Indian exporters to developing countries are keen on rupee-denominated trade to guard against the uncertainties of a volatile dollar and euro.
A fluctuating dollar following a downgrade of US credit rating by Standard & Poor’s has prompted exporters, especially those selling high-value engineering products or construction services to Africa, Central Asia and Latin America, to seek rupee-denominated trade. The Chinese government is pursuing this strategy.
Dollar and euro fluctuations are affecting exporters & causing a great uncertainty and erosion in realisations. No amount of foreign exchange hedging helps these days.
The dollar’s value is expected to fall against currencies such as the rupee and the Chinese currency Renminbi after the US rating rap. The Renminbi has appreciated 0.72 per cent to an all-time high in just four days after S&P cut the US debt rating from “AAA” to “AA+”.
It is feared that central banks all over the world will now look for ways to reduce their dollar holdings. They cannot do so overnight or even in the course of a year as the only competing currency — euro — is also going through troubled times because of the near bankruptcy in many euro zone countries.
Currency traders say they expect the rupee to come down from Rs 45 to the dollar to about Rs 40 by the middle of next year. Such a fall in value will mean an Indian exporter contracting to sell, say cars to Kenya at $10,000 apiece taking the dollar value at Rs 45, could get 12.5 per cent less in rupee terms.
Around 35-40 per cent of India’s exports are with the developing world, while 65-70 per cent are with the US, Europe, Japan and West Asia.
However, the 82 per cent jump in exports in June came mainly from the non-dollar, non-euro countries.
Sanjay Budhia, chairman of the CII national committee on exports and managing director of Patton Group, said, “Rupee denominated trade will take out the uncertainty in realisations.”
Exporters want India’s Exim Bank to give rupee debt to developing countries against which they can export profitably — just as China’s banks are extending Renminbi-denominated loans to Indian electricity generating companies to buy Chinese equipment.
However, as per former Fieo president A. Sakthivel, “Rupee trade does not help us much as most of our trade is with US and Europe. If we try to go for bilateral currency trade, accepting payment in local currencies of South America, Africa will be a problem.”
Many economists are also in favour of rupee trading. D.K. Joshi, chief economist of Crisil, said, “The Chinese are doing trade deals in Renminbi with many countries and we should do the same.”
