Stronger Re hurts Punjab

Rupee appreciation has hit not only the Punjab exporters but the state's industry as a whole, particularly the small and medium(SME) sector.

The rupee has strengthened by over 380 paise or 8.5 per cent against the US dollar since March, with a rise of Rs 2.60 in April 2007. Market experts have warned that losses on account of the present situation could be as high as Rs 1,200 crore for small units across the state.

Ludhiana alone is engaged in an export of around Rs 7,000 crore and Punjab roughly Rs 12,000 crore.

Due to appreciation value of rupees, the imports are no doubt becoming cheaper, but this is not going to help the SME sector.

First, the smaller units are not able to import directly in quantities where price can be less. Large units and traders, who import in huge quantities, keep the margin to themselves and smaller units, who are the user, do not get the benefit. Thus the benefit of lower price passes through the economy without any impact.

The United Nations Industrial Development Organisation (UNIDO) reported that the small and medium sector contributes 35 percent in direct export and 15 percent in indirect export. Sale of goods by SME sector depends upon exports partially or wholly.

Speaking to Business Standard, P D Sharma, president, APEX Chamber(Punjab), said for a decade, the Reserve Bank of India has been intervening in the foreign exchange market to keep the rupee low "due to which, India's export rose by 25 per cent a year over the last four years". Reason for this was the depreciating value of rupee and not the growth in the capabilities. Earlier, rupee had been moving within a price band but now it is continuing to move in one direction. " Exports from India are still highly dependent on goods that are extremely sensitive to price,'' he said.

Further adding, he said there is a relationship among trade deficit, exchange rate, output and employment.

"China has a trade surplus. China is under pressure to appreciate its currency, but it is resisting on the ground of output and employment, which they consider more important. If China can resist appreciation, India has to do this same to keep afloat on exports and compete with China.''

"The RBI governor is not focusing on this aspect of the issue and is of the view that RBI policy is not made keeping in view the interest of one sector or the other. RBI has evolved monetary policy keeping in view the inflation. The manufacturing cost of goods has thus become higher," Sharma said.