They begin delaying payments, many talk of need for govt help.
With the rupee continuing to depreciate, importers are feeling the pinch and have started delaying payments. While bigger companies said they were still protected, smaller players said they are under severe pressure.
“At 48-levels (to the dollar), importers are facing pressure for making payments for goods imported at 44. Most of them are delaying payments by six months, availing buyers’ credit on the expectation that the rupee will be stronger next year,” said Abhishek Goenka, CEO, India Forex Advisors.
The rupee on Tuesday opened 34p lower as compared to the previous day’s close of 47.81 against the dollar. It closed at 48.05, a 23-month low, after touching 48.25 during intra-day trade.
The rupee has lost 8.5 per cent against the greenback since August on the back of global risk aversion. Following Italy’s downgrade by ratings agency Standard & Poor’s, the euro fell to a 10-year low against the yen on Tuesday. Italy has Europe’s second-largest debt burden. The dollar index against six major currencies was at 77.11, up from 77.15 a day before and 74.01 a month earlier.
“Yes, the payments that are to be made in dollars are being delayed because of the weakening of the rupee. On the other hand, foreign currency receivables are being sought. This is purely a business decision,” said Rajiv Jain, chairman, Gems and Jewellery Export Promotion Council, adding the delay would be 15-90 days, depending on the way the rupee was moving.
“Importers are concerned. Their import costs are bound to go haywire. We have got calls from smaller importers seeking help and wanting the government to intervene. We shall watch these fluctuations for a week, before formalising our views. We think this is an aberration and in three months, the rupee will appreciate to 45 against the dollar,” said Ajay Sahai, CEO and director-general, Federation of Indian Exports Organisation.
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WORLD WATCH
The markets are now eagerly awaiting announcements from the Federal Open Market Committee (FOMC) meeting (of the US Federal Reserve), scheduled the coming Wednesday. “We will watch how FOMC reacts to the current situation and whether there is any indication of a third round of quantitative easing,” said Sandeep Gonsalves, forex dealer at Mecklai & Mecklai.
However, a further fall in the rupee cannot be ruled out. The rupee-dollar pair is seen opening below 48 levels tomorrow. “Until credibility issues of euro zone members are solved internationally and countries like China and the US start buying bonds collectively for euro zone countries, there will be no change in global sentiments and people will continue to hoard dollars,” said Goenka. He expects the rupee to trade between 48.00-48.25 tomorrow.
HOME ARITHMETIC
Smitesh Shah, chairman, Calyx Chemicals & Pharmaceuticals, said: “We are still awaiting clarity on the duty drawback and duty entitlement schemes. But at a time when crude prices, inflation and interest rates are all hiting the roof, the forex fluctuations add fuel to the fire for the pharma sector, which is largely import-dependent. We don't have the luxury of asking our vendors to hold on to the prices or renegotiate or delay payments but it would be of great help if the banks at this point extend the credit rollovers from the present 90-120 days to 360 days, which in any case is permitted by the RBI (Reserve Bank).”
Bigger companies, however, said they were still protected. “When we price a project, we assume a higher foreign exchange rate of $48-49 to the rupee. As of now, we seem to be fine. Our imports will happen over the next three years. So, there is no immediate hit. The current fluctuations seem to be more of a temporary one. Our power equipment orders are mainly from Chinese vendors. Some of these orders are linked to the dollar, some to the yuan,” said Suresh Kumar, chief financial officer of Lanco, a large infrastructure conglomerate.
“With the weakening of the rupee, all importers will get hit. For oil marketing companies, the under-recovery in the (price) controlled products like diesel, PDS kerosene and domestic LPG will go up further. With every rupee depreciation, for BPCL alone, the under-recovery on these three products will be an additional Rs 2,000 crore per annum. For the entire industry, the under-recovery go up by Rs 9,500 crore per annum,” said a senior official from Bharat Petroleum Corporation.