The greenback will be under pressure

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: If the present is any indication of the near future, then the rupee will continue to rise. That appears to be the dominant view being echoed by experts and also, in an unofficial tone, by government officials.

A majority of analysts say the rupee will continue to appreciate against the dollar. Some of them do not see any problem in the rupee touching even 35 to a dollar by 2008-end.

But then, there is also a strong minority view, being put forth with a great degree of erudition, that the rupee would depreciate against the dollar by the year-end. The Indian rupee has appreciated the most in the last one year, at about 12%, after the Canadian dollar (22%) and the Thai baht (13-14%), on the back of strong capital inflows.

Some of the funds that have flowed into India have chased the country’s growth story and the booming equities market. Others have come to diversify portfolio risks, the need for which has indeed ballooned after recent troubles in developed financial markets. With foreign funds pouring in, the Rupee is expected to firm up further this year.

“The current trend is that, inflows exceed outflows by a wide margin. And if this trend continues, then I won’t be surprised if the Indian unit appreciates to Rs 35,” says Rajesh Chakrabarti, assistant professor, (finance), Indian School of Business.

The net capital inflows almost doubled to $45 billion in 2006-07 compared with $23.4 billion in the previous year. “We are prepared for the rupee to reach Rs 35. That should logically be the trigger point for further sops to exporters,” says a finance ministry official, requesting anonymity.

Although the appreciating currency may symoblise a straightening economy, it also creates a class of winners and losers. The losers in this case are exporters, and if one peels another layer — the workers in the export sector.

Textiles, IT and some other sectors have been hit hard by the rising rupee, which has eroded their competitiveness. In the April-July period of 2007, exports of more than half — 11 of the 17 principal commodity groups — declined in rupee terms, while another two groups grew by less than 5%.