Knitwear exporters who have been looking for a more stable rupee against dollar are not much cheered by the Reserve Bank of India’s recent decision to allow Foreign Institutional Investors (FIIs) to evade their currency risks by using exchange traded currency futures in the domestic exchanges.
The industry stakeholders admit that attracting FIIs into the market, as envisaged by the RBI through the present plan of more liberalisation, would of course augment the inflow of foreign currency.
“However, the need of the hour is to attract foreign currency flow into the country on a sustainable basis if the rupee has to recover against the dollar. For that, we need to promote more Foreign Direct Investment (FDI) rather than opt for currency inflow methods through the FII mode,” G. R. Senthilvel, exporter and secretary of Tirupur Exporters and Manufacturers Association, told The Hindu .
Market analysts feel that attracting FIIs to increase the foreign exchange reserves would only be short-term method which also comes with a risk factor.
“Peril in expecting foreign exchange inflow through FII is that the foreign players can suck out the money from the country with the same pace at which they pumped in the amount into India. This will only cause more damage to the economy than doing any good for stabilising the rupee against the dollar,” pointed out S. Dhananjayan, a chartered accountant and industry consultant.
The exporters by and large are of the opinion that the RBI should start acting as catalyst to augment the overall exports from the country which would have automatically brought foreign exchange into India.