Currency chaos hits importers, exporters alike

NEW DELHI: The steady depreciation of the rupee against the dollar and the unpredictable cross-currency movements in the global market have put India’s exporters and importers in a fix. While small and medium-size exporters who had not hedged their risks when the rupee was rising last year are reaping windfalls of the dollar breaching Rs 47, uncertainty about the future exchange rate is affecting their pricing decisions.

In the present situation, large and medium-sized exporters who had hedged their risks are clearly the losers. Most importers, who had not hedged their risks assuming that last year’s appreciation in the value of the rupee was here to stay, are also paying for the mistake.

With the export sops announced last year including an increase in the drawback rate and an interest rate subvention of 4% being withdrawn on October 1, exporters lament that the incentives are being removed much before they can actually reap the benefits of dollar appreciation. Industry executives met RBI governor D Subbarao on Tuesday, proposing that measures be taken in the upcoming monetary policy to increase money supply and ease the present credit squeeze.

Delhi Exporters Association president SP Agarwal told that when the dollar had fallen to Rs 39 last year and the government and many experts were predicting a further fall to Rs 33-34, a number of exporters had done forward booking at Rs 39.

“They are the ones who are suffering. FIEO director general said that at least half the country’s exporters had hedged their risks last year.

From the consumer’s point of view, precious metals like gold and silver are becoming dearer due to the weaker rupee. Since demand is going up during the festival season, the rupee depreciation has come at the wrong time. Diamond jewellery would also cost more since precious stones as well as gold are imported, trade sources said.

Edible oil is another item which would turn dearer due to depreciating rupee, as the bulk of the domestic demand is met through imports. In this case too, demand is increasing now due to the onset of the festival season.

Fertilisers, project imports and electronics would also turn dearer, trade sources said. For ultra-mega power projects, Indian companies are importing equipment worth billions of rupees.

Prompted by similar expectations of the dollar depreciating further, importers had refrained from hedging. As a result, despite international prices of oil and cereal decreasing, it is not percolating down to the Indian consumer because of the depreciating rupee, Mr Sahai said.

The sudden turnaround in the value of the dollar which has appreciated by approximately 18% in the last two quarters also has exporters confused over what price to quote for their future orders. There is a time lag of about five-six months between order booking, delivery of goods and the receipt of payment.

Mr Agarwal said that while many exporters were booking orders on the basis of dollar valued at Rs 44-45, they had their fingers firmly crossed. “We are just hoping that when we realise the payment for our orders in the summer, the dollar should not have fallen below Rs 44,” Mr Agarwal said.

While small exporters are rejoicing, the situation is becoming tougher for large IT companies which have substantial earnings in foreign currency. Though many of them have hedged, the extent of fluctuation is far higher than anticipated.

Interestingly, some exporters who want to play it safe and have an understanding with buyers, are quoting in Indian rupees. “When exporters quote in rupees, they are not affected at all by the value of the dollar,” Mr Sahai said. Some others are quoting in stable currencies depending on the region where they are trading, he added.

However, this too has its risks, as cross-currency movements are unpredictable, Mr Sahai pointed out. “While the dollar is appreciating against the Indian rupee, it is depreciating against the euro. Cross-currency movement is giving a complex picture,” he said.

Exporters claim that since they are yet to get over the losses suffered last year due to the more-than 12% depreciation in the value of the dollar, it was too early for the government to take back the sops. “When the dollar was depreciating, it took the government six months to react. But now that the situation has reversed, it is in a hurry to take them back,” Mr Agarwal said.