|Friday, August 4, 2000,
Heads & tails of Re fall
NEW DELHI, Aug 3 — The falling value of the rupee against the dollar signals a correction in real exchange rate terms and will help contribute to increasing the competitiveness of Indian exports while making imports costlier.
The fall of the rupee below the Rs 45 mark as against the dollar has brought in severe volatility in the foreign exchange market but at the macro-economic level there is cause for little concern, experts say.
Analysing the trend in the recent months, a foreign exchange expert with a leading multi-national bank explained that the falling rupee should be seen in the light of the trend in the other Asian countries.
Most Asian regional currencies are off their lows but still in negative territory. The prospect of higher US rates and lingering political and economic uncertainties in Indonesia, Philippines and Thailand are expected to keep regional currencies depressed in the near term. The Korean won, the Indonesian rupiah, the Philippine Peso and the Thai baht are all competitively placed against the dollar.
As a result, products from these countries have become cheaper and competitive in the international market.
According to Minister of State for Finance Dhananjay Kumar the fall in the rupee rate had adjusted for an appreciation in the real exchange rate terms and would help boost India’s exports.
It would offset some of the competitive disadvantages arising from the sharp depreciation of the currencies of India’s competitors in South-East Asia and neighbouring countries. It would also help restrain imports, he felt.
The slump in the value of rupee has come at a time when India’s exports during April-June this year has recorded a upswing. In dollar terms, it was estimated at $ 10,194.34 million which is 27.65 per cent higher than the level of $ 7,986.28 million in April-June 1999-2000.
India’s imports during April-June 2000-2001 are valued at $ 13,177.09 million representing a growth of 27.25 per cent over the level of imports valued at $ 10,355.66 million in April-June 1999-2000.
Of the import figures, non-oil imports comprise nearly 70 per cent ($ 9,241.68 million) of the total figure and the rest is contributed by oil imports ($ 3,935.41 million).
Export industry sources said this reflects that most of the exports too are driven by imports and, therefore, the advantage of the falling rupee need not be as much as expected. The continued pick up in exports in the current year, they say, will in fact contribute to increasing the import bill. Though internationally the prices of oil imports have fallen, the depreciated rupee can also negate the benefit in the short run.
The unprecedented acceleration in industrial output may also result in need for replenishment of stocks and push up the import bill. This will mean an increased trade deficit in times to come.
A senior consultant with a leading chamber of commerce and industry said the falling rupee would also have an impact on companies which have borrowed from abroad. Those companies which have substantial overseas borrowings and unhedged positions are bound to be hit.
International trade sources said a rupee that finds its own strength in the foreign exchange market was better than the one that is propped up artificially.
Previously, a substantial segment of the Indian industry remained unaffected by RBI’s intereference in the forex market as they were protected by quantitative restrictions.
However, with the progressive dismantling of QRs, the sector is becoming vulnerable to competition from imports and it is only in the scheme of things that the rupee be allowed to finds its own position vis-a-vis the dollar.
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