Rupee rise pinches govt projects

States borrow more dollar funds from Asian Development Bank to finance development works.

The adverse impact of the rupee appreciation has gone beyond exports. The currency's climb is now affecting government infrastructure projects funded by multilateral lending agency such as the Asian Development Bank (ADB).

Some state governments, which have borrowed funds for various infrastructure projects, have asked ADB for additional dollar funds after experiencing a sharp appreciation of the rupee against the dollar.

"The rupee, which was ruling at Rs 48-49 in the last few years, has moved close to Rs 39.50 this year. The Madhya Pradesh Urban Development project, which has a loan approval for $181 million (in 2003), has sought an extra $70 million due to a rise in the valuation of the rupee" an ADB official said.

The loans are sanctioned in dollars, but the expenditure is in rupees. The rising value of the rupee or the depreciating dollar means one dollar now buys less rupees compared with that a year ago. It has forced project authorities to look for additional funding from multilateral authorities.

The market situation is dynamic and it is difficult to take a long-term view on the movement of exchange rates. The dollar-rupee position is kept open and not hedged, according to an official.

A water project in Kolkata faced similar situation and an additional loan of $80 million was sought and approved.

"Some other project authorities (state governments) have informally sounded us out for a review in the light of the depreciation of the dollar. The demand for additional dollar funds would not impact the project implementation schedule as there was provision in project documents for revision in the loan amount," he added.

At present, the ADB portfolio in India includes of 38 loans for $7.5 billion, one grant for $100 million and 49 technical assistance projects for $63.6 million. Its disbursements are likely to touch $1.4 billion in 2007.

The government has already come out with a number of packages to mitigate the adverse impact of the appreciating rupee on exporters, especially in the textiles and information technology segments. The total value of such sops is more than Rs 5,000 crore.