Rewind. Bad news is good news?

In shades of Orwellian doublespeak, the bad news of lower-than-anticipated September job growth in the US, at 1,42,000, was greeted by the market as good news, leading to a 564-point rally in the Sensex. In a stock market driven more by liquidity than fundamentals, the job growth figure suggested that Fed chair Janet Yellen would further postpone an increase in interest rates, and that, for the short term at least, was good news for the market.

Actually, as pointed out by John Mauldin in his Recession Watch newsletter, the situation is really worse for two reasons. One, the job growth figures for July and August were revised downwards by 22,000 and 37,000 jobs, respectively. So Janet Yellen’s recipe of providing easy money in order to create jobs is not working. Two, the work week was lowered from 34.6 to 34.5 hours, a seemingly minor alteration, but is the equivalent of adding 3,48,000 job losses!

The root of the issue is really how the pendulum of shareholder capitalism has swung towards the providers of capital, and away from other stakeholders such as employees, customers and suppliers. To illustrate this, consider the case of Monsanto which is slashing 2,600 jobs in order to save an estimated $400 million. Yet the company has set aside $3 billion for a share buyback programme to keep its shareholders happy. So, it is spending more than seven times the amount saved from sacking 2,600 employees on its shareholders. The easy money provided by Yellen is not going to create more jobs in Monsanto’s case, in fact to reduce jobs, but to please its shareholders.

What gives American businesses strength to adjust during recession is their flexibility in labour laws. This helps the economy to recover faster than, say, the European one where laws are less flexible. However, one believes that institutional investors, which own a majority of corporate equity, must temper their demands for short-term results.

After meeting with technocrats in Silicon Valley, Prime Minister Narendra Modi has recognised the need to have a more flexible labour policy, one which would allow easier closure if the enterprise fails, with proper compensation. The government has created a blueprint for this. States such as Madhya Pradesh have also recognised the need for more flexible labour policies.

Inflexible labour laws create a huge set of problems, as the case of JSW shows. The company had acquired land for a steel unit in Salboni, West Bengal, based on the three coal blocks allocated to it. These blocks were cancelled by the Supreme Court, making the project unviable. JSW wants to return the land but the farmers demand a steel mill in order to get jobs.

The problem of creating enough jobs will get further compounded if we do not get the energy required to sustain economic growth.

The global economy is slowing, according to the IMF, and will post its slowest growth since the 2008 crisis, at 3.1 per cent because of lower growth from China and other emerging economies (but not India). India must make the atmosphere conducive to attract investors, both direct and indirect. It ought not to flip-flop on policy and avoid claims which are untenable — such as the tax claim for transfer pricing imposed on Vodafone which was overturned by the Bombay High Court last week.

It also needs to protect domestic investors. SEBI, which merged with FMC recently, says it is not going to probe scam-tainted NSEL again. One hopes that its resolve to cleanse the system is not affected. The fact that it has taken two years to bring scamsters to task does not endear India to potential investors.

Last week the Sensex gained 859 points to end at 27,079. Investors will now be watching the Bihar election results, which are due on November 8. The formation of a BJP Government would be seen by investors as a sign of making things easier for it to pass legislation in the Rajya Sabha where it has a minority — and the market will rise.

The writer is India Head, Euromoney Conferences

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