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India’s economy slows, stalling once thriving manufacturing

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NEW DELHI (AP) — Anuj Kapoor took over his father’s booming auto parts business in 2012, hoping to elevate the company from selling to suppliers to selling directly to carmakers.

Seven years later, he’s had to lay off half his workers as drooping sales caused his profit to plummet by at least 80%.

Confidence in the Indian economy is giving way to uncertainty as growth in the labor-intensive manufacturing sector has come to a near standstill, braking to 0.6% in the last quarter from 12.1% in the same period a year earlier.

The economy grew at its slowest annual pace in six years in April-June, 5%. Many economists believe Prime Minister Narendra Modi’s signature economic policies are at least partly to blame.

A surprise demonetization in 2016 and the hasty rollout of a goods and services tax were dire blows to manufacturing, especially the auto industry. The fourth largest in the world, it’s a pillar of the Indian economy, contributing 7.5% to the country’s GDP.

The industry employs almost 37 million people and is on its way to shedding as many as a million jobs in the months ahead because of declining sales, according to the Auto Component Manufacturers Association of India.

Car deliveries in August dropped 41% from a year earlier, truck and bus sales fell 39% and motorcycle sales, a key indicator of the health of the economy in rural India, sank 22%.

“This is a trickle-down impact of the slowdown,” said the association’s director general Vinnie Mehta.

No segment of the industry has been spared. India’s biggest carmaker, Maruti, has laid off 3,000 temporary employees and shut down two of its plants for two days.

The 15 workers in Kapoor’s plant in a Delhi suburb make clutch buttons used in heavy duty trucks and tractors.

The first hit came in November 2016, when Modi decided to pull 86% of cash out of circulation to undermine black markets. At the time, nearly all transactions in India were conducted in cash. Seven months later, Modi’s government introduced a GST, goods and services tax, forcing small businesses like Kapoor’s to quickly digitize their payment systems.

Mid-size and small businesses, the backbone of much of India’s economy, are still suffering from the combined consequences of both reforms, economists say.

India’s unemployment rate was 3.4% when the GST was introduced in July 2017. As of the end of August, it was 8.4%, according to the Centre for Monitoring the Indian Economy, a Mumbai-based research firm.

“The auto components market still functions without any billing system and more than 50% of our market is still cash-driven,” said Kapoor. “How do we file tax returns when sellers don’t give us any bills?”

The sudden demonetization was the “biggest policy mistake of independent India,” says Jayati Ghosh, an economist at Jawaharlal Nehru University in Delhi. It drastically reduced consumption — the bedrock of India’s economy — “because people had no cash to pay.”

Supply chains, production and job markets were all disrupted, Ghosh said.

Measures of consumer confidence have weakened amid growing pessimism over jobs and the economy in general.

“Demonetization pulled the rug under the feet of India’s cash economy and the informal sector was the worst hit. The much-hyped reform triggered the current economic slowdown,” said Dr. Pronab Sen, India’s former chief economic adviser and the director of the India program at the London School of Economics’ International Growth Center.

Instead of improving government finances, the GST and demonetization have undermined India’s financial stability.

To counter that, in August the Reserve Bank of India transferred $24 billion to the cash-starved government to help support stimulus measures, prompting criticism from opposition parties that it compromised the central bank’s autonomy.

Finance Minister Nirmala Sitharaman recently announced piecemeal policy reforms to stimulate the economy.

“We are conscious that we need to respond,” she said.

Even getting a clear picture of the overall economy is a challenge for policymakers given the huge size of India’s informal economy of day laborers and small businesses.

For workers with no guarantee of a paycheck or other protections, the slowdown can mean just going hungry. Such troubles were evident on a recent morning at a worker pickup area about 25 kilometers (15 miles) east of Delhi.

Mohammad Shamshad, a day laborer who moved his wife and three children from the northeastern region of Uttar Pradesh to the Delhi region a decade ago, says he used to make nearly $200 a month — enough to feed his family and pay for schooling.

Now, he spends more time standing on a corner waiting for jobs than he does working, and averages less than half that amount.

“There is work for a day or two, and then nothing for the next five days,” he said. “Some days we have to sleep (on an) empty stomach.”

AFP

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Hundreds of thousands affected as British travel firm fails

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LONDON (AP) — Families stranded, honeymoons and vacations canceled, thousands of workers laid off: The sudden collapse of British tour company Thomas Cook and its network of airlines and hotels sowed chaos for hundreds of thousands of travelers and businesses around the world Monday.

Brought down by a variety of factors, including crushing debts and online competition, the 178-year-old travel agency that helped pioneer the package tour ceased operating in the middle of the night. Its four airlines stopped carrying customers, and its 21,000 employees in 16 countries lost their jobs.

The company’s failure rippled across the tourism industry, particularly around the Mediterranean, with travelers uncertain how they would get home, hotels worried they wouldn’t get paid, guests afraid they wouldn’t be allowed to check out without settling their bills, and resorts hit with cancellations.

Overall, about 600,000 people were traveling with Thomas Cook as of Sunday, though it was unclear how many would be left stranded, as some regional subsidiaries were in talks with local authorities to continue operating.

The British government swung into action, lining up flights to bring an estimated 150,000 Britain-based customers back home from vacation spots around the globe in what was called the biggest peacetime repatriation effort in the country’s history.

Some 50,000 Thomas Cook travelers were reported stranded in Greece, up to 30,000 in Spain’s Canary Islands, 21,000 in Turkey and 15,000 in Cyprus. Travelers lined up at airports, looking for other ways to get home.

James Egerton-Stanbridge and his wife, Kim, were set to fly from London’s Gatwick Airport to Egypt to celebrate her 60th birthday when flights were grounded.

“Kim was crying this morning. We’re devastated,” he said.

Long lines of British tourists snaked through the terminal in the Mexican resort of Cancun as travelers waited to find out when they could return home, and some discovered they would be taken to cities hours from their homes.

Katie Cowdrey, her husband and 6-year-old son had been scheduled to end their two-week vacation Monday anyway, but instead of flying home to London, they were told a plane would take them to Manchester.

“There’s chaos as you can see. No one knows what’s going on,” Cowdrey said. “We only found out from the news. We weren’t told any other way. The hotel didn’t know what was going on.”

Others took the news in stride. Sweden’s Bengt Olsson, who was traveling in Cyprus, said there were worse places to be stranded: “It’s nice to stay here. It’s warm.”

The reality was far harsher for the Thomas Cook employees who lost their jobs overnight.

“The staff have been stabbed in the back without a second’s thought,” said Brian Strutton, head of the British Airline Pilots’ Association.

An estimated 1 million customers also found their bookings for upcoming trips canceled. Many of them are likely to receive refunds under travel insurance plans but had no idea when they would get their money back. Thomas Cook said it served 22 million customers a year.

The company, which began in 1841 with one-day train excursions in England, grew to have travel operations around the world but has been struggling for years because of competition from budget airlines and low-cost online booking sites.

In contrast to internet sites, Thomas Cook had high fixed costs: It operated a fleet of 105 jets and owned about 550 travel agencies on major streets across Britain as well as 200 hotels in sun-drenched countries.

“The growing popularity of the pick-and-mix type of travel that allows consumers to book their holiday packages separately, as well as new kids on the block like Airbnb, has seen the travel industry change beyond all recognition in the past decade, as consumers book travel, accommodation, and car hire independently,” said Michael Hewson, chief market analyst at CMC Markets.

Business was also hurt in recent years by terror attacks in the Middle East and heat waves in Northern Europe that led people to stay home.

Things got worse this year, with the company blaming a slowdown in bookings on uncertainty over Britain’s impending departure from the European Union. A drop in the pound also made it more expensive for Britons to travel abroad.

While many of these factors also affected rival companies, Thomas Cook was also burdened by $2 billion in debt. It was seeking 200 million pounds ($250 million) to avoid going bust and held talks over the weekend with shareholders and creditors.

CEO Peter Fankhauser stood outside the company’s offices before dawn and announced that the effort to stave off collapse had failed.

“I know that this outcome will be devastating to many people and will cause a lot of anxiety, stress and disruption,” he said.

British authorities chartered dozens of aircraft to fly customers home free of charge over the next two weeks, but warned of delays and urged patience.

British Prime Minister Boris Johnson, who was traveling to New York for a meeting at the United Nations, said the government was right not to bail out the company, arguing that doing so could have led other businesses to expect the same treatment.

Most of Thomas Cook’s customers from Britain are protected by the government-run travel insurance program, which makes sure vacationers can get home if a British-based tour operator fails while they are abroad.

In Germany, the government was considering a request for a bridge loan from Thomas Cook’s unit there, the airline Condor. The subsidiary was still flying but stopped carrying Thomas Cook customers.

Thomas Cook’s collapse is also a blow to the many companies in resort areas that have long relied on it for business, including some 3,150 hotels.

In Spain’s Canary Islands, a favored year-round destination for Europeans, the association of hotels said it feared an economic hit. The Spanish government held meetings with regional authorities to assess the damage.

In Tunisia, the TAP news agency said the tourism minister intervened after reports that some Thomas Cook tourists in Hammamet were locked into a hotel and “being held hostage” as hotel staff demanded they pay extra. The government said the situation was resolved and the guests would not be prevented from leaving the country.

AFP

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UK judge to allow Nigeria to appeal ruling on $9 billion P&ID case

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LONDON/LAGOS (Reuters) – A British judge on Thursday gave Nigeria permission to seek to overturn a ruling that would have allowed a private firm to try to seize more than $9 billion in assets from the West African country.

Process & Industrial Developments, a firm set up to carry out a gas project with Nigeria, won a $6.6 billion arbitration award after the deal collapsed. The award has been accruing interest since 2013 and is now worth more than $9 billion.

P&ID, established by two Irish nationals with little experience in the oil and gas sector, said on Thursday that interest was accruing at rate of $1.2 million a day.

The judge also granted Nigeria’s request for a stay on any asset seizures while its legal challenge is pending, but ordered it to pay $200 million to the court within 60 days to ensure the stay. It also must pay some court costs to P&ID within 14 days.

The original decision on Aug. 16 converted an arbitration award held by P&ID to a legal judgment, which would allow the British Virgin Islands-based firm to try to seize international assets.

Nigeria’s appeal of this decision, called a “set-aside”, would need to prove there was an error in that ruling.

During Thursday’s proceedings, lawyers representing Nigeria said the judgment was flawed primarily due to its acceptance that England was the proper seat of the arbitration.

Harry Mantovu argued on behalf of Nigeria that the courts, not the arbitration tribunal, should determine this, and that the award itself was “manifestly excessive”.

“We look forward to challenging the UK Commercial Court’s recognition of the tribunal’s decision in the UK Court of Appeal, uncovering P&ID’s outrageous approach for what it is: a sham based on fraudulent and criminal activity developed to profit from a developing country,” Nigerian attorney general Abubakar Malami said.

P&ID welcomed the requirement that Nigeria place $200 million on hold pending the appeal, which it said will force the nation “to put its money where its mouth is if it wants to avoid immediate seizure of assets”.

It also called fraud allegations a “red herring”.

“The Nigerian government knows there was no fraud and the allegations are merely political theater designed to deflect attention from its own shortcomings,” it said in a statement.

The judge’s order said that if Nigeria does not put the $200 million into a court account within 60 days – the minimum amount of time that Mantovu said it would take Nigeria raise the funds by tapping capital markets or seeking internal sources – the stay on seizures would be lifted.

The case has electrified Nigeria and drawn condemnation at every level of government. In a speech at the United Nations this week, President Muhammadu Buhari said he would fight “the P&ID scam attempting to cheat Nigeria of billions of dollars”.

At the court on Thursday, a dozen senior government officials huddled during a break, discussing how much money Nigeria could place in court accounts to secure a hold on asset seizures.

Last week, Nigeria’s anti-graft agency charged one former petroleum ministry official with accepting bribes and failing to follow protocol related to the contract, while two Nigerian men linked to P&ID pleaded guilty to charges of fraud and tax evasion on behalf of the company.

P&ID has called the investigation in Nigeria a “sham” that denied its subjects due process.

REUTERS

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UK travel giant Thomas Cook faces collapse

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Thomas Cook’s 178-year existence was hanging by a thread on Sunday after the iconic British travel firm struggled to find further private investment and is now relying on an unlikely government bailout.

The operator said Friday that it needed £200 million ($250 million) — in addition to the £900-million rescue deal secured last month — or else face administration, which could leave thousands of holidaymakers stranded and require Britain’s largest repatriation since World War II.

A source close to the negotiations told AFP on Saturday that the company had failed to find the £200 million from private investors and would collapse unless the government intervened.

But ministers are unlikely to step in due to worries about the pioneering operator’s longer-term viability, the Times reported on Saturday, leaving it on the brink of collapse and stranding up to 150,000 British holidaymakers abroad.

“We will know by tomorrow (Sunday) if agreement is reached,” the source told AFP.

Conservative Party minister Brandon Lewis told Sky News on Sunday that it would be “inappropritate” for him to comment on the negotiations, but said that he hoped “they come to a positive conclusion”.

The firm’s shareholders and creditors were to meet from 9 am (0800 GMT) on Sunday, with a meeting of the board of directors due to be held in the afternoon.

The Transport Salaried Staffs Association, which represents workers at the company, called on the government to rescue the firm.

“It is incumbent upon the government to act if required and save this iconic cornerstone of the British high street and the thousands of jobs that go with it,” said TSSA General Secretary, Manuel Cortes.

“The company must be rescued no matter what.”

Two years ago, the collapse of Monarch Airlines prompted the British government to take emergency action to return 110,000 stranded passengers, costing taxpayers some £60 million on hiring planes.

The government at the time described it as Britain’s “biggest-ever peacetime repatriation”.

– Jobs threatened –

Thousands of workers could also lose their jobs, with the company employing about 22,000 staff worldwide, including 9,000 in Britain.

Chinese peer Fosun, which was already the biggest shareholder in Thomas Cook, agreed last month to inject £450 million into the business.

In return, the Hong Kong-listed conglomerate acquired a 75 percent stake in Thomas Cook’s tour operating division and 25 percent of its airline unit.

Thomas Cook in May revealed that first-half losses widened on a major write-down, caused in part by Brexit uncertainty that delayed summer holiday bookings. The group, which has around 600 stores across the UK, has also come under pressure from fierce online competition.

Cabinet maker Thomas Cook created the travel firm in 1841 to carry temperance supporters by train between British cities.

It soon began arranging foreign trips, being the first operator to take British travellers on escorted visits to Europe in 1855, to the United States in 1866 and on a round-the-world trips in 1872.

The company was also a pioneer in introducing “circular note” — products that would later become traveller’s cheques.

AFP

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