Sunday, July 15, 2007

003 WHY SHOULD INDIAN EXPORTERS BE PAMPERED?


APPRECIATION OF INDIAN RUPEE - PAMPERING OF EXPORTERS BY GOVT. OF INDIA

The appreciation of Indian Rupee vis-a-vis US Dollar might have hurt the Indian exporters. The exporters' lobby prevailed and the Government of India shelled down Rs. 14000 million = Rs. 14 billion = USD 300 million approx. as relief to them.

When US Dollar rises and Rupee falls, the Indian exporters make cool windfall sweeping profits. They do not pay anything to the Reserve Bank of India or the Government of India. Why?

Numerous facilities are available to exporters in forex markets for protecting themselves against adverse fluctuations in rates, such as Forward Purchase Contracts, Forward Options, Forward Futures, Rolling Contracts. The exporters have to trade in goods and services and not in foreign currencies, that means they should always try to protect themselves through appropriate hedging arrangements with Authorised Dealers in India. That they do not do because they are interested in windfall profits from exchange gains.

It also reflects a sad state of our economy and our export business culture that our exporters depend more on weakness of Indian Rupee for their export competitiveness rather than the price and the quality of their product/service. When export of anything is artificially propped up through a weak Rupee, India loses its wealth by exporting more "value of goods/services" than really due. Some countries might have temporarily succeeded using this technique by resorting to repeated devaluations. But this tool does not always work. Besides, the tool is effective only when a country's external value is bloated than its real worth, by artificial means in the past.

In the current managed exchange rate mechanism adopted by RBI, it is difficult to say whether RBI is artificially bloating up or pulling down Rupee. If market forces truly operate the trends should reflect both ups and downs. However, the real problem of protecting Indian Rupee from the wolves of speculators who have nothing to do with genuine exports/imports of goods and services is an extremely difficult task for RBI.

No comments: