RISING RUPEE FADES REVIVAL HOPES OF EXPORTERS
By- S Dhananjayan
The woes of the exporters hit by the mis-sale of exotic Forex derivative products seem to be unending. The heavy inflow of capital by the Foreign Institutional Investors (F.I.I) has resulted in the strengthening of rupee versus the dollar and this may spell death knell for the exporters already reeling under heavy losses. The rupee has reached the rate of 44 per dollar against 47 last two months ago.
The Government on its part appears to be uninterested in fixing the price of rupee and the statements of the Finance Minister to intervene if the need arises have given no ray of hope to the exporters, who now find themselves trapped in a vicious circle. The reduction in duty drawback rates, escalating yarn prices and its dwindling availability in domestic market, and now the rupee appreciation have worsened the scenario for them.
The exporters on their part are demanding that the Government does its bit to save their plight and restrict the flow of FII money into India or put some restriction like minimum one-year lock-in period for FII investments. It should also look at postponing shipment of raw cotton till January 2011 and ban yarn exports as the domestic needs are still to be met.
Some quarters amongst the exporters are now advocating going in for forward cover so that they don’t lose money even though they could miss out extra profits when dollar appreciates against rupee. More over current indications point out that rupee might still go up and reach 43 levels. Approximately, half a billion dollars have come to India in the last one week and even RBI is not sure how to proceed. Last time, when such a situation arose, it controlled the flow of dollar; but this time the exporters find themselves left in the lurch.
The roll-back of both the duty draw back and a special incentive of 2% have dented the business potential of apparel exporters. Their quotations have gone haywire and have no option but to request for increase in price or not execute the order and get punished for it
meanwhile, the exporters at Coimbatore are considering options like packing credit against export order in dollar terms so that the fluctuation of rupee against dollar will not affect the outcome of the business. At the same time, they feel that, the rupee will slowly depreciate against dollar as it is currently fixed at 44.80, which are 80 paisa less than current levels for January in the forward market.
However, Tirupur based exporters are of the opinion that the swing in rupee against dollar will not make things any better. They are stressing on the need to be more watchful and book forward cover for their products on a month-to-month basis to escape all uncertainties. The yarn manufacturers have said that to a large extent, they have not been impacted by the rupee appreciation though the margins have been hit.
The Tirupur exporters have now been instructed to increase the price of garments by 25%. They believe that though slowly but buyers will agree to the increased amount as competing countries like China, Bangladesh and Vietnam too have increased the prices of their products due to high prevailing cotton price in the international market.
One another major concern of the garment industry is that the current situation could hit employment. The garment exports have reduced by 7% to 8% from April onward. If the trend continues, the industry may have to take serious as a damage control exercise.
(The writer is a Tiruppur based Chartered Accountant and Advisor to Forex Derivatives Cosumers Forum)