Rising Rupee Is Bad News for NRIs
04:52AM Wed 20 Oct, 2010
Indian rupee's spectacular rise has profound effect on exports, IT and NRIs
BANGALORE: The Indian rupee which soared to 43.09 against the dollar on Oct. 15, notching its highest level since August 2008, has become a cause for worry for exporters, the country's much-talked about IT industry in particular and non-resident Indians (NRIs) who send regular remittances back home.
The concern is so explicit that India's second largest software exporter Infosys Technologies cited currency volatility as one of the factors for being "cautiously optimistic" about its future prospects despite beating its own and market predictions by posting a double-digit revenue growth for Q2, 2010.
The spectacular results have been achieved by the company for the first time since Q2, 2008.
Most IT companies have been singing the same tune saying the rampaging rupee could maim exporters more if the Reserve Bank of India fails to check the soaring rupee. About 98 percent of Infosys' earnings for example is in foreign currency.
M.D. Pai, board member of Infosys, said that the soaring Indian rupee is hurting India's exports, as the strength is not based on fundamentals but on technicals due to strong flows of capital.
"Surplus in the current account allow for space to manage but sudden flows are difficult to manage and that is why we need the regulator to play a balancing role. For us, rupee appreciation hurts revenue in rupees and margins. The solution for this is sterilization of excess flows, and other means like a cap on borrowings overseas, cap on NRI deposits based on the absorption capacity of the economy," he said.
Alarmed, the Reserve Bank of India has intervened by buying dollars through public sector banks to stem the appreciation further but experts believe the rupee could trade from 44.15 to 43.25 against the dollar at least in the short term, come what may.
Overseas investors are expected to pump in more dollars especially in the Coal India Limited's initial public offering - India's largest IPO at Rs.154 billion - that hit the market on Oct. 18.
The rupee would remain strong till the overall dollar flow slows down.
Exporters apart, for the NRIs, especially in the Gulf, it means a clear dent in their earnings since most of them send money to India regularly.
"My son who works in Jeddah makes it a point to send about SR1,000 every month but in rupee terms the amount is getting lesser in the last few months while everything in the market costs higher these days," said Fatima who also works in a private company in Bangalore to support her family.
Moreover, the NRI interest rates on bank deposits have been low - less than 3 percent even for long-term deposits in rupee - and so it is a double whammy for those who send money to India.
In the last few years, the rupee has swung from 39.61 (February 2008) to 50.56 (March 2009) against the dollar. The rupee has appreciated by 8 percent in the last seven months from 47.60 in March to 44.05 in the current month.
"We must tax the foreign fund flows to check the enormous volatility in the rupee value against the major global currencies," said one top IT honcho.
If unchecked, the seesaw battle could remain part of the Indian export story and NRIs.
Arabnews
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