Unabated rise in Indian rupee seen pinching export revenue

Friday, 26 March 2004, 08:00 Hrs
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NEW DELHI: The latest round of appreciation in the value of the Indian rupee against the US dollar has caused jitters in the exporting community with companies expressing concern about their earnings and competitiveness.

Analysts said the unabated rise in the value of the Indian currency would badly pinch the earnings of industries like software, textile and steel that bring in a majority of their revenue from exports.

"Earnings of top software companies will definitely be pressured by the rupee's strength in the current fiscal year," said Sameer Kochchar, chief executive officer of Skoch Consultancy, an independent IT industry research firm.

"Most top Indian software makers on an average earn 70 percent of their annual revenue from the US. So the sharp rise in the value of the rupee will badly hit their export earnings," Kochchar told IANS.

Marquee Indian software companies like Infosys Technologies, Wipro and Satyam Computer Services will start unveiling their January-March quarterly financial results from early next month.

Kochchar said the rising Indian rupee came as bad news for Indian software firms that are already reeling under billing pressure and growing backlash in the West against shipping of jobs to low cost economies like India and China.

The Indian currency has appreciated by nearly two percent in the current calendar year after rising over five percent last year on strong foreign fund inflows.

The Indian rupee rose for the sixth straight session Thursday on heavy foreign fund inflows. The rupee ended at 44.74 per dollar, marginally higher than the previous session's close of 44.74/75.

Foreign exchange dealers said the rupee is still somewhat undervalued and rising foreign investments in Asia's third-largest economy were expected to keep the rupee firm in the near term.

"The strengthening trend in the rupee will persist in the short to medium term on increased foreign fund inflows but the pace may slow down a bit," said a New Delhi-based foreign exchange dealer with a public sector bank.

India witnessed sharply higher foreign fund inflows in the last few weeks as overseas investors pumped in money to participate in the government's stake sale offer through the public offer route.

New Delhi has mopped up whopping $3 billion by selling part of its stake in leading state-run companies by floating public offerings in the last one-and-a-half months.

Foreign investors have increased allocation in the local stock market in the last few months on hopes that the Indian economy would see a sharp rebound in the current fiscal.

India is set to be one of the fastest-growing economies this year, perhaps surpassed only by China. India's October-December gross domestic product increased 8.4 percent from its previous year's level.

Indian exporters, however, said with over 85 percent of the country's exports invoiced in dollars, domestic companies could lose out to their competitors in neighbouring markets if the rise in the rupee is not arrested soon.

"The sharp appreciation is frightening for exporters as it has already lowered their profit margins to less than five percent," said Rafeeque Ahmed, president of the Federation of Indian Export Organisation.

"It threatens to eliminate our competitive edge over other Asian and South Asian countries, particularly China and Vietnam, which have pegged their currencies to the US dollar," he said.

"If no remedial measures are initiated immediately, the export figures in the April-June period of fiscal 2004-05 may fall sharply to a single digit."

Exports, which account for nearly 10 percent of India's gross domestic product, grew by 15 percent in the April-February period of the current fiscal, raking in revenues to the tune of $53.07 billion.

Source: IANS
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