World economy is threatened of the slowdown and central banks across the globe taken different measures to cope up with the anticipated as well as unpredicted changes. Economic forecasts made, around the world indicates 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 heading towards recession whereas the developing countries will be growing but with a slower rate.


Life has come full circle for almost all companies that derive a significant portion of their revenue from overseas markets and reason is rupee's U-turn, which happened early this year. And on the other hand the exporter is worried about the financial crisis in the USA though he is not hit by the

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


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


The rupee, quoted at 43.75 a dollar in early trade on Wednesday last, had hit a more than a 17-month low of Rs.44.10 against the greenback during intra-day in the inter-bank foreign exchange market. Though the rupee meltdown is being welcomed by the exporters, they also feel that they would prefer a stable rupee-dollar rate because it would give them a clear picture 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 2007-08 despite the rupee appreciating by over 13 per cent during the fiscal. Despite the rupee breaching the psychological mark of 45 against the dollar for the first time in almost two years, exporters said it is wrong to generalise that the 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 sector that is barely coming to terms with the substantial loss suffered in the derivatives market.


The rupee has depreciated 12.6% against the dollar so far this year, as against the more than 10% appreciation in 2007 and such fluctuations are making it difficult for the MSME export sector to quote their export contracts abroad and such marked gyrations in the currency also do not help well for emerging economies like India.


Impact of financial depression in the US


Thought the USA crisis is yet to hit the Indian export market, the situation is definitely worrisome since India cannot remain immune to the global financial market crisis flowing from the US sub-prime mortgage loans and rising commodity prices and these could affect the country's exports as 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 three years, made possible by historically high savings and investment rates." "Our savings rate after stagnating for almost two decades has touched 34 per cent of GDP and the investment rate has crossed 35 per cent. These high rates are likely to go up in future because of our young population profile."


What next?


The US financial crisis may have wreaked havoc in the world's largest economy but India's business with it has not been affected much, says a survey by the Indo-American Chamber of Commerce (IACC). The IACC in its Indo-US Business Confidence Index (IUBCI) indicated that the US sub-prime mortgage crisis had little effect on the economic cooperation and business and entrepreneurial confidence between the two nations. The index measures the level of business and entrepreneurial confidence between India and the US that saw a marginal decline in bilateral business, attributed to the slowdown of services 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 (http://aepc.fibre2fashion.com/vol1issue65)