No takers for non-dollar invoicing plan

Efforts by exporters to invoice their exports in currencies like the euro have not succeeded as foreign buyers are unwilling to switch over from the dollar, thanks to its steady fall against the rupee during the last one year.

Textiles Minister Shankersinh Vaghela recently asked exporters from the sector to switch over to currencies like the euro while accepting payments from their foreign clients as the rupee has weakened against the euro.

Since January, the rupee has depreciated by 0.54 per cent against the euro and 11 per cent against the dollar. The European Union (EU) companies have to pay more in euro terms compared with the dollar.

"This is impossible. Customers, even from Europe, have refused to switch over to the euro. Some Europe-based clients are also demanding dollar invoicing as it benefits them by as much as 3 per cent than if they do business in the euro," said Ganesh Kumar Gupta, president, the Federation of Indian Export Organisations (FIEO).

Agrees KT Chacko, director, Indian Institute of Foreign Trade (IIFT). Chacko says buyers dictate terms in the international market. "If Indian exporters do not agree to their terms, they will switch over to other countries like China or the South-East Asian nations, who produce almost the same products," he said.

At present, around 75 per cent export contracts are in dollars and according to experts, the number and the size of the dollar contracts will go up. Looking at the weakening of the dollar against the rupee and the euro, the European Union clients are asking the Indian companies to switch over from euro-based to dollar-based contracts.

"The government's advice is impractical. One cannot switch over from dollar to euro contracts as overseas buyers are not accepting the change. In fact, the EU clients are finding it cheaper to do business in dollars than their own currency," said Confederation of Indian Textile Industry Secretary General DK Nair.

Some domestic companies have expressed concern over the demand of their EU clients. "The insist on changing the contracts to those based on dollars and threaten to cancel the orders and move to cheaper locations like China, Indonesia and Vietnam. In order to sustain, we have to accept their proposal", said Nair.

Industry experts say at the time the textiles exports have declined by 22 per cent in the first half of the current fiscal (April-October, 2007), the ambitious exports target of $25 billion set by the government for 2007-08 seems unachievable.