Doing Business In India

Indian Government has taken a number of steps to minimize the impact of the global financial crisis on the Indian economy. But, is Credit Crunch the only reason why the economy falters? Introducing credit into the system maybe short term measures that would provide immediate impetus, good for stock markets, but for sustained growth we need structural and systematic changes and corrections.

The Government of India and Reserve Bank of India are trying to introduce changes that would address these maladies. These include:

1. Additional plan expenditure upto Rs. 200,000 mn. in the current year mainly for critical rural, infrastructure and social security schemes.
2. An across-the-board cut of 4% in ad-valorem Cenvat rate except for petroleum products.
3. Measures to support exports, housing, Micro, Small & Medium Enterprises (MSME) and textile sectors.
4. India Infrastructure Finance Company Ltd to raise Rs. 100,000 mn. to refinance bank lending for infrastructure projects.
5. Monetary, credit and fiscal Policy- External Commercial Borrowing (ECB):
(a) The ‘all-in-cost’ ceilings on such borrowing would be removed, under the approval route of Reserve Bank of India (RBI);
(b) To facilitate access to funds for the housing sector, the ‘development of integrated townships’ would be permitted as an eligible end-use of the ECB, under the approval route of RBI;
(c) NBFCs, dealing exclusively with infrastructure financing, would be permitted to access ECB from multilateral or bilateral financial institutions, under the approval route of RBI.
(d) In order to give a boost to the corporate bond market, FII investment limit in rupee denominated corporate bonds in India would be increased from US $ 6 bn to US $ 15 bn.
6. Credit flow to the economy:
(a) An SPV to provide liquidity support against investment grade paper to Non Banking Finance Companies (NBFCs) upto Rs.250,000 mn.
(b) An arrangement with leading Public Sector Banks to provide a line of credit to NBFCs specifically for purchase of commercial vehicles.
(c) Credit targets of Public Sector Banks are being revised upward.
(d) Guarantee cover under Credit Guarantee Scheme for micro and small enterprises on loans upto 85% for credit facility upto Rs. 0.5 mn. This will benefit about 84 per cent of the total number of accounts accorded guarantee cover.
7. State Governments will be allowed to raise in the current financial year additional market borrowings of 0.5% of their Gross State Domestic Product, amounting to about Rs 300,000 mn, for capital expenditures.
8. Exports:
(a) Taking into account the fact that the rupee has appreciated nearly four per cent against the dollar since November 2008, it has been decided to restore DEPB rates to those prevailing prior to November 2008. In order to provide predictability and stability of regime in the short term for future contracts, the DEPB Scheme would be extended till 31.12.2009.
(b) Duty drawback benefits on certain items.
(c) EXIM Bank has obtained from RBI a line of credit of Rs.50,000 mn and will provide pre-shipment and post-shipment credit, in rupees or dollars, to Indian exporters at competitive rates.
9. To counter recessionary trends:
(a) Exemptions from CVD on TMT bars and structurals, and from CVD and Special CVD on cement, which were given to contain inflation, are being withdrawn. Full exemption from basic customs duty on zinc and ferro alloys, which was also provided to contain inflation, is being similarly withdrawn.
(b) To release land for low income and middle income housing schemes.
(c) States will be provided assistance for the purchase of buses for their urban transport systems.
(d) Accelerated depreciation of 50% will be provided for commercial vehicles to be purchased on or after 1.1.2009 upto 31.03.09.

One area that the Government needs to look at very closely is the quality of credit that is being extended. In its enthusiasm they should not over extend and end up with another round of credit waivers in the near future (or is this the political far sightedness…who knows). This is a distinct possibility. The road to recovery is long since the global economies are still trying to figure out their bearings.

Vivek Parti, CEO, India Business Database.com, Business Credit Information Company

Mr. Joseph E Stiglitz, professor at Columbia University, believes that the US economy is the downward part of the trajectory and will get worse than getting better. The measures that are necessary to get out of the downturn have not been taken. The stimulus package has to be passed by the US Congress and the president elect would sign it once he assumes his role. This would take time. US economy is about one fourth the global economy and thus collateral damage is inevitable.

The Central Banks of nearly all large economies have been shoring up the credit lines to their respective financial markets inorder to arrest the downward spiral. Their presumption has been that by providing liquidity to the markets they induce some immediate demand. The flip side of the argument has been that the investor confidence has been so badly shattered that it would take while before the dust settles.

Will the deficit financing of demand really stimulate growth in the sagging economies. Isn’t it really the same that was being done earlier. Cheap and unsecured credit to those who do not have the repayment capacity. The problem lies at repayment capacity of individuals and this should be addressed as a systematic change.

The world has reached a stage where redistribution of income has to take place. The poor and low income groups have to be provided with higher disposable incomes. This could happen through differential tax rates from the revenue point of view and the same could be redistributed by increasing salary levels (along with accountability levels), higher farm reserve prices, social security, etc. All in all, more money with more people. This would stimulate real growth.

Vivek Parti, CEO, http://www.indiabusinessdatabase.com, Business Credit Information Company

Global recession to last 2 years: Morgan Stanley

Chetan Ahya, Managing Director of Morgan Stanley, feels economies will take more time to come out of the global recession. The recession, he said, will take long to get over, and can last for as much as two years. As real economy comes under pressure, we will see rise in non-performing loans, he said, adding that credit markets will recover only once the recession is closer to an end. Ahya added the current account deficit and strong credit growth compounds problems.

Ahya also said the issue of exchange rates remains a key challenge to emerging markets, adding that he sees rupee depreciating to lows of Rs 54-55 per dollar in five or six months.

Catch the entire interview on moneycontrol.com

Ajit Ranade, Group Chief Economist, Aditya Birla Group believes that the current credit crisis is a function of temporary shortage of Cash. The shortage of cash has been aggravated by:
1. FIIs fleeing the sensex;
2. The RBI’s unwillingness to inject liquidity by buying out MSS bonds;
3. The government of India delaying making cash payments for the first instalment of Pay Commission awards, and fertiliser bonds;
4. Government delaying the release of advance tax collections.

India’s Chief Economic Advisor, Arvind Virmani sees the global financial crisis as benefit to easing the inflationary trends. The three main commodities, edible oil, steel and refinery products were the main cause for these cost pressures. With the possibility of a global slowdown, the prices are moving southward, this would have a positive impact of the balance of trade. The negative of the financial crisis has reflected in an risk aversion to lending and utter loss of confidence. But the macro economic indicators of the Indian economy are good as reflected in the growth rate of exports at 36% (April-Aug), overall growth rate of around 8% and the reverse trend of commodity prices.

The high short-term rates is going to hurt working capital costs in the industry. This is credit taken from banks to tide over, until the customer pays. In times of downturn, firms try to instinctively delay payments to vendors, and collect quicker from customers. But clearly at the systemic level this is disastrous. The SME sector lacking deep pockets, suffers the worst, and a rise in working capital costs can wipe its profits. This sector contributes the bulk of industrial employment and exports, and hence needs liquidity support urgently. The Central Bank is keeping monetary conditions tight inorder to tame the inflationary trends. Given that commodity prices are collapsing worldwide, and even agricultural stocks are piling up, the Bank may not persist with this strategy.

The financial markets are shaky and people with cash are making their moves. The first out of the block has been the undoubtable Mr. Warren Buffet. His keeness in Wachovia thru Wells Fargo is a smart accumulation of financial assets. Then there is General Electric that has readied a war chest for meaningful and related acquisitions.

Similarly Indian companies that have their DNA in risk aversion can now, in a low risk environment (low risk since globally valuations have taken a severe beating), scout for opportunities inorder to fulfill corporate objective of technology advancement, global reach or simply securing supplies.

Before you set out a word of caution. Do not blindly pursue acquisitions based on a trend or your competitor’s aggression. Make your move after you have set out your long term strategy and have carried out a thorough due diligence. For global business research, you can find assistance at indiabusinessdatabase.com

Yes there is slow down in the global business environment. Couple this with all the disturbances: the middle-east uncertainity, Pakistan meltdown, and the general war against global crime. We as global citizens are paying beyond our means to finance this war.

But some of us find opportunity among the ruins. Read this article on OPPORTUNITIES make the best use of it. Aren’t we still in business? Delhi got back to business even after the cracker show…………..

Hi. Its been a long time since we last met. While surfing I came across this wonderful information and I thought I should share this with you. CII is looking out for 15 Indian small and medium enterprises that can access international know-how with the support of country’s top technology and management institutes by introducing a three-year training programme.

The Visionary SME Programme set for a September-end launch would have contribution from experts at the Indian Institute of Management, Calcutta and the Indian Institute of Technology, Madras along with Shobishiba, a Japanese management consultant.

The programme would start with 15 firms initially and the volume of participation would grow later depending on the success of the maiden run.

CII is going to create model small & medium enterprise (SME) of global standards by selecting 10-15 SMEs from different sectors in association with IIM-Calcutta, IIT-Chennai and a Japanese consultant, Shobi Shiba.

As small business owner we need to understand the importance of accurate and timely accounting reports where we will need precise financial information to make the very important decisions we make as owners and managers. Very often I meet small business owners who have put themselves into a pickle by not managing or paying attention to the valuable information provided in many accounting software packages.Accounting operations to any business, small or large is like the fuel in your car. If you don’t have the right fuel or enough fuel in your car, you will not go very far.

Over the years I am still amazed at how many small business owners fail to see the value in managing the accounting process of their business. I was always puzzled at how small business owners could get away with running their business without even using Quicken or QuickBooks. I figured it out. Most small businesses grow so fast that some of us don’t have the time to learn if not worry about the accounting side of the business. Why should we worry about accounting when we’ve got orders to fill, customers to make happy and vendors to manage?

Well, the importance of accounting not only lies in the requirement to file and pay the appropriate amount of taxes at the end of the year, but accounting also affords us valuable information in various report formats that allow us to make smart decisions in our small business. These reports tell us many things about our small business that we would never think of and these reports also allow us to plan the future of our business as it relates to sales and expenses.

Sure some of us have CPAs or accountants that we give information to on a monthly or even yearly basis, where we should be calculating our sources and uses of cash flow everyday if not every week. Sources and uses of cash is exactly what it says it is. It defines where are money is coming from (sales) and how are we using it (expenses). The reporting document that helps us determine this process is our Statement of Cash Flow. This report actually tells us in a summary format where our money came from and where it went.

Another very important report is the Income Statement report which tells us how much we sold, how much it cost us to sell what we sold, how much we spent to operate the business and finally our profit from all that work. There are four pieces or elements of an income statement and they are; sales, costs of goods sold (COGS), expenses (fixed and variable) and income. Some small businesses will classify cost of sales (COS) rather than COGS. Costs of sales are for those businesses that really don’t have to purchase items in the raw material form and re-produce it to make it sellable. For example, as owner of a consulting firm, we identify ours as COS where if we are a plumbing contractor or a manufacturer of wooden chairs, we would identify ours as COGS because we would have to buy plumbing material as well as wood and reproduce both to get a final product to sell.

The next report that is just as valuable as the previous two is the Balance Sheet report. This report tells us what our business is worth via a particular window of time. For example, I want to know what my business is worth today for the last month. The balance sheet would tell me what I own and what I owe. This report basically has three really important pieces; Assets, Liabilities and Owners Equity. Each of these sections identifies exactly what it says. Assets are those things the business deems worth something or those things we can get cash for in a pinch if we needed. This section is also the section banks and other lenders measure a business’ worth. Machinery, inventory and sometimes your accounts receivables are considered assets. Yes, accounts receivables can be converted to cash via a bank loan, but I absolutely do not recommend this for any business. Although many businesses do borrow against their accounts receivable, I would never do it for any of my clients. Liabilities are those things the business owes such as short-term loans, long-term loans, wages, taxes, etc. Banks measure this as plain old debt and it’s not good to have allot of it.

Finally, Owner’s Equity is that which is owed to people or groups of investors that pretty much have a right to be paid regardless of the success or failure of the business. It’s just that. We have to identify that other individuals or groups have actually invested into our business outside of a typical bank loan. Is it OK to have both a bank loan and a particular amount of owner’s equity as a liability? Yes it is, as most businesses do. It is estimated that most business in the U.S. is 80% financed via a mix of both.

So great, now we know about a bunch of reports. These reports are available to you through any accounting software package you use, but you must be using an accounting software package because these reports come from the accounting process that puts the information in the appropriate accounts or sections that will eventually produce these reports.

For every sale there is a corresponding affect within the accounting process that will eventually compile data in one of the reports mentioned above and give you the right information to make a decision. Accounting operations allows us to see our successes and failures day to day, week to week and month over month. We need to review these reports often in order to stay in business.

I have seen quite a few businesses go out of business where when you ask the owners what happened, they will all say the same, “we ran out of money”. Had those businesses paid a little more attention to the accounting process they might still be in business. Remember, accounting in your small business is like the fuel in your car.

There are many programs out there that will help you understand the basics of accounting where all you have to remember is that accounting functions off of a cause and effect principle. Every transaction in your business must be recorded where that transaction is managed by an accounting software process that basically works behind the scenes. All you have to do is understand what is occurring.

For example; if I purchase $25.00 worth of office supplies I need to let the accounting software package know what accounts I want that transaction to affect. Another example would be if I sold $200.00 worth of products, I want the accounting side of the business know what I sold via what I purchased to sell. This last example is a bit complicated and I will save the detail for another article where you should take away the idea that you first recorded the purchase of the raw material, produced something from it, inventoried it and finally sold it for $200.00.

Bottom line is that accounting operations is of paramount importance to your small business. Often we rely on hiring individuals that say they know accounting but how do we know if those individuals know accounting when we aren’t too sure about it ourselves? There are many programs available to us as small business owners where we can learn the basics of accounting. Sign up for a seminar or take a class at a local college or university. Your small business is just too valuable to not understand it.

Article Source: http://www.articlesbase.com/finance-articles/operational-accounting-for-small-business-293793.html

Social networking sites are becoming an important business tool for brand awareness. In the Indian context they would have immense reach among the young audience that connects through the internet. This audience constitutes a large market place in the medium to long term perspective.

Social Networking companies were asked the following questions:
1) A recent report (by tyroo media) states that social networks are better for Branding than ROI based advertising. Do you agree? and Why?
2) Given the above answers, What are the various branding/roi driven advertising opportunities available on your social network?
3) Compared to networks like orkut and facebook which are international but have a large indian userbase how is your network positioned for advertisers? What kind of brands advertisers should look at you?
4) By when do you see social networking as a business to become profitable?

Read more about their answers on WATBlog.com

SEC, the US regulator has issued an investigation report on the working of the leading rating agencies. The report raises questions on the working of the agencies on several critical operations. Rating agencies did not have adequate staff to handle the flow of assignments thus hampering the timeliness of the surveillance efforts. There was conflict of interest where in analytical managers were assigned the task of generating business and negotiating for the fee amount thus putting a question mark on the credibility of the ratings. Maintaining market share was a major consideration while devising rating methodology for risk assessment. Deatiled article can be read by clicking this link.

But from the Indian perspective a similar experience is also possible since all three rating agencies are principal owners of the leading Indian Rating agencies, CRISIL is owned by Standard & Poor, Moody’s has share in ICRA and Fitch has an independent operation.