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The RBI's recent mandate wanting exporters to convert 50 per cent of forex earnings to rupees cannot be applicable across the board. While the RBI's move is to increase dollar liquidity in the market and arrest the weakening rupee, one wonders what the RBI was doing when the dollar was on the ventilator a few years back.
The central bank did not take any meaningful step to allow a free rise of the rupee which could have prevented the current situation.
On the contrary, it ensured that a suffocating dollar was given life support and brought back on the escalator at the cost of the rupee.
Now, forcing every exporter to convert 50 per cent of dollar holdings affects the loan structuring, transaction costs and other issues concerning a small-time exporter or a not for profit entity.
Such entities have dollar-denominated debts and higher import purchases than export revenue.
The RBI's bolt from the blue will affect them and force them to purchase fresh dollars at higher prices.
The RBI should announce a partial rollback on its recent policy decision and allow small firms to retain 100 per cent of their dollar revenues in EEFC accounts.
Alternatively, the RBI can provide a schedule to ensure that dollars are not stacked for arbitrage purposes alone. In short, spare the small players.
S.Vaidhyasubramaniam
Thanjavur
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