Rupee appreciation: Exporters shift export invoices to euro

Mumbai: Euro-trading volumes in the domestic foreign exchange markets have shown a quantum jump over the last two months as exporters have started shifting the export invoices to the euro due to a strong appreciation of the rupee against the dollar.

According to the Federation of Indian Export Organisation (FIEO), currently the euro accounts for at least 30 per cent of the trading volumes in the domestic foreign exchange markets or about $300 million per day. Till about a month euro volumes comprised barely 10 per cent.

On 12 August the rupee strode to a three-year peak against the US currency. Breaching yet another crucial level of 45.90-dollar, the rupee climbed to a high of Rs 45.87/88 per dollar, before settling at the close to Rs 45.88/89, a nearly three-year high, despite a feeble attempt by the central bank to contain its gains. The rupee had last ended at better levels at Rs 45.7800/7850 per dollar on 15 September.

The daily volumes in the domestic foreign exchange markets are currently equivalent to over $1 billion. This trade was entirely dominated by the dollar till early this year. Since the beginning of April, trading volumes in the euro has been mounting.

Says FIEO chairman (western region) G K Gupta: "The trend is frightening and poses a direct threat to the competitive pricing of Indian products. FIEO has been flooded with frantic request for timely intervention by the RBI [Reserve Bank of India] and monetary authorities to correct this continuing distortion. While the official explanation for the strengthening rupee is due to the large inflow of remittances in the form of NRI [non-resident Indian] remittances, foreign financial investments and foreign direct investments, the basic cause is yet to be addressed."

IT firms such as Infosys Technologies, i-flex and Wipro have started billing its European clients in euros as a hedge against a depreciating dollar. "We have been gradually expanding in Europe and this is only logical. Our major presence is in the US and euro billing will only be a follow-up to dollar billing, which is usually done," according to N R Narayanamurthy, chairman and chief mentor, Infosys Technologies.