By Ruma Dubey

In this new flat world, where a tremor felt in one remote region of the globe could send shivers down the spine of some other far flung country . Globalisation is indeed a double edged sword.

Take this latest case. Venezuela and we Indians have very little in common and could not have been farther – across the Indian ocean, some, 15,000 kms away. Yet, we are feeling the impact of the National Assembly elections here in India. Modi’s winning might not have had much effect but surely the Opposition winning with a super majority, ousting President Hugo Chavez who has been in power since 1999, could have far reaching consequences for some Indian companies.

Hugo Chavez’s Party - United Socialist Party lost for the first time since 1999 and now the seat of power goes to the Opposition, Democratic Unity Roundtable. The promise, like in India, is major economic development. Venezuelan economy is in shambles. Its currency, Bolivars has declined 97% since 2013 – the value of Bolivars on the black market has come down from over $4 to 11 cents now. Venezuela’s monthly minimum wage is 9,649 bolivars or just $10/month. Its inflation is the world’s highest – currently at 124.3% and is expected to go up to 152% by 2016 and 1500% by 2017! There is a burgeoning black market - in the regulated economy, a carton of 30 eggs sells for 420 bolivars and the same comes for 50 US cents in the black market.

The economy is in shambles, apart from mismanagement on account of the plummeting oil prices. Oil accounts for 95% of the country’s export earnings and the IMF expects a 10% contraction in GDP, the largest fall in the world.

The new government plans to get back Venezuelan economy back on track. For that, the first big step will be currency reforms, some say, maybe a currency devaluation could also be on the cards. And the repercussions of this could be felt acutely by some Indian companies.

Some pharma companies could feel the pain more severely – Glenmark, Dr.Reddy’s, Sun Pharma, Claris, Strides and Cipla. India’s main exports to Venezuela are metal and metal products, pharmaceuticals, chemicals, textiles, calcined petroleum coke (CPC), engineering products such as scooters, equipment and machinery. total exports to the country from Indian pharma companies are placed at around $300 million. As such, companies have not been able to get payments as forex controls have made repatriation of funds difficult for companies operating in the country. The biggest impact could be felt by Dr.Reddys and Glenmark – with the former‘s exports to Venezuela in FY15 placed at around $130 million and for latter at around $50 million.

The Embassy of India in Venezuela, lists five companies which have a base there – Oil India, ONGC, Engineers India, Dr.Reddy’s and Sun Pharma. Venezuela has been unable to pay dues to companies in cash and many, like ONGC have agreed to accept oil in lieu of cash.  In fact there was talk earlier of pharma companies also accepting oil in lieu for medicines – a proposal put up the Govt.

So how will all this affect the Indian companies doing business with Venezuela? The immediate short term effect might be felt on the earnings but long term , as companies recalibrate their position in the country, we could see some reducing exports or some even withdrawing.

Thus short term, the Venezuelan story might be challenging but long term, the impact might be muted.