August 18th, 2011
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Mired global Indians

Reserve bank of indiaMumbai: Turn on any television news station and or read any business newspaper – you’ll find one thing in common, US debt crisis or Eurozone crisis. Do we need to worry? Indians are far from it quite literally. The downgrading of US long-term sovereign credit rating from AAA to AA+ by Standard’s and Poor’s (S&P) ratings agency on 5 August 2011 worsened situation here and took the markets for a ride.

The Reverse Bank of India is on its rate hiking spree. While the common man is faced with increased cost of money, it is the Indian companies with exposure to the worlds developed economies that are grappling.A recent survey conducted by industry body Federation of Indian Chambers of Commerce and Industry (FICCI) says three-fourths of Indian companies, with exposure to European markets, have lost 10%-15% of business due to mounting debt crisis in the region.

In its survey titled ‘Current Economic Scenario in Europe and its Impact on Indian Industry’ that drew companies from across sectors, over 25% of the respondents said that the affected European governments have made business climate in the region more stringent rather than facilitating foreign investments and businesses. The fundamentals of these global Indian companies has not changed, we still look for a considerable portion of the business from these markets.

Provided with the high cost climate in India, it is cheaper for the Indian companies to borrow in international market than here, in turn, increasing their exposure to the volatile economic environment.

From the point of view of bilateral trade, Europe’s problems are more significant than those of the US. Indo-Europe trade stands at $67 billion, making it India’s largest trading partner globally. Tata Steel got 56% of its revenues in 2010-11 from the European Union and the UK. Tata Steel became the continents second largest steelmaker after it acquired British steel giant Corus four-and-a half years ago. For Tata Motors, 23.48%, of its revenues, in 2010-11 comes from Europe. TCS earned more than a fourth of its revenues from Europe.

Other big companies with a high degree of dependence on Europe include Suzlon Energy, Tech Mahindra, Dr Reddys Labs, Wipro and Infosys. Bharat Forge has three manufacturing units in Germany and one in Sweden (and one in the US); the Mahindra Group has automotive component units in Germany,Italy and the UK and supplies to European auto majors like Volvo, Daimler and Renault. These companies would have something more to worry about. Industrial production in the Eurozone slipped a notch in that month.

Indian producers in US and Europe will also have to deal with the inevitable fall in demand in these ravaged economies. One view in India Inc is that businesses are by now quite familiar with global recessionary conditions and the silver lining is in our domestic demand and their presence in emerging market where the demand has not fallen.

The industry has learnt its lessons from the past slowdowns and should be able to see through this crisis too. The risk aversion stance may have a direct impact on capital-intensive infrastructure projects to an extent that even companies those who do not have direct business links with the US and Europe will feel the heat.


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