Re not running out of steam

The rupee appreciated around 5 per cent against the dollar in 2003, its highest gain in a calendar year in the last decade.

The rupee started the year at 47.99 against the dollar, and has been on its way up since then. Burgeoning portfolio inflows pushed the rupee to this year's high of 45.26 on November 7, and it closed the year at 45.60 yesterday.

Foreign exchange dealers said apart from strong portfolio flows, the rupee also benefitted from the dollar weakening against the euro and the yen.

The dollar was mired in a gamut of adverse developments, including security concerns, a huge current account deficit and a simmering trade dispute with China.

"Overall, the dollar sentiment is weak and Asian currencies have blossomed in this environment. The rupee is backed by strong economic fundamentals, a diversified stock market and a $100 billion war chest in reserves," a dealer with a foreign bank said.

But the biggest impact of the appreciating rupee has been on the mindset of Indian corporates. Last year, when the rupee gained a shade over 1 per cent against the dollar, India Inc cried hoarse that it was denting their export competitiveness.

But now, after decades of planning and living with a depreciating rupee, domestic companies have learnt to live with a rupee that is firmly on the path of appreciation.

The impact of the rupee's rise has been small on most sectors as companies have mastered the art of hedging, either through booking forward covers in the exchange market or by shifting from dollar to euro invoicing.

They have also become more competitive, and re-engineered their business processes. The result is most of them have stopped complaining against the rising rupee. Their party is not spoilt as they are more efficient and do not depend only on currency advantage for exports.