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Wanted: A safety net for exporters

A volatile and appreciating rupee has undermined the competitiveness of India's exports, say exporters. They have asked the government for a fund to compensate them for the losses in case rupee breaches a certain limit against the dollar and the euro and also restrictions on flow of foreign institutional investments to check currency fluctuations.

The rupee touched an 18-month high against the dollar on Monday at Rs 45.04 per dollar, recording a 13.4% rise over Rs 52.06 to a dollar in March 2009. It has appreciated 13.4% against the euro since November 2009.

"Fluctuations are bad for exporters as they are not able to plan ahead and price appropriately," said Fieo president A Sakthivel.

Exports returned to the positive growth trajectory since November 2009 after registering a fall for 13 straight months due to the global economic downturn and the resultant fall in demand.

However, exporters argue that they are finding it difficult to compete with other countries, namely China and Pakistan. China has not allowed its currency Yuan to appreciate in the recent months.

"The small exporters are finding it difficult to cash in on the increase in demand in the Western markets due to the steady appreciation of the rupee," said Delhi Exporters Association (DEA) president S P Agarwal.

Independent experts do not agree with exporters' assessment. "It is not a very alarming situation at the moment. But, of course, if the rupee continues at this level or keeps going up then the government or the RBI have to think how they can intervene," said K T Chacko, director general, IIFT.

Neither does he agree with the suggestion that the government should set up a fund that will guarantee a minimum exchange rate realisation for exporters. "We can't have a one-sided government policy. The fund can work if exporters contribute to it when the terms of trade are in their favour," he said.

Exporters have suggested that the dollar could be pegged at, say, Rs 45 and a euro at Rs 65 and an exporter be paid the difference any time the rupee appreciated beyond this level.

Lot of India's exports are import intensive, which means that such exports will benefit from cheaper inputs because of the rupee appreciation. For this reason, the RBI has been more concerned about managing the volatility rather than checking the rupee from appreciating.

Source : The Economic Times