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LOOKING FOR DIFFERENT COUNTRIES? D&B Country Risk Services provide analysis on over 130 countries worldwide which are available to be purchased online by D&B subscribers. If you wish to order reports using your D&B subscription please click on the link, log in and select your country of enquiry from the drop-down list. Non-D&B subscribers wishing to order reports please call T:01628 492700 or e-mail us at CountryRisk@dnb.com |
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The 'DB' risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The 'DB' risk indicator is a composite index of four over-arching country risk categories:
Political risk - internal and external security situation, policy competency and consistency, and other such factors that determine whether a country fosters an enabling business environment;
Commercial risk - the sanctity of contract, judicial competence, regulatory transparency, degree of systemic corruption, and other such factors that determine whether the business environment facilitates the conduct of commercial transactions;
External risk - the current account balance, capital flows, FX reserves, size of external debt and all such factors that determine whether a country can generate enough FX to meet its trade and foreign investment liabilities;
Macroeconomic risk - the inflation rate, government balance, money supply growth and all such macroeconomic factors that determine whether a country is able to deliver sustainable economic growth to provide further expansion in business opportunities.
The DB risk indicator is divided into seven bands, ranging from DB1 through DB7. Each band is subdivided into quartiles (a-d), with an 'a' designation representing slightly less risk than a 'b' designation and so on. Only the DB7 indicator is not divided into quartiles.
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Country Overview:With over 1bn citizens, India is the world's most populous democracy and second largest country. It became a sovereign republic in 1947 and joined the Commonwealth of former British colonies in 1950. India borders Pakistan to the northwest, China, Bhutan and Nepal to the northeast; Bangladesh and Myanmar to the east. India's diverse economy encompasses village farming, modern agriculture, handicrafts, modern industries, and services (the most dynamic sector). Until the early 1990s, the economy was held back by stringent state controls. These have been liberalised considerably; and, since 2000 the economy has grown on average by over 7% a year. India faces major challenges from chronic infrastructure constraints, endemic poverty, an inefficient bureaucracy, corruption, ethnic and left-wing insurgencies, and occasional politically-charged communal violence. |
| Minimum Terms: | LC |
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
| Recommended Terms: | LC |
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
| Usual Terms: | 30-90 days |
Normal period of credit associated with transactions with companies in the stated country.
| Local Delays: | 1-2 months |
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
| FX/Bank Delays: | 1-2 months |
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.
Between April and September 2008, Indian exports grew reasonably robustly, 31.0% in year-on-year terms to USD94.9bn, although still slower than imports, which grew 38.6% to USD154.0bn. However, external demand for Indian goods has begun to weaken. In September, exports grew just 10.4%, while imports increased 43.3%. The widening trade deficit combined with continued repatriation of funds by foreign institutional investors has put pressure on the rupee. Through the rest of fiscal 2008/09 (April-March), we expect the weaker currency combined with trade financing constraints to reduce import growth. Tight money market and FX conditions, since September, have made LCs more costly and more restrictive.
| US Eximbank | Full cover available |
| Atradius | Full cover available |
| ECGD | Full cover available |
| Euler Hermes UK | Full ST cover available |
| 2005 | 2006 | 2007e | 2008f | 2009f | |
| Real GDP growth, % | 9.2 | 9.6 | 9.0 | 7.2 | 7.0 |
| Inflation, annual ave, % | 4.4 | 5.4 | 4.8 | 11.0 | 5.2 |
| Govt balance, % GDP | -7.1 | -7.2 | -6.8 | -9.5 | -8.4 |
| Debt service ratio, % | 18.3 | 17.2 | 16.9 | 15.9 | 16.2 |
| C/A balance, % GDP | -1.1 | -1.1 | -1.3 | -2.9 | -2.7 |
Economic Indicators: Figures are for fiscal years (April-March); government balance includes federal, state and off-budget expenditures.
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Exchange Rates
(London, 03 Nov 08)
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Local Currency
(Indian rupee [INR]: USD)
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Payments Performance
(% of payments made 30 or more days over terms)
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| Data Table | ||||||
| Q4 06 | Q1 07 | Q2 07 | Q3 07 | Q4 07 | Q1 08 | Q2 08 |
| 56.0 | 55.9 | 55.3 | 55.2 | 53.3 | 51.7 | 52.1 |
On 1 November, India’s central bank, the Reserve Bank of India, announced that it would lower its main short-term (repo) lending rate by 50 basis points (bp) to 7.5%, banks’ cash reserve requirements by 100bp to 5.5% and banks’ bond reserve requirements by one 100bp to 24.0%. This marks a continuation of a series of accommodative monetary policy measures the bank took in October to ease illiquidity in the money markets. Banks have had an increasingly hard time meeting the demand for credit. By October, credit to the private sector (mostly to industry) grew 27.4% in year-on-year (y/y) terms; deposit growth, only 20.8%, has not kept pace. Increasingly, banks have had to raise non-deposit funds. Since September, this has been costly with interbank lending rates consistently above central bank repo rates. This new set of measures will help to relieve India’s stubbornly high short-term money market rates; following the policy announcement, overnight call rates dropped from 17.0-17.5% to 7.25-7.50%. The cut in banks’ reserve ratio will effectively release INR400bn (USD8.1bn) into the banking system; this follows cuts in October that already liberated INR1.0trn. This should help to continue lending and at lower rates (prime lending rates are 12.75-13.75%). The central bank is resolute that small and medium-sized businesses must have continued access to new credit.
Moderating inflation, as a result of falling commodity prices, has provided the central bank some flexibility in rate cutting. Since reaching a yearly-high in August, inflation has subsided. On 18 October, India’s wholesale price index, the most widely monitored indicator of inflation, increased 10.68% y/y, down from 12.91% in mid August. However, the banks’ accommodative platform risks a renewed intensification of price pressures. In October, the money supply continued to expand at more than 20.3% y/y, well in excess of the bank’s target of 16.5-17.0%.
Costlier credit conditions, inflation and slowing external and domestic demand have severely undermined business confidence across India. D&B’s composite business optimism index for the September-December quarter dropped 28.1% y/y; it is at 2004 levels. All six business optimism indices (volume of sales, net profits, new orders, inventory levels, employment and selling prices) fell markedly. The services sector was the least optimistic of all reflecting the poor outlook of IT, financial and other trade services firms. The industrial sector has already entered a period of slowed production. The Index of Industrial Production (IIP) gained 4.9% y/y during the April-August 2008 period compared with 9.8% during the corresponding 2007 period. In August, the IIP grew just 1.3% y/y with most manufacturing sub-sectors contracting. D&B expects GDP growth to slow below 7.0% in the second half of 2008/09.
DEFINITIONS
Minimum Terms:
The minimum form of documentation or trading method that D&B advises its customers to consider when pursuing export trade with the stated country.
Recommended Terms:
D&B's recommended means of payment. The use of recommended terms, which are generally more stringent than minimum terms, is appropriate when a customer's payment performance cannot be easily assessed or when an exporter may wish to limit the risk associated with a transaction made on minimum terms.
Usual Terms:
Normal period of credit associated with transactions with companies in the stated country.
Local Delays:
The time taken beyond agreed terms for a customer to deposit money in their local bank as payment for imports.
F/X Bank Delays:
The average time between the placement of payment by the importer in the local banking system and the receipt of funds by the exporter. Such delays may be dependent on FX controls, FX availability and the efficiency of the local banking system.
C/A (current account) balance, % GDP:
Part of the balance of payments that records a nation's exports and imports of goods and services, and income and transfer payments.
DSR (debt service ratio), %:
Annual interest and principal payments on a country's external debts as a percentage of exports of goods and services.
Govt balance, % GDP:
The balance of government expenditure and receipts.
Real GDP growth, %:
GDP adjusted for inflation.
Inflation, %:
The increase in prices over a given period.
GLOSSARY
CiA Cash in Advance
CLC Confirmed Letter of Credit
CWP Claims Waiting Period
FX Foreign Exchange
LC Letter of Credit
LT Long term
MT Medium term
OA Open Account
SD Sight Draft
ST Short term
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