A

REPORT

ON

“RISING RUPEE”

By

ABHISHEK KUMAR (1)

VISHAL ADAWADKAR (2)

VIKHAS AKHOURI (3)

ALI (4)

AMIT RAMPURE (5)

Sinhgad Technical Education Society’s

SINHGAD INSTITUTE OF MANAGEMENT
Vadgaon (Bk), Sinhgad road

Pune-411041

Index
1
1. Introduction………………………………..
………………03
2. Current scenario…………………………
……….……...04
3. Causes ……………………………………
………………..…05
4. Impact...………..…………………………
…….……………09
5. Corrective measures………………….…
………….….15
6. Future………………………………………
…………………17
7. Conclusion…………………………………
………………..18
8. Bibliography……………………..………
………………...19

2
 1. INTRODUCTION

The recent sudden and fast appreciation of the rupee has

many economists, bankers, and treasury managers running from
pillar to post to find answers. They want answers to, first, what
happened, then why and how and, lastly, what will happen down the
road.

Currencies appreciate when the economies are doing well and

the rise in their values is a cause for celebration. The high value of
the deutsche mark when Germany was the trendsetter for the world
economy in the 1960s and the 1970s, the high value of the yen in
the 1980s when Japan Inc seemed set to take over the world and
the dollar's high value in the later 1990s when the US new economy
brooked no competition were sources of immense pride for their
respective countries.

An appreciating currency is the natural corollary of a booming

economy with rising exports and is normally looked on favorably.
The high-decibel lamentation over the rupee's appreciation,
therefore, needs closer examination. The causes for rupee's
appreciation after years of continuous depreciation are readily
apparent. The current account surplus for the first time in years (it
has since reversed), due to increased merchandise exports and
invisibles, has resulted in supplies of foreign currency going up
sharply.

The huge FII inflows into financial asset markets and

increasing reliance on low cost foreign loans add to the supply glut,
and help power the rupee higher.

The rupee's appreciation is a result of forces of demand and

supply operating in the forex markets and involves no cost to the
exchequer. The heartburn on the rupee's appreciation against the
dollar is due to the fact that most of India's external trade is
invoiced in dollars and any change in the dollar's rupee value has a
disproportionate effect on the various stakeholders in the rupee's
3
external value such as importers, exporters, borrowers, lenders and
consumers of imported goods.

The Indian consumer is a big beneficiary too, as costs of a

host of imported goods — from petro products to electronic,
electrical and consumer items — would be higher but for the rupee's
appreciation. The rupee's appreciation is one of the reasons to lower
the inflation rate.

However, as the rupee continues to rise, the demands for

intervention are likely to become shriller. An artificially managed
depreciation would result in higher cost to Indian importers and to
the consumer in exchange for a probable boost to exports.

2. CURRENT SCENARIO

Whenever currency of a country moves up, it’s usually implicit

that the economy of country is doing well. The rupee against dollar
has appreciated from Rs 46 in July 06 levels to 39.50 levels in
October 07, an increase of more than 10 % in last year. The fig
shows the Rupee appreciation within different periods. The fig shows
the trend of rupee with different periods.

US dollar is the predominant currency in which billing for

exports are done. 73% of the Exporters make exclusive use of the
dollars for conducting export transactions.

1 Week ( 0.1% ) 2 Weeks ( -0.87% ) 1 Month ( -2.97% )

3 Months ( -2.48% ) 6 Months ( -5.85% ) 1 Year ( -13.14% )

4
 This ‘vehicle currency’ status of the dollar is further
reinforced as the remaining 27% of the exporters use a combination
of USD and other foreign currencies for billing exports. It is to be
noted that in case of those exporters who use more than one foreign
currency, the dollar on average accounts for nearly 75% of the total
billing portfolio.

The present heavy dependence on the dollar is reflected by

the exporters’ concern with regard to the situation at hand. A
significant aspect of the billing practice of exporters is that none of
the exporters have any inbuilt protective clause in their contracts,
which could perhaps have saved them from unpredictable change in
(Rs-USD) exchange rate.

3. CAUSES

When it comes down to the reasons for the appreciation,

many put forward. There have been accusations that the Reserve
Bank of India is pandering to the Finance Ministry by letting the
rupee appreciate so as to bring down inflation. Then, there are more
reasonable explanations that the appreciation is because of the
increased demand for rupee, a result of massive capital inflows.

3.1 Capital inflows

The currency of any country is set on the basis of demand and

supply, much the same as any commodity such as oil. All major
currencies are set based on trading in exchanges and the higher the
demand for a commodity, the stronger it becomes and vice-versa.

However, some currencies are not traded on international

exchanges, such as the Indian rupee. In such cases, the value of the
currency depends of inflows of money from other countries/sources.

5
 Capital inflows that come into the country are in the form of
foreign direct investment, portfolio inflows (foreign money that is
invested in equity), External Commercial Borrowings by Indian
companies, remittances by non-resident Indians, and many other
sources. During the April-May period of 2007-08, India attracted
total capital inflows of over USD 7 billion, where half of the
investment was received from the foreign direct investment and the
rest came from the portfolio component.

Dollars are pouring into India. Net investments by foreign

institutional investors (FIIs) were $10.16 billion during January-June
2007. This is more than the $8 billion recorded in the whole of 2006.
July has beaten all records with an inflow of $5.81 billion (so far).
The FIIs are chasing Indian stocks and taking the markets to what
many feel are levels of irrational exuberance. The bellwether
Bombay Stock Exchange (BSE) Sensitive Index (Sensex) was 15,732
on July 23 against 12,455 on April 2. (Incidentally, that day's low --
the Sensex plunged 617 points during the day -- was caused by the
RBI's attempts to control the rupee.)

The foreign direct investment (FDI) numbers are equally

impressive. In 2006-07, FDI inflows touched $19.53 billion, a 153%
increase over the previous year. (This figure includes private equity
and also $3.5 billion in reinvested earnings.) The government is
looking at a target of $30 billion in 2007-08. Foreign exchange
reserves stood at $214.84 billion on July 6. This is a far cry from $5.8
billion in the dire days of March 1991, when India had to sell its gold
to stave off a default crisis.

Therefore, when there is strong inflow of the above, the rupee

will appreciate and vice-versa.

3.2 Big trade surplus

Another way a currency can appreciate is if it has a big trade

surplus (when exports are more than imports) as there is a greater
demand for the local currency because exporters have to change
their foreign earnings into the local currency. However, the above
only happens when a central bank of country does not intervene in
the currency market and manipulate the level of the currency.

These exchange rates of these currencies are known as

`floating exchange rates' because they move as result of regular
market actions. Countries that typically do not intervene in the
currency markets are the UK and the US.
6
 However, central banks of Asian countries, such as India and
China, do not suffer from such compunctions. The central banks in
this region regularly manipulate the level of their currencies. The
most egregious `offenders' have been China and Japan; both have
expended billions upon billions to depress the level of their
currencies. These currencies are called `managed currencies' or
`partially floating currencies' for obvious reasons.

The central banks of these countries artificially depress the

value of their currencies in order to become more `competitive'.
They become competitive because their artificially cheaper currency
makes goods produced in their countries cheaper vis-à-vis those of
other nations and that has the potential to boost their exports.
China is case in point. This type of manipulation of currencies is also
known as `mercantilism' whereby a country manipulates its
currency so as to promote trade.

Indian Merchandise exports have picked up by 18.11% during

the first quarter of 2007-08, touching USD 34.3 billion. However the
exports growth in the first quarter of current fiscal could not match
the growth pace, of over 30% recorded in the corresponding quarter
of 2006-07. The low growth pace is mainly due to a host of
constraints that include high rate of exchange, rising cost of raw
material and increase in borrowing rate.

Imports however have clocked a growth of 34.30%, much

higher than what was posted in the same period a year ago. The
growth in imports has primarily come from high growth of 50.36% in
the non-oil segment. The oil segment however saw growth rise by
only 4.21% during the three-month period.

3.3 Fixed Currencies (RBI interventions)

Then there are the `fixed currencies'. They are fixed by

design. Usually a country will anchor its currency against a set value
of another country's currency and will do anything and everything to
maintain this value. This is also known as `pegging'. This policy is
followed for several reasons and one of them is the mercantilist
reason. Another reason is to combat inflation.

The theory behind this is that if a currency latches itself on to

another one, the central bank of the latching country is forced to
mimic the responsible monetary policies of the `latchee' country.
7
 Since this ensures better monetary policies, it is presumed
that it will lead to lowered inflation rates though that is a matter of
debate. Some countries also fix the value of their currencies against
a `currency board' which consists of several currencies.

The RBI periodically intervenes in the currency market to ease

the pressure. To do so, it simply sells rupees in lieu of dollars and
this usually takes the pressure off. However, the caveat is that it can
only do so when the pressure is moderate otherwise it will have to
expend huge amounts.

Further, RBI buying of US dollars will create a surplus of

rupees in the public's possession, which RBI will have to suck up by
selling bonds in exchange for rupees. This, in technical terms, is
called sterilization. In effect, it leads to bonds becoming cheaper,
due to oversupply. This, in turn, implies an interest rate rise, which
will attract more forex inflow — a vicious cycle.

3.4 Expanding Base/Sterilized Interventions

However, when the RBI intervenes in the currency

market by selling rupees, it creates another problem. The dollars
that it gets enter the monetary base (high-power money supply) and
this obviously leads to the base getting bigger. When this happens,
considerable inflationary pressure mounts on the system because it
becomes a case of `too much money chasing too few goods'; the
definition of inflation.

Therefore, to stave off this potential inflation, the RBI — any

central bank for that matter — resorts to a tactic known as
`sterilization'. As the word implies, the RBI sterilizes the rise in the
money supply. For example, if the exchange rate is $1= INR42 and
the RBI sells Rs 4200 crore, it receives $1 billion.

To ensure that this $1 billion does not lead to a rise the money
supply, the RBI issues bonds for exactly Rs 4200 crore and sucks out
that amount out of the system. As a result, the money supply is the
same as before the intervention. This is known in the business as a
`sterilized intervention'. The cumulative MSBs (Market Stabilization
Bonds) sold, is rising as the exchange rate level is appreciating. This
means that the rupee appreciated willy-nilly as a result of capital
inflows. The RBI did its best to contain the rise of the rupee, as is
evidenced by the rise in the MSBs. This rise is even more
pronounced in early March 2007.

8
 On March 2, the number of outstanding MSBs stood at Rs
43,734 crore and this doubled to Rs 86,306 crore by June 8,
reflecting the massive capital inflows. However, what is interesting
is the dip is the MSBs towards the end. This is because the RBI
started rethinking the policy on the MSBs and sterilized less.

There is a good reason for this. When the RBI sells MSBs, it
has to pay a certain rate of interest on those bonds. Selling all those
bonds makes sterilization an incredibly expensive exercise, some
thing the RBI is not keen to bear.

3.5 US dollar is Weak.

USD slid against all other major currency, as global

market sentiment remained skeptical on the Dollar. In fact, the
dollar hit fresh 26 year lows against the British pound, 24 year lows
against the New Zealand dollar and 2.5 year lows against the Euro.
One of the biggest reasons for the slump of the dollar is the bad
news that is coming out the Asian countries especially those with
large foreign exchange reserves, in particular, China.

4. IMPACTS

While a strong rupee may delight the hearts of certain

sections of markets such as importers, it brings tears to the eyes of
exporters. The number of jobs at stake and the export volumes that
are affected call for a multi-pronged approach that should attempt
to address the fundamental problems. Let’s analyze the effects on
different parts of economy one by one.

4.1 EXPORTERS

9
 Widespread disruptions have been caused by the rising rupee.
Even 39 rupees will fetch a dollar. This has seriously impacted the
export prospects of many industries, in particular, textile, garments
and software.

Exporters get their sales proceeds in dollars, which, with the

rising rupee, fetch lower number of rupees. Viewed alternatively, the
exporter has to quote a lower rupee price to match the US market
demand at a given dollar price. Rising costs and an appreciating
local currency can apply pressure on both the cost and revenue
sides and render export trade quite uneconomic

According to the FICCI study, the most significant impact of

the appreciating rupee is the pressure on margins, with 86 per cent
of the exporter-respondents complaining about it. This is the crux of
the matter behind the protest among some sections of exporters
against the appreciation.

4.1.1 BASIC ECONOMICS

An analysis of the maths is necessary to throw light on the

underlying economics of the export trade at the individual exporter
level. If not anything else, it may at least point to how important
active hedging is for Indian exporters in the current and emerging
environment.

Assumption-the Total revenue TR, of Indian firm in selling its entire

output in the US

A. The Total rupee revenue TR = S * P * q

B. Total Cost of Production of quantity C=c*q

Where,

S= Exchange rate (number of rupee per dollar)

P= Sales price in dollars in the US

q= number of units sold

c= Cost per unit in rupees

10
A profit maximizing (loss minimizing), in determining the amount to
sell or equivalently in determining what price to charge,

C. MARGINAL REVENUE = MARGINAL COST

dTRdq=dTCdq

Where, dTR, dTC are chance in total revenue and change in Total
Cost respectively.

By differentiating equation 1 and 2 with respect to q,

S*P+S*q*dPdq=c

SP 1+qP*dpdq=c

SP 1-1N=c

D. P=c/(S*1-1N

Where N=(dqq)/(dPP) = is price elasticity of demand, which is

percentage change in quantity divided by percentage change in
Price and is normally negative.

Equation ‘D’ tells us the Indian company, how to set its price
abroad in dollars according to the cost of production, the prevailing
exchange rate and the elasticity of demand.

It can be noted that the equation ‘D’ makes sense only when
N > 1. It is only then that the marginal revenue will be positive and
will be atleast equal to the marginal cost.

Consider an Indian company which exports only to the US

market. (This is quite a realistic scenario in Tirupur, for instance,
where there are a number of mid-size exporters who sell almost
entirely in dollars/ to the US market).

Equation ‘D’ also brings out clearly how rising costs and an
appreciating local currency can apply pressure on both the cost and
revenue sides and render the export trade quite uneconomic.

For example, assuming per unit cost of production is Rs 100,

an exchange rate of Rs 45 to the dollar and a price elasticity of 2,
11
one can see that the unit dollar price for the exporter will be 100/45
(1-0.5) = 4.5.

Now, if production costs rise and the local currency also

appreciates (as has happened in the case of Indian exports), without
any change in the price elasticity (elasticities are quite sticky in the
short/medium term and also unlikely to change in the case of low
value added items), the exporter will be literally priced out by his
competitors who have not experienced such cost side
pressures/local currency appreciation.

Assuming that unit costs rise to Rs 120 and the rupee

appreciates to 40 against the dollar, one can see that the
equilibrium dollar price for the exporter should rise to at least $6 per
unit. How many mid-size Indian exporters have the pricing power to
increase negotiated and agreed upon prices?

Compare the above workings with that for a Chinese exporter

who has not experienced such cost side pressures and also,
importantly, benefits from a relatively much more stable currency.
The Chinese Yuan, for instance, has been allowed to rise around 9
per cent against the dollar in the two years since July 2005 — from
8.28 to 7.51 now — but the Indian currency is up 10 per cent in just
the last 7 months.

It is obvious that the Chinese exporter will have a significant

price advantage which can be extremely useful in increasing market
share — particularly in low value-added items.

Equation ‘D’ tells in a very concise manner how critical it is for

the exporter to protect the (initial) exchange rate based on which
his export pricing has been worked out. Such protection is achieved
only through active and systematic hedging.

4.1.2 IT & BPO sector

There is rising concern over the steep appreciation in the

rupee, while large IT companies were better placed to ease margin
pressures through hedging and higher utilizations, it was putting a
strain on BPOs and small and medium-sized firms.

In the last quarterly results, although the rupee appreciated

by 10 per cent the margins were not impacted to that extent, as
companies took preventive action through currency hedging and
increase in utilization levels. However, the impact is more severe in
the case of BPOs as most of their expenses are in rupee. Also, the
small and medium-sized companies, which are constantly under
12
cost pressure and have less levers to act on, are hit harder. The
demand continues to be robust, and companies are in a position to
capitalize this demand.

To put the matter in right perspective, it is important to

understand that the software industry, which has seen a meteoric
rise the last 15 years, has been helped to a very large extent by the
economy and the exchequer. The rupee depreciated from 1992 to
2003 by almost 100 per cent against the dollar (it depreciated from
Rs 24.5 in 1992 to Rs 48.5 in 2003), and this definitely helped the
software industry become the most profitable in the country.

4.1.3 CHEMICAL PRODUCTS

The rising rupee will reduce the growth in export of chemicals

and allied products to around five per cent from the current 10 per
cent, according to the Chemicals and Allied Products Export
Promotion Council. The worst-hit will be products such as books,
glass and glassware, rubber products, paper and granites etc.

However, the council is confident of doubling its export to $20

billion from the current $9.8 billion. After taking into account the
rupee impact, they have kept a conservative target of doubling our
exports in the next 10 years.

4.1.4 DOMESTIC MANUFACTURING INDUSTRY

Among those affected are manufacturers whose products are

substitutable by imports, which have turned cheaper as the rupee
hardens. The trend is evident in a bevy of sectors such as chemicals,
textiles, standardized auto components and tyres, where imports
have been on the rise.

L&T has a number of manufacturing units that are affected by

imports from China. They are small units and hence overall the
company is not affected much. However, the units – producing
plastic and rubber machinery, valves and medical equipment – in
Tamil Nadu and Karnataka have over 2,000 employees and get
almost half their turnover from exports.

Domestic suppliers to export firms are also taking a hit as

exports falter. Further compounding the woes of the domestic
manufacturing sector is the fact that India is fast turning into a high-
cost economy, with spiraling real estate prices, increasing interest
13
rates and high cost of infrastructural overheads such as power and
freight costs, all of which translate into whittling down of margins.

4.2 IMPORTERS

But all is not gloomy here as the “Rupee at nine year high” is
a sigh of relief for importers in the country. The oil marketing
companies are already facing the volatility in crude prices resulting
in under recoveries and so the appreciating rupee here comes to
their rescue.

According to an IOC official - “For every 1 Re appreciation the input

cost of crude dips by 2%”

The rising rupee will help the government to curb inflation, as the
input cost of crude and electronic items will be lowered which will
help in fighting the ongoing inflation and hence the interest rates.

One of the biggest beneficiaries of rising rupee stands out the

borrowers who have borrowed from international banks. The
companies like Tata steel, McDowell to name a few for their take-
over plans of Corus and Whyte & Mackay.

As on Dec.2006 the country has an external debt of $142.65

billion dollar so a 7% appreciation in dollar means the external debt
is reduced to $132.66 billion, (assuming no more borrowings are
taken and no repayments made). This is again positive for
increasing Gross Deficit of the country.

4.3 High Inflation, interest rates

Depreciation of the rupee had a huge impact on the domestic

economy as also the manufacturing and other industries. Due to this
unprecedented depreciation of rupee, the country has had a very
high interest rate regime and also high inflation impacting the
common man severely. All this to some extent impacted GDP growth
as well. It was not only depreciating rupee that helped the software
industry but also the way this sector was given the favorable
treatment on all the fiscal policies.

The Indian manufacturing industry has really put its house in

order and managed rather well the shocks of high interest rates, the
depreciating rupee and also the high cost of energy. It is only during
last three years we have seen interest rate coming down, inflation

14
moderating and the rupee appreciating. The stable rupee for last
three years and the little appreciation now have helped the country
overcome to some extent the shock of high energy cost.

Since India’s is not an export-led economy and external trade

is just about 13 per cent of GDP, rupee appreciation will not really
have a major negative impact on the growth. However, certain
sectors which are largely dependent on exports, for instance,
textiles, have been rightly given short-term relief that should help
them to stand on their feet quickly.

It is absurd to think of and ask for any relief to the software

industry, which is not only very mature but also highly profitable. Its
profit margins have at best been impacted by just about 3 per cent
on an average margin of over 30 per cent and to think of any help at
that level at the cost of economy is beyond reach.

4.4 Infrastructure

To sustain the economic growth of 9 per cent, India needs to

spend a huge amount of money on infrastructure projects. It is
estimated that country would need over $400 billion in the next five
years to spend on infrastructure. The domestic saving rate is rising
very well but yet not sufficient to meet the total requirement of
capital to build the required infrastructure.

In this situation, it is crucial that the country attracts foreign

capital for investing in infrastructure projects.

Hitherto infrastructure growth was happening at a slow pace

due to the high rate of interest, the high inflation levels and a
depreciating currency.

In view of huge requirement of foreign capital, it is of utmost

importance that the country has an appreciating currency to instill
the confidence among foreign investors. Thus, an appreciating
currency is the need of the hour and any lobby against this is
counterproductive and going against the economic growth story of
India.

5. CORRECTIVE MEASURES FOR EXPORTERS.

15
5.1 GOVERNMENT INITIATIVE

Bowing to exporters’ demands, Government announced a new

set of relief measures for exporters in the wake of rapid appreciation
of the rupee in recent weeks.

The latest package comes on top of the estimated Rs 1,400-

crore financial relief measures, announced in July this year, which
included accelerated reimbursement of dues to exporters, reduction
in pre-shipment and post-shipment credit and revision in drawback
and DEPB rates.

The Finance Ministry had also in mid-September said that

refund of service tax would be available in respect of four services,
which are not in the nature of “input services” but could be linked to
export of goods

The relief measures announced included widening of the

coverage as well as extension of the time period of the reduced
export credit, refund of service tax on three more services, a
provision to pay interest on exchange earners foreign currency
(EEFC) accounts and an increase in the revenue ceiling on Vishesh
Krishi and Gram Udyog Yojana (VKGUY).

The coverage of the 2 per cent interest subvention, made

available in July 2007 to nine specified sectors, has been expanded
to include sectors such as solvent extracted de-oiled cake and
plastics and linoleum. Also, jute and carpets (under textiles) and
processed cashew, coffee and tea (under processed agricultural
products) would be eligible for this.

The three new services for which refund of service tax would
be available to exporters are general insurance services, technical
testing and analysis agency services and inspection and certification
agency services

At present Exchange Earners Foreign Currency (EEFC)

accounts are non-interest-bearing accounts. It has now been
decided to allow interest to be paid on these EEFC accounts subject
to: Interest should be permissible on outstanding balances to the
extent of US$1 million per exporter. Rate of interest may be
determined by the banks. This measure would be valid up to

16
31/10/2008. Such accounts should be in the form of term deposits
with a maturity of up to one year.

5.2 DIFFERENT WAYS

Cost cutting to be an important measure. This could be

achieved through inventory control, reducing travel, advertising,
and entertainment, logistic, selling and administrative expenses.

Although a shift to any other currency is a difficult and

challenging task for the exporters; FICCI survey showed that if a
change in currency is an option then most preferable currency; 89%
respondents acknowledging Euro as the most preferred currency,
followed by GBP as the second best with 44% and then finally
Japanese Yen with 22% vouching for it.

Some of the exporters have also resorted to rationalization of

manpower to bring down their employee cost.

Protective Clause in Contracts: For protecting the business

from unexpected exchange rate movements, volatility in exchange
rates business contracts are covered or made safer with a protective
clause/s, which safeguards the business from unlimited and
unexpected

There is a need to provide sustainable competitive edge to

Indian exporters through improved infrastructure especially port
facilities, highways and power availability.

17
 6. FUTURE

Any forecast of beyond a year should be taken with a grain of

salt. A forecast of the rupee is something that falls into that
category as there is no standard quantitative model to forecast the
rupee movement and most forecasts of the rupee are qualitative
judgments.
Many economist think on the rupee is fairly similar to the
above. In the near-term, it should be in the 41.50-42 range. The
reason is that the rupee gets heavily influenced by FII inflows. FIIs
(hedge funds) are bringing in big sums because of the property
market and Initial Public Offers by Indian corporates as well as the
booming stock market. However, most of this money is short-term
and will go out of the country fairly soon especially as stock market
and real-estate valuations in India are generally thought to be in the
expensive and over-valued.
The rupee will start appreciating again in around 18 months
because FDI money into infrastructure projects will start coming in
and this money is going to be fairly large. However, it is unlikely to
appreciate beyond the Rs 38 levels because the RBI will still view
rupee appreciation as something that will affect the economy as it
can hit the software and the export sectors fairly heavily.
What the past few months have shown is that a currency that
is managed just does not work in the long term. It gives the illusion
of being a panacea but in effect only pushes problems into the
future. The gist is that the rupee needs to be left to market forces.
They may be some volatility in the beginning but then it usually will
sort itself out.
The RBI may have been a decent manager of the currency
before but that was when capital flows were at a minimum. It would
be fair to say that central banks are often out of their depth in this
era of modern capital flows.
The only way out of this predicament is to free the rupee and
for the country to adapt itself to a free floating rupee as the costs of
managing the rupee will soon outweigh any benefits.

18
 6. CONCLUSION

With restructured operations helping it take on competition

better, India Inc is not too worried by the rupee's rise against the
dollar. The stronger rupee will also make imports cheaper, attract
more FDI and soften the impact of the crude price spurt. Now is the
time for the Government to use the bulging forex kitty to trigger an
investment boom in the economy

While the rupee's rise has helped some exporters to rein in

costs and increase their competitiveness in the global market, in
general, profit margins have eroded. Indian importers, borrowers of
foreign currency and the consumer have, however, all gained. The
clamor for government intervention to depreciate the rupee thus
seems overdone.

The rising rupee, however, does throw up short-term

challenges and opportunities. It will force the IT industry to look
beyond labour cost arbitrage to create value for its customers - what
can be called the Third Wave approach. It will refocus the industry
on driving new efficiencies and improving productivity.

Intervening to artificially depreciate the rupee will involve

outlay of public funds which can be better used elsewhere. And as
data show, this may not result in any appreciable rise in exports as
the past slowdown in export growth was determined by global
economic conditions and not only by the rupee's value. The rupee's
value seems to have but a marginal effect on export performance.

The rupee, with centuries of history behind it, is capable of

depreciating with elegance and appreciating with grace. If only we
would let it.

19
 7. BIBILOGRAPHY

SURVEY REPORTS

1. FICCI survey on ‘IMPACT OF RUPEE APPRECIATION ON INDIAN

EXPORTERS’

NEWSPAPER ARTICLES:

• BUSINESS LINE- Business Daily from THE HINDU group of publications

1. ‘Rupee-Stronger the better’-dated July 24 2007.

2. ‘Dynamics of Rising Rupee’-Dated June 25 2007.
3. Rising Re: ‘BPOs, small cos under pressure’-dated October 04
2007.
4. ‘Manufacturing units hit by rising rupee, Chinese
imports’-dated Oct 10 2007.
5. ‘Rising rupee to hit chemical products export growth’-dated
Sep 26 2007.
6. ‘Rupee appreciation upsets export arithmetic’-Dated Oct 4
2007.
7. Dollar Vs Rupee-Dated Oct 16 2007.
8. ‘Leave the rupee to the market’-dated July 02 2007.

• Others.
1. ‘The case for currency appreciation’-dated Oct 2003-
ECONOMICS TIMES
2. ‘Efficiency, not sops, can tame rising Re: Nath to
exporters’-dated Sep 24 2007 The Financial Express

20
WEBSITE INFORMATION
1. http://www.dbs.com/researchasset/econalert/2006/fxstrategy_w200
6sep06.pdf
2. www.rbi.org.in
3. www.thehindubusinessline.in
4. www.indianexpress.com

21