The rupee has strengthened by as much as 14 per cent against the dollar and Tirupur exporters are facing losses of nearly Rs 2 crore (Rs 20 million) a day, according to Tirupur Exporters Association figures.
The association fears that if the rupee continues to strengthen, it will stymie many on-hand orders.
"China is pegging its currency against the dollar and it might become impossible for us to compete with them and stay in the market, when we have margin erosions of 8-12 per cent," says a TEA member.
"An appreciation of this sort... will not be sustainable in the medium term of three-to-six months," cautions Murugan, general manager, operations, Tubeknit Fashions.
"However, we understand that the dollar should level off at Rs 42-43 in the next three months or so. But that's still a 10 per cent appreciation in the interim."
Roughly 85 per cent of Tirupur's knit garments exports are shipped to the big European textiles merchandisers. Some exporters have entered into negotiations with the European buyers to accept payments in euros instead of dollars. No commitment is forthcoming.
Notwithstanding an expected growth rate of 20-25 per cent in fiscal 2008, exporters are aware that the grand wheels of the money market are not really in their control.
They are keen to look at other incentives to shore up profits -- like reducing packing credit interest rates. Interest rates are already sky-high following repeated RBI interventions, and this has affected packing credit, say exporters.
TEA has said that reducing packing credit rates would be vital and is recommending a 3 per cent reduction in interest rates offered to exporters.
While exporters are aware that buyers will not compensate them for the adverse effects of the rupee appreciation, they also view the situation in perspective by noting that returns from the fullscale upgrade of machinery over the past two years and constant internal growth accruals will more than compensate for revenue erosions.
Sunder Rajan, managing director of the Rs 350 crore (Rs 3.5 billion) SP Apparels, strikes a conciliatory tone, "We should be prepared to forego some margins owing to rupee appreciation for now. But in the medium term, we can compete better against China and others by offering value-adds like organic textiles and better embroidery which can raise unit value. The dollar is weakening in China too, and we should aim at charging the buyer $1.03 for every 1 dollar charged by the Chinese competition, to offset rupee appreciation losses."