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Exporters with high import content to be hit

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Ranju Sarkar New Delhi
Last Updated : Jan 21 2013 | 4:10 AM IST

The Reserve Bank of India’s directive to exporters to reduce foreign currency holdings may help prop the rupee in the short term. However, it would hit exporters with high import content and deny the extra income exporters were making by holding on to dollars, anticipating a fall in the rupee against the greenback. In a circular issued on Thursday, RBI asked exporters to convert half the foreign currency in exchange earner’s foreign currency (EEFC) accounts into rupee balances within 15 days.

‘’The move will hit companies with high import content and those that have remittances to be sent out because of imports,’’ said R S Seshadri, director at leading rice-exporting firm Tilda Riceland. This is likely to hit the diamond industry, gems and jewellery, petroleum, electronic goods, plastic products and chemicals. Experts say this is also likely to impact information technology firms and commodity majors, which would now be forced to convert their dollar holdings into rupees, and can no longer wait for the rupee to depreciate. Smaller exporters would not be impacted much.

M Rafeeque Ahmed, president, Federation of Indian Export Organisations, said the flexibility of payments for imports would be severely curtailed in sectors with 50 per cent import intensity. He demanded the cap be increased to 75 per cent, while for petroleum and gems & jewellery, the earlier stipulation of retaining 100 per cent in EEFC accounts should be restored. Sectors remitting commission or royalty may also feel the pinch, as these may have to buy dollars from the market, raising their costs.

‘’This will impact large companies whose earnings are often dependent on gains on such accounts. They retain the money in the interest-free EEFC accounts, hoping the dollar will appreciate,’’ says Vinod Ahuja, chairman, VRA Cotton Mills.

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First Published: May 11 2012 | 12:24 AM IST

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