The Hindu Business Line : `Indian exporters can actively start invoicing in rupees'

Chennai May 23 With the rupee gaining in strength significantly in a remarkably short span, active foreign exchange risk management has assumed enormous importance at Indian firms whose revenues are substantially export-driven and who invoice primarily in US dollars. Importers, however, find the situation to be very favourable from the cost control angle.

Retaining foreign revenues abroad for cash outflows overseas and invoicing in a basket of currencies are two approaches that companies can adopt towards meeting this challenge, according to Mr Sunil Parameswaran, CEO of Tarheel Consultancy Services, Bangalore. He has authored books on bonds, financial markets, options and so on.

Speaking to Business Line on what companies can do in the face of the rupee's unfettered ascent, he said that firms that are active importers and those in the process of acquiring businesses abroad should try and ensure that foreign revenues are retained abroad to fund cash outflows overseas, "subject to Government regulations of course''.

"Most Indian businessmen have a tendency to think in terms of the dollar, and therefore have a habit of quoting in terms of it," he said.

"I have always wondered why Indian exporters are not actively starting to invoice in Indian rupees."

He added that this should be a feasible option for firms that command considerable clout — "like the major firms in the IT sector" — at least while dealing with small and mid-size clients.

According to him, foreign companies are deriving substantial benefits due to lower production and development costs in India.

Forex risk

"It is about time that some of them are persuaded to face the forex risk inherent in cross-border transactions."

Other currencies, particularly the euro, are now firmly established as vehicle currencies for international trade.

"They can, and should, be explored as options for invoicing exports."

Mr Parameswaran's rationale is that an appreciating rupee need not do so simultaneously against all major foreign currencies, at least not to the same extent.

He also believes that it is imperative that smaller and mid-size firms take steps to actively manage their risk exposure.

"They have a tendency to leave their exposure open. In the past, such entities have often gained significantly due to a depreciating rupee. This happy state of affairs has now been disturbed."

Mr Parameswaran sees the appreciating rupee as an indicator of the growing strength of the Indian economy and the maturing of the rupee as a currency.

"It could have ramifications for our decision to go in for full currency convertibility sooner rather than later. In turn, it could open up new vistas for forex risk management, like the availability of forex futures contracts."

Futures trading

He pointed out that futures trading has been a spectacular success in India, with the exception of interest rate futures contracts.

"The availability of such instruments would offer Indian businessmen an additional tool for hedging their exchange-related risks."

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