The Rise of the Rupee to Hurt Both Exporters and Domestic Manufacturing Industry : PHD Chamber

The value of the rupee, which has breached the Rs.40 per dollar mark today, propelled by record capital inflows by FIIs, is causing serious concern about its repercussions on the competitiveness of the economy in general and industry in particular, according to Mr. Sanjay Bhatia, President, PHD Chamber.

Mr. Bhatia said that the exporting community is very much perturbed by the rupee touching a new high. The exporters have already been feeling the heat as the foreign buyer is not willing to pay the extra price of rupee appreciation and the appreciation percentage has to be absorbed by the exporter. This lowers his export proceeds and erodes his profit margin thereby making the product uncompetitive in the international markets. Firms find that today's rise would cause their margins to go down further especially as competitor countries like China and Pakistan are quoting lower prices for their exportables. The small industry would be especially affected as they are already finding it hard to service their export orders at the prevailing price and their exports are becoming an unviable business proposition.

The rally of the rupee would further wider the trade deficit as exports would be hit while importers would gain from the cheaper foreign product.

Apart from exports, the reverberations of rupee appreciation would also be felt on the domestic manufacturer of finished goods who would now have to compete against influx of cheap imports in the market place which would drive down profits in the domestic arena, Mr. Bhatia added.

At a time when the economy and industry are moving at a high growth trajectory, it is important that a suitable policy is formulated and strategy devised so that the rupee does not drift further northwards. It needs to be recognised that a stable rupee would go a long way to enhance the competitiveness of our industry in the domestic as well as the global market.