labels: trade
Exporters may switch to euro trade to beat firm rupeenews
21 May 2007

Mumbai: Indian exporters are exploring euro-denominated trade opportunities in view of the strengthening of the rupee, according to an FICCI survey.

Exporters were not viewing the recent strengthening of the rupee as a short-term phenomena arising from the RBI''s hands-off approach and non-intervention in the forex market. They rather fear the rupee will continue to maintain its current level over the next few months, the survey noted.

A sharp rise in the value of the rupee against the dollar over the past two weeks has delivered a sharp blow to exports in price-sensitive segments such as textiles, gems and jewellery, tea, spices, leather and marine products.

Exporters are considering various ways to tide over the crisis, including increasing prices, using forward contracts and switching to markets where the euro could be used as a medium of exchange.

While the strong rupee affected two-thirds of the exporters interviewed, less than a third had resorted to a mechanism that provides cover for currency exposure. Further, most of the companies reported that in their agreements with their foreign clients, there was no provision for revision of rates in case of a sizeable adverse movement in the exchange rate. Many exporters are contemplating catering only to the domestic market for the time being.

Exporters were also on the lookout for clients and markets where euro could be used as a medium of exchange rather than the dollar. Some said they were trying for a shift in the medium of exchange from the dollar to euro in their existing contracts. A few exporters suggested that they would be looking at a short period of validity of quotations for greater safety.

Added to this is the threat from China where the Yuan has remained constant against the dollar.

Trade experts say a rise in the rupee not only takes the wind out of exports but also sparks fears of cheap imports flooding the domestic market.

India''s overall exports grew a slower-than-expected 8.8 per cent to $12.58 billion in March from the same month a year ago as a stronger rupee weighed.

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Exporters may switch to euro trade to beat firm rupee