Mumbai: Exporters must diversify into other markets in order to tackle the problem of the rupee's appreciation against the US dollar and hedge their currency risks, director general of foreign trade R S Gujral has said.

Exporters, he said, must learn to hedge currency risks and diversify into markets where the invoicing could be done in a currency stronger than the rupee. While the rupee has risen almost 13 per cent against the US dollar, it gained only six per cent against the Euro, Gujral pointed out.

"They can at least try invoicing in Euro, where the appreciation of rupee has been far less compared to the dollar. One has to see the other currencies also, and not depend only on dollar for foreign trade," he said.

Addressing exporters at a meeting organised by the Federation of Indian Export Organisations (FIEO), western region, Gujaral asked exporters to try and develop more niche products, modernise and reduce cost of production to remain competitive.

"We have to live with the issue of fluctuating currency exchange rate and look inwards for strengthening our base, rather than government taking steps like fixing the exchange rate. Such an action will be regressive in the era of modernisation," he added.

The meeting was part of DGFT's exercise to take inputs from exporters before finalising the annual supplement of the foreign trade policy for 2008-09, which will be announced in April next year.

He assured exporters to consider their demand for eliminating customs duty on import of capital goods under the EPCG scheme that entails an export obligation in next year's foreign trade policy.

Meanwhile, the centre today asked the state governments to help rupee-hit exporters by refunding their taxes.

"At present, the number of taxes, including VAT, octroi, electricity duty are borne by exporters. They should be rebated or refunded, and I will urge state governments to look into this issue carefully," finance minister P Chidambaram said at the 54th meeting of the National Development Council.

Exports are under great stress due to the rapid appreciation of the rupee against the week dollar, he said, adding that it is a universally accepted principle that taxes should not be exported.