Current Environment Challenges & Way forward – SME’s
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Current Environment Challenges & Way forward – SME’s 03/25/2022 1
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Current Environment Challenges & Way forward – SME’s. CHALLENGES. DOMESTIC. INTERNATIONAL. ECONOMIC. POLITICAL. ECONOMIC. INEREST RATES. FOREX RATE. UNCERTAINITY. INFLATION. TAX ENVIRONMENT. Past Estimates. Environment – Currency – Bank Projn Jan’11. - PowerPoint PPT Presentation
Transcript of Current Environment Challenges & Way forward – SME’s
04/19/2023 1
Current Environment Challenges & Way forward – SME’s
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CHALLENGES
INTERNATIONALDOMESTIC
INEREST RATES
INFLATION
TAX ENVIRONMENT
ECONOMIC ECONOMICPOLITICAL
UNCERTAINITYFOREX RATE
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Past Estimates
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Environment – Currency – Bank Projn Jan’11
Current Forward premiums – 250 Ps PA
Appreciating Rupee, but forward premiums are
high………
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Environment – Costs Jan’11
Impact on input costs…
Power tariff hike proposed for industriesDetails of the hike:HT ferro alloys: Rs 2.40 to Rs 2.90 per unit; HT commercial: Rs 5.16 to Rs 6.16; HT government lift schemes: Rs 2.36 to Rs 2.86 (revenue gain Rs 112 crore) and
Railway traction: Rs 3.95 to Rs 4.75.
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Current situation
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INTERNATIONAL ENVIRONMENT
FOREX RATEHighly fluctuating foreign currency (short term fluctuations);eg: US $ moved from month average of Rs.44.37 (in Apr-11) to Rs.52.70 in Week 4 of Nov-11 in a span of less than a year
Apr May Jun July Aug Sept Oct Nov 40.00
45.00
50.00
55.00
60.00
65.00
70.00
75.00
80.00
85.00
44.37 44.90 44.85 44.42 45.28 47.64 49.26 50.31
72.72 73.43 72.78 71.64 74.10 75.14
77.48 79.98
64.23 64.48 64.54 63.46 64.94 65.50 67.47 68.62
53.34 55.35 55.72 55.95
58.68 62.07
64.12 64.94
Average of USD Average of GBPAverage of EURO Average of YEN
Week 1 Week 2 Week 3 Week 440
50
60
70
80
90
49.20 49.88 51.05 52.70
78.67 79.94 80.57 82.44
67.70 68.48 68.97 71.08
63.00 64.30 66.33 68.41
USD GBP EURO YEN
Avg. weekly rate in Nov-11Source: RBI
Way ahead: Smart Hedging, protect a base rate but not
with profit motive; Natural hedge (Import substitution); Lower global economic growth, eurozone
issue to impact rate of exchange. Volatility is realty. Live with it. India no longer insulated from the world.
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GDP
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GDP Industry
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INDIA’S INDUSTRIAL PRODUCTION
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GDP Services Sector
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DOMESTIC ENVIRONMENT
INTEREST RATES High interest rate environment@
15%
Increasing the Repo rates by RBI for arresting the inflation is affecting the Industrial growth due to high borrowing costs..
Options: Use of low cost borrowing options such as PCFC, need to be traded off with Rupee
depreciation. Higher interest rates are affecting industry RBI to continue to tweak interest rate to control inflation in relation with Industry
growth. RBI caught between devil and deep sea – (depreciating rupee & higher inflation)
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change date percentage
october 25 2011 8.500 %
september 16 2011 8.250 %
july 26 2011 8.000 %
june 16 2011 7.500 %
may 03 2011 7.250 %
march 17 2011 6.750 %
january 25 2011 6.500 %
november 02 2010 6.250 %
september 16 2010 6.000 %
july 27 2010 5.750 %
RBI latest interest rate changes
Graph Indian interest rate RBI - interest rates last year
Graph Indian interest rate RBI - interest rates last year
Interest rate tweaked 7 times over last 10 months
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INFLATIONInflation driven both by monetary supply and also short supply of goods
Rising inflation, inflation high at 10.1%
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INFLATION
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TAX ENVIRONMENT
Uncertainty on introduction of GST, GST would remove cascading effects of tax
Service tax on wide number of areas by introduction of negative list which is small and tax is levied on invoice instead of receipt basis;
Government Direct tax collections are lower by ~40% to Rs. 2.32 Lakh Cr. YTD Oct’11, against target of Rs.5.85 Lakh Cr for the year leading to increase in fiscal deficit target (as % of GDP) from Budet of 4.6% to 5%.
POLITICAL UNCERTAINITY
Political unrest is causing delays in decision making in the implementation of reforms and providing necessary support.
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Fiscal Policy
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TWIN DEFICITS
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Way Forward
Challenges Summary: Increase in inflation expected to come down beyond Dec’11 (Base effect) Fiscal Deficit expected to be around 5.8% GDP FY’12 expected to be around 7% Interest rate increase should taper off. Power situation very grim. Impact of lower coal production and water level Rupee expected to be weak till the europe crisis is reolved
Options: Forex front hedging a good strategy for exports. Importers to hedge for short term at every fall. Domestic consumption still good. Innovation and Productivity to separate “Men from Boys” Currency Volatility a reality. Investment policies will be opened up to attract FDI investment.
