The continuing trend of a rising rupee against the US dollar is having a direct impact on Indian exporters, who have stepped up invoicing their exports in other currencies, including euro and pound sterling during the last two years.
A survey of Indian exports during the fiscal year (2002-03), conducted by the Union commerce ministry, has revealed that invoicing in US dollar has declined by 5 per cent to 76.9 per cent from a high of 82.4 per cent during 2000-01.
The random survey involved 215 firms, which accounted for exports worth $7.4 billion, with respective exports valued at more than $1 million.
"During the same period, invoicing in euro and pound sterling has shot up to 8 per cent from one per cent, as a result of the steady weakening of the US dollar vis-à-vis the Indian rupee and other international currencies in the last 24-30 months," HAC Prasad, economic advisor to the Union commerce ministry, disclosed in Bangalore on Thursday.
According to the Reserve Bank of India, Indian exports to the US had shot up to 87 per cent during 1999-2000 from 57 per cent in the early nineties. It includes exports from the information technology enabled services sector.
Addressing exporters from the manufacturing sector at an interactive session, organised by the Federation of Indian Export Organisations, Prasad said the government and RBI were keeping a close watch on the volatility in the currency market to formulate a strategy for tackling the crisis.
"Despite a two per cent depreciation in the US dollar, Indian exports during the first quarter has registered a 11 per cent growth as against 15 per cent in the corresponding period last year," Prasad stated.
With consumer confidence in the US declining this month too, Indian exporters have become wary of pushing their goods due to lower realisation of earnings in dollar terms.
Huge budget deficit and deflationary pressures in the US economy have led to the appreciation of several currencies against the greenback, resulting in wide fluctuations in money markets the world over.
As against 5-7 per cent appreciation of the Indian rupee, currencies of many advanced countries in Europe, the United Kingdom and Japan have appreciated by 22-26 per cent during the last 12 months, leading to overvaluation of their monetary rates.
Cautioning exporters of their counterparts in China, Hong Kong and Malaysia, who enjoy the advantage of having their currency pegged to the US dollar, Prasad said Indian goods would have to be competitive with lower production costs as its currency was float managed.
"A stronger rupee or a weak dollar is not enough to make Indian exports competitive as other input costs determine the pricing advantage vis-à-vis Chinese or Malaysian goods that are flooding the global markets," Prasad asserted.
Apart from being competitive, exports should shift the invoicing pattern to other currencies by tapping the potential for their goods in non-US markets. The shift will enable them to absorb the volatility in the greenback vis-à-vis a strong rupee.
When a section of exporters voiced concern over the absence of rupee availability in other countries, Prasad said the government would be able to make such a provision once full convertibility on capital account was introduced.
"As such, convertibility is being made in a gradual manner, keeping in view the risks some of the South East Asian countries went through 2-3 years ago due to such a drastic step," Prasad hinted.
Advocating exporters to go for hedging their dollars, Prasad said booking forward premium would cushion them from the risk of a rising rupee and protect their export margins.
Later, Prasad told rediff.com on the sidelines of the session that the ministry would be pressing for a proportionate reduction in customs duty on imports by the Union finance ministry to increase the usage of dollars. The benchmark is to bring the tariff levels to that of the Asian countries.
"As of now, the government is using a portion of the huge forex reserves on retiring high-cost overseas debts. With around $85 billion in its forex kitty, the RBI too is ensuring that there would not be any speculation on dollar inflows," Prasad added.
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