Venezuela: Unsettled Payments!!

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Dec 02nd,2015 | International Business|Pune | Lucknow | Panji Mumbai | Jaipur | New Delhi


— Shabab Khan


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“. . . Venezuela is not business friendly yet Sun, Glenmark, Dr. Reddy types of Indian companies dared to run their subsidiaries in there.”

INDIA VENEZUELA

New Delhi: Pharmaceuticals Export Promotion Council of India (Pharmexcil)  has urged the central government to work out a medicines for oil barter arrangement with Venezuela.

The proposal has been made as foreign exchange (forex) controls in Venezuela have made repatriation of funds difficult for Indian companies operating there.

Dr Reddy’s, Glenmark, Sun Pharmaceutical and Claris Life Sciences are the top exporters to that market.

Stiff forex regulations have been imposed in Venezuela, following a drop in the price of its main export item, crude oil. These are hurting companies, finding it difficult to receive payments (for sales made in the country) from their subsidiaries in Venezuela.

PAYMENT WOES:
“This situation is prevailing for some months. We have also received representations from some of the leading pharma exporters to Venezuela. We have recommended to the government for a solution to be worked out on the basis of the present arrangement with Iran or, alternatively, to adjust the payments to be made to Venezuela towards our crude oil imports against the receivables by our pharma exporters in dollar values,” said Pharmexcil director general P V Appaji.

The Confederation of Indian Industry says our embassy in Venezuela is working with local officials to ease the process of doing business but is limited by the fluctuating forex rate, rising inflation and currency controls.
Along with Brazil and Mexico, Venezuela is an important emerging market for Indian pharma companies. Dr Reddy’s earned ₹833 crores in revenue from Venezuela in 2014-15, now its fourth largest market.

Glenmark earned ₹330 Crore revenue from Venezuela last year, about five per cent of its total. “Indian pharma companies continue to serve the Venezuelan market despite not being paid its dues from own subsidiaries in that country. This is in spite of cash available in that subsidiary. Since the products supplied in Venezuela are being manufactured in India, sustaining these operations without our dues being paid is becoming increasingly difficult. Hence the viability of these operations is under threat, despite the severe shortages of medicines that the country is witnessing. We hope both governments take steps to addressing the problems faced by Indian pharma companies,” a Glenmark spokesperson said.

“We have control mechanisms in place to ensure our exposure to Venezuela is within acceptable limits. We continue to supply products to Venezuela within our operating limits,” a Sun Pharma spokesperson said.

“Potential inability to raise debt for any further investment into Venezuela because of inability to repatriate funds for debt servicing could impact project expansions, growth and new investment into the country,” said Raju Kumar, tax partner, EY.




(Author is an Export Entrepreneur, Journalist, and Social Activist)


Are We Being Punished: Exporters

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— Like Ayer said Modi’s foreign policy will soon be a national calamity when you’ll see everything wrong and won’t be able then to align the trade export, import.

— Shabab Khan


Contracting for the 11th month in a row, India’s merchandise exports fell 17.53% in October to USD 21.35 billion, mainly due to a steep fall in shipments of petroleum products, iron ore and engineering, amid a broader demand slowdown.

The imports too shrank an annual 21.15% to USD 31.12 bn in October, narrowing the trade gap to USD 9.76 bn, from USD 13.57 bn in the same month last year.

Exports in October 2014 were valued at USD 25.89 billion. Gold imports during the month under review showed a sharp decline of 59.5% at USD 1.70 bn.

The cumulative exports during April-October this fiscal came down by 17.62 per cent to USD 154.29 billion as against USD 187.2 billion in the same period last year, according to data released by the Commerce Ministry.

The trade deficit during the first seven months of the current fiscal has shrunk to USD 77.76 billion as against USD 86.26 bn last fiscal. Oil and non-oil imports in October slid 45.31 per cent and 9.93 per cent to $6.84 billion and USD 24.2 billion, respectively. On the export front, shipments of petroleum products tumbled 57 per cent to USD 2.46 billion while those of iron ore sharply declined by 85.50% to USD 2.95 million. Engineering products were no exception, shipments of which took a knock of 11.65% at a USD 4.57 billion. In September, the country’s exports went down 24.33 per cent.

The country’s imports during April-October 2015-16 too declined by 15.17 per cent to USD 232 billion. Oil imports during the first seven months of the fiscal were valued at USD 54.97 billion which was 42.07 per cent lower than the imports of USD 94.89 billion in the corresponding period last year. Non-oil imports during the period dipped by 0.89 per cent to USD 177 billion. The Commerce Ministry data also said that services exports during September dipped to USD 13.32 billion as against USD 13.58 bn in August this year. Imports of services too decreased to USD 7.45 billion in September as against USD 7.77 billion in the previous month. The trade surplus was USD 5.86 billion in September.

Commenting on the exports figure, Engineering Export Promotion Council (EEPC) said a 17.62 per cent dip in exports in April-October period is really a matter of concern.

“The current fiscal is proving to be one of the worst years for exporters who are facing a huge demand slowdown.”

Many of the SME exporters in the engineering sector are finding it difficult to survive given the kind of squeeze in the global trade,” it said in a statement. It said that there are no prospects of improvement in the immediate future. “The government should immediately help by way lowering interest rates by subventions and clearances of tax refunds without any delays. Besides, the procedural support at the customs will provide some healing touch,” the council added.
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(Author is an Export Entrepreneur, Journalist, and Social Activist

Tea Bag Making |Profitable Business Idea

PRODUCTION

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★ Tea Bush in a Tea Plantation Facility.

Tea bag making business  recommended to prepare a customized project report according to your budget and required production capacity. In business plan clearly fix the marketing strategy, business objective and mission statement.

Legal Compliance for Tea Bag Making Business:

In initiating the venture you will need to determine the legal pattern of the business. You can start with a registration of a One Person Company or you can register with LLP, Pvt Ltd or Ltd Company. Obtain Trade License from local authority. Apply for Pan Card. You will need to have Sales Tax registration. This type of small scale manufacturing doesn’t demand NOC from Pollution Control Board. Choose a memorable, catchy name of your brand.

Machinery and Raw materials for Tea Bag Making Business.

Tea Bag making machines form tea bags with string & tag from heat sealable filter paper. It’s an automatic operation where the bag forming filling, sealing and attachment of the string and tag is fully automatic. Easy to handle and operate equipped with all contact parts of stainless steel. Several operator friendly semi-automatic and fully-automatic machines are available in the market. Select machines as per your production requirement.

Check the warranty period:
Make sure you are buying machine which is meant for business is properly warranted, go for branded even if it costs you little expensive.
Selection of variety of tea is the main factor to get quality product in tea bag making business.

Quality:
Organic tea, Green tea, Herbal Tea, Assam tea, Mixed Blended tea are the most popular tea variety generally used to make tea bags. Normally one tea bag holds approximately 1-4 ounces of tealeaves. Also you need to source the quality paper make tea bags from reliable suppliers. Other essentials are packaging materials like tags, pouches and card board packets.

Marketing Idea for Tea Bag:
As tea bags are consumer goods you need to be focused on creating brand equity, maximize brand visibility and promoting brand usage. You can start selling locally by establishing a distribution channel. Contact with the retail brands to have a tieup with your business.

In India hotels, restaurants, clubs, business houses, hospitality management companies are the major consumers of tea bags. You can go for some creative deigns of tea bags.

Register your product with different online shopping portal to attract online consumers. Create a non liner presence of your tea bag making business. Give some rich informative content there about several varieties of tea and their great tastes.

Congo!! Two years later, you are all set to an extent where Export can be considered.

Thanks:
— Aparna Singh (Production Manager: TATA TEA)
— Matsaeye Ishaque (Quality Analyst: Gangtok East Plantation)



(Author is an Export Entrepreneur, Journalist, Social Activist.

Export/Import: Best Opportunity in India

Export Import

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— by Shabab Khan

Are you searching for top profitable import export investment opportunity in India?

Import export investment opportunity can helps an entrepreneur to start a new venture or to grow his/her present business. Import export business also can be initiated as home based basis with a small startup capital investment. As your business grow, you will find lot of expansion opportunity in this business.

The most crucial factors are to identify the right import export investment opportunity and crafting a legitimate marketing plan to get success in this business.

Import Export business is highly regulated by Government Authority. Before starting, you must know which product is profitable for export and which one will generate more revenue from import.

I will soon post an article about a basic guide of how to start an import export business. What formalities you need to fulfill in order to be an Exporter/Importer.

I compiled 10 most profitable import export investment opportunity in India for your ready reference.

List Of Top 10 Import Export Investment Opportunity In India

1. Agro-chemical Import:
Agro-chemical including fertilizer, secondary nutrient, pesticide, insecticides are the products that you can import in India. As agriculture has the major role in Indian economy, these products have high demand in India.

Having contacts with the distributors and retailer you can start this business with proper planning.

2. Copper & Copper Article:
Import Export Copper and copper articles falls under HS code (HTS code) chapter 74.

In India Copper and Copper articles classified under ITC code (Indian Tariff Code) chapter 74.

Copper and copper article export is considered as a profitable import export investment opportunity in India.

3. Electronics Product Import:
Power Wire, fuse, capacitor, earth wire, rubber key pad, PCB board, row socket, screw nut, DIODE bridge, computer accessories are the popular electronics products, India imports in huge quantity.

Having proper contacts of foreign manufacturers basically in China, you can initiate this business with substantial capital investment.

4. Fruits Vegetables Export:
Fruits vegetables export business demands an adequate knowledge about foreign markets. If you are living in an area where fruits and vegetables production is good enough, you can consider to initiate a fruits vegetables export business starting just from your local growers.

The export import sector is hugely organized and you will get sufficient data in your hand. The most beneficial part of this business is, you can start this venture from your home location (will come up soon).

5. Leather Goods Export:

Leather is considered as a most widely traded commodity worldwide. The growth in demand for leather is driven by the fashion industry, furniture, automobile industry and especially footwear.

India is the fifth-largest exporter of leather goods and accessories in the world. Apart from footwear, some of most popular export oriented leather products are belt, handbag, key holders, wallet, folder and gift items such as handbook etc.

A large number of small medium and even large scale companies are involved in producing these products in India. With proper contacts you can tap this opportunity in India. You can contact with The Council for Leather Exports (CLE), which is an autonomous non-profit organisation and is entrusted with export promotion activities and the development of the Indian leather industry.

6. Medical & Surgical Equipment Import:
Different types of high quality medical, surgical and healthcare product can be imported from foreign country. These are very popular import product in India.

You can also make tie ups with foreign reputed manufacturer as an exclusive sales representative in India.

7. Organic & Petrochemical Chemical Export:
India is recognized as a large producer of wide range of organic chemicals. Cyclic hydrocarbons, Acyclic alcohols and their halogenated, sulphonated, nitrated or nitrosated derivatives, antibiotics, Phenols; phenol-alcohols are the popular product for export from India.

8. Precious Metals Import:
Precious metals like gold, silver and gems including diamonds are the most profitable import opportunity in India. India Jewellery market is fully dependent on importing the raw material and the demand is increasing day-by-day.

You may consider starting precious metal and Gem import business in India.

9. Tea Export:
India is the second largest tea producer in the world with production of 1,197.18 million kg in 2014-15. India is ranked fourth in terms of tea exports, which reached 197.81 million kg during 2014-15 and were valued at US$ 619.96 million. Indian tea is popular in all over the world. Processed tea export is considered as a profitable one. You can tie up with the tea growers and make export arrangement of your own.

10. Textile Goods & Garment Export:
India is one of the large producer of cotton. Cotton yarn, textile fabrics and designer garments of India, are very popular in international market.

Currently India has overtaken Italy and Germany, and is now the second largest textile exporter in the world. China is the biggest importer of raw cotton from India. The other major cotton importing countries from India are Bangladesh, Egypt, Taiwan, Hong Kong among others. Textile goods &garment export is considered as one the profitable export investment opportunity in India.

You may contact The Cotton Textile Export Promotion Council (TEXPROCIL), which takes part in national and international events to enhance the visibility of Indian products, advertises and promotes Indian products in various media. EPCH (Export Promotion Council of Handicrafts).


(Author is an Export Entrepreneur, Journalist, Social Activist Against Animal Cruelty …

Marine Insurance

Introduction of the subject:

MARINE INSURANCE:

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— Insurance covering the consignment you are exporting by using a shipping agency is a Mandatary term you will find mentioned in Order-Sheet. And, its not expensive at all.

— by Shabab Khan
Export Entrepreneur

Importance of Marine insurance in commerce:

Marine insurance plays a very important role in the field of overseas commerce and internal trade of a country. It is closely linked with Banking and Shipping. Banks generally finance the goods which are transported by ships or by other means of transport in the case of internal trade and Marine Insurance protects such goods a Marine  Insurance  can be  divided broadly  into two  groups…


— Cargo  Insurance
— Hull Insurance

As stated  earlier,  Marine  Insurance is  closely  linked  up with the  trade  of  a  country internal  as  well  as  international.  A  sale contract  which  is  an  essential  feature in  the trade involves  a  seller  and  a  buyer, apart  from  the  other  parties  like  the  carrier, the  bank,  and the shipping agent.  Whether  the insurance  of  the  goods  in transits  is  to  be  the  responsibility  of  the seller  or  the buyer  depends  on  the type of  the sale contract  in  any  transaction.

There are different  types  of  sales  contracts  the most  important  of  which,  as  affecting  the Marine Insurance are:

-F.O.B. (  Free  on Board)  In this  case, the  seller  is  responsible  for  loss  of  or  damage  to the  goods  until  they  are  placed on board the  steamer  for  on carriage. Thereafter  the  buyer becomes  responsible  and  he  has, therefore, the  option to insure  where  he  likes.

-C.I.F. (Cost,  Insurance  and Freight)  In  this  case  the  seller  assumes  responsibility  for the  insurance  and the  insurance  charges  are  indicated in the  invoice  along  with the  other charges.

-C  &  F  (Cost  and  Freight)  In this  case, normally  the  buyers  responsibility  attaches from  the time the  goods  are placed  on  board  the vessel  and  he has  therefore to  take  care of  the insurance.

-F.O.R. (Free  on Rail)  This  is  same  as  F.O.B. but  it  concerns  mainly  the  internal  trade transactions.

Marine Cargo  Policy: This  policy covers  goods, freight  and  other  interests  against  loss  or  damage  to goods whilst being transported by rail, road, sea and/or air.

Highlights
This  policy  covers  goods, freight  and other  interests  against  loss  or  damage  to goods  whilst  being  transported by  rail, road, sea  and/or  air. Different  policies  are available depending  on  the type of  coverage required  ranging from  an  ALL  RISK  cover  to  a restricted  FIRE  RISK  ONLY  cover.

• This policy is  freely  assignable  and is  basically  an agreed value  policy.

Scope Transportation of  goods  can be  broadly  classified  into three  categories:


1. Inland Transportation:
2. Import
3. Export

The types  of  policies  issued  to  cover these transits  are:

For  Inland Transit:
a. Specific Policy  –  For  covering  specific  single  transit Open Policy.

b. For  covering  transit  of  regular  consignments  over  the  same  route: The policy  can be  taken for  an amount  equivalent  to three  months  despatches  and premium  paid in  advance.

As  each  consignment  is  despatched,  a  declaration  giving  details  of  the  despatch including  GR/RR  No. is  to be  sent  to the  insurer  and the  sum  insured  gets  reduced by  the amount  of  the  declared  despatch. The sum  insured can be  increased any  number  of  times during  the  policy  period  of  one  year;  but  care should  be taken  to  ensure that  ad insured is  available  to cover  the  consignment  to be  despatched.

c. Special  Declaration  Policy  –
equate sum For  covering  inland transit  of  goods  wherein  the  value of  goods  transported during  one  year  exceeds Rs.20 mns. Although the  premium  for  the estimated  annual  turnover  [i.e. the estimated value  of  goods  likely  to be  transported during the  year]  has  to be  paid in  advance,  attractive  discounts  in premium  are  available.

d. Multi-transit  Policy: For  covering  multiple  transits  of  the  same  consignment including  intermediate storage and  processing. For  e.g. covering goods  from  raw  material supplier’s  warehouse  to final  distributor’s  godown  of  final  product.

For  Import/Export:
a. Specific Policy  –  For  covering  specific  import/export  consignment.

b. Open  cover  –  This  policy  which is  issued  for  a  policy  period of  one  year  indicates the  rates, terms  and conditions  agreed upon by  the  insured and insurer  to cover  the consignments  to be  imported or  exported.

A declaration is  to be  made  to the  insurance company  as  and  when  a  consignment is  to  be  sent along  with  the  premium  at the  agreed. The  insurance company will  then  issue a certificate  covering  the declared  consignment.

c. Custom duty cover rate: This  policy  covers  loss  of  custom  duty  paid in  case  goods arrive  in damaged  condition.  This policy  can be  taken  even if  the  overseas  transit  has  been covered by an insurance  company  abroad, but it  has  to be  taken before  the  goods  arrive  in India. Add  on  covers Inland transit  policies  can be  extended to cover  the  following  perils  on pay ment  of additional premium :

i. SRCC  –  Strike,  riot and  civil commotion  (including  terrorist act)

ii. FOB  – Where  the  inland transit  is  required to  be  extended to  cover  the  goods  till they  are  loaded on board  the vessel, this  extension  can  be taken. Export  /Import  policies  can  be  extended to cover  War  and /or  SRCC  perils  on payment  of  an additional  premium. Who can  take  the  policy The  contract  of  sale  would determine  who buys  the  policy.

The  most  common contracts  are:

— FOB (Free on Board)

— C & F (Cost  & Freight)

— CIF (Cost,  Insurance  &  Freight)

In  FOB  AND  C&F  contracts, the  buyer  is  responsible  for  insurance. Whereas  in CIF contracts  the  seller  is  responsible  for  insurance  from  his  own premises  to that  of  the purchaser.

How to  select  the sum  insured: The sum  insured or  value  of  the  policy  would  depend upon the  type  of  contract.

Usually, in addition to the  contract  value  10 to 15%  is  added to take  care  of  incidental  cost.

How to claim:
The  following  steps  should be  taken by  the insured in event  of  a  loss goods insured :

i. Take  immediate  steps  to  minimise  loss or  damage to inform  nearest  office  of  the  insurance  company  or 

ii. Claim  settling  agent  mentioned in the  policy.

In  case  of  damage  to  goods  whilst  on ship or  port, on arrange  for  joint  ship  survey  or port  survey. Lodge  monetary  claim with  carrier  within  stipulated  time  period.

Submit duly assigned  insurance  policy/certificate  along  with  the  original invoice and other  documents  required to substantiate  the  claim  such as:

-Bill of  Lading (B/L)
-AWB/GR
-Packing List
-Copies  of  correspondence  exchanged with carriers.
-Copy  of  notice  served on  carriers  along  with acknowledgment/receipt.
-Shortage/Damage Certificate issued  by  carriers.

Survey  fees: These fees to be  paid to the  surveyor  appointed by  the  insurance  company. will be  reimbursed  along  with  the  claim if  the  claim is  otherwise admissible. Survey  report  submitted  by  Surveyor.

Hope these basic structure of Marine Insurance will help you in buying appropriate policy for your consignment, for further you are welcomed to contact at:


khansworld@rediffmail.com
(Author is an Export Entrepreneur, Journalist, Engineer and Social Activist for Cruelty Against Animals…

BUSINESS PLANS: A Waste of Time

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An Exclusive Newspaper for Mumbai


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— Shabab Khan

Throw your business plan in the recycling bin. Instead, focus on your team and on getting to market as quickly as you can.

If you’re taking time to carefully perfect a business plan to help ensure your company’s model is sound and that it will be a success–stop.

As an Business Owner and entrepreneur I would say that starting a company is “a career for really irrational people. In all probability, whatever the idea is will fail. Building a reality distortion field is how entrepreneurs convince themselves and their employees that this is a good idea.”

With that in mind, I advise: Think people, not ideas. A great team trumps a great idea every time. None of us is perfect, and entrepreneurs are usually great at a couple of things, such as having vision and being willing to take risks.

Entrepreneurs— especially tech entrepreneurs- come in one of two flavors: Either they’re like Steve Jobs, visionaries who understand the market but aren’t technically proficient, or they’re like Steve Wozniak, technical geniuses who don’t understand how to market to customers. In either case, having great team members can fill in any areas where the entrepreneur lacks strength. We look for three things in a potential startup: market, team, and concept. The team is by far the most important element, and the second is market. The idea itself is the least important.

Think speed, not n. “Whatever hypothesis you have about the market, it’s probably wrong by definition. “One out of every 30 venture start-ups succeeds- and that’s after getting funded. What that means is that entrepreneurs need to take a product to market as fast as they can in any form, even if it’s 10% of the original vision. They have to test it to see if it’s a market fit, if it resonates with customers, and is something they’d eventually pay for.”

Then, pivot and reconfigure on the basis of that market response. You have to iterate as fast as you can. I don’t mind if a batter has a .100 average–a 10% success rate–if the batter gets 10 or 20 at bats. The more chances you have, the better. So the team that can execute the fastest and build the most relationships with customers by listening to them will win.

Because of this need to iterate quickly, I would advise building an in-house team that will have all the design, technical, and product capabilities you need. “You don’t want the entrepreneur outsourcing these types of functions, because it means there will be a cost in dollars to each new iteration that will drain capital.

Every pivot should get you closer to success, rather than closer to failure.

Think vision, not plan. A lot of entrepreneurs have a perfect deck of slides, a perfect business plan, and a perfect financial model. But that’s all they have. They think starting a business is having a business plan.

But being an entrepreneur is about creating the future one step at a time.

Does that mean you should never look ahead? Not quite, where you have two or more co-founders, it’s important for them all to put down on a piece of paper, or a whiteboard, the canonical things they all agree on. They need to agree what the vision is and what the path to success will be.

But don’t spend time trying to put that into a 40-page document. I’d rather you take that time and talk to 10 more customers instead.


— Shabab Khan
© MID-DAY. ALL RIGHTS RESERVED.

What is Greece Crisis Meant to India?

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Greece has reached breaking point in its relations with Europe with 30 June being the last date by which Greece has to repay the €1.6 billion loan installment due to IMF.

With Alexis Tsipras, the young Prime Minister of Greece, shutting all banks for six days and freezing trading in the stock exchange, Greece has effectively closed all chances of averting the default. In fact, on 29 June itself, Greece indicated that it will not be making the due payment thereby sealing its fate as a defaulter and once again setting the European and global economy on an uncertain future.

Earlier, Alexis Tsipras tried to negotiate with the European Central Bank for an extension of the debt repayment deadline but was turned down. In a move surprising all, the Greek PM has called for a referendum on Sunday, 5 July inviting the people to vote in favour or against further austerity measures. A ‘NO’ vote could result in Greece exiting the EU, unless there is a last minute understanding between the government and lenders, India’seems very unlikely at this stage, given the statement by Christine Lagarde of the IMF that the government in Greece has had its opportunity and no further extension of the loan repayment period will be granted. Jean-Claude Juncker, the President of the European Commission, tried to broker a last minute deal between Greece and its lenders. He, however, expressed exasperation at the breakdown of negotiations, and on Greece’s decision to hold a public referendum.

Europe now braces itself for a volatile period of economic uncertainty. The big question for India is – how is the crisis going to affect India? Before we try and figure that out, we need to know how the crisis started in the first place.

Understanding the ‘How & Why’ of the crisis:

The genesis of the present crisis dates back to 2001 when Greece joined the EU. Greece is an economy that largely depends upon heritage and leisure based tourism, given its ancient culture and long history.

In order to meet the strict norms of qualification for EU membership, the government in Greece imposed austerity measures and controlled profligate spending. However, once it became an EU member, Greece once again went back to easing controls on spending, which resulted in an increasing gap between expenditure and revenue. Along with this, came the bad decision by the then government in Greece, to go ahead and organise the Athens Olympics in 2004, which was awarded to it much earlier.

Greece was in no position to fund the Olympics, much less pay off the debt, subsequently. Organising the games in 2004 cost Greece €9 billion and resulted in Greece running up a public debt € 168 billion, with the deficit climbing to 6.1% of its GDP and debt reaching 110.6% of GDP. This began to ring bells of concern amongst the European lenders of the time, as the prescribed norm in EU for containing deficit was half the prevailing figure.

By 2005, Greece became the first country to come under the fiscal watch of the EU.

US Subprime Mortgage Hit Greece Hard:

While the crisis in Greece was reaching crisis levels, another crisis was emerging in the United States, the subprime mortgage. This coincided with the US going into recession between 2007 and 2009, triggering a worldwide financial crisis. Greece, too, was impacted, which further burdened an already overburdened economy. The EU which was already facing a banking system crisis began to shift to sovereign debt crisis, led by Greece.

By 2010, Greece was staring at bankruptcy and by 2011, the country’s public-debt-to-GDP ratio had reached 165%. With the economy shrinking and unemployment at levels high, Greece had to receive a bailout to avert a total collapse. The troika of lenders that included IMF, ECB and the EU, imposed strict conditions on Greece. The resulting austerity measures led to a decline in government spending, higher inflation and increased unemployment. The problem was that Greece had to cut expenditure to pay off the loan taken, therefore most of its revenues that came from a declining economy, went back to the lenders in the form of interest and principal amount due, leaving very little for the government to invest in other sectors that could boost the economy. The resulting debt trap has now squeezed the government further where it finds itself in a corner, with no solution in sight and loan default a certainty. If people vote against austerity measures in the referendum on 5 July, Greece will find itself isolated economically and politically, with no strength to stand up on its own.

How vulnerable is the global financial system to the emerging situation in Greece?

This time around, the governments are better prepared to handle the crisis, especially since it has been emerging overtime. The ECB has taken protection measures over time by buying Eurozone government bonds and thereby insulating governments from volatile situations in the financial markets.

The ECB is watching the situation carefully and is ready to infuse more capital by way of bond and other purchases, to ensure the impact on other member states remains contained. Fortunately, other EU members such as Ireland, Spain and Portugal have progressively adopted austerity measuresand are less likely to be vulnerable to the emerging crisis in Greece. In the aftermath of 2010, most international investors including banks had reduced their exposure to Greece, selling off their bonds to mostly private investors who were willing to hedge their bets on a turn around in the economy.

That hasn’t happened and therefore, it’s these private investors who will end up taking a major hit in the merging crisis. Geopolitical impact of GREXITA Greece exit or GREXIT, will lead to not just financial turmoil in the global economy but also to its political isolation. Greece is a member of NATO and by exiting EU, it may be forced to move closer to Russia seeking a bailout.

Russia, however, is itself facing isolation in Europe and therefore, as an existing member of NATO, Greece may place itself in a peculiar situation, with no clarity for either Greece, EU or NATO, on what political scenario will emerge from this situation.

Finally, is India vulnerable to the impending crisis?

Yes and no.

India has been preparing for this day and RBI Governor Raghuram Rajan has assured that the government is well prepared with adequate forex buffer to withstand the impending volatility in the international financial system.

The markets in India, however, saw volatility yesterday in reaction to Greece’s announcement that it would not pay the loan installment to IMF. As a result, on 29 June Sensex dropped 600 points before closing the day down 167 points, while Nifty dropped 62 points, to close the day at Rs 8,318.

The Rupee lost 0.29 paise to the dollar closing at Rs 63.73. Gold traded at Rs 26,950 per 10 grams, Rs 240 higher, while silver gained Rs 300 to touch Rs 36,700 per kg. Global markets, were heading South on 29 June, with the Dow Industrial Average 1.97% lower, S&P 500 2.09% lower, and the Nasdaq Composite ending 2.4% down.

India, with its $355 billion in forex reserves, CAD at less than 1.5% and inflation remaining in control, is better placed to handle any emerging situation. The resilience was showing on 30 June morning with the markets showing a recovery as on 1100 hrs IST, with Sensex up 37 points around 27,679 region and the Nifty in the region of 8,333, up 14 points. India’s well placed to ride out the crisis India may see a slowdown in the global economy which will impact its projected growth, however, with the economy growing mainly on account of domestic demand, India is better placed to ride out the impending international slowdown. The extent of the impact remains to be seen.


…shabab khan
Author is an Export Entrepreneur.
khansworld@rediffmail.com

Ranking Does Matter

Khansworld

BUSINESS


Indian business is sure to get a big boost if the plans of the department of industrial policy and promotion (DIPP) to improve India’s ranking in the World Bank’s ease of doing business index to among the top 50 countries comes anywhere close to the target.

Though it might not apparently seem an easy task, given that India rank has remained below 130 in recent years, the target is still achievable with a little bit of grit and hardwork.

This is because many developing countries with much lower capabilities than India have gone up the rungs to the top 50 nations. And they include countries as disparate as Manutius, Lithuania, Thailand, Estonia, UAE, Saudi Arabia, Rwanda, Slovenia, Chile, Israel, Armenia, Cyprus, Puerto Rico, South Africa, Peru, Bahrain, Poland, Oman, Qatar and the Slovak Republic.

The list makes it amply clear that improving India’s ease of doing business ranking in not an insurmountable task as it is often made out to be. However, things cannot be taken for granted either given that a global economic power like China has been stuck at the 96 position in the most recent ease of doing business ranking.

Another reason for optimism on why the DIPP’s efforts are sure to make a substantial difference is that many of the factors that pull down India’s ranking fall well within the purview of the central government. These include important segments like that of enforcing contracts, starting a business, paying taxes, trading across borders and resolving insolvency.

However, it might sometimes need new legislation or large allocation of additional funds to ensure that India’s standing in some of these crucial areas is improved immediately. Though the ease of enforcing contracts may be improved by changes in rules and regulations, which need only executive action, that of resolving insolvency, which has to go though quasi judicial processes may require a change in laws.

However, it will be much easier for the central government to push through measures easing procedures in other crucial areas like paying taxes and trading across borders.

Concerted action by the ministries of finance and that of commerce and industry can ensure remarkable improvements on both these fronts. Similarly the central government can also easily tweak the rules and regulations that deal with protecting investors where India is already ranked at a fairly high level. However, the central government would have to secure active cooperation of the states if it is secure any progress in reducing hurdles to business in other equally crucial areas like dealing with construction permits, getting electricity connections and registering property. All these subjects come mostly under the jurisdiction of the states. Any major progress son these fronts will require the central government to dole out new incentive to motivate the states to roll out the needed changes.

So it is certainly the right time now for the central government to strike a good deal with the states and improve India’s global ranking in the ease of doing business.