Soaring Indian Rupee leading to loss

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New Delhi, Oct 14: As the Indian rupee rockets to all time highs against the US dollar, industry chamber CII today said the appreciation of the Rupee has led to loss of comparative advantage for Indian exporters and also has put pressure on margins through cheaper imports.

The CII President Sunil Mittal in a statement issued today said the Rupee has appreciated by 11.8 per cent in the last one year and the currencies of competing countries in the international export markets had appreciated at a much lower rate, and in some countries their respective currency has depreciated.

Mr Sunil Mittal said,''Reducing the interest rates will not only help Indian industry including exporters to reducing their costs, but will also reduce the interest rate arbitrage opportunities and thus will help in moderating inflows of US Dollars.'' He added that RBI and the Government should take measures that will help arrest further appreciation of the Rupee and certain damage control measures could be taken to reduce the impact of the dual problem of rupee appreciation and high interest rates on the bottom lines of Indian industry.

CII stressed IT and ITES sectors are at a significantly disadvantageous position when compared to competing countries such as Philippines (8.8 per cent appreciation) and their earning and exports realisation has also had an impact on their bottom line.

Exports during the month of August 2007 registered a growth of 18.91 per cent compared to 41.14 per cent in August 2006.

Growth rate between April-June 2007 stood at 18.11 per cent against 32.4 per cent during the same period last year.

Exports could have grown at a higher rate given the robustness in output growth in the first quarter and high rates of growth in world output, Mr Mittal said.

Countries that are competitors to Indian exports in textiles, apparels and leather have a comparative advantage on the local currency front compared to the greenback as their respective currencies have appreciated at a lower rate than Rupee.

The CII President said the Chinese Yuan has appreciated by 3.6 per cent, Pakistani Rupee has appreciated by 0.3 per cent, Bangladeshi Taka by 3.2 per cent and the Sri Lankan Rupee has depreciated by 4.6 per cent thus making Indian exports dearer in this vital sector since January 2007.

Similarly, in the case of steel, countries that are competitors to Indian exports such as China, South Korea and Thailand have a comparative advantage when compared to India due to lower rates of appreciation of their respective currencies.

South Korean Won had appreciated by 2.3 per cent and Thailand by 10.4 per cent since January 2007. This is the case even in Auto components and now places Indian steel and auto components exports at a disadvantageous position in the international markets, said the CII President.

In the case of Chemicals and Petro-chemicals, China, South Korea and Thailand enjoy an edge over Indian exports in the international markets due to the high differential rates of appreciation, which is lower than Indian Rupee against the US Dollar.

''Appreciating rupee is also impacting domestic sales as imports have become cheaper and combined with this trend are high interest rates that have affected domestic sales of consumer durables sector such as Automobiles and consumer electronics. In the case of automobiles, stocks have piled up during the first half of this year in an increase of 18.7 per cent,'' Mr Mittal added.


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