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Currency fluctuations put exporters in a spot

As there is a time lag of a few months between booking of orders and delivery of goods exporters say they do not know how much to price their goods. Smart investor

, ET Bureau|
Aug 28, 2008, 05.03 AM IST

NEW DELHI: The appreciation of dollar has failed to put a smile on the faces of exporters. Instead, they are frowning. The sharp fluctuation in the value of the rupee against the dollar over the last few months has put their pricing exercise in jeopardy, exporters claim.

As there is a time lag of a few months between booking of orders, delivery of goods and realisation of payments, exporters say they do not know how much to price their goods. At the time of realisation of payments, the value of the dollar might have significantly changed. Exporters have requested the government to continue the sops such as interest rate subvention, which are lapsing next month-end, for some more months.

Federation of Indian Export Organisations (FIEO) president Ganesh Gupta told ET that frequent fluctuations would not help exporters. ���In January this year, when the dollar was below Rs 39, we were asked by the government to live with a stronger rupee. Exporters had booked forward contracts at Rs 39.50 per dollar. Now, these are being executed at Rs 43-44, causing losses,��� he said.

Even smaller exporters who do not hedge risks are not celebrating. They feel the rise in the rupee���s value is temporary and the short-term rise will not be able to make good the losses suffered over the past year. Things might actually get complicated.

���If we price our goods today based on the existing value of the dollar, there is no guarantee that the dollar will not depreciate significantly three months down the line. We are apprehensive that there would indeed be a depreciation and we will get lower realisation for our exports,��� Delhi Exporters Association president S P Agarwal said.

Mr Gupta pointed out that since the international market for products such as textiles and handicrafts was basically a buyers market, where buyers called the shots, a fluctuating dollar can make things bad for exporters. ���If the dollar depreciates, we will be made to honour our obligations, but if it appreciates then the buyers will demand a lower price,��� he said.

The FIEO chief suggested that the RBI should fix an upper and lower limit for the dollar for a particular period and see that its value does not breach the two limits. ���I am meeting the RBI governor on September 8 and will put forward all proposals which could benefit exporters,��� he said.

The DEA, on the other hand, is not in favour of RBI intervention at the moment. ���When the rupee was appreciating, the RBI did not intervene. Now that it is depreciating and we stand to benefit, however, short-lived it may be, why should there be any intervention?��� Mr Agarwal said.

Both, however, agree the benefits given to exporters to tide over the impact of the appreciating rupee last year, like interest rate subvention and enhanced DEPB and duty drawback rates, should continue beyond September 31, 2008. ���The government should wait for some time and ensure that the appreciation of the dollar is not a temporary phenomenon before withdrawing the benefits,��� Mr Agarwal said. ���We have recommended that the benefits should continue for at least another six months,��� Mr Gupta pointed out.
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