After a smooth ride for the last few months, Indian exports could come under severe strain due to the large scale variation in the exchange rate, continued euro zone crisis, risk of slowdown in exports to this region, rising cost of raw materials and fears of a hike in interest cost once base rate mechanism is introduced.
This has been revealed in a survey carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI) during April and May, which saw participation from 278 companies representing sectors such as automotive, food and food processing, FMCG, textiles, metal and metal products, heavy engineering, marine products, cement, paper, pharmaceuticals and chemicals, wood and wood products.
The survey states that large sideways movement in the value of the rupee against the U.S. dollar and euro has led to severe problems. While the sudden appreciation in the value of the rupee affected the margins adversely as it led to lower realisation for exporters, the recent decline in the value of the rupee caught exporters off-guard and they lost on account of forward contracts that were booked to hedge currency risk.
Many exporters said that at least for exporters the Reserve Bank of India should give a facility like that in China of a fixed exchange rate. This would enable them to focus on managing their business and save them from the trouble of managing currency movements. It said the evolving situation in the euro zone also does not inspire confidence. It is by now clear that the second phase of global recovery will be slower as compared to the first phase having a bearing on the pace of expansion of global trade.
There are indications of buyers in the EU region going slow in placing their orders. There are also cases where Indian companies have been asked to hold back the dispatch of consignments. To tide over the problem of rising input costs, exporters have requested the government to look at increasing the duty drawback and DEPB rates.
Exporters have suggested that bank loans at concessional rates should be made available to them even in the post ‘base rate' period which takes effect from July 1.
