[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]D[/dropcap]emonetization has shrunk the demand for most goods and services in the near to medium term. There is accumulation of cash in the banks with little credit off-take by business & industry, as they are beset with excess capacity. Efforts are on by the Government to boost demand and create jobs, including measures in the budget. Some believe that the impact of the contraction in economy is likely to have long term economic and social consequences, including temporary and even permanent job losses, with MSMEs and informal sectors being the worst hit.
Since the contraction of demand due to demonetization is limited to domestic market, an opportunity space is available for export…
The Government disputes this pessimism, and is making serious efforts immediately to limit the damage. Since the contraction of demand due to demonetization is limited to domestic market, an opportunity space is available for export (of projects, products and services; let’s collectively call all these as project exports for ease of referencing here). Export can help business & industry make up for reduced domestic demand, help retain jobs, make profitable use of the cash with banks, and increase GDP.
There are global markets where we have to compete aggressively, and it may be difficult to do much in these markets immediately. But there are markets with low entry barriers like Africa (and developing countries) which are low-hanging fruits where, if the Government offers credit (making use of available cash) with adequate safeguards, our business & industry can secure business fairly easily.
Typically, ExIm Bank assists Indian Companies in handling project exports for Government Clients, through soft loans (through schemes like Buyer’s Credit). The Client is required to provide Sovereign Guarantee for the loan. For financing Government projects without Sovereign Guarantee and for private projects, typically loans have to be obtained from private lenders who seek collaterals to provide risk cover, and their interest rates are not soft.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]he Indian Government may not be as aggressive as China (securing projects for its vendors). A good start for the Indian Government may be to popularize its export support schemes and increase its help to Indian Companies substantially (particularly MSMEs) to secure projects (in both Government and private sectors), by providing Buyer’s Credit from out of its excess cash.
This is the best time for India to start looking at African market more seriously than we’ve ever done…
There are lots and lots of projects in various sectors like infrastructure (roads, low cost housing, solar power, water treatment & distribution, and the like), mining, agro & other industries, skill development & employment generation using appropriate technology, etc from across Africa chasing competent vendors who can also fund them as term loans. Our companies can secure many projects in a matter of months. Tendering is waived in the case of small & mid-sized projects which come with finance, with better than normal margins. This will particularly help our MSMEs leapfrog.
Many of the new exporters (including MSMEs) that secure such export Projects now would start exporting more once they taste success, and some of the MSMEs would even grow into big players over time.
To facilitate this at this juncture, we may have to find ways to drastically reduce the time for processing financing requests, since demand slowdown is already upon us, and time is of essence for our business & industry to retain jobs and generate new ones.
We need to convert the current temporary phase of slowdown into an opportunity for boosting exports, not only for the short term but even for the long term. This is the best time for India to start looking at African market more seriously than we’ve ever done, and secure a better market share because it will take some time for domestic demand to pick up and for credit off-take to start happening. And if many new Indian companies, small and large, execute their maiden projects in Africa successfully now, they will find it easier to get more projects from Africa even after normalcy returns to Indian economy, and this will boost Indian exports substantially for the long term as well, something that we may not have done with gusto in normal times.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]L[/dropcap]et us clarify: we are not saying this is a solution for every Indian company or even for a sizeable percentage of Indian companies, or that this will address the slowdown in economy substantially; we’re only saying that this will help mitigate the pains to some extent, and the Government should come out with many other measures to create domestic demand. Every bit adds up.
Export is also a market where some unscrupulous people indulge in large scale money laundering through under/over-invoicing; appropriate checks should continue to prevent this.
To make all this happen, the Indian Government should actively encourage exports now than ever before, mandate our banks, including ExIm Bank, to proactively support efforts by Indian business & industry, more particularly MSMEs, to secure export projects from all over the world, esp Africa, and process financing requests speedily, without compromising on due diligence.
Export is also a market where some unscrupulous people indulge in large scale money laundering through under/over-invoicing; appropriate checks should continue to prevent this.
In summary, the impact this initiative will have on Indian economy could be significant. Since Africa is behind India in terms of development, and their developmental requirements are fairly comprehensive in almost all sectors, this initiative will provide relief to almost the entire spectrum of Indian industry. Every job directly retained in the formal sector (and not lost due to demonetization) is likely to lead to many jobs retained in the informal sector. The increase in soft power we would gain in the form of closer relationship with the African countries will be a big bonus.
An Engineer-entrepreneur and Africa Business Consultant, Ganesan has many suggestions for the Government and sees the need for the Govt to tap the ideas of its people to perform to its potential.
- Suggestion to Focus Now On Exports, Post-Demonetization - February 11, 2017
- Secure, Open Digital Payment Systems To Tackle Cash Shortage - December 5, 2016
- e-Wallets to tackle cash shortage Post-Demonetization - November 21, 2016
