In a chat with ET Now Consulting Editor andEconomist,discuss macro cues and the effect of demonetisation on the economy and the market Edited excerptsIt does show the very important need to do something about labour reforms because the fact is that in India a factory cannot retrench anybody if it employees more than 100 workers. Of course L&T presumably has not retrenched these people from the factory front which is why they were able to do it. Ironically this happens at a time when by and large growth has been jobless, it also happens at a time when L&T seems to have reported really outstanding Q3 results. So for those who have lost their jobs it must be seeming like a particularly unkind cut.Having said that it is true that no organisation can keep people once they are no longer contributing to the bottom line. We really need to have labour reforms to ensure that labour companies do have the freedom to right size their labour force but cannot do it arbitrarily, so that labour does have some rights, a social safety network. some terms on how many months of notice in terms of unemployment insurance are given etc. All these are very necessary in a country like India if it has to move forward.Unfortunately because labour reform is so impossible to do given how it becomes such a political issue, what we have at the moment is that we have labour with virtually no rights, a very large informal sector. Almost 90% of the labour force is in the informal sector and only about 10% is in the formal sector. Even those who are in the formal sector have very little by way of job security. It is only those who are working in the government sector, the public sector banks who have that kind of security.Saugata, do you agree that there is need to do labour reform? That is one thing that has not been touched and instances like this just reiterate the need to do that kind of reform.I could not agree more with you. I completely agree with you that growth so far has been relatively jobless. As the elasticity of employment with respect to growth is steadily coming down and the communiqué from L&T encapsulates the fear that we not just see in India, this happened in the US, this happened in the UK. People are afraid of the consequences and it has not been articulated properly and we need labour reforms. There are some things happening at the margin, some quietly went under the radar. The number of people that a factory can lay off that ceiling has been pushed up a little bit from 10 to 50 in some cases but this is not adequate. Somebody now has to take make sure that for one the enabling scaffolding is liberalised and on the other side a massive mission mode increase in skill development and technical institutes. Otherwise, I fail to see how we can tackle this problem.Absolutely and since the Modi government has handled one hot potato by way of demonetisation, may be it will handle another hot potato by way of labour reforms before the next elections.But looking at the immediate macro numbers that we are seeing, the rupee weakness particularly is quite worrisome in the sense that it has happened far too dramatically. The rupee did need to weaken but we need to have a much more orderly and gradual weakening of the rupee given that we are going to have the FOMC minutes of the November meeting come out today and we are going to see the FOMC take a quite a different point of view because that meet happen post the Trump election. Do you think that we will see further fright tomorrow and there is a strong likelihood that US interest rates and Indian interest rates will diverge even more and we could see an outflow of funds greater from the debt markets tomorrow in which case rupee could weaken and markets could also weaken. Do you foresee such a thing happening from the FOMC minutes of the meeting that we will get this evening?Again a very nice articulation. But I am not going to talk too much on the way that the rupee might move tomorrow. There are couple of things; one, markets have pretty much priced in an FOMC hike. The Fed Foreign Funds Futures are showing a 98% probability of a rate hike. Markets yields have adjusted, the US dollar has moved insignificantly so I think you might see post the FOMC minutes a small movement but I do not think it is going to be a very dramatic movement.I think the moves have already happened the other things. All emerging markets currencies are moving with the dollar and in India the rupee is part of that. The rupee has actually moved much less than many of the other emerging markets currencies.The second thing that is happening I am told is that because of this domestic liquidity that is happening that has come into the system, a significant amount is being parked abroad. So you are essentially swapping the rupee liquidity into dollars and trying to park the dollars abroad. So you have seen the moves that have happened in the forward premium, the dramatic way in which forward premium have come off and part of that is also translating into the spot rupee.I do not know how much from the current Rs 4.2 trillion lakh crore was parked with RBI yesterday, whether that will go up to Rs 6, 7, 8 lakh crore trillion. So we should be prepared to accept that the rupee against the dollar will also slide somewhat in conjunction with the reaction of the liquidity but that, is a relatively temporary transient move.As liquidity begins to dissipate, so will the rupee dollar rate begin to reverse from then on. But together with this, we are beginning to take a serious look at what levels the dollar might go up. So post the FOMC minutes, and then the actual FOMC decision, we need to recalibrate how many more hikes we might see going forward in 2017. But remember together with this that one of President like Trump’s key campaign poll promises has been a weaker dollar. So I am not very sure how much more the dollar can appreciate beyond this and also remember that the European Central Bank, the Bank of Japan are now increasingly hesitant to increase their own quantitative easing procedures and that might actually reverse some of the currencies – the Euro or the Japanese Yen back against the dollar. These are things that still remain to be played out.