‘A cashless trade exchange can offer integrated services’

Jan 18 2002, 00:00 IST
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Naveen Surya, CEO of Intrex India, has been one of the guiding forces in the conception of the cashless trade exchange in India. He brings with him over seven years of global exposure and the latest in management and business practices from his stint with several domestic and international firms. Mr Surya comes to Intrex India from a successful four-year stint at TCS where he worked on various projects for organisations and institutions like Director General Shipping(I), ACC, GE Capital, and UBS. In an interview with John Joseph of The Financial Express, he speaks of the relevance of Intrex and its future in India. Excerpts:

How relevant is Intrex as a cashless trade exchange for India?

The objective of any exchange is to provide liquidity and minimise the default risk for members trading within the exchange. Globally, the system of exchanges is well accepted. However, the system of basic trade exchange, where any business organisation can freely trade any of their own goods and services, is not commonly known. The same is traded only in open markets by direct interaction of buyer and seller organisations and in some cases, through some intermediaries who are not very organised. Trade exchange is a system where any business organisation can buy and sell its products and the exchange does the third party record-keeping and clearing house function.

The trade exchange system has been in the process of implementing various e-business models. But their success in clearing house process is under question. The fulfilment processes defined and adopted by most of the exchanges cannot eliminate or minimise the risks related to payment and delivery. The primary reasons for not been able to eliminate or minimise risks related to payment and delivery are poor online banking infrastructure and lack of integration of various banks at the local and global level.

The relevance of a cashless trade exchange in such an environment is very high as this model has its own commerce solution and thus, can minimise the risks related to payments and delivery, if not eliminate them. A cashless exchange functions as an integrated platform of banking, exchange and marketplace. The integrated service assists members in their all three critical functions of marketing, sourcing and financing on a single platform, unlike other models that are either buyer- or seller-centric.

In any business environment, a trade exchange is relevant as business houses can focus on their core competencies without spending much effort on marketing, sourcing and liquidity. It is all the more relevant for India because of the current economic environment that is quite uncertain. The system helps achieve maximum business growth without additional effort and investment.

Theoretically, the concept sounds new, but in reality the practice of selling/buying goods and services without actually using cash is very much in practiced in India. In what way can Intrex be different?

The closest system that can be thought of is barter, which is known to be the most ancient system. The cashless trade exchange has the advantages of barter but without its limitations. However, if we look back into the history and explore the development of monetary systems and payment instruments within that, we will realise why barter failed to continue and monetary system had to be brought in. There were two key limitations: one, barter requires ‘double co-incidence of wants’. It means that the transaction of buy and sell has to complete within two parties itself and these two should have matching products to fulfill each others’ demand. For example, if A wants to exchange a PC with B for a laptop, B should have the laptop and also desire to buy the PC from A. This does not match too often in a real marketplace. And that is why A sells the PC and collects cash and then uses cash to buy from B or anyone else. Thus, cash works as medium of exchange to eliminate the co-incidence of want and increase the liquidity for A. The second issue is the measurement of value or exchange value of a PC versus the laptop. How is it to be defined if there is no measurement system? In ancient times, it purely depended upon the necessity and desire to exchange. In the modern world, the currency works as a measurement system.

It is true that most Indian corporates and individuals have been entering into cashless deals. Barter deals were strictly amongst two parties. In a cashless trade exchange, companies can choose what they want to buy and sell among a gamut of industries. Besides, in barter, the risk is strictly amongst the parties involved in barter transaction, unlike trade exchange where the risk is minimised by centrally controlling the purchasing power of its members and monitoring their liquidity in terms of sales.

The concept of such an exchange has been in existence for over 70 years in Switzerland and the US. It has been successful in developing, developed or underdeveloped countries.

Though globally this has been in existence for decades, why has it not taken off in India?

The system has been present globally for decades. However, it was practiced more by governments and multinational companies. The system has also been popular in the retail segment. In India, the system has been practiced widely by our government. A key example is our trade with Russia, our treaty with Myanmar, and trade with Malaysia where we are importing palm oil against construction of a railway line through Ircon. The same has been in practice by various corporates on a one-to-one basis. Retail being an unorganised sector in India was not being practiced as a formal system.

In the past, some individuals and business houses had tried to conduct the same in a formal manner. However, they limited the system to barter like transaction or they themselves got involved into such transactions so they ended up becoming more like trading houses.

Who regulates the activities of Intrex?

As of today, there is no specific regulatory body governing this system. The trade exchange is a self-regulatory body having its own rules and regulations. Besides, all rules and regulations and other Acts, like Sales of Goods Act, Contract Act, Direct and Indirect Taxes, are applicable on the transactions done through exchange. As far as International Reciprocal Trade is concerned, the rules of FEMA etc., are applicable. Therefore, the current system is limited to domestic members and transactions within India.

Intrex India is a member of International Reciprocal Trade Association (IRTA), which is based in the US and governs such exchanges all over the world.

So far what has been the response from corporates and individuals?

The response from corporates has been very encouraging. Within the first year of our operations, we have already enrolled close to 200 members with some of the big names like BSES, Godrej & Boyce, Videocon, Birla 3M, Indian Express Group, Gujarat Samachar Group, B4U any many more. The products and services offered by all these members is valued approximately at Rs 300 crore. During the last quarter we completed transactions worth Rs 15 crore.

We have started expanding our operations to north, south and east now. We have eight branches in Delhi, Lucknow, Bangalore, Hyderabad, Pune, Aurangabad, Ahmedabad, and Indore. Besides , we have 15 channel partners, who are industry specialists, like travel, real estate etc.

Intrex also has fully integrated online and real time system available to members to initiate, track and complete the transaction. The system is available through Intrex’s website: www.intrexindia.com

What are your future plans?

We plan to spread the system throughout the country and gradually move towards the retail segment where a system of ‘trade card’ could be implemented. This would work like a credit card. Intrex has estimated that 28,000 crore worth of goods and services could be traded through such systems in India. It is just the matter of bringing the first 500 members together. We expects to help the Indian economy accelerate and achieve the growth rate of 7 per cent.

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