Weak rupee will hurt software exports in long-term

November 23rd, 2011 - 7:11 pm ICT by IANS  

New Delhi, Nov 23 (IANS) Although weakening of the rupee against the US dollar will bring short-term benefits, the long-term impact will be adverse and far outweigh any immediate gains, an electronics and software export council said Wednesday.

“The continued weakening of rupee against dollar, which has now touched a record low is a matter of great concern and will have adverse impact on the software and ITeS exports in the medium and long run,” Electronics and Computer Software Export Promotion Council (ESC) said.

According to the council, a weak rupee will increase cost of operations, travel and wage bills.

While continued depreciation in the rupee will bring some short-term gains, ESC said companies were not dependant on foreign exchange gains and that firms who had taken debt from overseas sources are seeing the cost of servicing such debt become dearer.

“In the medium-to-long run, the adverse impact on macro economic variables, such as higher inflation, flight of capital from the country and higher resources to be set apart for hedging the currency from volatility, will not only nullify benefits but also adversely affect bottom lines of IT firms,” said D.K. Sareen, executive director, ESC.

The rupee, which fell to a record low of 52.73 to a dollar Tuesday was trading around 52.18 to a dollar Wednesday afternoon.

“IT exporters are not primarily glued to treasury operations. Rather some of the members of the ESC are from the small and medium segment, which do not have the professional expertise to go for hedging. So they hardly take advantage when the rupee is falling,” Sareen added.

Corporations have contracted a total debt of close to $30 billion this year alone. The interest on these and the obligations to repay the debt instruments that has reached maturity will push up the dollar demand further, thereby weakening rupee.

Also, there is a scramble for switching over to the greenback from Euro, across the world on account of the financial mess in the euro zone. This might pull the rupee further down from the present level against dollar.

“India has to put in place a proactive roadmap to deal with the possible outcome of these changing landscapes. Apart from reining in the inflation, there should be attempts to open up more opportunities to IT firms in the domestic market,” he says.

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