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BUSINESS: WTC FALLOUT
Time To Count Silver Linings
The dark clouds enveloping the economy also offer opportunities
for the enterprising to strike a fortune
By V. Shankar Aiyar
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WHAT GOES DOWN...: After devastation
comes the opportunity to rebuild
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It's
conventional and correct to think that the terrorist strikes in the US
will hurt all economies in the world, including India's. Like many airlines
across Europe and the US, economies too could well be grounded or land
with a thud. But amidst the gloom is a window of opportunity for those
willing to strike out and adopt new ways to deal with old problems. For
the Indian industry burdened with a higher cost of capital than its foreign
competitors, there could be an opportunity to borrow abroad at historically
low rates of interest; for companies with global ambitions there may be
bargains in the form of businesses and projects up for sale.
Across the world countries have taken extraordinary
steps to fight economic mayhem. The US has pared interest rates to their
lowest level in 39 years. US President George W. Bush has promised to
put on the table a $75-billion revival package. European governments have
stepped in to save businesses and jobs. But as Hindustan Lever Ltd Chairman
M.S. Banga says, "In times like these, you can talk yourself into
a downward spiral or make a fortune." Here are six out-of-the-ordinary
ideas to help the Indian economy come out of the present crisis.
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VOICES
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"Low cost
of capital offers a chance to retire high-cost debt."
Anil Ambani, MD,
RIL
"The Government
could facilitate raising foreign currency loans."
K.V. Kamath, CEO, ICICI
"It's time
for Indian companies to look for foreign acquisitions."
S. Desai, MD, DSP-ML
"We are looking
for opportunities to import capital goods."
V.N. Dhoot, Chairman, Videocon
"In times
like these, you can talk yourself into a downturn or make a fortune."
M.S. Banga, Chairman, HLL
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1 PREPAY HIGH-COST
DEBT AND BORROW CHEAP
On October 2, the Federal Reserve Bank (Fed)
of America chopped down its interest rate to just 2.5 per cent. That's
the lowest since John F. Kennedy's presidency in 1962. Beginning January
this year, interest rates have been cut nine times in the US. For India,
it is an opportunity to offload its interest burden, both on corporate
loans and on those taken by the government.
The Reliance Group recently raised a $750-million
(about Rs 3,400 crore) line of credit at about 4 per cent as it saw softening
interest rates as an opportunity to lower costs. The Government too could
take a cue. Advises Reliance Industries Managing Director Anil Ambani:
"Cherry-pick and retire at least a part of the high-cost debt."
India's external debt is $100.25 billion (about
Rs 4,71,175 crore at the current exchange rate). That includes $29.94
billion in commercial borrowings by companies and $15.4 billion in deposits
by non-resident Indians. A substantial part of this debt has been raised
at interest rates of over 8 per cent. A swap or retirement by the Government
or the companies would bring down the servicing costs. ICICI CEO and Managing
Director K.V. Kamath suggests, "With interest rates touching rock-bottom,
the Government could enhance limits for automatic approval of external
commercial borrowings and remove withholding tax to facilitate raising
of foreign currency funds."
2 CUT INTEREST
RATES
Interest rates in the US may be at a 39-year-low
but the real interest rates in India are at a historical high. The annual
rate of inflation is consistently below 5 per cent but even AAA-rated
corporates are borrowing at 9.5 per cent-perhaps the highest in developed
and emerging economies.
The Government might argue that it isn't necessary
to emulate the US Fed, that any cut in interest rates would necessitate
a reduction in deposit rates which could dampen the already stagnant savings.
Interest-rate reductions may face another hurdle. Banks may complain of
reduction in margin and warn of sickness. But Indian industry, and the
economy, cannot be held ransom to the inefficiencies of the banking system.
Every Fed cut has been echoed around the globe. India can't afford to
be a high-rate island.
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