age of Turbulence" by Alan Greenspan.)

But recently, as with so much else in Pakistan, it's economy has gone awry. The current administration nixed the international money-raising program, even before the seize-up in global markets could do the job for it.

The rapidly rising unemployment and skyrocketing inflation together have dramatically increased hunger and poverty among the most vulnerable in Pakistan. At 33%, the sum of unemployment rate and inflation, known as the misery index, stands at its highest level in Pakistan's history, and it is likely to increase social strife and hurt the chances of recovery.

International investors, not surprisingly, also have bailed: Pakistan fails to meet the definition of a low-risk investment that is attracting money in today's environment with the ongoing financial crisis. As a result, its economy is slowing dramatically, expected to grow only about 1% this year. In part that's because the central bank has kept interest rates in double digits to control inflation, as required by the IMF conditions for Pakistan's bailout. There is a crisis of confidence in the country's leadership that is affecting consumers, investors and businesses. The sensational news headlines about the Taliban advance toward Islamabad are also scaring away the investors. As a result of this economic slowdown, job losses have mounted across almost all sectors of the economy. Few new jobs are being created.

And Pakistan's future, as India's, lies in the nation's ability to move workers from farms to manufacturing and in engaging more with the world rather than retreating from it. Pakistan, like India, also is relatively light on exports as a part of the overall economy. In Pakistan, exports account for less than 15% of gross domestic product, according to Shah, compared with about 25% in India and 40% in China. While India's economy must create 11-12 million new million jobs a year, Pakistan's economy needs to add 2.5-3 million jobs annually to employ all the young people entering the job market each year.

Unemployment in both India and Pakistan is expected to rise further with home coming of migrant workers losing their jobs overseas.

Given strong underlying growth dynamics in South Asia, the negative feedback effects of the global financial crisis are expected to be temporary. A relatively rapid rebound is expected in 2010, with a projected revival of GDP growth to 7.2 per cent, spurring job growth again.

Related Links:

Declining Economy Hurts Pakistani Workers

Global Slowdown Hits Foreign Workers

Pakistan's Foreign Visitors Pleasantly Surprised

Start-ups Drive a Boom in Pakistan

Pakistan Conducting Research in Antartica

Pakistan's Telecom Boom

ITU Internet Data

NEDUET Progress Report 2008

Pakistani Entrepreneurs in Silicon Valley

Musharraf's Economic Legacy

Should Pakistanis be Proud of Their Country?


Anonymous said...

Idiot leaders like Zardari do not really care. Look here, he brought his 19 year old son as a counterpart to foreign/defence ministers. Obama is going like wtf. He is such a disgrace.

Anonymous said...

Obama has promised to remove tax rebate for moving jobs to india or any other place. Indian politicians have reacted to say that they will cancell the nuclear deal with usa which is expected to create 60 billion dollar business to companies like ge.

Further some of the administration has made efforts to say that india, pakistan and north korea must sign npt. No part worth its salt will be in a position to sell this in india.

Interesting time to watch the attitude of obama towards india on employment, nuclear and other defense areas.

Anonymous said...

Anonymous: fascinating picture. Either he's totally out of touch, or he's got cojones of steel.

Anonymous said...

Its time we stop comparing ourselves to India or China.
It is commonsense to understand that size and statistics of India and China are huge and cannot be compared to small nations like Pakistan. Its like Korea comparing to Japan or worse Taiwan to Japan.
Cats cannot be lions. Just like our nation produces incompetent leaders one after the other and there is no end in sight to religious backwardness, we need to understand that to grow fast or even to be fast lane we need to have rule of law,growth of institutions, democracy and most importantly tolerance.
I cannot stop laughing at what you have written when have our nation listed among Failed states like somalia,Iraq. Sorry Iraq is way better than us. Looks like a major part of your education is based on false pride with islamic tinge added to it. With those lines of thought,we have produced a generation of youth who do not have clear conscience of thought. Pakistan stands way behind in league and you should first compare where we stand with Bangladehs and Srilanka and Nepal-I am sure you know the answer-because it stands last even compared to these countries as far as social stability and tolerance is concerned.

Riaz Haq said...

Anon: "India and China are huge and cannot be compared to small nations like Pakistan. Its like Korea comparing to Japan or worse Taiwan to Japan.
Cats cannot be lions."

I disagree with your premise, these nations are compared with each other by international agencies, business and investors in per-capita terms. What is most important is to see how each country is doing in terms of providing for its people.

Comparing India and Pakistan is very natural, given their common history and the common region of South Asia they are in. Let me share with you some of the recent comparisons done by various outfits:

1. A 2005 Bloomberg headline, as reported by China's Peoples Daily, proclaimed as follows: "The world's second-fastest growing economy after China is no longer India. It's Pakistan."

2. The most recent real per capita income data as calculated and reported by Asian Development Bank. The report says that Pakistan had the highest per capita income at HK$ 13,528 in South Asia. It reports India's per capita as HK $12,090. The "real" here refers to the actual purchasing power and living standard comparisons, not international exchange rates.
Check out complete list in Table H here.

3. India might be an emerging economic power, but it is way behind Pakistan, Bangladesh and even Afghanistan in providing basic sanitation facilities, a key reason behind the death of 2.1 million children under five in the country, according to UNICEF report.Lizette Burgers, chief water and environment sanitation of the Unicef, said India is making progress in providing sanitation but it lags behind most of the other countries in South Asia.

4. Pakistan's Karachi stock market has taken a nose dive along with the major markets around the world. KSE-100 dropped about 50%. Those who invested in KSE stocks in 2001-2 did as well or better than those who invested in NY, London, Mumbai or Shanghai. KSE increased 10-fold 2001-2007. Even after a 50% drop in KSE in 2008, investors have made 500% gain since 2001.

5. There is widespread hunger and malnutrition in all parts of India. India ranks 66th on the 2008 Global Hunger Index of 88 countries while Pakistan is slightly better at 61 and Bangladesh slightly worse at 70.

There is a lot more facts and statistics often used to compare the two South Asian nations and you can learn more if you bother to seriously look and read. My blog can help but there are plenty of other sources.

The bottom line is as follows: While the problems faced by Pakistan are huge, I believe that a serious and organized initiative by a tiny percentage of Pakistan's large middle class of at least 40-50m people can begin to make a difference. Pakistanis owe it to themselves and their poor brethren to step up and take responsibility for improving the situation of the most vulnerable citizens of their country. The journey of a thousand miles begins with a single step. But we must persevere by taking one step after another until we see results.

Anonymous said...

Of all the countries-I feel ashamed that you had to bring the Chinas report to show that we are ahead.China inspite of its economic boom,stands at the bottom of the world in suppressing the will of people and pathetic freedom of speech.I am ashamed if you say keep saying Chinas is pakistans trusted friend.In what sense-because it supported in actual reality our dictators than US did.China has consistently supported bad regimes in the world than US ever did over last hundred years. China inspite of its growth is NOT US anyday because it requires more than economic boom to give such statements.
You keep comparing to India again before look at our miserable situation.Progress is made on foundations of tolerance and secularism.Pakistan does not have those foundations yet and you want to build buildings of doom.
Look for better arguements Riaz.Tell the world why Kasab is from our proud nation.You will have all answers on why our nation is called ticking timebomb.It is utter shame that our nation sends terrorists to neighbours home and you spend talking hours about progress. Did you ask our leaders about this? I have not seen one article on realities? I would appreciate if you put your focus on these issues. Because it is written on wall that we will perish if we ignore this evil.

Riaz Haq said...

Anon: "Did you ask our leaders about this? I have not seen one article on realities? I would appreciate if you put your focus on these issues. Because it is written on wall that we will perish if we ignore this evil."

Now I am convinced that you are an Indian bigot posing as a insisting that Pakistan's glass is not even half full, it's empty. You are deluding yourself by discounting Pakistan to your own peril.

In my experience, no one's glass is entirely full nor is it completely empty. It's usually half full or half empty, depending on one's perspective. Hopelessness can be toxic and self-destructive. No nation can ever hope to do well if its people completely lose hope. Hope is the elixir of life.

I urge Pakistanis to see their glass half full, and then do what each of us can to fill the rest of it in our own way with our contribution.

Anonymous said...

If you are convinced in such a shameful way-I can be sure of how badly religion has penetrated our society and its shame that you are talking of progress.If you denounce me after living in Karachi for 60 years-I must with shame ask my parents why they moved to Pakistan for hope-sorry misery.

Riaz Haq said...

Anon: "I must with shame ask my parents why they moved to Pakistan for hope-sorry misery."

If that is the case, then I should tell you that my parents did the same, and I am glad they did. Just objectively look at the conditions of Muslims suffering the terrible discrimination and indignities of living in a narrow-minded Hindu society which is as radicalized, if not more so, as ours in Pakistan. Read the Indian government appointed Sachar Commission report which documents that Indian Muslims are in worse shape then the lowest caste untouchables in terms of education, employment, etc. The Indian-American journalist Asra Nomani has called Indian Muslims the new untouchables.

Just look at Gujarat and see how thousands of Muslims were killed and thousands more languish in refugee camps seven years after the shameful massacre orchestrated by the Gujarat govt.

Watch the Hoodbhoy video I have posted and see how radical Hindu orgs are roaming free and preaching hatred.

Having been to both India and Pakistan, I can say from personal observation that Pakistanis are still much better off than Indians (Hindu or Muslim) in general.

Riaz Haq said...

Here's a ranking of ease of doing business in South Asia that puts Pakistan well ahead of India:

Bangalore: The business environment in Pakistan and Bangladesh is far better than in India. According to the latest 'Doing Business Index', India's business environment has become tougher during the years compared to other nations.

Economies are ranked from one to 183 on the basis of their regulatory environment being conducive to business operations. All of India's neighbors except Afghanistan have been ranked better. While India is ranked 133, Pakistan is ranked 85th followed by Sri Lanka (105), Bangladesh (119) and Nepal (123).

"India is a consistent reformer for the past many years. A country's rank in the index is an average of 10 indicators, each with 10 percent weight in the index. India increased the number of judges in the specialized debt recovery tribunals, which led to a major removal of blockages. While India reformed in the area of insolvency, other countries reformed in more than one area," World Bank's Senior Strategy Advisor, Dahlia Khalifa told Economic Times explaining why India has been overtaken by other nations.

The 2010 Doing Business Report prepared by World Bank and the International Finance Corporation averages a country's percentile ranking on 10 topics, made up of a variety of indicators. This includes examining a country's business environment in terms of starting a business, dealing with construction permit, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

The first place is occupied by Singapore, which is followed by New Zealand, Hong Kong and the U.S.

To see complete rankings and report, click here:"

Riaz Haq said...

The BBC is reporting that Dubai crisis is impacting a remote village in Bihar:

In August 2008, Bharat Bhushan Tiwari - from Akhopur village in eastern Indian Bihar - took a loan of 71,000 rupees ($1,500) from a village moneylender to pay a local agent who had arranged a job for his son in Dubai.

Mr Tiwari - who runs a small shop - was hoping for better days for his family of five by sending his second son, Jay Kumar Tiwari, to the Gulf country.

Jay Kumar had got a job as a carpenter in a Dubai-based construction company and had big dreams - he wanted to earn a lot of money to pull his family out of grinding poverty.

But last month, their dreams came crashing down when Jay Kumar was asked by the company officials to quit by 6 March 2010.

'Cruel joke'

Dubai has been hit by an unprecedented financial crisis and the tremors are being felt in far away Bihar.

"This has been a cruel joke on our fate," Bharat Bhushan Tiwari told the BBC, trying to fight back his tears.

His other two sons are also unemployed and the Tiwari family now prays that the situation improves in Dubai.

Riaz Haq said...

Here's a Wall Street Journal story about Sialkot's soccer ball industry's struggle to survive:

Adidas contracted with Sialkot's Forward Group to make the replica World Cup balls. Forward Group expects to ship six million balls this year, up 40% from 2009.

But even with its Adidas contract, Forward Group faces big challenges. It has to run its own electric generators because of daily nationwide power shortages. The roads to Sialkot, in eastern Pakistan near the border with India, are rutted. And foreign sports executives remain reluctant to visit because of the terrorist threat.

German's Adidas Group has given one company in Sialkot, Pakistan, the contract to produce the entire range of mass-market-hand-stitched replicas of the "Jabulani" soccer ball that will be used at this summer's World Cup. The city, once the soccer ball capital of the world, is facing stiff competition from China. WSJ's Tom Wright reports.

Adidas made the decision to switch to thermally bonded balls for the matches at the 2006 World Cup. The goal was to make the balls perform more consistently when players kicked them. With a hand-stitched ball the seams inevitably produce dead spots. Initially, Adidas made those balls in Thailand before switching production to China ahead of the 2010 competition.

In recent years, China has also taken over most of the production of World Cup promotional balls, a lucrative market of about 40 million little balls emblazoned with sponsors' logos, says Khurram Anwar Khawaja, a soccer-ball producer and former president of the Sialkot Chamber of Commerce and Industry.

Sialkot has also lost a big share of midpriced mass-market soccer balls to China, which began producing cheaper machine-stitched balls a decade ago.

Forward Group and the other soccer-ball makers here are determined to defend their turf. They have cut costs by automating many parts of ball production. Local businessmen joined together to build an international airport in 2008 after the government failed to do so.

Now, the soccer-ball makers are planning to set up a research center to develop their own version of the latest thermal-bonding technology that Adidas is using for World Cup match balls, a process that involves fusing together patches of synthetic "leather" by machine.

Two years ago, Adidas transferred its proprietary technology to Forward Group, which has been making small amounts of thermal-bonded balls. Recently, the company successfully lobbied Adidas for permission to use the technology to produce balls for the UEFA Champions League final next month in Madrid, one of the biggest events on the global soccer calendar.

Riaz Haq said...

Increased load shedding in Pakistan alone has cost 400,000 jobs in recent years, according to the World Bank. Although the World Bank report does not address it directly, the anecdotal evidence suggests that almost all of Pakistan's job growth for the decade occurred from 2000-2007 when the economy showed robust gdp growth. During 2000-2007, Pakistan's economy became one of the four fastest growing economies in Asia with its growth rate averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program. Contrary to its public criticism of the Musharraf-era economy, the preceding facts were acknowledged by the current government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008.