Mumbai, Nov 27: The rupee's depreciation may not be able to increase the absolute value of Indian exports even though it may add to the exporters' bottomline in the short term, stated the latest HSBC Markets report `The corporate treasure'.

Though there is likely to be a significant impact on certain sectors of the Indian economy -- marine, non-basmati rice, paper, textiles, electronic goods, rubber, polyester -- it is estimated that the affected exports are not likely to exceed more than 15 per cent of the total exports, the paper said.

What seems to be of greater importance to the exporters is the removal of the infrastructural bottlenecks. "To give lie to the effect of exchange rates on exports (at least short-term), we have seen exports show a strong 12 per cent growth in September 1997 year-on-year despite a strong rupee during that period," the paper stated.

For India, a devaluation could lead to its being tarred by the same brush as the rest of the region, which translates into scaring away the much-needed foreign investment at this stage, it added.

The need to achieve realistic exchange rate levels is amply shown by what has happened in south-east Asia. It is just that the positive effects of a devaluation have to be weighed against the possible negative consequences, it pointed out.

If the rupee is relatively unaffected by the economic turmoil, it is because the economy is not open enough, else the baritones of the general sentiment should have ensured a greater impact, the paper said.Still, over the last week, it is seen that the rupee too has shown signs of weakness and has actually fallen by 2.5 per cent. "Has the hour come? The big question here is policy. The numbers appear to show still that the regulatory authorities have the power to stem a fall of the rupee for a considerable period of time," it said.

The paper also analysed whether it is in the country's interest to keep the rupee strong. The one strong argument for a devaluation (be it of a small magnitude and in gradual fashion) is the need to sustain export competitiveness, it said.

However, in the Indian context, the rupee, while it has been sliding over the very recent past, has not yet fallen at the rate of or in similar degree to the other currencies in south-east Asia.

"Are we at the beginning of the same phenomenon? Can the rupee be guided down to an acceptable level by the RBI? Is a devaluation -- a forcible one -- advisable at this stage? How much will a devaluation actually help an Indian exporter? These are are some of the important questions that need to answered," said the report.

As compared to the south-east Asian tigers, India is at a completely different stage of evolution. It is contemplating capital account covertibility in a three-year time-span, while most of these countries have been open economies for the last six years or more, the report said.

In infrastructure, most of these economies are way ahead of India. India is looking right now for that spurt in the economic activity, which is necessary to reach the next higher stage of economic development. Most of these countries are busy with the damage control caused by the recent turmoil and are more likely for the immediate future to settle for a period of consolidation, it said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.