The phenomenal rise of the rupee in the recent past, following the massive influx of foreign funds into the domestic stock markets, has hurt the exports sector badly, the Federation of Indian Export Organisations (FIEO) said today.
The rupee has strengthened against the American greenback by about 4.8 per cent during the past few months, while it has hit a 150-month low on November 11 against the major world currencies.
“It is estimated that the rupee may strengthen to around 44 to a dollar, creating difficulties to the MSME (micro, small and medium enterprises) export sector, which is dealing with a price-sensitive, recession-hit global market,” FIEO president A Sakthivel said in a press release.
The US government has indicated keeping interest rates low for the next 12-18 months to spur growth, which would lead to massive inflows of a weakening dollar in to emerging markets like India through carry-trade.
“While lower interest rates may help the US economy, in India and other emerging markets, inflationary pressures are becoming more acute every day.
“The foreign funds purchasing USD 15.77 billion in Indian stocks this year has resulted in the appreciation of the rupee by 4.8 per cent,” Sakthivel said, adding this has hurt domestic exporters.
Saying that the dollar influx is not unique to our country, he said other emerging markets like Brazil and Taiwan are also affected with this but the governments there hose where the governments have imposed controls by way of taxes on such inflows.
Indian exports declined 11.4 per cent to USD 12.5 billion in October, negative for the 13th straight month, as demand in the global markets continued to contract.
For the April-October period of the current financial year, the country’s merchandise consignments dropped by 26.5 per cent to USD 90.4 billion, over the same period last year.
Sakthivel said that too much liquidity in the market may lead to inflationary pressures resulting in a hike in interest rates.
“Given the fact that credit off-take as on November 13, 2009 has just about picked up (9.78 per cent), maintaining growth and retaining this credit off-take may be difficult,” he said.
Credit to the MSME sector has been around around 2.57 lakh crore in fiscal 2009.