India Inc feeling heat of rising dollar: ASSOCHAM survey

Top Stories

»	49% Indian startups now from tier 2, 3 cities: Jitendra Singh
»	'India ranks 3rd in global startup ecosystem & number of unicorns'
»	Tripura exported over 9K tonnes of pineapples in 2 years
»	CPI inflation eases to 6.71% in July, IIP falls to 12.3%
»	Rupee depreciates 12 paise to close at 79.64 against US dollar

SME Times News Bureau | 28 May, 2012
Indian industry leaders are feeling the heat of rising dollar and weakening rupee, a quick ASSOCHAM survey of leading economists and select CEOs pointed out on Sunday.

According to the survey, a whole lot of sectors be it automobile, tourism, steel, oil, gems and jewellery, real estate are feeling the heat of rising dollar and weakening rupee. While cost of raw material imports has gone up significantly with rupee weakening by over 13 percent in the last few months, inflation raising its ugly head is adding to the nervousness among the industry, bankers, and policy makers.

India may not yet be heading towards a balance of payment crisis, but the macro-economic situation of the country is worsening by the day calling for almost emergent steps to ensure that no further damage is done to the economy, the survey indicated.

Out of the 58 economists and CEOs covered under the quick poll in the last one week, as many as 53 said India’s macro economic situation has suddenly worsened.

It was a combination of flip-flop on domestic policies and the global uncertainties arising mainly from the troubled Euro-zone which played a spoilsport for the Indian economy. Breaking out of scams, one after the other, resorting to taxation policies which are perceived to be unfriendly to the global investors, political compulsions of the government in not pursuing the economic reforms are the major factors which have led to a worrying state of economy, which was booming till two years ago, the survey respondents pointed out.

"The worst disaster is coming from a huge uncertainty on the rupee value and its free fall. Everybody out there in the business world is feeling shaky," said the survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM).

Though April inflation numbers of 7.23 percent have mostly the food components, one sees a clamour among a section of the analysts and commentators asking the RBI to stay course with the tight monetary policy. The inflation, based on the Wholesale Price Index was 6.89 percent in March. The Consumer Price Index has also crossed the 10 percent mark. This will hit the pricing power of the manufacturers who will have to absorb the increasing costs with their balance sheets taking a toll.

"This will be catastrophic and depress the demand in the manufacturing sector, largest employment source after agriculture and the services," said Rajkumar Dhoot, president, ASSOCHAM.

However, he hoped that the Reserve Bank of India will take a balanced view when it reviews the credit policy next month. Signals given by RBI Govenor D Subbarao point so, thankfully.

"We noted that increase in WPI has been on account of food inflation. The core inflation has remained below 5 percent. So in our next mid-quarterly review, we will take into account the numbers which have come after our mid-April statement," the RBI chief said in Mussoorie on May 24.

The economists surveyed in the ASSOCHAM poll suggested that there is a limit to which the RBI can intervene for taming the dollar and strengthening the rupee. The answer, majority of them, suggested must be found out by policy decisions by the Central Government. This must include reining fiscal deficit by cutting wasteful expenditure by slashing untargeted subsidies and reducing the current account deficit. The country’s CAD has already crossed four percent of the Gross Domestic Product, which is not sustainable in the long run.

Exports, both merchandise and services, have to be pushed up along with confidence building measures to improve the financial inflows. The foreign institutional investors, who remained bullish on India till March 16 have certainly turned negative on the country.

"The trouble is that the negatives are feeding on themselves. One thing leads to the other. While the country’s foreign exchange reserves can take care of imports for six-seven months, we cannot afford any complacency on this count. We certainly do not want to be in a position where some of the European nations find themselves in," the ASSOCHAM President said.

The respondents also suggested faster clearance of the big projects in the steel, coal, cement, road, ports and shipping sectors. The private sector will chip and the global funding will return to India in case the government announces clearances to the projects worth hundreds of billions in these sectors, in the next three month, the CEOs pointed out.

Otherwise, when negatives feed on themselves, company after company would face difficulties as they would mark to market losses leaving bruising impact on their balance sheets. Those who have borrowed money from overseas sources would find it difficult to redeem their debt as the dollar cost is becoming prohibitive.

Also, there would not be much benefit to the exporters as well, as high amount of volatility has to be hedged for a cost, the ASSOCHAM said. "Net, net, it helps no-one," it said.

The chamber said it was time the nation rose up to the economic challenge. "Each of the stakeholders - industry included - must chip in sending signals among the global community that the India story is alive," Dhoot added.