World economy is threatened of the slowdown and centralbanks across the globe taken different measures to cope up with the anticipatedas well as unpredicted changes. Economic forecasts made, around the worldindicates that the world economy is not immune of the movements in the US economy. Forecasts by the European economic agencies suggest that Euro zone is headingtowards recession whereas the developing countries will be growing but with aslower rate.

For the first time since 1998, net investments by FIIsturned negative. In the first five months of 2008, net investments fell by Rs.118billion after having doubled to $809 billion in 2007 from an average Rs.414billion in the previous three years. This makes it clear that the Indiancurrency is quite vulnerable to our weak stock markets. If the Sensex were toregister another fall from here, the rupee would possibly drift downwardsfurther.

Every single paise depreciation of Indian currency broughtcheers to some exporters who hope that the domestic currency remains steady atthe level of 42-43 to a dollar. The trend is certainly good for exporters whoare in a competitive position and if the current exchange rate continues, theywill certainly grow by 35 per cent and the total exports would exceed thetarget of 200 billion dollars.

The rupee, quoted at 43.75 a dollar in early trade onWednesday last, had hit a more than a 17-month low of Rs.44.10 against thegreenback during intra-day in the inter-bank foreign exchange market. Thoughthe rupee meltdown is being welcomed by the exporters, they also feel that theywould prefer a stable rupee-dollar rate because it would give them a clearpicture when they make forward contracts.

With reversal of trend in exchange rate, India's exports have grown by 22.3 per cent in the first quarter of this fiscal at $42.84 billion.The country saw exports growing by 23 per cent to $155.5 billion in 2007-08despite the rupee appreciating by over 13 per cent during the fiscal. Despitethe rupee breaching the psychological mark of 45 against the dollar for thefirst time in almost two years, exporters said it is wrong to generalise thatthe depreciation of local currency is resulting in windfall profits to them.The volatility of the rupee is a cause of concern for the MSME export sectorthat is barely coming to terms with the substantial loss suffered in thederivatives market.

The rupee has depreciated 12.6% against the dollar so farthis year, as against the more than 10% appreciation in 2007 and suchfluctuations are making it difficult for the MSME export sector to quote theirexport contracts abroad and such marked gyrations in the currency also do nothelp well for emerging economies like India.

Impact of financial depression in the US

Thought the USA crisis is yet to hit the Indian exportmarket, the situation is definitely worrisome since India cannot remain immuneto the global financial market crisis flowing from the US sub-prime mortgage loans and rising commodity prices and these could affect the country's exportsas well as capital flows. According to the Prime Minister Mr Manmohan Singh, "India's economic growth has averaged around nine per cent per annum over the past threeyears, made possible by historically high savings and investment rates." "Oursavings rate after stagnating for almost two decades has touched 34 per cent ofGDP and the investment rate has crossed 35 per cent. These high rates arelikely to go up in future because of our young population profile."

What next?

The US financial crisis may have wreaked havoc in theworld's largest economy but India's business with it has not been affectedmuch, says a survey by the Indo-American Chamber of Commerce (IACC). The IACCin its Indo-US Business Confidence Index (IUBCI) indicated that the US sub-prime mortgage crisis had little effect on the economic cooperation and business andentrepreneurial confidence between the two nations. The index measures thelevel of business and entrepreneurial confidence between India and the US that saw a marginal decline in bilateral business, attributed to the slowdown ofservices exports from India due to a variety of reasons.

Significantly, merchandise trade from and to the US registered an increase, with imports from the US going up by 35.49 percent and exports by 11.5 percent in 2007 as compared to the previous year, the IACC said. The increase in imports from the US was mostly due to fresh market opportunities to US exporters particularly in electronics, avionics, aerospace and life sciences. Indian exporters seems to be in a worst situation everthe question is whether they should party over rupee meltdown boosting the exports or worry about the critical situations faced by the biggest importer.

Exporter's viewpoint

Mr. Anil Jain, Director, Manidhari Exports INC

Fluctuation/uncertainty in business is the worst to happen. The current depreciation is highly favourable provided there is sustainability so that we could decide one way or the other. Journey of Rupee from 39 to 47 vis--vis U.S. $ has been quite volatile and so wait and watch has been our mantra.

Mr. Ranesh Malhotra, Director, RNM International

Rupee slide has been a big positive development as it has triggered a new phenomenon. Some of the European buyers have already started rein voicing on Euro basis (as dollar is plummeting) which is clearly a big plus. Just to reiterate here that Rupee breaching 47 against dollar is a big relief. As per my view, at this point in time for US market there is an upward movement, provided it sustains (especially for mid value segment i.e. 8$ -14$ price point).

Mr. Zakir Khan, COTFAB (INDIA)

These are cheering moments, 45 plus is any day welcome. But let me make an observation here that in buyers' market the perception of buyer also keeps changing with swing in exchange rates. Though fortunate situation is that US market is clearly in reversionary state buyers are not been able to veto the situation. It was only US market which was always bullish and EU market has never been too bullish but is none the less very steady and consistent.

Mr. Virender Uppal, Richa and Company, Exporter

Rupee depreciation is very recent phenomenon, as it is many of exporters have already booked their orders at 40 to 41 price band (say 40-50% of their orders). Visibly this slide seems to be there to stay. What our community needs is a clear cut direction to have both stability and sustainability. Mr. Hari Kapoor, Allied Export Industries, Exporter Slide or no slide, the bigger issue in country like India typically is where you have to fight against so many odds...the most important among them is lack of clear cut governmental support. Government as a risk aversion should come to our rescue by insuring the currency. It is imperative to mention that everybody has thrown the caution out of the windows.

Mr. Sudhir Sekhri, Trend Setter, Exporter

The falling rupee price is a big plus but moot question is how long the honeymoon will last as I am very clear the current volatile situation is not going to improve the bottom lines. Incidentally since Indian exporter community was never sitting on the hump, the fall cannot be free.

Mr. Pritam Goel, Lyra Industries

Exporter Depreciation has not really been of much use as it has happened too early and too soon giving exporter community no time to rationalize. Also currencies everywhere are depreciating so there is hardly any cutting edge competitive advantage to anybody in this fluid state. If you see minutely falling rupee is rather adding extra burden on us defying any major gains.

Mr. Praveen Nayyar, Dimple Creations

Exporter Life at 47 could not have been better, instability is very scary. Indian exporters lack a clear vision to weigh the global market to take a clear cut stand. Worst is the reduction on drawback duties and at times the timing of government announcement. Journey to 39-46 has not been as painful as one expected it to since it thankfully happened in the lean period.

Source: AEPC Weekly