As if a demand contraction in the West were not enough to cause them distress, Indian exporters now have to deal with a stronger rupee as well. The rupee inched closer to Rs 45 on Monday giving sleepless nights to exporters. The rise is mainly on account of heavy FII inflows into the Indian markets.
To bring about some regulation in the FII inflows, president of Federation of Indian Export Organisation A Sakhtivel has written to finance minister Pranab Mukherjee urging the government to create a lock in period of two years. Fieo fears that if the FII inflows continue unabated then the exporters would have to face the brunt of it.
?Those sectors that would be the worst hit are the ones not dependent on imports for raw materials,? director general of Fieo Ajay Sahai said. He identified textiles, carpets, leather and marine products to be the worst hit due to this. ?Sectors like gems & jewelry would not be impacted too much because they would make up for the appreciation by importing raw materials.?
Since rupee appreciates, exporters would have to sell products at higher prices thus creating a double whammy for them. In fact exporters say that if the government does not intervene then Indian exporters would lose out heavily against their Chinese counterparts. As China has artificially kept its currency devalued, Chinese products come at a much cheaper rate to consumers in the West vis-?-vis Indian exporters.
Standard Chartered Bank has predicted that the rupee would strengthen even more in the months ahead. By December 2010, the bank has stated that the rupee would be around Rs 42 to a dollar. ?We have taken FIIs and FDI inflows into India before reaching this figure. Since we are witnessing an increase in FII inflows rupee is expected to harden even more in the months ahead,? Anubhuti Sahay, analyst with Standard Chartered said.
A commerce ministry official said that the appreciation in rupee is still not a cause for concern since in 2008 rupee was hovering at Rs 40 to a dollar. The official said that the Indian exporters were used to a strong rupee but added that if the rupee strengthened more it could create some temporary hardships for the exporters.
On Tuesday finance secretary Ashok Chawla said that the government was not concerned with the appreciation in rupee. ?The (capital) inflow is not to the extent and of the variety which are causing any stress or going beyond the realistic limits, which the current account deficit permits. Therefore, at this stage it is not a matter of great policy concern,? he said.
So far this year, foreign institutional investors have crossed the Rs 15,000-crore.