The Hindu Business Line : Garment exporters worried over rising rupee

Bangalore May 7 Garment exporters are facing a crunch situation with the rupee rapidly appreciating. Exporters fear that revenues could take a big hit if the Government does not intervene to effect a correction.

Mr R. Sivaram, Executive Director of the Tirupur-based Royal Classic Group, says: "With the rupee-dollar exchange rate dropping to Rs 41 from Rs 46 in April, we have already had a 8 per cent hit in our realisation. If this continues, profits are bound to erode. We may have to operate at cost price or incur marginal losses."

With buyers not willing to pay more, the going could indeed get tough, adds Mr Sivaram.

According to Mr Sampath Kasirajan, CEO, Hydra, a Bangalore-based textile consulting company, the current quarter could see a 5-8 per cent drop in garment export revenues. (In 2006-07, India's garment exports were estimated at $9.5 billion.)

He fears a "drop in enquiries and an eventual slowdown in orders" if the current trend continues. "There could be a 20 per cent drop in volume of exports in June-July." He also sees the rupee strengthening further for another two months before settling down at Rs 40.

Tiding over

So, what has the exporting community done to stem or curtail its losses? Mr Rajendra Hinduja, Director, Gokaldas Exports, says the company will tide over the current situation partially as it has taken a forward cover for part of its exposure. "The advantage of hedging at the Rs 43/44 levels will come through now," he says.

Gokaldas also has a strong import component, which could offset the impact of a hardening rupee. He sees a marginal one per cent dip in Q1 net profits.

Mr Kasirajan advises exporters to reduce their profit margins. Something that Mr Sivaram also agrees with: "If we jack-up our prices, buyers may run to China."

Seeking RBI

While the exporters fervently hope that the RBI intervenes and buys dollars to keep "exports competitive", they must look beyond the current fluctuation and think long term. Says Mr Kasirajan: "The long-term solution would be to improve operational efficiency and go up the value line by looking at the domestic market too and not just rely on exports, because rupee appreciation is a fact of life."

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