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Jun 10, 2013, 10.54 PM IST | Source: CNBC-TV18

Rupee volatility not good for business confidence: FIEO

Rupee voltality not good for economy and business confidence, says Ajai Sahai, DG & CEO, Indian Exporters' Federation.

Volatility in rupee since over past one month may benefit exporters in the short run, but uncertainty related to currency is not good for the economy, Ajai Sahai, DG & CEO, Indian Exporters' Federation told CNBC-TV18.

“I am not very convinced that this kind of volatility in rupee is going to help exports in the long run. In fact the kind of volatility which we are seeing right now add to the uncertainty and speculation which is not good for the economy or for business confidence,” Sahai said.

Also read: Falling rupee keeps IT hot, douses rate-cut hopes: Experts

Today rupee hit an all time low of 58 against dollar , which is likely to benefit sectors like IT and pharmaceuticals which are major exporters.

Below is the verbatim transcript of the interview

Q: India's exports have been hovering at the USD 300 billion mark for the past two financial years. The record depreciation of the rupee, will perhaps act as an booster dose for exporters?

A: I am not very convinced that this kind of volatility in rupee is going to help exports in the long run. In fact the kind of volatility which we are seeing right now add to the uncertainty and speculation which is not good for the economy or for business confidence.

The volatility which we are seeing in rupee is similar to kind of volatility many other Asian currencies are experiencing. However the extent of volatility seen in rupee is much higher. So, to some extent the benefit of depreciation is offset as in a global economy we are competing with other countries also and if their currencies are depreciating to that extent we are losing the advantage.

Q: Rupee depreciation benefits exporters. IT companies have told us how they do expect to see a margin impact positive one at that. Why are merchandise exporters not that excited?

A: Merchandise exports they encounter different kind of problem as compared to services export. We have seen that logistics cost of merchandise exports has gone up substantially which is not applicable to service exports.

Secondly merchandise exports has a large component of imported inputs for certain sectors like petroleum, gems and jewellery, electronics and plastic products. The input may be to the extent of 80-90 percent and therefore once your cost of raw material goes up whatever little bit advantage you have in the depreciation of the currency gets offset on the input cost.

We should always keep in mind that there has been no historical relationship between depreciation and export growth. There have been years when the currency depreciated and we have taken a hit on export, on the contrary when Indian rupee appreciated we have seen over 20 percent growth in exports. So, of course currency depreciation is one of the factors which add to the competitiveness. But there are several other factors which may at times be more important than the currency appreciation.

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