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Stronger rupee Vs weaker exports

Jun '07
The Indian economy presents a bewildering picture of successes and failures generating a mixed feeling of hope and despair. The annual GDP growth rate of around 8.6 per cent during the last four years suggests that the economy is functioning quite efficiently.

The Reserve Bank's Industrial Outlook Survey reflects higher confidence and continued optimism surrounding corporate business activities. During January-March 2007, the overall business situation was assessed to be better than in the preceding quarter as well as in the corresponding period a year ago.

However, the garments exports which have been registering an impressive growth rate during the last few decades have recently shown a declining trend causing grave concern to the garment exporting community. The various factors have attributed to the fall in the growth rate of garment exports. However, the single most important factor contributing to the declining growth rate had been the persistent and significant appreciation of rupee vis-à-vis Dollar by about 10%.

It has not only adversely affected the growth rate of garment exports but has also eroded profitability of exporters. The high transaction cost, hardening interest rate, rigid and outdated labour laws, poor infrastructure and recent slow down in the US economy have also affected the performance of garment exports.

The rupee is still going higher and higher, further lowering the profitability of exporters. The recent tightening of monitory policy by RBI to curb high inflation levels has also contributed to the strengthening of the rupee against dollar.

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