New Delhi - The investment firm Credit Suisse said Thursday
that India has become a 1 trillion dollar economy, but with the
Indian rupee hitting a new high against the US dollar, exporters
expect relatively slow growth in fiscal 2007-08.
When 158 exporters across the country were recently polled by The
Financial Express business daily and the Federation of Indian Export
Organisations (FIEO), 77 per cent said that they expected the
country's exports to grow by less than 15 per cent in fiscal 2007-08.
Seventy-one per cent of the exporters, surveyed in the poll
conducted in March-April also said that the exchange rate should be
pegged at 44 rupees to the dollar for exports to grow at 15-20 per
cent rate in the current fiscal year.
'The rupee appreciation has started taking its toll on exports.
After growing by about 24 per cent in April-November 2006, export
growth has slipped to single digit,' said Ganesh K Gupta, president
of FIEO, a leading institution for promoting global trade set up
jointly by the government and the private sector.
Gupta said exporters are shying away from entering into new
contracts and are increasingly looking at the booming retail sector
to invest.
Credit Suisse bank, amidst fears of weak export performance, said
on Thursday: 'Indian GDP at the current price level is a 1 trillion
dollar economy. With the rupee appreciating to below 41 against the
US dollar, yesterday was the first day for the economy to be a
trillion dollar economy. It's the 12th country to reach this
milestone.'
But the global rating agency Moody's on Thursday pointed out that
there are signs of over-heating in the economy like
higher-than-acceptable inflation, still-high rates of domestic credit
growth and the rapid rupee appreciation mainly driven by strong
capital account inflows.
FIEO, which was hoping the government's monetary and credit policy
for 2007-08, announced on Tuesday, would encourage more fund outflows
as a way to ease pressure on the currency to rise, found that the new
policy made the rupee strengthen even further.
The Indian rupee strengthened to 40.90 rupees per dollar for the
first time in nine years on Wednesday, with rising capital inflows
and Reserve Bank of India's (RBI's) recently announced progressive
credit and monetary policy for 2007-08.
The rupee rallied further against the dollar on Thursday and was
quoted at 40.7 in late morning deals following sustained foreign fund
inflows amid no intervention of the central bank to cap rupee's
upsurge.
The rupee's previous strongest position was in May 1998 when it
traded 40.91 to a dollar. In intra-day trading on Wednesday the rupee
rose to 40.85.
The rupee is up 8.2 per cent this year. The Thai baht is the next
best Asian performer with a growth of about 3.8 per cent.
The rupee performance could have a bearing on the export forecast
of 150 billion dollars in 2007-08 - up from 125 billion dollars in
2006-07 - as enumerated by Minister of Commerce and Industry Kamal
Nath when he unveiled the Foreign Trade and Policy Procedure
2007-2009 on April 19.
'RBI is not intervening in the forex market strongly enough
despite buying 20-30 billion dollars since January to control the
rising rupee. If it continues to firm up then exporters will be hurt
even more,' Ashish Pandey, financial consultant at ABN AMRO bank told
Deutsche Presse-Agentur dpa.
RBI, since January, has increased lending rates and cash reserve
ratio (the mandatory amount of money a bank has to maintain with the
RBI) twice to reign in inflation and consumer lending, which has
affected export performance.
Y V Reddy, governor of the RBI, has down-played concerns of
exporters. 'The RBI has been successful in managing the rupee
exchange rate, which has helped in sustaining high growth and
controlling inflation.'
Reddy said that an exchange rate is 'market determined,' adding
that if the rupee continues to appreciate it will lead to cheaper
imports and an increase in demand, thereby pushing up inflation.
On the other hand, a depreciating rupee would lead to higher
capital inflows, posing a challenge to liquidity management, which
also impacts inflation.
'Going by the economic growth rate of 8.5 per cent and average
inflation at 5 per cent, current account deficit less than 2 per
cent, despite oil and food shock over the last four years, I would
say we have done our balancing act very successfully,' Reddy said.
Indian corporates too are facing the heat. Srinivas Vadlamani,
chief financial officer of Satyam, a leading Indian IT company which
exports software solutions, said, 'If the rupee, already at 41 rupees
to a dollar, slides further down then definitely it will have an
impact on our future earnings.'
© 2007 dpa - Deutsche Presse-Agentur 
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