Rupee hardening; Exporters may go for Euro

New Delhi, May 20: In the wake of strengthening rupee and consequent pressure on profit margins, country's exporters are on the lookout for euro-dominated trade opportunities.

A combination of factors namely rising cost of raw materials, hike in interest rates and appreciating rupee has jolted the confidence level of Indian exporters, according to a FICCI survey.

Exports in segments such as textiles, gems and jewellery, tea, spices, leather and marine products are extremely price sensitive and the recent movement in the rupee's value has started impinging on their export performance.

Expressing their views, Indian exporters surveyed by the chamber said if the Euro is replaced as a medium of exchange for dollar, there would be more stability in the prices and it would be easier for them to hold their position in the international market.

While on one hand the rupee realisation for the exporters is going down, on the other hand their margins are getting squeezed to the point where some of them are contemplating catering only to the domestic market for the time being, it said.

It further said the most severely hit are the small and medium enterprises (SMEs), which unlike large enterprises neither have the option of reducing their cost burden by resorting to external sources of finance like ECBs nor have the knowledge about how to safeguard and hedge currency exposure using sophisticated techniques like the forward contracts.

Many of the participating companies said in several countries and in several product categories they face stiff competition from Chinese exporters.

Given the 'implicit subsidy', which exporters from China enjoy in terms of an artificially pegged exchange rate, the recent sizable appreciation in the rupee value has dealt a blow to the competitiveness of the Indian exporters, it said.

The survey showed that while the adverse movement in the country's exchange rate is affecting a significantly high 75 per cent of the participating companies, just about 30 per cent of the participating companies have put in place or have resorted to a mechanism that provides cover for currency exposure.

Further, 82 per cent of the companies reported that in their agreements with their clients they do not have a clause that allows revision of rates in case of a sizable adverse movement in the exchange rate.

The survey said the exporters are not viewing the recent strengthening of the rupee on account of RBI's hands off approach and non-intervention in the forex market as a short-term phase.

Rather there is an apprehension that the rupee will continue to maintain its current level over the next few months.

Several participants have reported that while any increase in the final price of their products would reduce their competitiveness in the international market, the present situation is such that they can no longer hold back prices.

Several companies have already started engaging their international clients and are negotiating an upward revision inthe prices for their products, a task, which they say, is extremely difficult.

In addition to an increase in prices, companies are also planning to enhance export volumes, as the demand conditions in the international market remain favourable.

Several exporters have also shown keen interest to hedge against the exchange rate risk using instruments like the forward contracts.

Some exporters have also suggested that they will be looking at a short period of validity of quotations for greater safety.

The survey, which was carried out during the months of April and May 2007, drew responses from 304 companies representing sectors like automobiles, consumer durables, food and food processing, gems and jewellery, FMCG, textiles, handicrafts, metal and metal products, heavy engineering, pharmaceuticals and chemicals.

UNI