World Bank – Dutch Uncles

Ease of Doing Business in India

Anju Nambiar — Tue, 29 Jun 2021 12:35:04 +0000

Each year, the ‘Doing Business’ organisation in association with the ‘World Bank’ releases country wise scores on the ease of doing business in a country. These scores reflect how easy it is for start-ups and small businesses to register their company and get access to resources with respect to local rules, regulations and laws governing businesses.

India’s Doing Business Rank for 2020

India’s Rank for the year 2020 is ‘63’ on a scale of 1-190 (in a comparison of 190 economies). India’s rank has been steadily improving year on year and we’ve come a long way from the 142nd rank in the year 2014 to the 63rd rank in 2020. India has shown consistent improvement in its ranking for 3 years in a row.

India’s Ranking on Doing Business topics

India is ranked on a range of ‘Doing Business’ topics which indicate the procedures, time and costs involved in completing tasks and formalities within a country. Here’s India’s rank card by the World Bank on the major ‘Doing Business’ topics for the year 2020.

Doing Business Topic	Rank
Starting a Business	136
Dealing with Construction Permits	27
Getting Electricity	22
Registering Property	154
Getting Credit	25
Protecting Minority Investors	13
Paying Taxes	115
Trading across Borders	68
Enforcing Contracts	163
Resolving Insolvency	52

As per these rankings, the insights we can glean are that ‘Protecting Minority Investors’ is the easiest to do in India and ‘Enforcing Contracts’, the most challenging.

Change in Scores from 2019

In comparison with the scores from 2019, there has been a significant upside of 3.5% in the score for India. India’s score for 2019 was 67.5 whereas in the year 2020, the score has increased to 71.0.

‘‘

India’s Doing Business Rank for the year 2020 is ‘63’ on a scale of 1-190 (in a comparison of 190 economies)

What’s in it for me?

The Indian Government is eager to reduce compliance and make it easier for both domestic and foreign businesses to thrive in India. Doing Business by the World Bank gives a clear picture for local businesses (especially for domestic small and medium sized companies) on the easiest and hardest regulations in India. Although the data for 2021 is yet to arrive, keep an eye out for the 2021 report.

You will obtain city-wise insights on the procedures, time and cost involved in starting a business so that you can decide the best city to set up a base. Before the Government stepped in to ease the business regulations in India, we suffered from poor rankings by the World Bank. However, with all the measures being taken by the government departments and ministries to create a thriving start-up ecosystem, the business environment in India has become highly conducive and will only improve further in the coming years.

The post Ease of Doing Business in India appeared first on Dutch Uncles.

Global Opportunities and Support for Indian MSMEs

Anju Nambiar — Wed, 16 Jun 2021 08:35:03 +0000

The Indian MSME sector is one of the worst impacted since the onset of the pandemic last year. This year, when hope for recovery was ripe, all attempts turned out to be futile as a devastating second wave further worsened things for them. The plight of Indian MSMEs has travelled far and there has been an outpouring of international support and opportunities for global expansion. Here are some global opportunities and support for Indian MSMEs to look forward to

Italy India Innovation Day

The first edition of the ‘Italy India Innovation Day’ will be occurring in July this year. Indian start-ups, scale-ups and SMEs with innovative technologies to showcase are invited to grab international opportunities.

An initiative organised by AIICP (Association of India and Italy for Co-operation and Partnership), this event will see large Italian companies across several sectors like Industrial Automation, Transport/Railway, Finance/Insurance meeting with Indian start-ups (including members of AIICP). The event will be an online pitching session and will see participation from embassies of both nations.

World Bank’s $500 M MSME program

The World Bank is extending loans to Indian MSMEs and 555,000 MSMEs will benefit. USD 15 B will be sanctioned as part of the Indian Government’s $3.4 B MSME Competitiveness – A Post-Covid Resilience and Recovery Programme (MCRRP). The World Bank had earlier extended similar support to Indian MSMEs during the onset of the pandemic last year which was the MSME Emergency Response Program worth $750 M. The present $500 M program is titled ‘Raising and Accelerating Micro, Small, and Medium Enterprise (MSME) Performance (RAMP). The loan extended will have a maturity of 18.5 years and comes with a grace period of 5.5 years.

Opportunity to Trade Internationally for MSME

Online marketplaces are helping Indian enterprises get international orders. Indian start-ups can register in these global online marketplaces and list products targeting customers from the UK, US, Germany, Australia, etc. These global marketplaces are working to open up the global cross-border e-commerce market for small businesses back in India.

Consider cross-border B2C selling for your small business to mitigate some of the impact of the pandemic. Cross-border e-commerce platforms will help start-ups under the Make in India purview export their products to international markets. Tweaks to the Foreign Trade Policy along with cross-border selling will be a saviour for MSMEs impacted due to the pandemic.

‘‘

Cross-border e-commerce platforms will help start-ups under the Make in India purview export their products to international markets.

Dun & Bradstreet to support MSMEs.

Dun & Bradstreet, a B2B data provider with a global presence recently signed an MoU (Memorandum of Understanding) with the BSE (Bombay Stock Exchange) to support Indian SMEs. This move is aimed at helping Indian SMEs expand to global markets. With this additional business intelligence from D&B to guide them, Indian MSMEs will grow in a conducive environment.

Indian SMEs can access D&B’s data & analytics through the ‘BSE SME & Start-up Platform’. Start-ups can also participate in D&B’s Training & Certification programs. By listing on the BSE’s SME platform, Indian MSMEs will have better access to D&B’s data.

The post Global Opportunities and Support for Indian MSMEs appeared first on Dutch Uncles.

World Bank’s $500 Million Programme for Indian MSME

Shalmoli Sarkar — Sat, 12 Jun 2021 04:35:06 +0000

The 6.3 Crore family of Micro, Small, and Medium Enterprises (MSMEs), which forms the bedrock of the Indian economy by contributing 30 percent in GDP and employing 11 crore people, is severely impacted in the second wave of the pandemic. In the first wave itself, MSMEs grappled with getting access to markets, credits, financial security, and depleting cash reserves. According to a survey from LocalCircles that involved 6000 start-ups and MSMEs from 172 districts, it was found that 59 percent of the start-ups and MSMEs are expected to scale down or sell or shut down their operations within 6 months. 41 percent of the start-ups were falling short of funds to survive.This has attracted the attention of World Bank to pump in $500 million under the programme Raising and Accelerating Micro, Small and Medium Enterprise Performance (RAMP) to the Covid affected MSMEs in India to fulfill their liquidity and credit needs.

‘‘

According to a survey from LocalCircles that involved 6000 start-ups and MSMEs from 172 districts, it was found that 59 percent of the start-ups and MSMEs are expected to scale down or sell or shut down their operations within 6 months.

What is RAMP’s objective?

The RAMP programme targets to revitalise India’s 5.55 lakh MSMEs and plans to mobilise financing of $15.5 billion as part of the government’s $3.4 billion MSME Competitiveness – A post-Covid Resilience and Recovery Programme (MCRRP). This programme will aid the government’s efforts to revive MSME businesses while enhancing productivity and generating employment.

The World Bank has earlier extended financial help to Indian MSMEs worth $750 million under its MSME Emergency Response Program in July 2020, from which 5 million MSMEs have sought benefits. The $500 million loan from the International Bank for Reconstruction and Development (IBRD), holds a maturity period of 18.5 years and includes a 5.5-year grace period.

How will this programme help MSMEs?

The Indian MSME sector is troubled with getting access to formal sources of financial and non-financial services. More than 40 percent of the MSMEs lack access to formal sources of finance. The RAMP programme will help MSMEs to gain access to finance and the working capital by bolstering the receivable financial markets and will scale up the online dispute resolution mechanisms to address the issue of delayed payments. The pumping of funds will prime the businesses for normal functioning and help to wade from the long-standing financial sector issues that have been hindering the growth of MSMEs since the onset of covid.

What is there for the MSMEs?

To provide relief to the strained MSME sector, the government has introduced a slew of initiatives such as deduction in TDS rates by 25 percent, reduced rate of interest on delayed payment of taxes, etc. The monetary support from the World Bank will suffice the credit needs. Credit is fuel for the MSME engine to survive. Many MSMEs find it cumbersome to get loans from traditional banks and financial institutions. Such initiatives will help the MSMEs to sustain continuity of business in the grim times of the pandemic.

The post World Bank’s $500 Million Programme for Indian MSME appeared first on Dutch Uncles.

How Easy Is It to Start a Business in the USA?

Anju Nambiar — Mon, 19 Apr 2021 02:35:06 +0000

There are a total of 190 economies in the world. The World Bank releases annual ratings for these world economies each year about the ease of doing business within the country. The Ease of Doing Business index measures a country’s environment in the context of running business operations successfully. If an economy is ranked between 1-20, it’s considered as highly ranked and the Ease with which start-up owners can open their business in these economies is very high.

Is it easy to start a business in the USA?

To answer the question whether it is easy to start a business in the USA, the answer is yes! It is very easy to start just like most other countries. You can register your company as one of different types of corporations in the US. You can also deem yourself as the CEO and create a high quality branding exercise for your start-up. You can also easily setup an amazing web presence including website, app, a couple hundred social profiles and high-definition graphics. You could also easily spend a lot of money on web hosting and domain.

The naked truth is that setting up a business in the US is easy if you have capital. Next comes the tricky part – finding paying customers. As with any country, finding paying customers is the hardest part of setting up a business in the US. Running the business in a way that attracts paying customers is all up to you. Doing the sales, marketing, and ensuring the success of your business depends on you. No amount of capital can do it for you.

‘‘

The World Bank has ranked US at number 6 on its ‘Doing Business’ ranking scale which is a really high rating.

Ease of Doing Business in the US

The World Bank has ranked the USA at number 6 on its ‘Doing Business’ ranking scale which is a really high rating. It has also been awarded a ‘Doing Business’ score of 86.0 which means that for businesses within the country, the regulations are very friendly and simple.

The ‘starting a business’ ranking for the US is 55, as assigned by the World Bank. The ‘dealing with customer permits’ rank is 24. The ‘getting electricity’ rank is 64 which is very poor. The hardest thing for a business to do in the US is to get electricity. The ‘registering property’ rank is 39. The ‘getting credit’ rank for the US is 4 which is an amazing number.

If you have minority investors, the ease with which you can protect them is ranked at 36. As a new business in the US, paying taxes is ranked at 25 which is also fairly easy. Trading of goods and services across borders in the US is ranked at 39. When it comes to enforcing business contracts, US is ranked is 17 which is a pretty good number. When it comes to resolving insolvency for businesses that are unable to pay their bills, the US is ranked at 2 which is excellent and the highest rank for the country.

What’s in it for me?

Getting the paperwork done for your start-up is easy in the USA. If you are delegating this task to paid firms, then your task is even more simplified. Setting up a small business takes an average of just about 4 days. There is a lot of support for small businesses within the country.

The US is a region classified in the ‘OECD high income’ category and the GDP is $20.5 Trillion. It contributes to a quarter of the global economic activity. However, there is great discrepancy in laws from one state to another which can make things complicated for any business. It may also lead to compliance troubles. On the other hand, the legal system for businesses is fair, transparent, and stable.

Entrepreneurship forms the backbone of the US economy. There is a lot of support for small businesses within the country. Business owners are free to decide the nature and workings of their company. The Investment policy in the country is open and doesn’t discriminate against foreigners. As a start-up owner, you can access start-up resource ecosystems, and you can even avail soft-landing programs.

The post How Easy Is It to Start a Business in the USA? appeared first on Dutch Uncles.

Understanding External Debt: All you need to know

Aakash Sharma — Fri, 26 Feb 2021 04:35:04 +0000

External debt is a national debt borrowed from foreign lenders, including commercial institutions, banks, governmental or global financial entities. The loan has to be repaid with interest applied on it over time. To even out the loaned capital, a borrower nation can adopt various repayment methods, including trade and export options for the lending country.

If a country fails to repay its external debt, it spirals down the vicious debt trap. If the state does not repay its external debt, it is declared as a defaulter on the global financial institution’s books. External loans can take the form of supplementary loans, where the borrower has to use the lender’s financing costs in the state.

How can an external debt crisis occur?

A debt crisis can arise when a country with a weak economy cannot pay off its external debt because of its incapacity to produce, sell and profit from its assets. The International Monetary Fund (IMF) is a critical organisation that supervises countries’ external debt. The World Bank issues a quarterly bulletin on external debt statistics.

If a country is incapable or unwilling to pay its external debt, it is considered bankrupt. This can lead lenders to reject future asset sales required by the foreign country. Failing to repay the loan threatens the borrower’s currency with the collapse and stagnation of its macroeconomic growth.

Source: International Monetary Fund

How do borrowers use external debt?

In addition to governments, corporations can also borrow external loans. In many cases, the external debt is tied up in fixed loans, which means that the money secured by the funding must be used in the country providing the financing. For example, a loan can allow a country to purchase its resources from the loan sanctioning country.

Foreign loans, especially this bond sort of loaning system, can be taken for specific purposes. Borrowers can use this financial support to respond to human needs or disasters. For example, if there is a drought in a country and the affected nation cannot provide emergency aid with its own funds, it can ask for the foreign debt to buy essentials from a foreign donor country. Or, when a country needs to build energy infrastructure, it can use its external debt by acquiring resources such as materials designed to produce energy in, say, an unoccupied area.

The debtor, or the entity that owes money, can be a government, business, or citizen of that country. Debt includes amounts owed by private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and the World Bank.

Role of principal and interest in external debt

If borrowed charges are paid regularly, as is often the case, they are called interest payments. All other expenses of financial value from the lender to the borrower that reduce the principal amount are called costs.

However, the interpretation of external debt does not differentiate between the initial payment and the payment of interest or the cost of both. Besides, the description does not indicate that involved parties must know the principal and/or interest’s future price for the obligation to be classified as debt.

Vital elements of external debt

The IMF defines the main components of external debt as the following:

Residency Clause

To be considered an external loan, the loan must be sanctioned by a non-resident to a country’s resident. Place of residence is determined by whether the centres of economic interest of creditors and borrowers are common- and not necessarily by nationality.

Current and not contingent

The definition of foreign debt does not include contingent responsibility. These are defined as contracts in which one or more conditions must be met before a financial transaction can occur. But from a weak perspective, there is analytical interest in the potential consequences of contingent liabilities in the economy, especially in institutional sectors such as government.

Generally, external debt is divided into four heads:

Guaranteed Government and State Debt: Guaranteed government and state debt encompass the long-term external responsibilities of the public sector, including the national government, state-owned companies, development banks, and other related industries.

Unsecured Personal Loans: The servicing of unsecured personal loans is the external responsibility of a private lender, which is not guaranteed by any public body.

Deposits with the Central Bank: For deposits with the central bank, commercial banks are usually required to deposit money into a central bank account. This amount is usually part of a bank’s reserve.

IMF Loans: The purpose of IMF loans is to repay member countries’ debts, stabilise their economies, and achieve sustainable economic growth. The role of solving debt crisis is at the heart of the IMF fund.

‘‘

If a country fails to repay its external debt, it spirals down the vicious debt trap. If the state does not repay its external debt, it is declared as a defaulter on the global financial institution's books.

External debt stability

Sustainable debt is the level at which the recipient can meet current and future obligations and accept redistribution or repayment to avoid arrears by allowing proper economic growth. The stability of external debt is generally analysed over the medium term.

These terms are statistical evaluations that properly consider economic variables, debt, and other indicators to determine the economy’s appropriate risk and policy adjustment requirements. In these analyses, macroeconomic uncertainties, such as the current account’s opportunity, and policy ambivalence, like fiscal policy, tend to dominate the medium-term outlook.

External debt sustainability indicators

Many indicators determine the stability and sustainability of external debt. The angles abound among economists don’t specify a single predictor for estimating the sustainability of a loan. These indicators are primarily like ratios—i.e., comparing two heads and the relation thereon and facilitating the policymakers in their external debt administration exercise.

These indicators can be thought of as dimensions of the country’s “solvency”. They consider the stock of debt at a specific time concerning the country’s ability to generate resources to repay the outstanding balance.

Examples of debt burden indicators include:

Debt to GDP Ratio: The debt to GDP ratio is an easy way to compare a country’s economic performance (measured in terms of gross domestic product) with its debt.

External Debt-to-exports Ratio: It is defined as the total outstanding debt ratio at the end of the year to the economy’s exports of goods and services for that year.

Risks associated with external debt

Foreign loans carry two main types of risks. First, as with mortgages, unexpected changes in mortgage rates can occur. This can lead to widespread insolvency if interest rates rise, for example, because debtors may not pay higher interest rates, increasing the risk of a systemic crisis.

An unexpected devaluation of the rupee could pose severe problems for Indian companies repaying loans in dollars. They would have to spend more rupees than expected to buy the currencies they need. Lenders usually take possible currency fluctuations into account when determining the interest rates for a loan. However, these predictions are not always perfect. Unexpected changes in exchange rates can still bring you incredible gains or losses.

Since the COVID-19 pandemic began, several emerging market currencies have depreciated sharply against the US dollar. The rupee, in particular, has fallen by around 7% since 2020. The devaluation of emerging market currencies is due to increased demand for dollars by investors who yearn to sell their assets in rising markets and invest in the United States, where earnings are proliferating.

Latest Data as of 2019 (Source: Govt. of India)

External debt and India

Rising interest rates could lead to larger capital outflows from emerging markets, causing unexpected changes in interest rates and rupee prices. Therefore, both the government and non-government borrowers in India are open to foreign debt and are consequently more susceptible to losses.

The Reserve Bank of India (RBI) held foreign exchange reserves as of January 2021 amounted to approximately $584 billion. This power of the central bank’s fire makes it possible to take advantage of the RBI and save troubled debtors.

We cannot conclusively state whether external debts are good or bad for a country. Taking loans from international forums and partners is a good and reliable way to raise money in emergency times. But, failing to repay those loans can prove to be fatal for countries, as is the case in many modern-day economies, like Pakistan in South Asia and Nigeria in Africa, to name a few.

Nevertheless, a well-formed national policy, leadership and international commitment are necessary to help nations and their people in need.

The post Understanding External Debt: All you need to know appeared first on Dutch Uncles.