An Impending ‘Humanitarian Catastrophe’

270,000

What is it? The estimated number of people that have fled their homes in south-western Syria since the military launched an assault on the rebel-held areas a few weeks ago.

Why is it important? This figure has grown by more than five times from an estimated 50,000 six days ago. Last week, the UN Commissioner for Human Rights had asked all sides to end the escalating conflict in Daraa or it could result in a humanitarian catastrophe. Those fears are now compounded as the refugees have taken shelter near the Israeli and Jordanian borders and both the countries have refused to allow them in.

Tell me more: The Syrian government, under President Bashar al-Assad, has regained control of the country’s biggest cities but large parts are still under control of rebel groups and the Kurdish-led SDF alliance. A peaceful uprising against Assad’s rule seven years ago blew up into a full civil war and has claimed the lives of over 350,000 people.

100,000

What is it? The number of people that could lose their jobs due to US President Donald Trump’s plan to ban spouses of high-skill visa holders from working, according to a study.

Why is it important?A recent study says that as a result, this would result in social isolation of spouses, increase domestic tensions and strain the family’s financial resources. This could affect the visa holder’s satisfaction levels, posing risks to them in continuing their posting in the US. In addition to indirect costs, the cost of expatriate assignments range from $250,000 to $1 million.

Tell me more:The Trump administration is planning to reverse the 2015 rule that permits spouses of H-1B visa holders to work in the US. The US has issued employment authorisation documents to over 71,000 spouses of H-1B visa holders, of which more than 90% are Indians.

Rs 7,900 crore

What is it? The amount Volkswagen said it will invest in India between 2019 and 2021.

Why is it important? The group has set a target of achieving a market share of 5% of the Indian passenger vehicles market by 2025. India leapfrogged Germany recently to become the world’s fourth biggest auto market and is expected to go up to the third position by 2020, according to major automakers.

Tell me more:Under its ‘India 2.0’ project, group firm Skoda Auto is setting up an engineering design and development centre in Pune, in addition to improving capacities at its two plants, which is expected to create 5,000 direct and indirect jobs.

7

What is it?The number of months it took for transactions under the unified payments interface (UPI) to double to 200 million.

Why is it important?UPI is a payments system launched by the National Payments Corporation of India, the umbrella organisation for retail payments in the country. It facilitates instant fund transfer between two bank accounts on a mobile platform without requiring any detail of the beneficiary’s bank account.In June 2018, the number of UPI transactions stood at 246 million, amounting to Rs 40,834 crore. This is a brisk 30% increase in volume terms and 22% in value terms over May 2018.

Tell me more: UPI was launched in August 2016 with 21 participating banks. As of June 2018, this number had increased to 110 banks.

2 

What is it?The goal deficit that Belgium clawed back from to win their round of 16 match against unfancied Japan in the 2018 football world cup on Monday.

Why is it important?With 21 minutes to go for full-time, Belgium trailed Japan by 2 goals in an open match. However, Belgium struck thrice, including Nacer Chadli in the 4thminute of added time in regulation to become the first team since 1970 to come back from two goals down in a world cup knockout match. This is Belgium’s second appearance in the quarter-finals and its best finish was a semi-final appearance in 1986.

Tell me more: In another match played yesterday, Brazil beat Mexico 2-0 to enter the quarter-finals.

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H1B visa reforms: 5 levers Indian IT firms can pull to soften the blow

After congresswoman Zoe Lofgren introduced the H1B reforms bill in the US House of Representatives, IT executives and investors in India have been worried about its impact on the country’s outsourcing sector, which is highly dependent on H1B visas to provide services at a relatively low cost.

The new minimum wage proposed by the bill could make H1B payscales even higher than local the payscale, making it economical for the companies to hire locally, but denting their margins significantly. More importantly, it’s seen as the begining of a series of protectionist measures that would make getting business from the US increasingly more difficult. (Yet another proposal, Reforming American Immigration for Strong Employment, or Raise Act, seeks to cut legal immigration by half.) What can Indian IT companies do to tide over these tough times? They have at least five levers at hand, which come with varying levels of difficulty.

1

 

1. Move more work offshore

Offshoring not only reduces regulatory burden, it is also cheaper. But, moving work offshore will not be easy, especially with new clients. They tend to prefer onsite work to gain confidence before moving work offshore. However, it’s not impossible. Infosys has been bringing onsite component down in the recent quarters. Among the tier one players, Tata Consultancy Services (which stopped sharing this metric after March 2015), Cognizant and Wipro have bigger scope for moving more work offshore.

2. Look Beyond the US

America continues to be the largest market for India-centric outsourcers. While companies have made some progress in expanding their businesses in Europe, the next big market, knowledge of local languages has been a constraint (except for United Kingdom). However, many recognize exploring other markets in Europe, South America and Asia is a key to long term success, and even survival. Visa reforms in the US will push Indian IT firms to move in this direction.

3.Increase utilization rates

IT companies tend to include unbilled employees (people who are assigned to a project, but not charged for) in ongoing projects to provide a cushion, and for projects in the pipeline so they can hit the road running. So, the utilisation of resources is never hundred percent. Utilisation rates, measured as a percentage of total employees, could vary from quarter to quarter depending on hiring season (when IT companies onboard a large number of freshers) and sales targets. However, with a broader base of employees and efficient allocation of resources, it’s still possible for IT companies to improve utilisation rates. It would help in compensating for the higher wages onsite.

4.Increase revenue per employee

Indian tech majors, including TCS and Infosys, have been talking about non-linear revenues for several years now. However, revenue per employee has remained more or less constant. What once seemed like a good thing to purse, increasingly appears to be a necessary thing to do. As in the case of increasing non-American revenues, it cannot be achieved overnight. It would demand more investment in automation, and in products and platforms. Such investments could result in lower margins and demand a higher risk appetite. This is the direction that the management would push their companies going forward.

5.Look for low-cost resources

Recent surveys by Mercer, as well as Willis Towers Watson, indicated that salaries in India are set to increase by 10% in 2017. IT sector, which has paid some of the highest salaries across sectors, has also seen higher than average pay hikes. However, increasingly, IT companies are setting up centres in smaller cities and towns to benefit from lower rents, and to hire employees at lower salaries for specific kinds of work. Salaries account for roughly 70% of cost of sales, and reducing it could have significant impact on margins.

(Notes: All data sourced from respective companies’ financial statements. Some companies don’t publish onsite / offshore break-ups, or have stopped publishing in the last few years)

 

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News in numbers, Dec 18, 2015: Doubling of US visa charges, global warming…

$400 million

What is it? The amount Indian IT industry will lose every year if US proposal to impose special fee on temporary work visas goes through, according to estimates by industry body Nasscom.

Why is it important? It will hit profit margins of Indian IT players dependent on H1-B and L-1 visas. In 2014, 86% of H1-B visas and 47% for computer occupations and engineering jobs (respectively) went to Indians, the largest share in both the categories, according to an analysis by Computerworld. Recently, when a couple of US senators wanted to curb the number of temporary work visas given to foreigners, Indian IT stocks took a hit.

Tell me more: US lawmakers have proposed to impose a special fee of $4,000 on certain categories of H1-B visas and $4,500 on L-1 visas. In effect, it doubles the visa charges. They expect it to generate $1 billion annually, which it would use to fund a biometric entry and exit tracking system and funding health screenings and treatments for the first responders after the 9/11 terror attacks on the US. The Indian IT industry has a significant presence in the US where it contributed nearly 411,000 jobs in 2015 and $20 billion in taxes between 2011-15. It gets about 47% of its $98 billion export revenues from the US.

 

0.97 degree celsius

What is it? The degree by which the average temperature in November across global land and ocean surfaces was higher than the 20th century average, according to National Oceanic and Atmospheric Administration (NOAA).

Why is it important? This makes last month the hottest November (on record) ever . It is also the seventh consecutive month when a monthly global temperature record has been broken. If December 2015 beats the coldest December (on record) in 2016, it has to be “unusually cold” and that is not likely to happen, according to Jake Crouch, climate scientist at NOAA’s National Centers for Environmental Information. And, if this doesn’t happen, then 2015 would be the warmest year ever – underlining the need to tackle climate change whose effects include more droughts, heat waves and increase in sea levels.

Tell me more: The globally-averaged sea surface temperature was the highest for November in the 1880-2015 record and the globally-average land surface temperature was the fifth highest for November in the same period.

 

$434 million

What is it? The payout to businessman Bernard Tapie by the French government in 2008.

Why is it important? It has come back to haunt Christine Lagarde, then France’s finance minister and now managing director of International Monetary Fund (IMF). A French court has ordered Lagarde to face trial over her role (which was, negligence) in this payout. This is likely to end her prospects of seeking a second term as IMF chief. Appointed in 2011, Lagarde is the first woman to head the organisation of 188 countries and her term ends in May 2016. Her predecessor Dominique Strauss-Kahn also faced tough time during his tenure – for a different reason.

Tell me more: In this 20-year old case, Tapie sold his majority stake in the then ailing Adidas to a group of investors and a year later, the company was bought by a businessman who was part of that investment group. Tapie alleged that the company was deliberately undervalued and sued the Crédit Lyonnais bank (was part of the investment group). After going through a series of courts, the case was referred to Lagarde (then France’s finance minister) who referred it to an arbitration panel and Tapie was awarded $434 million compensation. This was paid out of public funds in an out-of-court settlement, which caused a public furore.

 

5

What is it? Number of S-400 air defence systems India has proposed to buy from Russia at an expected cost of Rs 30,000 crore.

Why is it important? It’s a sign of strengthening ties between India and Russia. Prime Minister Narendra Modi is visiting Russia next week, and is expected to create a joint innovation fund, among others. The defence deal is also aimed to counterbalance Russia’s relationship with China and Pakistan. China signed a deal with Russia to procure S-400 systems earlier this year, and Pakistan is seen as getting close to Russia. China’s military strength is far superior to India’s by several metrics, with its defence budget nearly four times more than India’s. India has been strengthening its defence shield against both through domestic research and development and imports.  

Tell me more: S-400 is designed to protect key installations such as nuclear reactors and big cities. A surface-to-air missile, which can attack unmanned aerial vehicles, drones, cruise missiles, is completely automated from target acquisition to final engagement and is considered as a fourth-generation system in combat capabilities.

 

65 basis points

What is it? The difference between the cut in benchmark rate by the Reserve Bank of India (RBI) and the drop in banks’ lending rates in 2015. One basis point is one-hundredth of a percentage point.

Why is it important? The mismatch has led RBI to introduce a new formula (with effect from April 1) to calculate lending rates, and make them more responsive to policy rate changes. For new borrowers, loan rates are likely to be cheaper and for the existing customers, it is likely to take a year to experience the effects of implementing the new formula. Besides transmission in rates, the RBI expects the new measures to bring in increased transparency in calculating loan rates and which are “fair” to both the bankers and the borrowers.

Tell me more: Currently, banks decide their lending rates based on the average cost of funds on deposits outstanding and under the new method, the lending rates would be based on marginal cost of funds based lending rate. An October report by India Ratings said that while the RBI has cut rates by 125 basis points, banks have cut one-year deposits by an average of 130 basis points, thus paying lower to customers and making more money. A study of the last 10 years by India Ratings shows that in most cases when policy rates have been reduced, deposit rates have come down quicker than lending rates and the decrease of the former also has been higher.

 

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