Stronger rupee worries exporters

The latest round of rupee appreciation may not have an effect in the short run but international buyers are watching the situation closely and may look to other markets for sourcing.

Exporters appear perturbed about the appreciation of the rupee against the US dollar but foreign buyers are not unduly worried about the phenomenon, at least for the time being.

"In the short term, the effect might be marginal. But the cost advantage can be affected if the trend continues," said Prabir Sengupta, director general, Indian Institute of Foreign Trade. Besides, exporters had shifted to Euro invoicing to reduce the impact, he said.

Executives at a large international retail chain, planning to increase sourcing from India, are watching the situation closely but say a 2-3 per cent appreciation will not affect India's attractiveness.

"Exporters' margins will be affected but we have told our head office that there is no cause to worry at the moment. But yes, if we get a dollar for Rs 40-41, then we may have to review our plans," said an executive.

Over the last 12 months, the rupee has appreciated around 6 per cent against the dollar to touch a 44-month low of Rs 44.74 on Wednesday. With over 85 per cent of India's exports invoiced in dollars, exporters can lose out to some neighbouring markets.

Seeking a set of policy measures, including a reduction in interest rates on export credit, the Federation of Indian Export Organisations has warned that export growth can fall to single digit levels if the appreciation is not checked. Export oriented units and units in special economic zones are also complaining about the appreciation.

However, for gems and jewellery exporters, who import their raw materials, appreciation of the rupee is good news. "Ours is an import-based industry and there will not be much effect as new imports will cost less. But we may lose money on receivables and inventory," said Sanjay Kothari, chairman of the Gems and Jewellery Export Promotion Council.

In segments like sports goods, large international buyers scouting for products in India are now looking at Pakistan. "The quality of products in Pakistan is better and with the rupee continuing to appreciate it makes more sense to go there," said a merchandiser with a multinational buying house.

Apparel Export Promotion Council (AEPC) chairman Shakthivel said garment exports from India had decreased 5.42 per cent to $4.45 billion during April-February 2003-04 though in quantity terms there was a 2.48 per cent increase.

Although India is on course to clock over 12 per cent growth in the current fiscal, in line with the target fixed by the government, exporters said they were under pressure due to an 8-10 per cent decrease in margins. "In the last eight months our margins have come down 6-8 per cent," said Shakthivel.

Exporters of handicrafts like brass and metalware are complaining of lower realisation without the benefit of cheaper raw materials like copper and zinc.

"Handicraft exporters are largely in the small scale sector and depend on large importers for some of the raw materials that they need. The appreciation of the rupee would mean that imports become cheaper but the large importers are not passing on the benefits to the users of the raw material," said Rakesh Kumar, executive director Export Promotion Council for handloom and handicrafts.