Jolt for West Asia trade

The banks in India may become a bit more cautious in purchasing export bills from less established exporters trying to gain entry in the West Asian markets, says TNC Rajagopalan.

Global investors and lenders will vet the proposals for construction and infrastructure projects in West Asia more cautiously.

That can mean less money flowing into West Asia and consequently slowing or abandonment of many projects, especially the construction projects. Indian project exporters implementing construction contracts in the region may have to cope with delays and defaults, and drying of fresh contracts for some time.

Some of their ongoing projects may not be completed. Some may find it difficult to raise capital or short-term borrowings. This can result in serious cash flow disruptions. The project exporters will need long-term finance to cope with such disruptions.

The end of the construction boom in the region might mean many Indian workers returning to India. Even those staying back might decide to cut on spending to save for a rainy day. Naturally, the demand for Indian goods from Indian workers in West Asia will slow down.

Tight money or dear money may force the traders in that region to cut stocks. Consequently, exports from India will be hit. Exporters of construction material like cement, steel and building materials, besides exporters of consumer goods, textiles, processed food, gems and jewellery, etc might see the demand going down in entire West Asia.

Even exporters of services may see a drop in their demand. All exporters to West Asia may experience delays or defaults in payments, as well as difficulty in getting fresh orders.

Dubai Word is operating several container terminals and also building ports in India. These projects may take a hit. They will almost certainly be slowed down, even if the operations in the terminals already functioning may not be affected.

Export Credit Guarantee Corporation may revise the ratings for many countries in West Asia. This might translate to higher ECGC premiums for exporters.

ECGC may also be saddled with claims on account of buyers' failure to pay or diversion of goods to other buyers at a discount.

The banks in India may become a bit more cautious in purchasing export bills from less established exporters trying to gain entry in the West Asian markets.

Even established exporters may be asked to put up higher margins. Direct lending for construction contracts abroad and even lending to companies already executing construction contracts in West Asia may be possible only after greater scrutiny.

The commerce ministry might come under pressure from exporters to give 'Market Linked Focus Product Scheme' benefits for exports of specified products to specified countries in the region. The exporters will argue that some fiscal support will enable them to maintain their presence in the West Asia markets.

The full scale of the financial crisis is not known. There is a fear that it may be much bigger. There is also enough apprehension that more borrowers in developing countries might come out with similar news of inability to return the loans.

The immediate panic has hit stock markets, but reassuring statements from policy makers and lenders might restore some semblance of order.

The Dubai crisis may not cause any major disruption in the Indian economy immediately, but if it persists, exporters to the West Asia can face severe problems.