Rupee surge to hurt more in the future
The rupee’s surge against the dollar is set to hurt exporting companies across sectors like IT, textiles and automobiles. The IT industry is eyeing an export turnover of $31 billion in FY07.
NEW DELHI: The rupee’s surge against the dollar is set to hurt exporting companies across sectors like IT, textiles and automobiles. The IT industry is eyeing an export turnover of $31 billion in FY07.
Textile companies and garment exporters are equally alarmed though the bite isn’t hurting just yet. Said Orient Crafts managing director Sudhir Dhingra, “We usually book contracts three months in advance and we take into account a certain amount of swing at that time. So the fashion industry is not going to be affected by the currency fluctuation.”
Typically, garment exporters get seasonal orders which gives them enough time to evaluate the market and the value of the rupee before signing the contract. “It will make small dents but will only affect exporters who depend more on spot orders which leave them with no provision to take into account a certain amount of rupee hardening,” said Surinder Anand, executive secretary, Garments Exporters Association.
Industry experts feel that those dealing in commodity textile exports will be worse off due to more frequent spot orders. The real fear, though, is the future, rather than the present. Textile industry analysts feel that the bite may turn vicious if the rupee continues to appreciate beyond a certain limit.
Said Vardhman Group chairman SP Oswal, “Unlike India, China has controlled its currency and is not allowing it to go up. As an exporter it is always difficult if the value of the domestic currency appreciates. If it is not checked it will impact economic growth.” Federation of Indian Export Organisations director general Ajay Sahai agrees, “Exporters generally want the rupee to remain above 45. The problem will be if the rupee keeps on appreciating.”
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In the automobile industry, component companies are getting antsy about the rupee’s rise. Amtek Auto CMD Arvind Dham said: “The strengthening of the rupee will adversely impact Indian component exports making them less competitive. We are already competing with various low-cost countries like Thailand and China.” However, the hit may not be cross-segment. Said Shriram Pistons managing director AK Taneja, “Already, India is being flooded with Chinese imports and a hardened rupee makes our components less competitive. But this impact will affect the after-sales exports which constitute nearly 30% of the total pie. The rest are not adversely affected as they are OEM exports.” Result: The impact would be less on export growth and more on the profit margins of component companies, he said.
As for car makers, here too the pinch isn’t biting yet. Take Hyundai, India’s largest car exporter. According to a company spokesman, the Korean major’s export competitiveness will not be affected in the short run as the rupee hardening will be offset by the import content in the exported cars.
Company officials said that its built-in margins should be able to absorb the currency fluctuations in the short-run. Hyundai is targeting exports of 300,000 cars by 2008. Currently it ships 100,000 cars from India.
Brics Securities chief economist Bidisha Ganguly feels that the hardening of the rupee is a temporary phenomenon, on account of call rates shooting up. “I expect the liquidity situation to improve by April and for the rupee to go back to its earlier level. If this does not happen, it will not be good for the economy, as exports are already slowing down,” she said.
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