Economists fear that the latest Dubai financial crisis could have a major impact around the world. Layoff plans (widespread rumor is 20% cut) are on the table and a large number of Indian companies have exposure in the region, and over 4.5 million Indians live and work there.
Is India prepared to handle such situation? What should the govt do if this happens?
Dubai World’s decision earlier final week to ask its creditors for much more time to repay some of its debt has rattled monetary and commodity markets worldwide and raised the spectre of the sovereign default through the Emirate. Dubai Globe, the state-owned holding organization which, in turn, owns Nakheel, has liabilities of $59 billion, or Rs 275,000 crore, or 74% with the total credit card debt of $80 billion with the emirate. Nakheel has to pay $3.5 billion on December 14 for maturing Islamic bonds and another $15 billion next year. On Wednesday final when Dubai announced that it had been asking banks to permit the state-owned Dubai Globe to suspend loan repayments on a lot of its $59 billion of credit card debt for six months, Markets crashed everywhere, including in India, on fears that there may be worse to arrive.
The Dubai Globe conglomerate, which includes a host of companies below its fold, has interests inside a wide variety of companies such as realty, infrastructure, logistics and financial zones, not just within the region, but also across a clutch of countries, such as India.
Genesis of Dubai crisis: Dubai had borrowed heavily to construct up a non-oil economy depending on property, trade and tourism, creating up a stock of debt estimated at $80 billion, comfortably in excess of national income. The sheer dimension and exuberance of its property boom was always unsustainable.
Dubai doubled in size and home costs almost quadrupled throughout 2002-07. Home prices have halved because then. Like a trade and tourism hub, it was hit through the international downturn just as it was building essential mass as a regional monetary centre.
The idea was also to create in Dubai a financial centre rivalling London, New York and Hong Kong. But the global crisis with the past 18 months ended this dream with home valuations obtaining halved. This caused a turmoil for that government-owned realty companies such as Nakheel PSC.
Investors fear that a credit card debt standstill by Dubai Globe, the city kingdom’s biggest state-owned conglomerate, is a prelude to some forced restructuring of its estimated $60-billion liabilities. This has triggered a repricing of risk both in and beyond the Gulf. Banking stocks have tumbled on concern about their possible exposure to Dubai.
Based on analysts, Dubai isn’t going bankrupt anytime soon. Actually, the reverse may well be true because it has just begun the procedure of cleaning up its debt-heavy monetary system. It is unlikely to go below simply because its deep-pocketed brother emirate Abu Dhabi, which has a sovereign wealth fund alone of $800 billion, has currently bailed it out last week.
Impact on India: Notwithstanding the UAE being India’s top location for exports, the government set up a brave face stating financial worries in Dubai would not effect the Indian economy and the country’s real estate sector.
“I don’t believe,” mentioned Commerce and Industry Minister Anand Sharma when asked whether the self-assurance erosion in Dubai would have ripple effect in India.
Sharma said the Indian economic climate is large and “I don’t think developments in real estate sector in Dubai are heading to impact it…Besides, the Indian real estate is doing nicely,” he said.
The UAE, which has a big Indian populace, may be the country’s biggest export destination with shipments of about USD 24 billion in fiscal 2008-09.
Most with the stock markets tanked on worries of the worldwide effect of the crisis of self-assurance in UAE.
But India will feel some of the tremors. Indians make up 40% of the UAE’s population, and Indians in Dubai account for 10-12% of the annual remittances to India.
There are also numerous alliances between Dubai firms, particularly in real estate, and Indian ones. Among them: Emaar Properties includes a joint venture with MGF which is planning to invest Rs 50,000 crore more than the next 5 many years.
Limitless UAE and DLF plan to invest Rs 100,000 crore outside Mumbai and Gurgaon, including a township in Bidadi in Karnataka. Engineering firm Larsen & Toubro includes a small exposure to Dubai, while rival Punj Lloyd has contracts in Abu Dhabi.
The Kerala government is, however, concerned. About 4.5 million Indians live and work in the Gulf region and remit much more than $10 billion annually. The turmoil might affect remittances. Remittances from the Middle East account for about 25% of Kerala’s economic climate. India received $52 billion of remittances last year making it the world’s biggest recipient of money from migrant workers.
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December 17th, 2009 at 4:42 am
Indian presence in Dubai Economy mainly divided in the following manner
1. Indian tourists -nearly 5 lakh tourist visit every year –alomost 5% impact on Dubai economy
2. Indian workers in Dubai–00.05 % remitance to Indian Economy
3. Investment by Indian bankers ,companies are 2% to Dubai economy
4. Ellitist Indian ex[posure to Dubai economy –staggering 10 to 12 % in terms of investing in properties ,hotel and other business
5. may or may not be some 15 to 20 % illegal money are going out of India for investing in Dubai
Now Dubai ‘s economy to other parts of UAE cities is apprx 30% .Even if Dubai is bleeding with 90 billion doller debt but UAE economy is so large (oil business control 30 % of world oil market) that I have no doubt that Dubai debt will be taken up by other UAE countries like Abu Dhabi and others .
So nothing is going to drastically to Dubai ,nor any large scale job cuts unless usal 2% job cut that too on attriutions and other minor things only .
Actually we the people of world has tremendous impact on worst USA recessions last year and fear any kind of sneezing of debt or recession anywhere in the world .Dubai being the most advance economy in the world has impacted a little in world economy that too India will have very less or negligable impact as India has less exposure
Off course some ellites or Madhu Koda type of people of India who invested havily in Dubai may loss their investment due to crisis in housing market in Dubai .
December 17th, 2009 at 8:55 am
Kumar, My nephew is working in a foreign bank in Dubai as a senior executive and yesterday while chatting with him I asked the same question. What he said you know, “Vidunga Chithappa, endha.thu………….pasanga venumne, artificiallaa problem create panraanga. Enga ellaam nallaa thaan irukku. Namma oorukku endha effectum varaadhu, vandha, evangakkulle thaan effect irukkum.
I think it is the fact. No effect on us. Even today, I have read an article in a daily that there will be no effect on Indian economy because of Dubai crisis.
December 17th, 2009 at 1:13 pm
wow.. i fully endorse shri Asimbora sir answer. Excellent answer.
(The Bull..vidatheenga chithappa !! Ana en kelvigalaiyum parunga chithappa.)