The issue is to what extent the scheme can be misused and if, on the balance, it does more good than harm. Virtually all exporters work on borrowed funds. EEFC balances do provide a hedge against exchange rate uncertainties but if an exporter were to lock up more and more funds in this account he would be running short of working capital. For all those running legitimate businesses and undertaking exports, it makes far better sense to bring in the export earnings so as not to go in for additional borrowings and pay banks in India 14 per cent interest. Even though the rupee has depreciated by a little over 5 per cent since April, few will be betting that the trend will continue indefinitely and so any desire to hold back export earnings in the EEFC account can only be temporary.
If the RBI wants to attack the problem of heightened exchange risk uncertainty that is at the root of the pressure on the rupee, then it should not make matters worse by making life more difficult for exporters. That way the export effort will suffer and an attempt to tackle speculative pressure on the rupee will end up by exerting a secular downward pressure on it. The authorities should really be thinking up new ways of helping exporters instead of doing something as retrogressive as this.
