The Hindu Business Line : Importers’ $ demand puts rupee under pressure

Chennai, Nov. 20 The rupee is likely to depreciate further in the coming months because of demand for dollars from importers, according to Dr Saumitra Chaudhuri, noted economist and Member, Prime Minister’s Economic Advisory Council.

Speaking at a meeting organised by the Confederation of Indian Industry on ‘Global Economic Scenario: Impact on India’, Dr Chaudhuri noted that Indian banks, without enough foreign exchange resources to lend for imports, are now giving rupee lines of credit to importers. The importers then go to the market and buy foreign exchange to pay their suppliers.

Outstanding trade credit

Dr Chaudhuri notes that in June, the outstanding trade credit was $43 billion, of which $20 billion was for less than 180 days and the rest for more than 180 days.

He pointed out that non-food credit given by banks between September 26 and October 24 was about Rs 70,000 crore – or about $ 15 billion – as against a reduction of Rs 9,000 crore during the same period last year.

Dr Chaudhuri said that the drawdown in foreign exchange reserves during the same period was about $28 billion and observed that trade credit had substantially contributed to the drawdown clearly drawing a connection between the decline in banks’ access to external lines of finance and the pressure on rupee’s value against the dollar.

“It is not over yet,” he said, pointing out that $23 billion of trade credit was still to be repaid and this will put further pressure on the rupee. Later, speaking to Business Line, Dr Chaudhuri also said that the Indian economy is facing problems on two fronts – demand and financing. Demand slowdown arises from abroad. The bigger problem of the two – finance – arises out of drying up of sources of equity money, causing deferment of projects.

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