New Delhi, Feb 25: Against the backdrop of the south east Asian currency meltdown, the president of Federation of Indian Export Organisations (FIEO) Ramu S. Deora has advocated a "gradual" depreciation of the rupee so that it reaches the peak of Rs 42 a dollar by next month.At the same time, Deora hastens to underscore the point, that in the current political scenario there is no case for devaluation in "one shot and that the Reserve Bank (RBI) will continue its "so-called market determined rates of depreciation".
Deora told The Financial Express that FIEO would consider depreciation as a serious option, as the currencies in the east Asian economies had devalued by 35 to 75 per cent, blunting the competitive edge of exporters in the international market.
"If we continue such an exchange rate, we are sure to be hit by large-scale dumping, particularly by manufacturers of chemical, polymers, fibres and newsprint from south East Asia", Deora stressed.
Commenting on the impact of devaluation ofthe rupee on imports, Deora said that the import content of a number of export items was not on the high side. Gems and jewellery came first with an import content anywhere between 70 and 80 per cent. It was followed by engineering products with an import content of around 25 to 35 per cent.
Obviously, the benefit of devaluation on items with higher import content would be less as the gains by way of price competitiveness and thus greater export turnover would be neutralised by high cost of imports.
On the other hand, items with minimal or nil imported content would stand to gain, Deora pointed out.
Deora also noted that the recent trends in the economy indicated that imports were likely to stagnate due to industrial slowdown and imposition of high surcharge ranging from 15 to 30 per cent on imported items in the nine-point package recently announced by RBI.
Exports would pick up when the rupee stabilises at around Rs 40-42 a dollar, he said, and felt that this must take place in its own course ratherthan through RBI intervention, which, in the long run, would have a "disturbing" impact on the movements in the forex market.
FIEO, Deora stated, had been reiterating time and again that in the national interest, forex market should not be volatile. It had also appealed to FIEO members to repatriate their exchange earnings by the prescribed period so that they were not blamed for any delay.
He said FIEO members were eventually to contribute towards payment of the mounting debt of $90.85 billion to which a burden of over $9 billion had been added following the depreciation. RBI would lose another $1.5-3 billion before it realised that its intervention was not credible enough and this would result in forex loss of $5-6 billion.
However, increasing the rate of refinance to banks from 9 to 11 per cent, of CRR from 10 to 10.5 per cent and of reducing the general refinance limit from 1 to 0.25 per cent fortnightly and raising the interest rate from 7 to 9 per cent would adversely affect domestic as well asexport production, he pointed out.
Copyright(c)1998 Indian Express Newspapers (Bombay) Ltd.
