Revised comments on rising value of rupee - Surinder Anand

09 Apr '07

3 min read

The inevitable logic of the hardening of the rupee is that exports become less competitive and import lucrative. Garment Exporters are no exception to the general rule of the international trade. The over valued rupee will definitely hurt exports performance. On the other hand importers would be benefited from the appreciation of rupee.

Although, minor fluctuations in exchange rate do not make much difference to the negotiations finalized with buyers as garment exporters get seasonal orders, which give them enough time to evaluate the market and the value of the rupee before signing the contract, exchange rate fluctuations affect the value of cash flows received by exporters.

The key factors that can influence exchange rates movements are relative inflation rate and interest rate. The recent tightening of monitory policy by RBI to curb high inflation levels has also contributed to the strengthening of the rupee against dollar.

If appreciation of rupee continues, it will slow down our growth rate of export. Therefore a careful assessment and close monitoring of the exchange rate should be undertaken to ensure that financial flows do not adversely affect the exporters. What make the situation more difficult for the exporting Community is rising inflation rates and interest rate which have increased the domestic production cost and made our goods more expensive.

All these factors put together along with increase in transaction cost due to recent hike in input cost and higher taxes have made our exports uncompetitive in the International market as we are already facing tough competition from China, Pakistan, Bangladesh, Sri Lanka, Vietnam and Latin American Countries. We need a level playing field in relation to rupee-dollar parity to meet the increasing international competition.

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