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Updated: August 29, 2013 11:35 IST

Rupee’s volatility is the real killer: industry

V. Sridhar
Comment (18)   ·   print   ·   T  T  

Ask any doctor who treats chronic diabetics and he will tell you that it is not the high levels of sugar in the blood that is the real danger but the spikes and the troughs that are potential killers. On Wednesday, as the rupee dived to a new low, within touching distance of the Rs. 70 to a dollar mark, industry insiders said much the same: that it is the volatility of the currency, not merely the rupee going down, that is killing them.

Extreme volatility

Although many industries have taken cover for their foreign exchange exposure, not all have, says H.V. Harish, president, Bangalore Chamber of Industry and Commerce (BCIC). The sudden uptick of the rupee last week, resulted in some businessmen assuming that the rupee would go back to about Rs. 61 to a dollar levels, he said. “But they have come to grief because the dollar came back with a vengeance very soon,” he said. “It is the extreme nature of the uncertainty that is affecting day-to-day decisions.”

D. Muralidhar, former president of the Federation of Karnataka Chambers of Commerce and Industry (FKCCI), who runs a unit that manufactures and exports specialised ferroalloys and abrasives, says: “Calibrating prices is a hazardous task because of the volatility.” A degree of stability is necessary for pricing decisions to be taken because businessmen cannot keep changing prices on a daily basis, he said. Moreover, since he sources raw materials from several countries (for example, Brazil and China), and since their currencies have also depreciated dramatically in the last few months, it is extremely difficult to get prices right, he explains.

Waiting for stability

So, how do businessmen conduct their business in this situation? “There is nothing we can do but wait,” said Mr. Muralidhar. Recalibrating margins and prices will have to wait till the rupee “stabilises somewhat, when the day-to-day fluctuations are within a more predictable15-20 paise range.”

“The popular perception that exporters are sitting pretty is not quite right,” says an industry source. For industries such as garments, where the raw materials are sourced from within the country, the rupee’s 20 per cent slide since June has been a boon. But in exporters of manufactured products, including those such as auto ancillaries, the impact is not as positive. This is because these industries typically also import raw materials, components or equipment in order to deliver to overseas clients.

R. Shivakumar, president, FKCCI, said small industrial units that supply to multinationals find that the “fine print” in their contracts prevent them from recalibrating prices to adjust for the higher prices of imported materials. “Many small units are a victim of the contracts they entered into before the massive depreciation started since June,” he says.

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Even after so many years of economic planning, it is shame that we are
not able to create investment avenues for the citizens where they can
invest with confidence and also make some money. Is it fate that
Gold, such a Menhir, continues to be the avenue of investment with
confidence where the common man can store the value of his labour.
In most cases it is the anarchy in the society created by the
collective failure of the Governing class in establishing a society
based on the supremacy of Law and Order. It is ironical this is the
state of this Nation from time immemorial with hope shifting from one
new ruler to the next.
This may sound as a voice of despair but some where the truth has to
be bared and put out in open.
Otherwise we will run out of time and fall behind in the high order of
Nations. Forget it we will fail our own brethren and our progeny.
Starting from the clear redefinition of the National Objectives and
Priorities we need a participatory and working Government.

from:  Sujith Prabu
Posted on: Aug 28, 2013 at 00:04 IST

Politics at its ugly best. Two most known faces of the Indian Economy, Mr.
PM and Mr. Fin Minister, yet they don't have a say. Rupee will keep
trembling and they would still focus on the Food security bill, yet people
of the country can't do anything about it. Hope they have some humanity
left in them.

from:  AKS
Posted on: Aug 27, 2013 at 19:25 IST

How government can still think for food security bill ? Just because of
some political interest they overlook the current deficit and allow such
a huge burden on economy in term of subsidy of thousand crores rupees. I
m suspecting that this situation leads the economy same as 1991 when the
situation arrived that country had deposited its gold. The need of hour
to go steady and enhance export and attract Foreign firms to invest in
India and promote the common men investment in market entity and at the
same time cut down all the burden on economy as like subsidy.

from:  vishwadeep tripathi
Posted on: Aug 27, 2013 at 16:31 IST

i wonder why govt approved food security bill with much fan fare , india
is in vicious circle with burgeoning fiscal deficit ,CAD,what not
.........and nevertheless the govt launched food security bill how it's
going to manage funds for that is a nightmare for finance ministry .now
a days i think due to this irresponsible populistic programme's
investors are losing hopes on india it's the main reason for diverting
funds to all other countries....

from:  praveen
Posted on: Aug 27, 2013 at 16:29 IST

I am amazed by the stupidity of our politicians and people combined,
after foolishly believing the by simply spending money on the poor, we
can get rid of our poverty, we now face the worst economic and political
crises in a century.
Now that chickens are coming home to roost, we are ourselves to blame.
Its funny to even think that at one time we were dreaming of becoming
economic superpower.

from:  vamsi
Posted on: Aug 27, 2013 at 16:11 IST

Earlier the common man used to cry over price of petrol and now rupee has become a problematic affair. Hope this abysmal fluctuation ends early.

from:  Shivesh Aggarwal
Posted on: Aug 27, 2013 at 16:01 IST

Any suggestions to stop the decline?

from:  Shubham
Posted on: Aug 27, 2013 at 15:53 IST

Seams like there is manipulations in the forex exchange and a scam in waiting

from:  Mukesh
Posted on: Aug 27, 2013 at 15:26 IST

When will those concerned will STOP TALKING and sincerely ACT!!!!!!

from:  Tucker
Posted on: Aug 27, 2013 at 15:16 IST

The fall in rupee can jeopardise indian economy.If not now then never,
India should immediately look into the matters of economy and come up
with strategies inorder to prevent an unforseen incident from occuring.

from:  Ganapati bhat
Posted on: Aug 27, 2013 at 15:13 IST

With the high budget deficits, negative trade balances and high 2-digit inflation for so many years and on the top of that this so- called food security bill as a disguise for election gift, it is no wonder that rupee is in free fall. Might be that Mr. Chidambaram is partially right, but it is the overall gloomy picture of the Indian economy, the unwilligness of the government to seriously fight corruption and as a result, the lack of investors' confidence in the economy leads to this situation.

from:  Dr. S. Vaid
Posted on: Aug 27, 2013 at 14:42 IST

Direct outcome of the Food Security Bill! Just see how energy prices (petrol, diesel, gas, coal, electricity etc.) shoots up now and inflation goes through the roof, despite having a normal monsoon! Real GDP growth most likely will be negative this year and the year next. India now seriously faces the threat of "stagflation" and a downgrade by ratings agencies as budget deficit will widen significantly. Won't be suprised if a Capital Account default situation, similar to 1991, arises again!! There's no doubt the FM doesn't understand ABC of economics. What a disgrace!

from:  Mittal
Posted on: Aug 27, 2013 at 14:38 IST

This is what will happen when currency notes are printed to benefit a
few. Only if everyone on our planet was compulsory made to learn the
true definition of money. If money is what money does, then this it
should never do. Money is free of all economic terms, i.e., free of
inflation, stagflation, recession, depression, and hyper-inflationary
spiral before it dies, allowing the elite to become super rich by
bleeding out the middle class and poor. Wake up fellow humans on planet
earth we are being robbed. Now there is a Food Security Bill,
Bizarre!!!

from:  Aditya
Posted on: Aug 27, 2013 at 14:17 IST

"Invisible" investors / speculators are punishing India and at the same
time, stand to make profits soon ... as the telltale signs show up. Some
economists may not agree, but global political analysts will understand.

from:  Rajan Mahadevan
Posted on: Aug 27, 2013 at 14:05 IST

If there is no remittances by NRIs, the situation would have
worsened. The point is when the NDA was in power, it was trade
surplus for 3 consequent years, why the UPA rule of 9 long years has
ruined the foreign exchange position. Mere gold and oil import is not
the real culprit. It is the "import of capital goods" eating into
the reserves kitty largely, whereas in the past 4 years the
Manufacturing Growth has been falling without any reason. Then who
benefited from the "2008 Stimulus Package"?. But the Finance Minister
and the RBI is telling the partial truth. As of now, no other
currency in the world has depreciated against dollar to an abysmal
level of around Rs.65.94. What puzzle me most is that, while in 2011
the exchange rate was around Rs.44 to Rs.45 against the US Dollar;
after the downgrading of US by Standard & Poor, in fact their currency
should have depreciated. It does not need a seer to say this is due
to the US Dollar's Stranglehold over the world market.

from:  ponnambalam
Posted on: Aug 27, 2013 at 14:00 IST

In laymen terms no businessman would like to pay at high intrest. So why is importers always to blame.... There are many more domestic factors to be corrected... Don't you think so?

from:  Prashant
Posted on: Aug 27, 2013 at 12:19 IST

Likely to stablize hereabout for now

from:  PKumar
Posted on: Aug 27, 2013 at 12:15 IST

This situation makes some stability in indian rupee but not too much because india is the higgest consumable of gold....

from:  Jaiviswan
Posted on: Aug 27, 2013 at 10:26 IST
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