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The Southern Region of the Federation of Indian Export Organisations (FIEO) has said the Standard & Poor's decision to downgrade the US Government's long-term sovereign credit rating from “AAA” to “AA+” will have an impact on the Indian exporters. The exporters will have to trade under a cloud of uncertainties, at least, during the current quarter, according to Mr Walter D'Souza, Chairman of the Southern Region of FIEO.
Even though it is premature to assess and forecast the exact quantum of damage the Indian exporters will be subjected to, there is no doubt they will operate in a market impacted by doubts over profitability.
With the bulk of Indian exports being dollar dominated, he said Indian exporters key worry will be on the exchange rate front.
He told Business Line here on Saturday that the sharp decline in the disposable income of the average American due to inevitable increase in taxes in the US can result in downsizing of inventories by the US importers of Indian merchandise.
Referring to the recent global economic crisis, he said the US import trade pattern went through a dramatic shift in inventory management after that. Small importers adopted the “just in time” concept and operated on “sure small margins” without big risks, rather than speculative trading with large inventories aimed at big margins with a risk.
“This cautious approach in sourcing of merchandise will now extend from small to medium size importers. This can result in sharp declines in volume of exports from India,” he said.
There is every possibility of the US importers keeping their forward contracts temporarily in abeyance resulting in financial hardships to Indian exporters. The immediate major hiccups will be on the strength of the US currency, as it is beyond exporters' expertise and experience to estimate the bottom-line and hedge the imminent risks, he said.
The real term impact, however, will be proportionate to the reactions of other developed economies of the world. “One cannot rule out the possibility of a bailout package by at least some major economies, as it is in the interest of the global exporting fraternity in which all the nations have either to benefit or lose out,” Mr D'Souza added.
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