Rising Rupee Hits Indian Exports, IT and NRIs

Rising Rupee Hits Indian Exports, IT and NRIs


Bangalore, October 18, 2010:

Indian Rupee that soared to 43.09 against dollar on October 15, notching its highest level since August 2008, has become cause for worry for exporters, the country’s much talked about IT industry in particular and Non-Resident Indians (NRIs) who send money to the home country on regular basis.

The concern is so explicit that India’s second largest software exporter Infosys Technologies, headquartered in the city, cited currency volatility as one of the factors for being “cautiously optimistic” about the IT company’s long term prospects despite beating its own and the market predictions by posting double digit revenue growth for Q2 2010. The spectacular results have been achieved by the company for the first time since Q2 FY 08. Most of the IT companies have been singing the same tune saying rampaging rupee could maim the exporters more if the Reserve Bank of India – India’s Central Bank - fails to check the soaring rupee. About 98% of Infosys’ earning for example is in foreign currency.

Mr. M.D. Pai, Board Member of Infosys told The Arab News that soaring Indian rupee is hurting India's exports, as the strength is not based on fundamentals but on technicals due to strong flows of capital. “Surplus in the current account allow for space to manage but sudden flows are difficult to manage and that is why we need the regulator to play a balancing role. For us rupee appreciation hurts revenue in rupees and margins. The solution for this is sterilization of excess flows, and other means like a cap on borrowings overseas, cap on NRI deposits based on the absorption capacity of the economy”, he says.

Alarmed, RBI has intervened by buying dollars through public sector banks to stem the appreciation further but experts believe that rupee could trade from 44.15 to 43.25 against the dollar at least in the short term, come what may. Overseas investors are expected to pump in more dollars especially in the Coal India’ Limited Initial Public Offer – India’s largest IPO at Rs. 154 billion - that hit the market on October 18. The rupee would remain strong till the overall dollar flow slows down.

Exporters apart, for the NRIs, especially in the Gulf, it means clear dent in their earnings since most of them send the money back home regularly. “My son who works in Jeddah makes it a point to send about SR 1000 every month but in rupee terms the amount is getting lesser in last few months while everything in the market costs higher these days ”, rues Fatima who also works in a private company in Bangalore to support her family.

Moreover, the NRI interest rates on bank deposits have been low - less than 3% even for long term deposits in rupee - and so it is double whammy for those who park and send their money to families in India. In last few years rupee has swung from 39.61 (February 2008) to 50.56 (March 2009) against the dollar. The rupee has appreciated by 8% in the last seven months from 47.60 in March to 44.05 in the current month. “We must tax on the foreign fund flows to check the enormous volatility in the rupee value against the major global currencies”, feels one of the top IT honchos. If unchecked, the see-saw battle would remain part of the Indian export story and NRIs.

Gopal Sutar