As contagion worries of the Greek debt crisis keep Europe on tenterhooks, Indian exporters are worried about falling realisation from their orders.
The rupee appreciated against the euro at 57.28 on May 12, as against 69-70 in the months of September and October 2009.
Those exporters who had entered into long-term contracts are thus expecting fall in realisation, even though some part of their currency risk was hedged, said exporters.
“Traditionally, the euro has been considered as a safe currency, particularly since 2008 when the global economic crisis was at its worst. A depreciating euro is now putting pressure on exporters, and the risk of default has increased. Exporters are going slow in booking new orders from Europe,” said Anupam Shah, vice-chairman, Engineering Export Promotion Council (EEPC).
Europe had started emerging as one of the biggest export destination for India after the slump in the US market, he added.
“While earlier the risk was on raw materials and currency, the stability of companies is a new risk now,” said Shah.
The Greek crisis unfolded after the new government tried to set things right vis-a-vis the debt policy.
“Defaults from the European countries are now a concern for exporters. The realisation will come down by 5-7 per cent,” said O P Agarwal, chairman, Ambo Exports Ltd, which exports tea to Europe.
According to estimates of industry body Assocham, 10-12 per cent slump is foreseen in export proceeds of India in European markets particularly that of Greece, Portugal and even Spain in the first quarter of the current financial year.
“In the short term, exports to Europe are likely to be unviable,” said Gems and Jewellery Export Promotion Council Regional Chairman Pankaj Parekh.
According to chief economist of Anand Rathi Financial Services, Sujan Hajra, “Till 2013, these nations including Ireland need $2 trillion to cope with budget deficit and service debt, whereas the package is $995 billion. The present package will work out till 2011. But these countries need structural adjustments.”
Hajra added that there would be no impact on India as it did not have any sovereign debt. “We should in fact worry about how to handle too much capital inflow. The markets are volatile because they know more needs to be done,” he said.
“The standards of living in Greece were kept artificially high. They need to find ways to survive. India need not worry too much about recession on the back of 18 per cent growth in its manufacturing output in 2009-10,” said Abhirup Sarkar, professor of economics at the Indian Statistical Institute, Kolkata.
On the bailout package for the troubled Eurozone nations, he said: “The worrries about recession should subside now.”
Ajay Shah, professor at the National Institute of Public Finance and Policy, New Delhi, discounted the possibility of an India implication. “The most important country, the US, is having a fairly good recovery. Europe is important but not that much,” he said.
He maintained that instead of India being overtly worried by the unfolding events in Greece, things could actually benefit our country. “When global investors see the problems of countries like Greece, they might feel India is a good place to be invested in,” Shah added.
Former director of Indian Institute of Management Ahmedabad, Bakul Dholakia, categorically said that India would not be affected due to the Greek crisis as the size of the economies of Greece, Portugal and Spain were rather small. “The Euro region has been in difficulty for the past 4-5 years. It was not booming when the rest of the world was because of its structural weaknesses. They need more macro-economic discipline,” he pointed out.
For the regulators he said: “There will be some short-term volatility. Sebi and RBI should take note of it, be concerned about it but need not push the panic button.” Dholakia added that this would not have any effect on India’s gross domestic product (GDP) forecast as “agriculture is more important to India than Greece”.
Nilanjan Banik, associate professor at the Institute of Financial Management and Research, Chennai, also said there was no slowdown in India. “The banking results of the last quarter were very well. The problem in Greece is of accounting. Europe is not in a good position as there is drop in GDP in two consecutive quarters,” he said.
