Rupee gains 4 paise

Mumbai, Oct. 19 The rupee strengthened by four paise against the greenback on Friday on dollar selling by exporters. "The exporters ere seen selling at all le!els today hich slightly strengthened the rupee," said a dealer ith a pri!ate bank. Foreign exchange dealers said that the exporters ould continue to sell, and this ould pre!ent the rupee from eakening further. The home currency opened at "9.#$%#& and sa an intraday high of "9.'# and a lo of "9.(', before ending the day at "9.#"%#&, four paise up from the pre!ious close of "9.##%#(. )ealers also said that some ma*or corporates ere seen selling dollar today. "+ad the corporates not been selling, the rupee ould ha!e eakened to "9.9,-&, le!els," said a dealer ith a pri!ate bank. Market participants said that the rupee could itness some !olatility next eek. .n for ards, the six-month premia closed at ,.9, per cent /1.,9 per cent0 and the 1$-month closed at ,.(' per cent /,.9' per cent0. - Our 1ureau

Forex kitty rises $5.36 b

Our Bureau Mumbai, Oct. 19 The forex kitty s elled by 23."3' billion to 2$3'.'(' billion for the eek ended October 1$, backed by sustained inter!ention by the 4eser!e 1ank of .ndia in the forex market. The reser!es had gone up by 2".3'( billion for the eek ended October 3, said 41.5s 6eekly 7tatistical 7upplement. 8The 41. has been constantly inter!ening in the forex market, buying dollars in order to cap the appreciation of rupee,9 said Mr :.;. <rasad, +ead-Forex and =ommodities, .ndus.nd 1ank.

Foreign exchange dealers said there could be some slo do n in accretion to reser!es next eek, ith the probable slo do n in F.. inflo s. They, ho e!er, said that it ould be offset by the re!aluation of currency assets. 8There ill be some re!aluation gains next eek contributing to accretion to the reser!es,9 said Mr ;. 4a*agopal, +eadTreasury, >otak 1ank.
Volatility likely

)ealers added the rupee could also itness some !olatility next eek. 8The rupee ill be !olatile next eek, sho ing some strength on days of good inflo s and eakening on others,9 said the treasury head of a foreign bank. The foreign currency assets ent up by 23."3' billion to 2$&(.((, billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The country5s reser!e position in gold, 7)4s and .MF remained unchanged at 2#."'# billion, 2$ million and 2&"# million, respecti!ely.

Rupee appreciation works to neighbours advantage

Pakistani rupee, taka remain stable against dollar

Harish Damodaran

@e )elhi, Oct. 1( 6hen a currency becomes stronger by the day abroad hile continuing to get eaker at home A as is indeed happening to the rupee A exporters are faced ith a double- hammy. On the income side, e!ery dollar orth of exports fetches him fe er rupees ith each passing day. Bt the same time, on the expenditure side, the same rupee earned buys him lesser Cuantity of goods and ser!ices back home.
Purchasing Power

This is precisely hat a combination of exchange rate appreciation and inflation has been doing to the rupee, making it a currency that is a Ddomestic lamb5 and an Do!erseas tiger5. 7ince the last one year, the rupee has gained about 1&.3 per cent o!er the dollar and 3.1 per cent against the pound sterling, hile marginally strengthening !is-E-!is the Furo. Fffecti!ely, e!ery dollar earned no is gi!ing the exporter 4s 3.# less compared ith last year at this time. On the other hand, ith the year-on-year consumer price inflation ranging from '.& per cent for urban non-manual employees to (.( per cent for agricultural labourers /Bugust numbers0, e!en the fe er rupees earned command less purchasing po er at home. For an exporter, the best antidote to inflation is de!aluation. 4ising domestic production costs do not matter beyond a point, so long as it gets offset by higher earnings in local currency for e!ery unit dollar of goods exported. Thus, the extra rupees spent on the expenditure side are compensated through higher rupees earned per dollar on the income front. This is hat has been happening, for instance, in <akistan and 1angladesh.

Competitiveness

.n <akistan, the consumer price index has risen '.3 per cent year-on-year during Bugust, hile holesale prices ha!e gone up by ( per cent. .nflation has similarly been a!eraging #-( per cent in 1angladesh. 1ut both the <akistani rupee and the 1angladeshi taka ha!e fallen against the Furo and the pound, hile ruling stable !is-E-!is the dollar /and certainly not appreciating unlike the .ndian rupee0. The impact of all this on relati!e competiti!eness cannot be lost, especially in sectors such as textiles or e!en agro commodities like basmati rice and sugar. )uring $,,'-,#, 1angladesh5s textile exports amounted to 29.$1 billion, including 2&.'' billion of o!en garments and 2&.33 billion of knit ear. <akistan5s corresponding shipments totalled 29.9& billion. .ndia5s exports of textile and textile products during $,,'-,# ere estimated at 21#.,1 billion. 6hile this may be higher in o!erall terms, the threat of rising competition from neighbours A accentuated through unfa!ourable exchange rate mo!ements A cannot be ignored. F!en ithin textiles, export of ready-made garments from .ndia, at 2(.#, billion, is already lo er than the 29.$1 billion of 1angladesh.

Montek backs
Our Bureau

ove on capita! in"!ows

@e )elhi, Oct. 1( The )eputy =hairman of the <lanning =ommission, Mr Montek 7ingh Bhlu alia, has defended the recently proposed measures of the Go!ernment aimed at moderating the capital inflo s, stating that these ere in the right direction.

87urges in capital flo s are a global phenomenon. There are no simple solutions. . think the actions they /the Finance Ministry, 7F1. and the 41.0 are taking are in right direction and aimed at moderating surges. @o country has an ideal system to manage surges,9 Mr Bhlu alia told reporters here on the sidelines of an industry e!ent. 7tating that globally financial systems e!ery here ere under strain, Mr Bhlu alia said that the only ay the .ndian system ould not come under strain as hen one shuts it completely. 8. don5t think it is sensible to do that,9 he added. The 7ecurities and Fxchange 1oard of .ndia /7F1.0 had on Tuesday proposed curbs on issuance of participatory notes /<@s0 by foreign institutional in!estors /F..s0. The Finance Minister, Mr <. =hidambaram, has said that the main purpose of the proposed measures as to moderate capital inflo s.

Rupee "a!!s tracking #ensex

Mumbai, Oct. 1( The rupee plunged further against the dollar on Thursday, tracking the fall in the domestic stock market. The home currency opened at "9.&'%&#, fell to an intra-day lo of "9.($, finally closing at "9.##%#(, against 6ednesday5s close of "9.3&%33. Forex dealers said that there as all-

round dollar buying as the 7ensex shed #1# points. +o e!er, the rupee gained slightly before closing, as exporters sa an opportunity and began selling dollars. 8The outlook contin ues to remain negati!e for the dollar as globally the greenback is losing ground. The rupee may bounce back to "9.&,-"9.3, on Friday, if nothing unto ard happens at the stock market,9 said a dealer at a pri!ate bank. .n the for ard premia market, the six-month closed at 1.,9 per cent /1.&&0 and the 1$-month ended at ,.9' per cent /1.1(0. A Our 1ureau

Rupee vo!ati!ity$ Meta! cos take to %ndian exchanges "or hedging

Trend reflected in rise of open interest in commodity bourses The setback The RBI recently allowed small metal companies with no underlying e posure abroad to hedge their risks! Participation of banks, mutual funds, financial institutions and foreign in"estors are not allowed to in"est in the commodity markets! #uresh P! Iyengar Mumbai, Oct 1# Gi!en the !olatility of the rupee against the dollar, metal companies ha!e no begun to hedge their risks in the commodity market here, though it accounts for a fraction of hat they put in on international exchanges. The trend is reflected in the increase of open interest in the base metals such as copper, nickel and Hinc.
ample liquidity

86ith ample liCuidity, hedging on the commodity exchanges not only co!ers the currency risk, but also the price corelation hich is almost 9# per cent in the metal segment,9 said Mr Ioseph Massey, )eputy Managing )irector, M=J. 8Bmong the big corporates, Fssar, 1inani Kinc, +industan =opper, .ndian Oil, IM6 and <olycab 6ires are a fe ho are using our exchange directly or through brokers to hedge their risks,9 he added. Open interest in nickel on M=J has gone up from 9$" tonnes in Iune to 19#1 tonnes in Bugust. Kinc open interest ent up from "1,("9 tonnes in Iune to "(,1(( tonnes in Bugust, hile copper as up from 1&,13, tonnes to 1&,3,( tonnes in Bugust. On @=)FJ, copper futures turno!er *umped from 4s "#9 crore in Iune to 4s 9&$ crore in Bugust. The open interest as also attributed to global de!elopments.
Contract size

There appears to be increasing interest to up the acti!ity on the .ndian exchanges but hurdles remain. 8Bt present, the contracts are liCuid but hen more business mo!e to .ndia, the markets might not ha!e enough strength to carry our risk. Moreo!er, the contract siHe needs to be bigger for us to shift more business,9 said a =FO of a metal company, hich trades on M=J. Mr Massey said the exchange no had at least gained the confidence of companies. 1ut, changes had to be made at the exchange and policy le!el before the leap into the second stage. The 4eser!e 1ank of .ndia recently allo ed small metal companies ith no underlying exposure abroad to hedge their risks on the international commodity markets. <articipation of banks, mutual funds, financial institutions

and foreign in!estors are not allo ed to in!est in the commodity markets. 8.n the eCuities market an in!estor can offset his losses against gains made and capital gains tax is charged only on the net profit. 7ome such incenti!es ould go a long ay in attracting corporates to hedge on the local exchanges,9 said Mr Massey. =ost of hedging on the international markets is much higher as companies ha!e to pay brokerage, bank cost and forex co!er. ?nlike big corporates for hom the multi-national banks pro!ide forex and double up as brokers taking up positions, the small companies are on their o n. 6ith the annualised forex !olatility mo!ing up from &.'3 per cent during $,,' and logging 3.'1 per cent, as of 7eptember $,,#, .ndian commodity markets ha!e become a safer bet, said Mr ;. 7hunmugam, =hief Fconomist, M=J.

&eh an bu!!ish on rupee' e(uity

Our Bureau

arket

@e )elhi, Oct. 1' .ndia5s eCuity market ill outperform de!eloped and emerging market indices o!er the next fi!e years, and the .ndian rupee ill appreciate significantly against the ?7 dollar. This optimistic prognosis has been made by :ehman 1rothers, a global in!estment bank, in its comprehensi!e report on the .ndian economy titled 8.ndiaL F!erything to <lay For9 released on Tuesday. The in!estment bank has also concluded that .ndia5s economy could gro by 1, per cent or more annually o!er the coming decade.

8Today5s launch of the firm5s landmark .ndian economic report reflects the intense interest that global in!estors ha!e in the orld5s emerging economies, especially .ndia, and it marks yet another milestone in the expansion of :ehman 1rothers in Bsia9, Mr Tarun Iot ani, =hairman and =FO, :ehman 1rothers, .ndia, said. The report concludes that .ndia5s rapid economic gro th bears all the hallmarks of the economic 8take-off9 that took place in other large Bsian economies in pre!ious decades, such as =hina and 7outh >orea, including rapidly rising G)< per capita, a high ratio of in!estment to G)< and an increasingly open economy. .t has noted that the liberalisation of foreign trade and in!estment and rapid de!elopment of financial sector, pursued against backdrop of prudent macroeconomic management, are contributing to rising ratio of in!estment to G)< and further producti!ity gro th. Further financial sector reforms could contribute 1-1.3 percentage points to long-term G)< gro th, and boost net capital inflo s from about 2 "( billion to o!er 2 $,, billion ithin ten years, the report added. .t, ho e!er, pointed out that labor market reforms to spur the necessary *ob creation o!er the next decade ill be a key challenge.

Rupee tad weaker) R*% active

Mumbai, Oct. 1' The rupee eakened against the greenback on Tuesday on the back of the continuous inter!ention in the forex market by the 4eser!e 1ank of .ndia. The rupee also fell tracking the eakness in domestic stock markets. The rupee closed eaker by about fi!e paise against the dollar. .t opened at "9."3%"' and sa an intra-day high of "9."13, and a lo of "9."9, before ending the day at "9."3%"'.

"The 41. as holding rupee at "9."1%"$ le!els," said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at 1.'$ per cent /1.93 per cent0 and the 1$month closed at 1.$9 per cent /1.3& per cent0. - Our 1ureau

R*% acts to check rupee gains

Mumbai, Oct. 13 The rupee gained by about fi!e paise to close at "9.",3,%"1 against the dollar on Monday, against FridayMs close of "9."'%"#. 1ut inter!ention by the central bank restricted the gains, on a day marked by huge inflo s, as the domestic eCuity index crossed le!els of 19,,,,. The rupee opened higher at "9."". For most of the day it as steady at le!els of "9.",3,, said dealers, thanks to 41. inter!ention. Forex dealers said that the 4eser!e 1ank of .ndia bought huge amounts of dollars through nationalised banks. "The rupee ill appreciate only hen the central bank mo!es out of the ay," said the chief forex dealer ith a pri!ate bank. The for ard premia also increased ith the six-month closing at 1.9$ per cent /1.(& per cent0 and the one-year at 1.3" per cent /1."9 per cent0. - Our 1ureau

+wo sides to the coin

P. V. INDIRESAN If we look at the rising rupee as an e port burden, it is a problem! If we look at it as a source of cheap imports, it is an opportunity, says P! $! I%DIR&#'%!

The rupee is increasing in value. Are we happy?

There is a story of t o boys. Fond parents of one of them left a plate of s eets hile the boy as sleeping. 6hen the boy got up, instead of being happy for the s eets, he as furiousL +e anted to kno hy he as not included in the party. .n the second case, as a prank, the boy5s friends messed up his room ith horse dung, again hile he as sleeping. 6hen he oke up, instead of getting angry about the mess, he shouted ith *oyL There has been a pony in my roomN 6here is itO This story contrasts t o mind setsL One that sees problem in e!ery opportunity and the other, hich sees hope in e!ery affliction. =urrently, the rupee is increasing in !alue. .t is increasing because foreigners are !ie ing .ndia as the land of hope. Bre e happyO Bpparently notP e are looking at the flood of foreign exchange as a burden, as a menace.
Two scenarios

Bs a source of inflation, foreign exchange inflo is a problem. Bs a source of capital, the same inflo is an opportunity. 7imilarly, if e look at the rising rupee as an

export burden, it is a problem. .f e look at it as a source of cheap imports, it is an opportunity. =ombining both, e can look at the situation either as a double *eopardy or as opportunity to kill t o birds ith one stone. .t is all in the mind. =onsider t o scenariosL Foreign exchange inflo s are picked up by real-estate speculators ho push up housing prices. To meet that inflation, ages ha!e to be increased, leading to a spiral of inflation. .n the second scenario, the foreign exchange is absorbed by inno!ating industry to de!elop better technology. Bs a result, exports increase in !alue, leading to a spiral of cumulati!e gro th. .n the first case, speculators use foreign exchange to sell goods at inflated prices and profit at the expense of the consumer. .n the latter case, inno!ators use the same foreign exchange to impro!e producti!ityP increase their profits by selling better goods. 7peculators play a Hero-sum, in-lose gameP inno!ators play a positi!e-sum, in- in game.
Indian tourists third category

Foreign exchange consumers, such as .ndian tourists abroad, are a third category. There as a time hen .ndian tourists used to buy e!erything on sight. Fortunately, manufacturers ha!e impro!ed so much that .ndian tourists no longer indulge in binge buying the ay they used to. =redit for this noticeable change in the beha!iour of .ndian tourists should go to our manufacturers ho may not be great inno!ators but are good modernisers. .n this respect, modernisers play a defensi!e gameL they cut asteful use of foreign exchange. 7mugglers are a category of consumers ho drain the country5s foreign exchange and salt it abroad ith little benefit either to themsel!es or to the country. )uring the days hen .ndian taxation as expropriatory, e used to

ha!e lots of them. F!en no , .ndians are said to ha!e billions of dollars orth of foreign deposits secreted abroad. They score goals against their o n country.
Trade !alance

6e can look at the picture from another angle. Bt the time of .ndependence, the ?7 dollar as orth 4s &.#'P no , it is eight-nine times costlier. There are t o reasons for the decline of rupee !alueL One, producti!ity of tradable goods has declined compared to that in the ?7. /The producti!ity of non-tradable goods is immaterial.0 T o, the ?7 has brought to the market many inno!ati!e products for hich it is able to charge monopoly prices. For instance, the prices ?7 manufacturers charge for computers and life-sa!ing drugs ha!e little relation to manufacturing costs. The con!erse also is trueL .f the rupee appreciates, the shock can be absorbed either by increasing the producti!ity of our tradables or by exporting high-margin products through inno!ation. ?nfortunately, our ne billionaires are mainly real-estate de!elopersP there is not one 1ill Gates among them. Thus, trade balance depends on four kinds of players. .nno!ators and modernisers play positi!elyP speculators and smugglers play negati!ely. =onsumers are mostly neutral. 6ise macroeconomic policy should discriminateL encourage inno!ators and modernisersP discourage speculators and smugglers /and lea!e ordinary consumers alone0. ?nfortunately, macroeconomic tools /interest rate manipulation, for instance0 treat the economy as a monolith. :ike rain, hich falls both on the saintly and on the sinners, macroeconomic tools make no distinction bet een good players and bad ones.
"eward and penalise

.deally, macroeconomic policy should re ard those ho create less than a!erage inflation pressure and penalise those ho contribute to inflation more than the a!erage. ?nfortunately, it is not easy to decide ho much of price increase is re ard for product impro!ements and ho much of it is due to poor management. +ence, re ards and penalties based on sale prices lead to interminable disputes, enriching tax la yers more than the economy. On the other hand, a company that increases age rates /not age bills0 faster than the national a!erage generates demand-pull inflation. B company hose profit rates /not profits0 are increasing faster than the national a!erage contributes to cost-push inflation. 1oth kinds of businesses can be identifiedP both deser!e to be penalised. +o e!er, firms in emerging areas /.T, biotech, for instance0 ill claim that they ha!e no option but to go on raising age rates because of the nature of skills reCuired. That is not correctL 7alaries in the .T industry are going through the roof not because their orkers are skilled but because there is a shortage of talent. .f our education system had produced enough /employable0 .T specialists, there ould ha!e been no age inflation in the .T industry. .T industries ha!e been crying hoarse that applicants are many but employable ones are fe . Therefore, it is in trouble not because the rupee !alue is rising but because our education pro!iders are doing a shoddy *ob. .nsufficient and%or inappropriate education is the ultimate cause of age inflation. +ence, better go!ernance is hat e needP cle!er economics is no substitute for good go!ernance.
The real challenge

Bfter much hesitation, as traditional Fconomics dictates, the go!ernment has cut interest rates. +esitation, because

nobody can predict reliably in hich direction, and to hat extent, the economy ill turn hen interest rates are cut. <rediction is difficult because, as explained earlier, macroeconomic tools do not discriminate bet een bad players and good players. .nterest rate management is like aspirinP it is a pain killer, a palliati!e. <ain persists hen too little aspirin is taken. .f too much is consumed, side effects, such as internal bleeding, make matters orse. 7imilarly, if the cut in interest rates is too small, economic pain remains. .f the cut is too large, the economy bleeds. .nterest rate cuts do not cure but only pro!ide a breathing space for the economy to correct itself. 4upee !alue is likely to continue to increase for many more years to comeP it is going to be chronic problem. Bs interest rate cut is a short-term palliati!e, it cannot be the cure for a chronic problemL +o long can e go on decreasing interest ratesO Further, the cut deters not merely hot money but genuine in!estors too. +o to ensure better go!ernance that increases the producti!ity of labour /and of capital0 is the real challenge, not ho far interest rate should be cut.

,hinas rising "orex reserves

.s (hina)s increasing foreign e change reser"es a threat or an ad"antage* #an+ay ,andhi To say that =hina5s foreign exchange reser!es are huge is an understatement. They are huge ith a capital +. =hina publishes its foreign exchange reser!es data once e!ery Cuarter /.ndia does so once a eek ith a small lag0 and the latest on =hina5s forex reser!es, that is, as of the end of Iune, stood at a hopping 21.""" trillion /or 21,""" billion0.

.t is ob!iously the largest holder of reser!es follo ed by Iapan at 29$& billion. .ndia is at the 'th position. The rate of gro th of =hina5s reser!es has been phenomenal and to understand that, one must necessarily consider the facts. .n $,,,, the forex reser!es of =hina ere a little under 2$,, billion. 1y end- October $,,', they had reached 21 trillion or a 21,,,, billion. 6hile that as a feat in itself, the most amaHing feat it managed as to increase its reser!es by 2""" billion in around eight months. To get some perspecti!e on that, .ndia5s forex reser!es increased, during the same time period, from 21', billion to 2$,' billion. This comparison is not to belittle .ndia5s achie!ement, but to highlight =hina5s surge. .n fact, .ndia5s forex reser!es gro th as one of the highest during this period. That said, this is not an endorsement of large holdings of forex reser!es because reser!es tend to ha!e !ery high opportunity cost. +o did =hina manage to attain these heady le!elsO There are se!eral reasons for that. =hina has al ays attracted F). and of late has had !ery high F.. inflo s. +o e!er, t o reasons really stick out, and they are mercantilism and highly distorted exchange rate.
#eavy on e$ports

The origin of =hina5s high economic gro th o!er the past t o decades can be traced to its high trade surpluses that it has consistently en*oyed. This continuous focus on exports to sustain economic gro th /mercantilism0 is largely responsible for hat =hina is today though it is no becoming more dependent on domestic consumption. +o e!er, there is a catch here. B country ill import from another only if a particular good is cheaper there or, in other ords, cost-competiti!e "is-.-"is other countries. =hina5s attraction for a number of countries as clearly this.
%$change rate

=hina could make and can sell most items at a much lo er cost than most other countries. +o e!er, for this costcompetiti!eness to last, there is a !ital ingredient A an under!alued exchange rate. The central bank of =hina, in the 199,s, fixed or pegged the =hinese yuan to the ?7 dollar at 21 Q (.$# yuan. This peg stood for many years because the =hinese central bank had the financial muscle to maintain this peg. This rate clearly made =hinese goods cost-competiti!e.
&ndervaluing yuan

The true benefits started trickling in later. Bs countries start accumulating foreign reser!es because of foreign trade or inflo s, it stands that its currency should appreciate or become stronger. +o e!er, if a currency becomes stronger, then its goods become comparati!ely more expensi!e and, therefore, less competiti!e. The =hinese had no such orries because of the peg, hich ensured that their exports ould remain cost-competiti!e because their currency had become fairly under!alued o!er the years and =hina literally became the orld5s supermarket ith a perpetual Dsale5 sign hung on its doors "'3 days a year. =hinese goods ha!e in fact become so cheap that many companies in both de!eloping and de!eloped countries are going bankrupt because they cannot compete ith prices of =hinese-made goods and that too this is after including the freight and duties paid on them. The =hinese did loosen the peg in the mid-$,,3 after an intense outcry from the ?7, hich bore much of the brunt of =hinese goods though it can be argued that the ?7 also benefited from cheap =hinese goods. The yuan as trading at around #.3# to the dollar /on Bugust $90 but it is idely

estimated to be still Dunder!alued5 but there are no clear estimates by ho much. 7ide-effects This under!alued currency has, ho e!er, had an unintended side-effect. 1ecause the yuan became so under!alued, many currency speculators started to transfer money into =hina and con!erted them into yuan. Their hope as that hen the currency started appreciating, they ould make a lot of money. @ote that this is opposite to a currency crisis hen people start taking their money out in hordes to a!oid a lo ering in !alue of their monies. This phenomenon of people bringing in money specifically to benefit from an appreciation in the currency is a !ery rare one indeed. This inflo of money has added to the pile of reser!es. Bs mentioned earlier, =hina has had !ery large F). inflo s and that too has added to the pile and it has also had massi!e F.. inflo s too in the recent past. Bd!antage To ans er the Cuestion about hether =hina5s reser!es are a threat or an ad!antage, . ill do so strictly from a =hinese perspecti!e. <ut simply, it is both. The .MF says that the Doptimal5 le!el of foreign reser!e holding should be eCui!alent to six months5 orth of imports. Gi!en mobile international capital flo s, reser!es should also co!er all short-term debt as ell as some le!el of F.. inflo s. =hina5s reser!e le!els are ay abo!e all three included. This is the ad!antage of ha!ing this sort of le!el of reser!es because of the protection it affords. )o nside The do nside of =hina5s foreign reser!es is t o-fold. One is because of the high le!el of reser!es. +olding reser!es is an expensi!e business. Forex reser!es ha!e a !ery high opportunity cost. This is because foreign reser!es are

usually held in Dtreasuries5 or so!ereign debt hich typically has !ery lo yields. The alternati!e is to in!est these monies else here hich ould yield, on a!erage, a higher return. 7ince central banks prefer to hold these reser!es in safe so!ereign debt, there is a high opportunity cost to holding reser!es. The second do nside arises because of the rate of gro th of foreign reser!es. .t should be understood that e!ery time a single unit of foreign currency enters the domestic economy, it adds to the monetary base and by extension the money supply. .nflation threat The definition of inflation is 8too much money chasing too fe goods9 and therefore e!ery time there are large-scale inflo s, the threat of inflation arises. To ard off this threat, the central bank sometimes sterilises this inflo by issuing bonds and sucks out the eCui!alent amount from the money supply. Though the =hinese central bank sterilises inflo s, it cannot possibly sterilise e!ery inflo . =onseCuently, a lot of Dun-sterilised5 foreign money has come in and =hina5s biggest do nside from these inflo s is that it has both created asset bubbles as ell as steadily increased the inflation rate. 7pending abroad =hina is no trying to head this off by spending the money abroad on !arious things, such as buying eCuities, so that money is taken out of the country. To this end, they ha!e created a fund to do these acti!ities. +o e!er, these measures are *ust temporary since they ha!en5t addressed the primary problem, hich is record le!els of money inflo s. .f these inflo s aren5t curbed, then hate!er measure =hina takes ill pro!e to be only temporary and it ill only build pressure.

The Cuickest ay for =hina to reduce the gro th of foreign reser!es is to let the yuan appreciate or strengthen but that is a course of action that they loathe, because they !ie their exchange rate policy as a cornerstone of their economic success.

Rupee ends 5 paise down

Mumbai, Oct. 1$ .t as a !olatile day for rupee on Friday. The home currency eakened by about fi!e paise against the greenback and closed at "9."'%"#, do n from the pre!ious close of "9.",%"1. The rupee opened at "9.$9%"1 le!els and then rallied to "9.&3 on statements made by the Finance Minister, <. =hidambaram. 7tating that the rupee !alue is being fuelled by steep inflo s of foreign funds, he saidL 8The rupee is in a Hone hich is not /a0 comfort Hone at the moment. 6e are const antly monitoring the situation. 6e must find ays to manage competiti!e exchange rate ithout hurting in!estments.9 The rupee also fell tracking the eakness in the domestic stock markets. Foreign exchange dealers said that the mo!ement of rupee on Monday ould depend on ho the Bsian stock markets perform. Market participants ho e!er anticipate the rupee to strengthen further. .n for ards, the six-month premia closed at 1.(& per cent /1.#3 per cent0 and the 1$-month closed at 1."9 per cent /1."' per cent0. A

Forex reserves rise $3.6 b

Our Bureau Mumbai, Oct. 1$ The country5s forex kitty s elled by 2".3'( billion for the eek ended October 3, on the back of continuous inter!ention by the 4eser!e 1ank of .ndia in the forex market. 8The 41. as constantly inter!ening in the forex market, buying dollars in order to cap the appreciation of rupee,9 said Mr :.;. <rasad, +ead-Forex and =ommodities, .ndus.nd 1ank. The forex reser!es had surged by a hopping 211.(#1 billion to touch 2$&#.#'$ billion for the eek ended 7eptember $(, $,,#, said the 6eekly 7tatistical 7upplement from 41.. The foreign currency assets ent up by 2".3'9 billion to touch 2$&".3$& billion. The country5s reser!es in gold and 7)4s remained unchanged at 2#."'# billion and 2$ million, respecti!ely. The country5s reser!e position in the .MF ent do n by 21 million to 2&"# million.

Rising rupee$ -yundai to take Rs .56/cr hit this year

(o seeks a system of rebate on ta es, le"ies The car manufacturer has sought Rs /,010 per car as reimbursement from the ,o"ernment on account of "arious ta es paid! T!&! Ra+a #imhan =hennai, Oct. 11 +yundai Motor .ndia :td ill lose 4s 13' crore this year due to the rupee appreciation against the

dollar. This orks out to 4s 1",,,, per car. .n the first eight months of the year, the car manufacturer lost 4s 1,$ crore due to rupee appreciation. .n addition, the company is losing 4s (,$'$ per car due to taxes%le!ies, and the amount is Dnon-rebatable5 by the Go!ernment. The hit due to currency appreciation and nonrebatable taxes that each exported car has to bear orks out to 4s $1,$'$ a car, the company said. The company has taken up this issue ith the )irector General of Foreign Trade through the Federation of .ndian Fxport Organisation, and sought a system of rebate on duties and le!ies. +yundai said that the Go!ernment should e!ol!e a system for rebating duties%le!ies suffered by the export product immediately or other ise export from .ndia ill suffer in due course. 8Fxporting goods ith duties is against the natural principle of the Go!ernment,9 the company said. The car manufacturer has sought 4s (,$'$ per car as reimbursement from the Go!ernment on account of !arious taxes paid. The reimbursement sought as a percentage of f.o.b. /freight on board0 !alue of export. This is not rebated by the Go!ernment in any of their schemes, including duty dra back of &.1" per cent of f.o.b. !alue. Business 2ine recently reported that +yundai5s target for $,,# is to export 1.13 lakh cars against 1.1" lakh cars exported in $,,', an 1.3 per cent increase. +o e!er, this plan itself ill ha!e to be re- orked in the light of appreciation of rupee. .n $,,(, hen the company5s second plant ill be in production, +yundai5s preliminary plan is to export $.3 lakh cars.

Rupee c!oses at 30.31

Mumbai, Oct. 11

The rupee surged to an intra-day high of "9.$( against the dollar on Thursday after .nfosys came out ith its Cuarterly results. The home currency opened at "9."$ and immediately ent up to "9.$( before ending the day at "9.",%"1. Foreign exchange dealers said that the 4eser!e 1ank of .ndia started inter!ening at "9.$( le!els and as thereafter continuously inter!ening, trying to cap the appreciation of rupee. "The 41. as buying throughout the day in order to cap the further strengthening of the rupee," a dealer ith a pri!ate bank said. Market participants, ho e!er, expect the rupee to appreciate further to "9 le!els. .n for ards, the six-month premia closed at 1.#3 per cent /1.&9 per cent0 and the 1$month closed at 1."' per cent /1.$, per cent0. - Our 1ureau

23xporters need to have expertise in anaging currencies

Hyundai seeks rail connecti"ity to (hennai port
1i*oy Ghosh

Export talk: 'r ".(. )u*ral+ ,irector )eneral o- .oreign Trade+ with 'r A. (akthivel+ Vice/President+ .I%0+ and 'r '. "a-eeque Ahmed+ past President+ .I%0+ at a meeting in Chennai on Thursday.

Our Bureau

=hennai, Oct. 11 =ar manufacturer +yundai Motor .ndia ants rail connecti!ity from 7riperumbudur, here its production facility is located, to =hennai. This, apart from facilitating exports of cars out of the =hennai port, ill also help the people orking for +yundai and its suppliers in the region, to commute to ork easily, the company said on Thursday.
1Automo!ile cluster2

Bt a meeting organised by the Federation of .ndian Fxport Organisations here, +yundai called for declaring >ancheepuram district in Tamil @adu as the Dautomobile cluster5. The )irector General of Foreign Trade, Mr 4 7 Gu*ral, said he ould look into the matter.
"upee appreciation

On rupee appreciation against the dollar, Mr Gu*ral said, exporters need to ad*ust exceptionally fast to the situation. Fxporters do not ha!e an option but to increase prices and reduce costP create a nicheP impro!e the product Cuality and efficiencyP scale up operations and introduce cost-cutting measures. 8Rou also need to ha!e expertise in managing currencies,9 he said. Mr B. 7akthi!el, ;ice-<resident and =hairman, 7outhern 4egion, F.FO, urged the )GFT to lo er interest rate on preshipment and post-shipment credit gi!en to exporters and ai!e fringe-benefit tax to exporters. This ill pro!ide some relief for exporters to mitigate loss being suffered due to the rupee appreciation.

Forward contracts nor s re!axed

Our Bureau

Mumbai, Oct. 1, 4esident indi!iduals can no book for ard contracts based on self-declaration, ithout producing underlying documents up to a limit of 21,,,,,,,. B recent notification from the 4eser!e 1ank of .ndia said, 8.n order to enable resident indi!iduals to manage and hedge their foreign exchange exposures arising out of actual or anticipated remittances, both in ard and out ard, it has been decided to permit them to book for ard contracts ithout production of underlying documents up to a limit of 21,,,,,,,, based on self declaration.9 The contracts booked under this facility ould be on a deli!erable basis. +o e!er, in case of mismatches in cash flo s or other exigencies, the contracts can be cancelled and re-booked, the notification said. The contracts can be booked for a tenor of one year and the notional !alue of the outstanding contracts should not exceed 21,,,,,,, at any time. The notification further enables the 7mall and Medium Fnterprises /7MFs0 ha!ing direct or indirect exposures to foreign exchange risk to book, cancel, rebook or roll o!er for ard contracts. 8

Rupee gains

Mumbai, Oct. 1, The rupee gained against the dollar on 6ednesday as it continued to follo the stock market5s up ard mo!ement. Though dollar inflo s ere hea!y, they ere absorbed

during the day as there as good dollar support from the central bank, said a forex dealer ith a pri!ate bank. The rupee opened at "9.",%"$ and traded bet een "9.", and "9."& for most of the day. .t closed at "9."1%"$, against Tuesday5s close of "9.&&. 8The dollar inflo s ere all stock market -related, but nationalised banks ere buying dollars for most of the day,9 said the dealer. The for ard premia shot up sharply ith the six-month closing at 1.&9 per cent /1.,( per cent0 and the 1$-month at 1.$ per cent /1.,1 per cent0. A

Rupee ends unchanged

Mumbai, Oct. 9 The rupee ended at "9.&& against the dollar on Tuesday, almost unchanged from the pre!ious dayMs close of "9.&3%&'. .t opened at "9.3,%31 and touched a lo of "9.33, after hich it reco!ered, tracking the gains made by the domestic eCuity market, said forex dealers. The central bank as there in the market for some time, hen the rupee as around "9.&#-"9.&( le!els, said the chief forex dealer ith a pri!ate bank. The for ard premia market also sa minimal mo!ement as the '-month closed at 1.,( per cent /1.," per cent0 and the 1$- month at 1.,1 per cent /,.9( per cent0. - Our 1ureau

4o escape "ro
# Balakrishnan

a ,RR hike

7uddenly, gro th orries ha!e surfaced S serious enough for the Finance Minister to call corporate and bank chieftains for a meeting. 1anks ere asked to take a soft line on interest rates. They ill not find it easy to agree. Their deposit costs are high and there are huge uncertainties about the 4eser!e 1ank of .ndia5s actions on the liCuidity front.

The rupee5s continuing up ard march is thro ing se!eral spanners in the orks. )espite billions of dollar buying, the central bank is unable to stop the .ndian currency5s rise. The 41.5s forex kitty gre more than 21, billion in the eek ending 7ept $(, pushing reser!es to ne records. True, the liCuidity arising from forex inter!ention is being mopped up immediately ith M77 bonds, but the fiscal cost of this is becoming unbearable. 7er!icing these bonds ill add Go!ernment expenditure. ell o!er 4s 1,,,,, crore to

The alternati!e is to open the re!erse repo indo . That too has its costs, but, at the first cut, ill be to the 41.5s account, and, therefore, not immediately reflect in the fisc. There ill be, of course, e!entually an eCui!alent reduction in the 41.5s surplus distributed to the Go!ernment. Fither ay, the budget impact is the same.
Costless route

The costless route is ob!iously to increase the =44. 6hile this could be the preferred solution, it could force up lending rates as banks try to reco!er the loss of interest on =44 and is contrary to the desire of the Finance Minister to lo er interest rates. The 41. ill exercise its choice in the halfyearly re!ie of Monetary <olicy to ards end-October. B =44 hike looks una!oidable. Mean hile, the !illain of the piece S portfolio inflo s S continues to be as strong as e!er. 6ith the stock market scaling ne highs e!ery day, the Go!ernment and the 41. are left ith hardly any breathing room.
&( -actor

Bs forecast in last eek5s column, ?7 *obs data ere strong, ith substantial up ard re!isions to the anaemic figures of

the last t o months. This has significantly reduced the chances of another rate cut at the Fed5s next meeting at month-end. 1ut it is not as if the economy is completely out of the oods. There is still scope for a nasty surprise - not from housing, but /say0 the collapse of a global financial institution. Bnd e!en in the most fa!ourable outcome, gro th is likely to be modest S in the sub-" per cent range. Other ?7 data of the last eek confirm the DGoldilocks5 scenario of neither too hot nor too cold an economy, as should figures on retail sales and consumer confidence this eek. The minutes of the 7eptember 1( Fed meeting ill be out on Tuesday and are likely to say that the 3, basis point cut is insurance. More rate reductions can, therefore, by no means be taken for granted.

#ervice cos

ay show strong 56 resu!ts

&arnings momentum likely to be sustained3 Re impact will not be felt

$ishwanath 4ulkarni 5oumita Bakshi (hatter+ee 1angalore%@e )elhi Oct. 9 .ndian .T ser!ices firms are expected to post a robust gro th for the second Cuarter /T$0, despite currency !olatility. The earnings momentum as a result is likely to be sustained, after a slip in T1 this year.

.ndustry analysts expect Tier . companies to outperform their o n pro*ections to post #-1, per cent Cuarter-onCuarter re!enue gro th dri!en by strong !olumes for the seasonally strongest Cuarter. <rofits are expected to gro "' per cent seCuentially. .n the run-up to T$ results, the .T stocks ha!e gained by (1, per cent in recent eeks.
&( developments

The market is looking for ard to the management comments on the demand scenario in light of the recent de!elopments in the ?7 and also on the pricing en!ironment. Bn analyst ith the foreign brokerage said the companies may not go o!erboard ith regard to their comments on the .T spend outlook in the ?7, the largest .T market. .nfosys and T=7 are expected to report a marginal increase in their operating margins dri!en by better pricing from se!eral key customers and the 7GUB /selling, general and administrati!e expenses0 le!erage.
'argins growth

+o e!er, companies that effected a salary hike during the Cuarter such as 6ipro, 7atyam and +=: Technologies, may report a flat gro th on the margins front. The rupee, hich appreciated by about t o per cent against the dollar during the Cuarter, is unlikely to ha!e a ma*or impact on the margins. 1ecause of the dollar depreciation, analysts expect a marginal up ard re!ision in the dollar guidance, especially from .nfosys and 7atyam. Bn analyst ith Bmbit =apital pointed out that hile the rupee on an a!erage had not changed much since the last Cuarter from a realisation standpoint, the impact on account

of translation losses /as the rupee has appreciated about 1.$ per cent on a blended basis0 ould be cushioned by hedging. Bnalysts are, ho e!er, atching-out for gro th in 1anking, Financial 7er!ices and .nsurance /1F7.0 segment, impro!ement in pricing, and ramp-ups and utilisations. Bn analyst ith 7ushil Finance, Mr Te*as )oshi said that the business conditions remained buoyant despite sub-prime issues and the industry on a hole can look for ard to better-than-expected numbers.

2Manu"acturing units hit by rising rupee' ,hinese i ports

Impose dumping duty on (hina till they float yuan, says 26T chief 78e are struggling! 8e can)t gi"e up something unless we make a full representation to the ,o"ernment9:

Mr A.M. Naik

%! Ramakrishnan =hennai, Oct 9 :arsen U Toubro feels that the rupee appreciation combined ith the =hinese artificially locking in their currency is affecting some of the manufacturing units in the company. .t has apprised the =entre of this and ants it to act before .ndian manufacturing is badly affected. 8My appeal to the Go!ernment is impose ", per cent antidumping duty on =hina until such time they float the

currency. The day they float the currency, ithdra it /the anti-dumping duty0,9 Mr B.M. @aik, =hairman and Managing )irector, :arsen U Toubro :td, told Business 2ine here on Monday. :UT has a number of manufacturing units that are affected by imports from =hina. They are small units and hence o!erall the company is not affected much. +o e!er, the units S producing plastic and rubber machinery, !al!es and medical eCuipment S in Tamil @adu and >arnataka ha!e o!er $,,,, employees and get almost half their turno!er from exports.
Arti-icially locked in

Bt its eakest, the rupee as 4s &( to a dollar and at its strongest, at 4s "9.3,, an o!er $, per cent appreciation of the rupee. This itself as a ma*or impact on exports. 6hile the rupee as free floating, the =hinese currency yuan as 8artificially locked in9 at a lo price, Mr @aik said and added that if =hina freely floated its currency, it ould appreciate ithin a eek and then all of :UT5s units ould become competiti!e. +e said he had taken this up ith the Go!ernment, including the Finance and =ommerce ministers, and highlighted that .ndian industry ould be iped out, if not badly affected, by =hinese imports. +e had e!en told the Go!ernment that if these businesses did not do ell, the company ould be forced to either close them do n or sell the units. +e e!en anted the Go!ernment to take the matter to the 6TO to straighten out the issue.
3o decision now

Mr @aik said these units ere struggling but :UT as not going to take a decision on them right no . 86e are

struggling. 6e can5t gi!e up something unless e make a full representation to the Go!ernment and see if e can resol!e this issue,9 he said. On a t o-day !isit to the city, the :UT =M) said the rupee appreciation and the =hinese currency artificially locked in offered =hinese manufacturers a "3 per cent cost ad!antage. :UT could make up ith producti!ity, but not to the extent of "3 per cent, he said.

#trong Re' overpricing !ike!y to hurt inbound touris

Tra"el cos may shift to rupee tariff 7The weak dollar is bound to affect the inbound tra"el, which can become less attracti"e for tra"ellers,: said 5r Himmat 'nand, (&O-India 6 #outh 'sia, #IT' Destination 5anagement! #hobha 4annan Mumbai, Oct. ( 7trong rupee coupled ith o!erpricing of tours in the .ndian tourism industry is bound to affect the inbound tra!el and tourism in the country, feel industry experts. Fxperts say that though inbound tourism has increased by about $, per cent, it has, ho e!er, not done as ell compared to the outbound tra!el. 7ome of the tra!el companies, hich usually Cuote the entire trip in dollars for tra!ellers across the globe, are no planning to shift to a rupee tariff to moderate the effect of rupee appreciation. Fxperts point out that though there has been no immediate impact on indi!idual tra!ellers it might soon start pinching

them. 8Tra!ellers ho ha!e already booked their tours ill surely go ahead and tra!el but ill not spend as much as they ould ha!e spent,9 said a senior official ith the tourism industry.
"ising rupee

Tour operators organising o!erseas trips are the ones ho are bound to get hurt by the appreciating rupee, said Mr Madha!an Menon, Managing )irector, Thomas =ook .ndia :td. 86e ill, therefore, Cuote a rupee tariff here!er possible,9 he said. 8The eak dollar is bound to affect the inbound tra!el, hich can become less attracti!e for tra!ellers,9 said Mr +immat Bnand, =hief Operating Officer-.ndia U 7outh Bsia, 7.TB )estination Management. 8.t is time that e started Cuoting in rupee,9 he added. Mr Bnand also felt that not only the appreciating rupee but also the o!erpriced tourism sector could be a reason for the poor performance of inbound tourism. 8+otels ha!e become 3-1, per cent more expensi!e,9 he said. B lot of hotels, hich used to follo a dual tariff structure, ha!e no shifted to the single tariff structure follo ing rupee appreciation.
Constraints

Mr Bnand stated that though the business from the ?7 is gro ing at a rapid pace, there is a marked change in the trend of tra!el. 8B lot of ?7 tour operators ho used to book deluxe category hotels are no settling do n for first class hotels, hich are a little less expensi!e,9 he said. .nfrastructure and a!ailability of rooms is also a ma*or constraint for inbound tra!ellers. 6inter, hich is usually a

peak season for such tra!ellers, might not be as attracti!e, say industry experts.
)ovt measures

+o e!er, they feel that the Go!ernment is taking adeCuate measures in order to make .ndia an attracti!e tourist destination. The Ministry of tourism has done a number of road sho s. Moreo!er, the D.ncredible .ndia5 campaign has also gone a long ay in ooing tourists, said an official. 87ome 7tates like >erala, Madhya <radesh and 4a*asthan ha!e taken proacti!e measures to promote niche tourism,9 she said. 7he also pointed out that the rail ays5 effort to pro!ide trains ith specific themes ill go a long ay in attracting tourists.

2%ndia vu!nerab!e to oi! shocks' "oodgrains de"icit

RBI rules out creation of funds to use e cess fore reser"es
<aul @oronha

Treading cautiously: ,r. 4+ V+ "eddy 5right6+ )overnor+ "7I+ and 'r. (. (ridharan+ Chairman+ .%,AI+ at a -unction in 'um!ai on 'onday. 8

Our Bureau Mumbai, Oct. ( .ndia does not need stabilisation funds or so!ereign ealth funds /76F0, at this point in time, said )r R. ;. 4eddy, Go!ernor, 4eser!e 1ank of .ndia. =reation of such funds may not be necessary gi!en the country5s consistent current account deficits and its di!ersified export

basket, )r 4eddy said, hile speaking at the Golden Iubilee Function of Foreign Fxchange )ealers Bssociation of .ndia. 7uch funds try to smoothen the re!enue flo s arising out of !olatility in commodity export proceeds and are created amidst current account surpluses hen the foreign exchange reser!es attain a le!el higher than hat is percei!ed as DadeCuate5. 8.ndia does not ha!e a dominant exportable natural resource, hich might bring indfall gains. Further, .ndia has experienced consistent current account deficits, barring a modest surplus for a fe years,9 )r 4eddy said. Fxplaining hy creation of such funds may not be possible in the near term, )r 4eddy said that .ndia is !ulnerable to shocks on account of oil price and fluctuations in food grains production, hich is still largely dependent on monsoon. Blso, a large part of the capital flo s are eCuity flo s and a ma*or part of the Foreign )irect .n!estment is either pri!ate eCuity or is for acCuisition of existing firms, rather than in!estment for greenfield pro*ects. 8Therefore, capital account shocks, hich ould be independent of the economic fundamentals of the country or domestic macroeconomic en!ironment, cannot be fully ruled out,9 he said. The aim of a 7tabiliHation Fund is to soften the effects of !olatility in export earnings, hile 76Fs generally refer to special purpose in!estment !ehicles created to manage national sa!ings to generate higher returns. Foreign exchange dealers said that these funds are popular in 7outh Fast Bsia, Malaysia, 7ingapore and in the Gulf. )ealers also feel that gi!en the recent huge accretion to forex reser!es, creation of such funds may be rele!ant.

+o e!er, it is unlikely in the near future due to the current account deficit, said a senior official of a public sector bank. 8The reser!es e ha!e no are more than our reCuirements and it may increase as the 41. is likely to continue ith its sterilisation efforts for some more time. 1ut the creation of a 76F is not possible in the near future due to the country5s current account deficit,9 he said.
'acro hedge

7tabiliHation Funds are normally expected to constitute a macro hedge against a sharp fall in the export receipts from commodities that are mainly exported. They are set up primarily to insulate the budget and the broader economy from excess !olatility and inflation by smoothening re!enues flo ing to the budget, sa!ing during a re!enue indfall and dis-sa!ing during a price slump, he said. 7tabilisation funds can also be con!erted into endo ment fund if there are sustained indfalls on export front, as as done in @or ay, )r 4eddy said.

Rupee "!at as R*% intervenes

Mumbai, Oct ( The rupee as almost flat against the dollar on Monday as the 4eser!e 1ank of .ndia inter!ened to rein in the appreciating home currency. The rupee opened at "9.&1%&", touched an intra- day high of "9."(. .t then slumped to end at "9.&3%&', against Friday5s close at "9.&#%&(. 8The rupee may continue to be range-bound as an appreciating home

currency remains a concern for the 41.,9 said a dealer at a pri!ate bank. .t as a holiday in @e Rork on Monday so traders expect to see good dollar demand on Tuesday. .n the for ard premia market, the '-month closed at 1.," per cent /1.1,0 and the 1$- month at ,.9( per cent /1.,90. The parity bet een the ' month and the 1$ month premia indicates that the outlook on the rupee remains bullish and traders are un illing to bet on a strong dollar e!en after a year, market participants said. S

7a a! 4ath says exporters need

Our Bureau

ore re!ie"

@e )elhi, Oct ' The ?nion =ommerce and .ndustry Minister, Mr >amal @ath, on 7aturday ga!e a Cualified elcome to the mini-package for exporters announced by the Finance Ministry in the ake of the appreciating rupee, stating that he ould continue to press for more relief reCuired for exporters. Mr @ath said at a ne s conference in his office here that rupee appreciation, though a sign of resilience of .ndian economy, has become a matter of particular concern to exporters hose import-intensity in export production is not much. +e said that a =ommittee has been set up to address this serious concern. +e also said that last eek the <rime Minister, )r Manmohan 7ingh, had asked )r =. 4angaraman, =hairman, <M5s Fconomic Bd!isory =ouncil, to study the problems plaguing the export sector in the aftermath of the appreciating rupee, as also the slo do n in industrial production, and prepare a report ithin a month. +e elcomed the Finance Ministry5s decision to allo interest on Fxchange Farners Foreign =urrency /FFF=0 account and also extending ser!ices-tax exemption to four more areas,

making such exemptions a!ailable for se!en ser!ices. +e said that his ministry ould plead for inclusion of other ser!ices-tax exemption too and the modalities for this ere being orked out.
Cost o- relie-

To a specific Cuery about the cost of the relief announced on 7aturday, in the light of the 4s 1,&,,-crore package announced in Iuly $,,#, Mr >amal @ath said that it as not proper to estimate loss of tax re!enue for these incenti!es to exporters as they are only notional. +e said export acti!ities generate their o n spin-off effects, hich produce more re!enue to the excheCuer. 7tating that export as no longer an exchange-earning acti!ity but more of pro!iding gainful employment through sustained economic acti!ities, the Minister said that despite the appreciating rupee he as not re!ising the export gro th set for the current fiscal, hich is likely to be $, per cent in dollar terms. +e said that product co!erage under ;ishesh >rishi and Gram ?dyog Ro*ana employmentintensi!e industries ould be expanded, and he cited minor forest produce and food processing industries as those ith good employment potentials. Mean hile, the <resident of the Federation of .ndian Fxport <romotion Organisation, Mr G.>. Gupta, and the ;ice- <resident, Mr B. 7akthi!el, hile hailing the relief package, regretted that main ser!ices such as commission to foreign buyer, o!erseas tra!el, courier charges and charges to customs house agents, hich continue to impact all exporters substantially, remain outside the remission mechanism.

2-ike in 839* rates not the so!ution to rupee prob!e

Our Bureau

>olkata, Oct. ' ?rging exporters to ad*ust to the scenario of a stronger rupee through adoption of a hedging mechanism /for ard contracts0 or in!oicing in currencies other than the dollar like Furo, the )irector General of Foreign Trade /)GFT0, Mr 4.7. Gu*ral, said here that a hike in )F<1 rates as not the solution to the problem. +e, ho e!er, admitted that the exporters ere indeed in a difficult situation because of the rupee appreciation !is-E-!is the dollar. <articipating in an interacti!e session on D<ost Foreign Trade <olicy5, organised *ointly by the Fngineering Fxport <romotion =ouncil and the Federation of .ndian Fxport Organisation /F.FO0, Fastern 4egion, Mr Gu*ral said efforts should be made to ensure that the foreign currency risks are addressed by the international buyer. .n the context of percei!ed uncompetiti!eness of .ndian exporters because of a stronger rupee, he said that in the long run, they had to impro!e technology and reduce the cost of production to emerge more competiti!e globally. Bssuring them help through dialogues ith the Finance Ministry on issues such as easy bank credit and belo <:4 rates, he said discussions ere already on to cut do n or eliminate export documentation to reduce transaction costs for exporters.
%PC) scheme

+inting at some relief ith regard to eligibility criteria in the Fxport <romotion =apital Goods /F<=G0 scheme, he ruled out any dilution of !alue additions norms. 4esponding to alleged cartelisation mo!es by pig iron manufacturers, he told the FF<= to take the matter to the =ompetition =ommission.

On notification of t o more :and =ustoms 7tations in 6est 1engal for )F<1 credit, the )GFT said the matter ould be taken up ith the Finance Ministry soon.
VAT pro!lem

For small and medium 6est 1engal exporters ho are grappling ith the problem of delayed ;BT refunds /no said to ha!e accumulated to 4s "& crore0, Mr Gu*ral said )GFT ould take up the matter ith the )epartment of 4e!enue. The Fngineering Fxport <romotion =ouncil has urged the Go!ernment to mo!e from refund-based initiati!es to an exemption-based system.
%$port target

Farlier, in his elcome address, Mr 7.>. Iain, chairman of F.FO, F4, said the target set by the Go!ernment of 21',billion exports during $,,#-,(, and 2$,, billion in $,,(-,9 as rather optimistic, particularly in the backdrop of a rising rupee and slo ing global economic gro th. +e listed infrastructure de!elopment, logistics support and rising transaction costs as three important issues hich need to be tackled upfront if exports from eastern region ha!e to pick up in a big ay. =ommenting on the rupee issue, he saidL 8 e ha!e reached a stage hen e ha!e stopped entering into ne contracts.9 4elying on secondary data on !arious sectors, Mr Iain said export realisations on account of rupee appreciation had fallen by 1$ per cent for chemicals, ' to '.3 per cent for textiles and likely to dip by $,-$3 per cent for processed foods and agro products, electronics U electricals and steel products.

Rupee sheds .1 paise

Mumbai, Oct. 3

The forex market sa steady trade as the central bank inter!ened to pre!ent intra-day !olatility, said dealers. The rupee opened and closed at "9.&(%&9 at "9.&(%&9, do n 1, paise from the pre!ious close. )uring ma*or part of the day it as bet een "9.&# and "9.&9, except hen it briefly touched "9.&", indicating that dollar supplies e!enly matched the demand. Bccording to a forex dealer ith a public sector bank, the 41. is only trying to pre!ent intra-day !olatility. .t is not trying to fix the rupee at any particular le!el. "The 41. inter!enes in the market depending on the dayMs supplies," he said. The dollar also did not see much mo!ement against other global currencies, as the ?7 employment data is a aited later in the day. .n the for ard premia, the six-month closed at 1.1 per cent /1.1# per cent0 and the 1$-month closed at 1.,9 per cent /1.,( per cent0.

Rising Re$ 2*9:s' s a!! cos under pressure

Impact more as they ha"e less le"ers to act on3 %asscom
A 4amesh 7harma

Change of guard9 5.rom le-t6 The President/designate+ 3asscom+ 'r (om 'ittal+ with the outgoing President+ 'r :iran :arnik+ and the Chairman+ 'r ;akshmi 3arayanan+ at a press con-erence in the Capital on <ednesday.

Our Bureau @e )elhi, Oct " 7oft are association @asscom today expressed concern o!er the steep appreciation in the rupee, saying hile large .T companies ere better placed to ease margin pressures through hedging and higher utilisations, it as putting a strain on 1<Os and small and medium-siHed firms. 8.n the last Cuarterly results, although the rupee appreciated by 1, per cent the margins ere not impacted to that extent, as companies took pre!enti!e action through currency hedging and increase in utilisation le!els. +o e!er, the impact is more se!ere in the case of 1<Os as most of their expenses are in rupee. Blso, the small and mediumsiHed companies, hich are constantly under cost pressure and ha!e less le!ers to act on, are hit harder,9 Mr :akshmi @arayanan, =hairman of @asscom, said at a press conference to announce the appointment of Mr 7om Mittal as the association5s ne <resident.
,emand ro!ust

Mr @arayanan, ho e!er, pointed out that the industry as ell on its ay to achie!e the target of 2', billion by $,1,. <ointing out that industry did not foresee any slo do n in demand, he said, the recent initiati!es on supply side ould result in moderation in age increase from next year. 8The demand continues to be robust, and companies are in a position to capitalise this demand,9 he said. Mr @arayanan said he as upbeat about the industry5s prospects, and added that the sector could tap an additional 23, billion by $,1$, through inno!ation. 86e can create an ecosystem here inno!ation thri!es. There is a tremendous opportunity in areas such as gaming and animation. Blso companies can use technology to export healthcare ser!ices outside .ndia,9 he pointed out.

Rupee ends the day with a sharp rise

Our Bureau Mumbai, Oct. " The rupee rose to a fresh nine-year high of "9.3(, ith most of the gains coming in during the last one hour of trade. Foreign exchange dealers said that the rupee itnessed a steep gain during the latter part of the trading session. )ealers felt that the steep appreciation of rupee to ards the close of the day as mainly due to the absence of 41.5s inter!ention in the forex market. 841. is usually most acti!e during the last hours of trading as it is ary of the rupee ending strong,9 said a dealer ith a pri!ate bank. Market participants ere also of the opinion that the banks ere short selling dollars and co!ering their positions at a profit hen the rupee sho ed no signs eakening. 81anks began to sell dollars *ust to see if the 41. as there in the forex market. Once they realised that the central bank as not inter!ening they began to sell further leading to the sharp appreciation of rupee,9 said Ms Tarini ;aidya, =ountry Treasurer, =enturion 1ank of <un*ab.

The rupee opened at "9.(3 and mo!ed in the range of "9.#3-"9.(9 during the ma*or part of the day before closing at "9.3(.

;ovt

ay absorb rupee "unds

Our Bureau @e )elhi, Oct. " The Go!ernment has hinted that it could absorb more rupee funds from the market so as to indirectly help the 41. rein-in the appreciating rupee. The Finance Minister, Mr <. =hidambaram, said that the Go!ernment ould re!ie the ceiling on market stabilisation scheme /M770 bonds if the 41. reCuested it to do so. .ndications are that the Finance Ministry M77 ceiling this eek. ould re!ie the

Bfter three hikes this fiscal, the current ceiling on M77 bonds issuance is at 4s 1,3,,,,, crore /2"#.# billion0. These bonds suck out the liCuidity from the market on account of the 41.5s forex market inter!entions.

Rupee c!oses at 30.5<

Mumbai, Oct. " The rupee rose to a fresh nine-year high of "9.3( against the greenback on 6ednesday backed by good dollar supplies. The currency opened at "9.(3 and sa an intraday lo of "9.((%(9 before closing at "9.3(, about $' paise up from the pre!ious close of "9.(&.

Forex dealers said the rupee appreciated steeply during the last hour of the trading session as the 41. as seen staying a ay. 8Though the central bank as seen sporadically in the market at "9.#, le!els, it as absent once rupee broke that le!el,9 said a dealer ith a pri!ate bank. Market participants expect the currency to strengthen further. 8"9.3, ill be a crucial le!el for rupee no P if it gi!es ay then it ill be a free fall,9 said Mr I. Moses +arding, Fxecuti!e ;ice<resident, +ead-6holesale 1anking Group, .ndus.nd 1ank. .n for ards, the six-month premia closed at 1.11 per cent /,.'( per cent0 and the 1$-month closed at 1.,3 per cent /,.(3 per cent0. S

;ovt !ooking at "u!! re"und o" !evies$ 7a a! 4ath

;& porters must plan and strategise in the future and the ,o"ernment would like to be a facilitator in the process) Our Bureau @e )elhi, Oct. 1 The Go!ernment is looking at measures to pro!ide relief to the exporters in the ake of the rising rupee by trying to refund all taxes and le!ies that exporters pay. 86e are looking at full refund of le!ies by the 7tate Go!ernments and =entral Go!ernment,5 said Mr >amal @ath, =ommerce and .ndustry Minister, at the Golden Iubilee celebrations of =B<FJ.: /=hemicals and Bllied <roducts Fxport <romotion =ouncil0 in the =apital on Monday. The Go!ernment ill shortly hold a meeting ith all the export promotion councils in this regard, he said.
.acilitator role

On the appreciating rupee, the Minister said, 8.ndia is not a country that calibrates its currency. The exchange rates are based on a basket of currencies9. .t is the exporters ho must plan and strategise in the future and the Go!ernment ould like to be a facilitator in the process, he said. +e called for back ard and for ard linkages for a positi!e impact of export gro th on the national economy. 8. am a are that many products of =B<FJ.: ha!e great employment potential as also the potential for higher asset gro th. Blong ith the increase in the export re!enue, it ill be in the o!erall national interest to concentrate on more employment generation and ealth creation for the country,9 he said.
Identi-ying markets

Farlier, the :ok 7abha 7peaker, Mr 7omnath =hatter*ee, said, 8For efficient management and promotion of export, one needs to identify the potential markets, o!ercome operational constraints and introduce latest technology at par ith changes in other part of the orld9. =B<FJ.: as set up in 193( by the Ministry of =ommerce. .t started ith #1 members and no has &,,,, plus members ith an export turno!er of about 21, billion.

2,o bined hedging is best bet "or exporters to anage rupee swings
Our Bureau >olkata, 7ept. ", Fxperts in forex management from +71= Fastern .ndia, analysing the risk and problems faced by exporters in the ake of rupee appreciation, said here that the best strategy for corporates ould be 8combined hedging9.

They also stressed on the formulation of a clear-cut policy on risks and hedging ith appropriate le!els of controls and authority. Once a strategy is Heroed in, it is necessary to choose the a!ailable instruments in the pre!ailing context of regulatory frame ork, and then execute the strategy. They also ad!ocated periodic re!ie of performance. The key market parameters that need to be studied, according to them, are spot exchange rate, for ard premium differential, long-term for ard premium and currency !olatility. Bt a presentation on instruments a!ailable to .ndian corporates to hedge risk%optimise return on export recei!ables, at an interacti!e session on DForeign exchange risk management9 organised by F.FO, eastern region, Mr 7amir :odha, +71= 7enior Manager, =orporate Treasury 7ales, Treasury and =apital Markets, said such combined hedging, hile pro!iding interest sa!ings on rupee debt, also allo s a natural hedge against exports, hen the rupee loan is con!erted into ?7 dollars. Outlining the criteria for such hedging, he said the 41. no allo s corporates to hedge their exports-imports under the t o categories A specific underlying and past performance. =apital account exposures /loans, bonds S both inflo s and outflo s0 can be hedged on the basis of pro!iding 8specific underlying9 only. =orporates, under this, can book for ard contract for lesser than 13 months, but the maximum tenor and Cuantum should be less than or eCual to the export order underlying. This can be done ith a specific export order for a Cuantum of say 2$, million, due ithin 13 months, and the company can book a for ard contract for the said loan amount in dollar and a maximum tenor of 13 months. Touching on the types of for ard contracts, he d elt at length on sub*ects such as for ard premium, interest rate parity theory and for ard premium, for ard contracts

booking S cancellation S rollo!erAearly deli!ery, settlements, long term for ard contracts and peculiarities of the .ndian for ard market. <ointing out that the rupee !olatility as here to stay, the experts said the crucial factor ould be sustained capital flo s for the next $-" years, hich should be far larger than the idening trade deficit. .ntroducing +71=5s global trade ser!ices, Mr 1hrigura* 7ingh, 7enior ;-< and +ead, Trade 7er!ices, +71= .ndia, touched on structured trade solutions including forfaiting /discounting international trade recei!ables up to 1,, per cent0 and transferable credits.

2Rupee appreciation here to stay

#asken speaks of factors at play in the tech arena!

Raji Mody

D! 5urali $!R! $inod 4umar 6hen e!erything is rising A rupee, age costs, attrition, billing rates, etc A isn5t the .T industry facing a tough timeO 8Res, but this is one of the realities of globalisation and hence, hile it may be a cause of concern in the short term, it is definitely not holly unexpected,9 says in ans er, 4a*i! =. Mody, =hairman and =hief Fxecuti!e Officer of 7aske n =ommunication Technologies :td, a telecommunications soft are ser!ices and solutions company.

86e ha!e been en*oying the ad!antages of the difference till no , and e!entual balancing out as natural. 4upee appreciation is here to stay and likely to appreciate further,9 he adds, in a recent e-mail interaction ith e6orld. 4upee-dollar mo!ement continues to be an issue of high criticality for .ndian exportersP on the day of riting this, rupee breached the 4s &, le!el to touch a nine-year high. Mody, a graduate in electrical engineering from M.7. ?ni!ersity, 1aroda, .ndia ith a masters degree in computer science from @e Rork, founded 7asken in 19(9, in 7an Iose, ?7, along ith t o other co-founders. +e has orked in Bd!anced Micro )e!ices, 7eattle Tech .nc, and ;:7. Technology .nc, in the ?7. Fxcerpts from the inter!ie L How should the IT industry meet the challenges from a rising ru ee! Measures such as forex hedging are not sustainable in the longer run beyond a couple of Cuarters, and hat is reCuired is a change in the ay e do business. The business no needs to change focus to operating the le!ers of enhanced producti!ity and a change to more consultation-oriented pro*ects A getting in a better rate than the run of the mill TUM /time and materials0 pro*ects. And what strategies would you "e ado ting in your com any! 7asken may double the number of freshers hired to bring do n the a!erage cost of compensation. Today5s youngsters are smart and they can handle complexity, hile the seniors pro!ide the reCuired pro*ect management experience. This is one of the most effecti!e ays of tackling rupee appreciation. Bnd as mentioned

earlier, there needs to be more focus on high-end lesser dependence on any one particular region.

ork and

#i$en the rise in costs% can the IT &information technology' com anies in India continue to offer customers () to *) er cent cost sa$ings! This can only be achie!ed if e manage to bring into play the le!ers of producti!ity, efficiency and change in the nature of ser!ices pro!ided. It is estimated that the su ly of s+illed IT man ower may fall short of re,uirements "y -)).% how do you e/ ect to fill the ga ! 6e do not en!isage such a scenario and feel that .T manpo er supply is likely to increase in the future. How do you face the HR challenges such as resource retention% lac+ of trained eo le% and growing attrition! 7asken5s credo is people first. 6e stri!e to pro!ide a good ork-life balance to our employees ith ample opportunity for gro th and skill de!elopment. Moreo!er, at 7asken, e!eryone is reCuired to go through a de!elopment centre and create a personal impro!ement plan, hich helps us align organisational interest ith employee de!elopment. Do you see enough rogress in India attending to its infrastructural deficiencies! .ndia5s infrastructure definitely sho s signs of impro!ing in the near future ith !arious de!elopmental pro*ects being put into place, such as the international airport, metro rail, etc. +o e!er, the pace of these de!elopments can be faster to meet the e!er gro ing demand as .ndia goes on to become the global hub for .T and communication ser!ices.

Ha$e the concerns a"out ser$ice ,uality and security "een ut to rest! . belie!e that the ser!ice le!els and security consciousness ha!e matured ith the serious players in the market. .t is no longer a concern area, ith ser!ice pro!iders adopting and follo ing orld-class security practices. Are the Indian IT ser$ice ro$iders continuously inno$ating &in de$elo ing new ser$ice lines' in order to im ro$e their o erating rocesses! 6e are constantly inno!ating and this can be ascertained from the numerous patents that .ndian companies and indi!iduals are filing, and inning. This is also one of the main reasons behind the robust and steady gro th seen in outsourcing o!er the past three-four years. How serious is the threat from 0hina in terms of com etition for India now! .ndia and =hina today ha!e become the t o emerging centres of po er and kno ledge in Bsia. F!ery country has its o n ad!antages and disad!antages. 6hile =hina is definitely ahead in manufacturing and go!ernment regulations /the speed of processing0, e ha!e the edge in pure domain kno ledge and 4U). +ence, . do not see =hina as a threat. This is, in fact, healthy competition and ne!er allo s us to be complacent. 1hat are the main mar+ets you are loo+ing at for growth and e/ ansion! 6e ha!e not narro ed do n on any market and consider the hole orld as a stage. 6e are acti!ely looking at markets across the globe, hich include Furope, @orth Bmerica, Bustralia, Bsia, etc, for !arious gro th and expansion opportunities. 6here!er e see gro th and client reCuirement, e ill be there.

How is your com any oised to meet the challenges osed "y the industry and telecommunications in articular! Trends and your $iews! The telecom industry is characterised by high 4U) spends. The biggest markets for telecom industry are .ndia and =hina and there is a need to offer cost competiti!e solutions for these markets. This is the key dri!er to lo er the 4U) costs hile keeping the momentum high in 4U) in!estments, hich is possible only by shifting 4U) ork to countries like .ndia. 1eing a pure play telecom 4U) ser!ices company, 7asken offers solutions across the telecom !alue chain and is ell positioned to benefit from this trend. Are you loo+ing at organic or inorganic growth! 6e are looking at organic as ell as inorganic. 7ometimes, hen you need to scale fast, inorganic is the chosen route. 6e are constantly scouting markets for inorganic gro th to either in client base or acCuire talent. 7asken5s gro th strategy is a mix of organic and inorganic gro th like most companies in .ndia. 1hat are your future lans!

7asken being a focused embedded communications solutions company ill continue to help businesses across the communications !alue chain accelerating product de!elopment life cycles. Our gro th strategy is focused on connecting all the dots in the communications !alue chain and creating competiti!ely priced technology solutions that help our customers increase their re!enue base.

#tructura! boost to capita! "!ows

T! B! 4apali There5s only so much the Go!ernment and the 4eser!e 1ank of .ndia can do to stem the rupee5s appreciation against the ?7 dollar in the face of surging capital inflo s, the Finance Minister, Mr <. =hidambaram said the other day. The immediate trigger for that comment hich almost suggested a hands-off approach to the forex markets as the pronounced pick-up in F.. flo s after the ?7 Fed cut interest rates on 7eptember 1(. .ndeed, short of capital controls /Malaysian style0, there may be fe policy options hich could ork in the shortterm /or e!en in the long term0 to arrest the flood of incoming capital and slo do n the rupee5s appreciation. =apital controls may ork but ill likely ha!e long-term ad!erse implications. F!en an about-turn by the Federal 4eser!e to hike rates after, say, six months A hich has happened in the past A may not alter the o!erall en!ironment hich appears strongly supporti!e of increasing le!els of pri!ate capital flo s to emerging markets such as .ndia. The bottomline, therefore, seems to beL more in!estment capital inflo s and

therefore higher stock market le!els and a stronger rupee for the medium term. 2ow correlations pro"ide structural pushL More than the superficial push to capital flo s by interest rate de!elopments in the ?7%other ad!anced markets, the real, structural dri!er of capital flo s is the fact that .ndian and global markets are still only loosely or eakly related. .n finance *argon, this may be stated as .ndian and global markets ha!ing lo correlation. Bnd such lo correlation bet een different markets /assets0 is precisely the foundation for portfolio di!ersification. .t is the di!ersification strategy of international in!estors hich is the fundamental underpinning for capital flo s. Bnd neither this strategy nor the lo market correlations that dri!e this strategy seem as if they ill change anytime soon. .n fact, the correlations seem to ha!e become eaker in the last fi!e years /$,,$ to $,,#0 compared to hat they ere in the pre!ious fi!e years /199# to $,,$0 bucket. Therefore, interest rates may go up or do n in the ?7, as it has indeed happened o!er the last 1, years, but the big picture structurally fa!ours stronger capital flo s into .ndia%other emerging markets. This eakening of the correlation is significant because it has occurred in a time period hen the .ndian economy has opened up more to the global economic system. 1arriers to trade in goods and ser!ices ha!e come do n further, the financial markets /be it eCuity or foreign exchange0 ha!e been liberalised further to allo greater foreign participation. More generally, there is a broad consensual mo!ement to ards freer markets A goods and financial A in all countries. One ould expect that a natural conseCuence of freer markets ould be greater strength in the relationships bet een national financial markets.

Break-up of the correlation between %ifty and #6P <==L Bn analysis of the relationship bet een the @ifty and the /?70 7U< 3,, o!er the past 1, years A from Iuly 199# to Bugust $,,# A sho s the eak relationship bet een the t o. The monthly ?7 dollar returns on the t o indices o!er the 1, year period sho that the t o data series ha!e a correlation of ,.". This means that *ust around 9 per cent of the performance of the @ifty is influenced by hat is happening in the 7U< 3,,%the ?7 and more than 9, per cent is determined by economic conditions obtaining specifically in .ndia. Blso significantly, as mentioned abo!e, the correlation is e!en eaker in the fi!e years from Iuly $,,$ to Bugust $,,# at *ust around ,.11. .n this context, it may be interesting to find hat keeps the relationship bet een the @ifty and the ?7 7U< 3,, eakO The break-up of the correlation estimate pro!ides the ans er to that Cuestion and actually thro s light on the extent of the di!ergence bet een the t o indices. The correlation measure bet een the t o data sets is arri!ed at by 8normalising9 hat is kno n as co-!ariance bet een the data sets. =o-!ariance gi!es a basic estimate of the extent to hich the data sets mo!e in tandem /up or do n0. 1ut it matters little if such *oint mo!es are only a small proportion of the total mo!es in the t o data sets. .t is necessary, therefore, to di!ide the co!ariance estimate by the le!el of !ariability /risk or standard de!iation0 in each of the data sets, to find out ho closely the data sets mo!e together relati!e to their !olatility. .n mathematical terms, =orrelation Q /=o-!ariance % product of ;olatility of the t o data sets0.

.t can be seen from the abo!e formula that correlation ill be lo if either co-!ariance is lo or if the !olatilities are high. The Table sho s that !olatilities in the @ifty and the 7U< in the past 1, years ha!e broadly held stable at '-# per cent and "-& per cent respecti!ely. Bgainst that, it can be seen that the co-!ariance in the last 3 years /$,,$ to $,,#0 has fallen sharply to ,.,,,$1# from ,.,,1,&# A a fall of around (, per cent. Therefore, the steep fall in the correlation in the $,,$-$,,# period to ,.11 from ,."3 in the 199#-$,,$ time period is explained almost solely by the substantially eakened co-!ariance bet een the @ifty and the 7U<. For a gi!en le!el of co-!ariance, correlation could still be high if the !olatilities are suppressed A either by policy action or other ise. For instance, a part of the !olatility in o!erall returns ill be contributed by !olatility in exchange rates. .f exchange rates can be kept stable, it ill ha!e a moderating impact on o!erall !olatility. 1ut, if the co!ariance itself is eak and is declining, it points to a fundamental di!ergence in the structural make-up of the markets and conseCuently their return potential. 7uch seems to be the case bet een the .ndian and global markets.

4R% re ittances rise 51= in 5.' non/oi! i ports up 4>=

(urrent account deficit increases marginally to touch >?!1@A billion BoP scorecard %RIs showing interest in buying real estate! #oftware e ports up 0=B in dollar terms, only /!AB in rupee terms!

Indians match foreigners in dollar spends abroad! Our Bureau Mumbai, 7ept $( @on-resident .ndians are sending more money Dhome5. .ndi!idual remittances from .ndians orking o!erseas ha!e surged 3, per cent at 2(.' billion in the first Cuarter of $,,#-,(, against 23.9 billion in the year ago period, according to the 1alance of <ayment data released by the 41.. Fconomists belie!e that although the ?7 has seen a slo do n in economic gro th, remittances may not ha!e been hit. 4egions such as 6est Bsia and Furope, hich are the other sources for remittances into .ndia, ha!e sho n strong gro th. 8There has been an acceleration in the gro th in 6est Bsia as oil prices ha!e been high and in!estments in the region ha!e increased. 7imilarly, the rest of the orld including Furope has sho n good gro th. 7o, @4.s ant to be part of the .ndia gro th story,9 said Ms 7huchita Mehta, 7enior Fconomist-7outh Bsia , 7tandard =hartered.
"eal estate interest

@on-resident .ndians ha!e also been sho ing a distinct interest in the real estate sector. The =hief Fxecuti!e Officer of <une-based Mar!el 4ealtors, Mr ;ish a*eet Iha!ar, says, 8There has been a marked increase in @4. buying, especially o!er the last t o-and-ahalf years, probably because salaries in .ndia ha!e begun to match those offered abroad and Cuite a fe among them ant to return home as ell.9 7ensing increased @4. interest, some realtors like the Mumbai-based Garnet =onstructions preferred to offload

marketing rights. Garnet has struck an exclusi!e global marketing alliance ith )ubai-based 7ternon Group for its &,,-acre to nship, along the Mumbai-<une +igh ay.
(o-tware e$ports

7oft are exports in dollar terms ha!e gro n by $, per cent at 2(.&&1 billion /2#.,"9 billion0. The sharp appreciation of the rupee in the first Cuarter has, ho e!er, meant that soft are exports ere higher by *ust (.# per cent in rupee terms. .ndians tra!elling abroad ha!e been matching foreigners in dollar spends although in absolute terms they trail o!erseas !isitors. 1ut they are more than keeping pace. Tra!el earnings in the first Cuarter ha!e gro n by $$ per cent to touch 2$.,(( billion hile outgo is gro ing at $' per cent at 21.((1 billion. Gro th in non-merchandise transactions /.n!isibles0 has helped contain the country5s current account deficit. .n!isible receipts ere up $#.3 per cent at 2"1.&"$ billion, against 2$&.'&" billion. +o e!er, higher imports and a moderate gro th in exports ha!e slightly pushed up .ndia5s current account deficit to 2&.'9# billion in the first Cuarter of the fiscal $,,'-,#, against a deficit of 2&.3'# billion in the year ago period. The current account had registered a surplus in the fourth Cuarter of $,,'-,# at 2$.3'" billion. Bccording to 41. data, .ndia5s trade deficit increased to 2$1.' billion in the Cuarter ended Iune ",, $,,#, against 21'.9 billion in the pre!ious year. @on-oil imports ha!e registered a strong gro th of &#.& per cent hile oil imports ere higher by only ( per cent. The .ndian basket of crude oil prices remained steady at 2''."

per barrel during T1 of $,,'-,#, compared to 2''.( per barrel in the pre!ious year.

Forex reserves rise $3.> bi!!ion

Our Bureau Mumbai, 7ept $( The forex reser!es surged by 2 ".#,& billion to touch 2 $"3.(91 billion for the eek ended 7eptember $1, due to currency re!aluation and the central bank5s buying of dollars to stem the appreciation in rupee. .n the earlier eek, the forex reser!es had increased by 21.(1, billion to touch 2$"$.1(# billion. This is the third eek in a ro sho n an accretion.
Primary reason

that forex reser!es ha!e

The treasury head at a pri!ate bank said that the primary reason for the accretion as 41.5s inter!ention in the market. 8The 41. bought a substantial amount of dollars after the ?7 Fed cut its interest rate, to rein in the rupee5s appreciation. =urrency re!aluation could ha!e also been a factor as the euro, pound and the yen appreciated by 1-$ per cent against the dollar,9 said the treasury head. The euro had touched a peak of 2 1.&1$, against the ?7 dollar, in the eek under re!ie . Bs per the 6eekly 7tatistical 7upplement of the 41., the foreign currency assets rose by 2 ".#,$ billion to touch 2 $$(.3#$ billion.

Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The gold and 7)4s ere unchanged at 2 '.((1 billion and 2 $ million respecti!ely. The country5s reser!e position in .MF ent up by 2 $ million to touch 2 &"' million for the same period. The gross bank credit for the fortnight ended 7eptember 1& ent up by 4s $",#&( crore to 4s 19,(",($1 crore. Of this, food credit declined by 4s "$, crore to 4s "(,1#, crore. @on-food credit increased by 4s $&,,'( crore to touch 4s 19,&3,'3, crore.

Rupee sees choppy

ove ent

Mumbai, 7ept $# The forex market sa a choppy dollar-rupee mo!ement on Thursday as the central bank inter!ened to protect the dollar. The rupee opened stronger at "9.'3%'( and touched a high of "9.'$. Bt this le!el, inter!ention by the central bank pushed the rupee do n to "9.9,. The rupee then ho!ered around "9.#3-"9.(# for most of the afternoon, as public sector banks bought dollars, said forex dealers.

)espite efforts by the central bank to keep the rupee from appreciating, it ended trade at "9.#,, almost unchanged from 6ednesday5s close of "9.#,%#1, as F.. inflo s continued to be strong. 8.t the 41. had bought dollars hen the dollar-rupee as at &,.3,, it ould not ha!e hurt exporters so much. 1ut no that the rupee has breached &, le!els, exporters ha!e been hurt and the 41. has to mop up much more dollars,9 said a forex dealer ith a pri!ate bank. .n for ards, the six-month closed at 1.11 per cent /1.1& per cent0 and the 1$-month at 1.$$ per cent /1.$# per cent0.

?uto parts akers insist on currency "!uctuation c!ause

#ome trying to re-negotiate contracts with C# customers 75ost auto component manufacturers working under old contracts are asking their customers to re"ise pricing based on rupee appreciation!: 4! ,iriprakash 1angalore, 7ept. $#7ome of the .ndian auto parts makers are rushing to re-open key supply contracts ith their ?7based customers as the rising rupee is sending the entire industry into a tailspin. B fe others, ho ha!e entered into fresh negotiations ith their customers, ha!e started insisting on building in currency fluctuation clauses to counter further changes in the .ndian rupee. 8The contracts currently under negotiations are building in currency fluctuation clauses. <re!iously this as not a common practice particularly since no one anticipated this kind of appreciation of the rupee,9 auto-parts maker 7ona >oyo =hairman and Managing )irector, )r 7urinder >apur, told Business 2ine. 8Most auto component manufacturers

orking under old contracts are asking their customers to re!ise pricing based on the appreciation of the rupee,9 )r >apur said. Bccording to Butomoti!e =omponent Manufacturers5 Bssociation of .ndia, exports to ?7 companies are orth o!er 23,, million out of the total exports of 2$ billion. Bnother auto-parts manufacturer, 471 Group5s chairman, Mr 4. >. 1ehera, said almost all the suppliers are trying to ha!e the currency fluctuation clause built in. 8.n the past hen the ?7)-.@4 exchange rate as relati!ely stable, currency fluctuation clause as not a norm in the export contracts. 7ome had this clause, hile others did not ha!e it. +o e!er, in the present !olatile exchange rate regime, all suppliers are endea!ouring to ha!e the currency fluctuation clause built into export contracts,9 Mr 1ehera said. +e said as .ndian auto component makers ork in a !ery competiti!e en!ironment ith thin margins, many companies hich do not ha!e currency fluctuation clause built into the old agreements, are no trying to re-negotiate the contracts. 1ut there are other manufacturers ho are trying to shift their focus to euro currency.
(hi-t to euro

7ona >oyo itself is trying to balance out this impact by focusing on Furopean exports hile decreasing its exports to the ?7. 1ut a recent report by an industry association has pointed out that e!en though euro is emerging as the most preferred currency for .ndian exports, there could be hurdles to mo!e a ay from the dollar. 8The change in the billing currency reCuires both the parties to a contract to agree on change in transaction currency,9

the Federation of .ndian =hambers of =ommerce U .ndustry said in a report. 1ut there are a fe ho ha!e escaped the current onslaught. 7upra*it Fngineering hich has a manufacturing plant in Furope said significant amount of its exports are in pounds and euros and hence its business has not been impacted. 8Our dollar exposure is limited and our imports are in dollar. +ence, generally e ha!e a good natural hedge on dollar part of our transactions,9 said Mr B*it >umar 4ai, 7upra*it5s ;ice-=hairman and Managing )irector.

2-igher rupee both prob!e "or exporters

and opportunity

The ,o"ernment will work towards a le"el playing field but e porters must use the strong rupee as an opportunity for greater efficiency and cost consciousness!

'" :A'A; 3AT#+ C0''%"C% A3, I3,&(T"4 'I3I(T%"

,! #rini"asan B part and parcel of .ndia5s siHHling gro th story during the last fi!e years is the sustained spurt in merchandise exports,

hich ha!e gro n by more than $, per cent in dollar terms annually in this period. Ret exporters are none too happy as they are orried about the appreciating !alue of the .ndian rupee in recent months "is-.-"is the ?7 dollar. The exporting community is perturbed o!er hat it calls the perfunctory measures put in place by the authorities to arrest the appreciating !alue of the rupee that threatens to make them uncompetiti!e. They say the up ard re!ision in dra back rates notified in Iuly as inadeCuate to compensate them against appreciation e!en as the procedure prescribed for claiming supplementary rate is both cumbersome and irksome, adding to their transaction cost a tad or so. The )uty Fntitlement <assbook 7cheme /)F<10 rates ha!e been increased by only $-" per cent as against 3 per cent announced earlier and the t o percentage decrease in pre and post shipment credit rate by the 41. has brought the export credit in the range of #.3-( per cent, hich is still ell abo!e the ' per cent rate proposed by the =ommerce and .ndustry Ministry, so complain exporters. .ndia seldom ent for export-led gro th as it as inured to a prolonged spell of import substitution in the planned era of de!elopment in much of the earlier decades. Ret, the push for exports, especially from the 19(,s hen the Bbid +ussain =ommittee made s eeping recommendations for trade policy reforms that ere subseCuently gi!en concrete shape by the @arashima 4ao Go!ernment in its broad-based industrial and trade policy reforms in 1991, arranted promotional measures. This as so, gi!en the relati!e infrastructural infirmities .ndian export is faced ith. Fiscal fillips, such as lo er duties on capital goods imports or lo er duties on other inputs, could impro!e the margins for exporters hen the rupee appreciates. .ndia5s Cuest for garnering higher F). remained relati!ely patchy for almost eight years since 1999. +o e!er, ith good economic

gro th and consistently salutary export performance for fi!e successi!e years, talk of attracting 2$3 billion by ay of F). and achie!ing an export target of 21', billion in the inaugural year of the Fle!enth <lan is in the air. .n order to ascertain ho realistic .ndia5s hope is on both counts, Business 2ine caught up ith the ?nion =ommerce and .ndustry Minister, Mr >amal @ath, in his ?dyog 1ha an office. Bl ays restless and checking his mobile phone freCuently but ne!er losing track of the Cueries posed to him, Mr @ath seems determined to help shape .ndia5s trade and in!estment policy by consolidating the bits and pieces carefully crafted o!er the years by his predecessors. E/cer ts from the inter$iew2 3n slowdown in e/ orts in the aftermath of a reciating ru eeL The Iuly export figure as lo er hen e talk of a much higher base. .f e ere to look at the export increase from t o years ago, you ill find that there is a substantial *ump. Fxport gro th as ",.( per cent in $,,&-,3, $".& per cent in $,,3-,'. .n $,,'-,#, it as $,.9 per cent. .n the light of rupee appreciation, exporters ha!e been affected and e are orking on the measures the go!ernment should take and also urging exporters to use this as an opportunity for greater efficiency and cost consciousness. 7o it is both a problem and an opportunity for exporters. . am not re!ising the target for this fiscal. B decision as taken by the <rime Minister to gi!e ser!ice tax exemption for exporters through a refund mechanism and there ill be remission in ser!ice taxes for exporters. @o taxes are exported because if any tax is on export, it amounts to an export tax. This is being orked and it is not a decision by the =ommerce or Finance Ministry but by the

<rime Minister. This has to be implemented and the <rime Minister ill inter!ene if there is a delay in notification. Many areas are focussed for export increase and the export basket, including agricultural sector, engineering and textiles. Fxporters must learn market dynamics and e!en the currency concern is something that they ha!e to build into their export strategies and Go!ernment ill help in ensuring that as much of a le!el playing field as possible is pro!ided. Fxport finance has to ha!e a differential rate compared to other acti!ities. .n the end, export is dri!ing the G)< gro th. The 41. is not immune to this. The 41.5s ob*ecti!es and the Ministry5s ob*ecti!es are not different. The 41. has not really understood hat special economic Hones /7FKs0 are and the central bank refuses to understand ho 7FKs are the engine of gro th. 7FKs are industrial clusters and infrastructure created in them is meant for exports. 3n slowdown in industrial roduction2 @o doubt the industrial production logged a double-digit gro th of 11 per cent in the first Cuarter of the current fiscal ith the manufacturing sector at (, per cent eightage in the index sho ing a double-digit gro th of 11.9 per cent. . am disappointed by the Iuly figure, it is monsoon season and e do ha!e problems in Iuly. :et us see. . am still hopeful that this ould be made up. The Iuly slo do n is not a pattern. 3n 4DIL The Go!ernment is looking at certain options and a re!amped foreign direct in!estment /F).0 strategy ould be in place in the month of October. .t ill not be a ne F). policy but one that ould streamline existing procedures for better clarity and ease of operation. First-Cuarter F). inflo s ha!e been 2&.9 billion as against 21.# billion in Bpril-Iune $,,', registering a gro th of more

than 1(3 per cent. .n the first six months of calendar year $,,# /Ianuary-Iune0, F). inflo s sa 211.& billion, as against 2".' billion during the corresponding months of $,,'. 7er!ices, telecom, electrical eCuipment, real-estate and transportation are the fi!e ma*or areas recei!ing F). inflo s in $,,#-,(. The aggregate inflo s from the top fi!e in!esting countries during the first t o months of the fiscal year are 2$.9 billion, ith ma*or in!estment of 21.9 billion during $,,#-,( coming from Mauritius, follo ed by Iapan, =yprus, the ?7 and 7ingapore. 3n 1T3 issuesL Talks are going on in Gene!a at the official le!el. This 4ound is about structural fla s being corrected. B serious deficit of political sagacity and courage on the part of the de!eloped orld as responsible for the tardy progress in talks. The protectionist concerns of corporate agriculture in the de!eloped orld rest on t o instrumentsL subsidies and border protection through high tariffs, T4Ts /tariff rate Cuota0, tariff escalation, non-ad !alorem duties. The real issue ill be their phasing these out by ho much and ho fast. Bppropriate impro!ements in the offers of the concerned de!eloped countries in domestic support /?70 and agricultural market access /F?0 remain crucial to a successful conclusion.

Rising Re$ +exti!e exporters shi"t "ocus to 3urope

Trying to con"ince clients to pay in euro #wetha 4annan

1angalore, 7ept. $'The textile exporting community is looking to reduce dependence on the ?7 market as it looks to ards Furope for temporary succour. 6hile exporters are in talks ith Furopean buyers to increase re!enues from the Furopean market, keeping longterm interests in mind, they are also looking to ramp up domestic acti!ities and impro!e manufacturing efficiency and output. F!en as the rupee strengthens itself to 4s "9.( !ersus the dollar, the euro-rupee eCuation is comparati!ely at a higher exchange rate of 4s 3'.
(hi-t -rom = to >

1angalore-based Gokaldas Fxports is trying to con!ince its existing clients in Furope to shift from paying in dollars to euro. 6hile talks are on ith @ike /Furope0 and Marks U 7pencer, Mothercare and Metro ha!e agreed, says Mr 4a*endra +indu*a, Managing )irector, Gokaldas Fxports. Bbout &, per cent of Gokaldas Fxports5 business comes from Furope hile 33 per cent of its clients are from the ?7. Gokaldas .mages, on the other hand, is looking to take on ne clients from Furope. =urrently, about (, per cent of its export re!enues come from the ?7 and $, per cent from Furope. 86e are looking at market di!ersification and greater emphasis ould be on Furope. Talks are on ith buyers,9 says Mr Iagdish +indu*a, =hairman, Gokaldas .mages.
Price revisions

Fxporters ha!e also resorted to price re!isions on ne export orders to the ?7.

7ays Mr 4a*endra +indu*a of Gokadas FxportsL 8Blthough there as some resistance from buyers, e ha!e managed to increase prices by about ( per cent. 1ut ho far exporters are successful in this depends on your clout as a seller and ho much the buyer needs you. 6e ha!e also increased euro prices marginally.9
pro-it margin

Tirupur-based 4oyal =lassic Mills sa eroded in the Bpril-Iune period.

its profit margins being

To offset this, the company has introduced an extra shift and has employed $3, more people in one of its factories. .t has also increased prices for ?7 clients for ne orders by " per cent. The company is also keen to take on more Furopean clients and is talking to buyers in this market. +o e!er, this is not a long-term solution, says Mr 4. 7i!aram, Fxecuti!e )irector of the company. 8The Furopean market cannot bring in as much !olumes as the Bmerican market. 6e are also looking to focus on domestic business.9 The company has about &$ exclusi!e retail outlets in the country. .t is looking to reach 1,, by March $,,(.
#edging

6hile bigger companies like Gokaldas Fxports ha!e managed to plug losses by hedging, it is time, smaller companies too looked at this option as the textile industry has had to grapple ith issues such as *ob cuts and profit losses this year. Bccording to Mr 4a*endra +indu*a, the textile export sector has seen a 13 per cent cut in *obs so far. Tirupur has been horribly hit, he says.

Mr 7i!aram addsL 8.f the situation continues, it could sno ball into more *ob cuts, bankruptcy and e!en closing do n of shutters. Fspecially in the case of smaller playersV9

Rupee "ir er by 4 paise

Our Bureau Mumbai, 7ept. $' The rupee strengthened by four paise against the greenback on 6ednesday o ing to strong inflo s into the domestic stock market. The domestic currency closed at "9.#,% #1, up from the pre!ious close of "9.#&. The rupee opened at "9.#,%#1 and remained range- bound during the ma*or part of the day. The home currency, ho e!er, sa an intra-day high of "9.'$ spurred by good dollar supplies. "The central bank stepped in at this le!el and as seen buying dollars in order to cap the appreciation of rupee. The rupee then ga!e up its gains a bit and eakened to "9.#3 le!els, before ending the day at "9.#,%#1," said a dealer ith a pri!ate bank. Foreign exchange dealers expect the rupee to appreciate further and touch "9.', le!els tomorro . .n for ards, the six-month premium closed at 1.1& per cent /1.$' per cent0 and the 1$-month at 1.$# per cent /1."3 per cent0.

Forex turnover rises to $34 b

Our Bureau Mumbai, 7ept. $' 7trong economic gro th and liberalisation of banking and foreign exchange norms ha!e helped the country5s total foreign exchange turno!er increase from 2 $ billion in Bpril 199( to 2 "& billion in Bpril $,,#.

Bccording to data released by the 1ank for .nternational 7ettlement, .ndia5s share in foreign exchange market has increased from ,.1 per cent in 199( to ,.9 per cent in $,,#. 8The trade and capital flo s ha!e ballooned and there has been an increasing integration in the global economy. The relaxation of norms has also conttributed to the gro th in the forex turno!er,9 said Mr > +arihar, Fxecuti!e ;ice<resident, +ead-Treasury and Financial .nstitutions, )e!elopment =redit 1ank. The data includes details of spot trades, outright for ards, forex s aps and cross currency trading. Bll of these ha!e sho n substantial increase in !olumes said, Mr 7udhir Ioshi, treasurer, +)F= 1ank. The increase in forex turno!er also includes the increase in capital flo s from foreign institutional in!estors, foreign direct in!estment and pri!ate eCuity, pointed out Mr +arihar. The bigger share of the forex turno!er is ith foreign banks, follo ed by .ndian pri!ate banks, said bank officials. This is because the foreign banks get flo s from their o!erseas offices. <ri!ate .ndian banks ha!e better marketing of products, said Mr Ioshi. Bmong the public sector banks, those that ha!e flo s from the 41. ould benefit more than others. 8Foreign banks play a key role hen it comes to F=1s, hile the go!ernment undertakings are mainly handled by the ma*or nationalised banks,9 Mr +arihar said.

Rupee gains

argina!!y

Mumbai, 7ept. $3 The rupee gained marginally against the dollar on Tuesday, as the dollar supply matched demand. B dealer said that dollar inflo s ere lesser compared to yesterday. )uring the day the rupee traded in a 1,-paise band and gained only to ards the end of trade. The rupee opened on Tuesday at "9.(, and closed at "9.#& against the pre!ious close of "9.#'%##. )uring the day, it as range-bound bet een "9.(& and "9.#"%#&. The rupee is likely to appreciate because there is not much demand for dollar right no , the dealer said. 86e need to see hat ne le!el the 41. ill let the rupee touch. Farlier, e thought it ould be &,, but no the rupee has crossed that le!el,9 he said. .n the for ards market, the '-month closed at 1.$' per cent /,.(1 per cent0 and the 1$-month at 1."3 per cent /1.," per cent0. 8Today there as profit-taking in the premia market,9 the dealer said. S

Rupee rise gives *ang!a' 9ak exporters an edge

& porters wary of fresh orders, may opt for in"oicing in euro The Pakistani rupee is at 1=!1= against the dollar, slightly weaker than 1=!D= a year ago! The Bangaldeshi taka is at 1/!<=, tad up from 1@!0= a year ago!

Radhika 5enon Mumbai, 7ept $3 6hile the .ndian rupee has appreciated to a nine-year high against the dollar, its neighbouring counterparts the <akistan rupee, the 1angladeshi taka and the =hinese yuan ha!e a different story to tell. The .ndian rupee has appreciated by around 1" per cent in the past one year- the currency hich is at "9.(,, as at &3.93 in 7eptember last year. +o e!er, the political turmoil in <akistan and 1angladesh has meant that these currencies ha!e not seen much mo!ement against the dollar. This is bad ne s for .ndia5s exporters, since 1angladesh and <akistan are strong competition in textile exports. The <akistani currency is at ',.', against the dollar, slightly eaker than ',.", a year ago. The <akistani rupee has, in fact, fallen around ' per cent since $,," hen it as at 3#. The 1angaldeshi taka is at '(.3, against the greenback, slightly stronger than '9.$, a year ago.
7low to te$tiles

Mr 4.;. 7. 7ridhar, ;ice-<resident /Treasury0, Bxis 1ank, said 8.ndian textile exporters ill be the orst hit as <akistan and 1angladesh are our competitors in this segment. 7imilarly, exports of agricultural commodities like rice ill also be affected,9 Bccording to analysts, in the case of industrial exports, chemicals and engineering goods, the rise of the rupee has meant a partial erosion of profits . For textile exporters, ho e!er, the currency5s appreciation in the past one year is threatening to ipe out the business.

8The margins are !ery thin at 3-1, per cent in the case of textile companies and garment exporters and the appreciation ill really ipe out these businesses. 1angaldesh, especially, is a close competitor,9 said Mr Br!ind 7onmale, Managing )irector, Global Trade Finance. +e added that many textile exporters are not keen on taking o!erseas orders and are focusing on the domestic business. Fxporters should put in a currency fluctuation clause to hedge against such risks. They should change the currency of in!oicing to euro, he ad!ises. Bmong the other currencies, the =hinese yuan is at #.3,$3, against #.9, last year. The currency is highly regulated and hence not strictly comparable to the rupee. 86ith the rise in the rupee, big retailers ill Cuickly mo!e to another country for sourcing cheaper goods,9 said Mr :.;. <rasad, =hief Forex dealer, .ndus.nd 1ank.

8rug cos rethink strategies to o""set rupee i pact

5ay include ;escalation clause), re"iew cost efficiencies (autious approach (ipla would look for any scope to tighten its belt and better internal cost efficiencies! Ranba y would acti"ely monitor de"elopments and take appropriate risk management measures P!T! Eyothi Datta Mumbai, 7ept. $3 1itten by the strong rupee, domestic drug companies ith an accent on exports are being t ice shy.

They are looking at including an 8escalation clause9 in future deals, re!ie ing current cost efficiencies and e!en putting immediate in!estment plans on hold to cope ith an appreciating rupee eating into annual profits.
Pro-it -all

B dip in annual profits, pro*ected bet een ( to 1$ per cent, looms o!er the financial performance of domestic drug companies, say a cross-section of industry representati!es. 6ith exports of 4s $,,,, crore, about half its total turno!er, the =ipla =hief Fxecuti!e Officer, Mr Bmar :ulla, told Business 2ine that the company ould look for any scope to tighten its belt and better internal cost efficiencies. =hanges cannot be made o!ernight, he said, indicating that it ill take a hile for companies to reco!er from the impact of a strong rupee. =ipla ill take a macro look at products and in!estments for the future and put on hold plans that may ha!e been undertaken in cash-surplus scenario, he said. Mr 4an*it >apadia, 4esearch-head, <=G-<rabhudas :illadher, points out that companies ill look to include an 8escalation clause9 in their deals, here they ill absorb a percentage of the fluctuation in the rupee%dollar rate. 1ut if the exchange rate fluctuates more than the negotiated cut-off point, say if it s ings less or more than three per cent, the t o companies ill proceed along the lines formalised hen the deal as struck.
"upee impact

)rug companies of all hues A from =ipla, 4anbaxy, )r 4eddy5s, 7un <harma to I.1.=hemicals, ?nichem, .pca etc A ill feel the heat of the strong rupee, industry representati!es obser!e.

.n fact, the <harmaceuticals Fxport <romotion =ouncil /<harmexcil0 has ritten t o letters in the recent past to the =ommerce Ministry, seeking a relief package for exportoriented drug companies, as ell. Fxports account for about $1 per cent of 7un <harma5s consolidated turno!er, the company spokesperson said, admitting that an impact ould be felt, though not as much as some of the other export-dri!en companies. 4anbaxy ould acti!ely monitor de!elopments and take appropriate risk management measures to mitigate the impact of a rising rupee, the company said, ithout outlining details. Bround (, per cent of its re!enues comes from its o!erseas business. Bdmitting that currency appreciation ould ha!e an impact, )r 4eddy5s :aboratories said the company has a natural hedge built into its operations and currency di!ersification in certain geographies /such as Furope, 4ussia U =.70 minimises the dependency on the dollar. 1ut, the intermediary industry largely transacts in dollars irrespecti!e of the geography and so di!ersification to a different currency cannot happen immediately. 8=ompanies cannot not afford to be super-producti!e9, says Mr 7u*ay 7hetty, <rice aterhouse=oopers5 +ead of <harma and :ifesciences. )rug companies ith a large export component ill be re!ie ing products, looking at moneymanagement, human resources and tightening of areas that ha!e not been producti!e in the past, he said.

Fears o" @# s!owdown haunt %+ co panies

Industry awaits 0==/ e penditure budget of C# firms Blues in the horiFon

'nalysts feel the impact of the une pected surge in rupee witnessed last week on the margins is manageable compared to that of the last Guarter! ' one per cent rupee rise has an impact of anywhere between 0=-<= basis points on the operating margins of the top-tier Indian IT firms! 8hile there are concerns of a C# slowdown, nothing is "isible on the ground as yet! $ishwanath 4ulkarni 1angalore, 7ept. $& Fears of an economic slo do n in the ?nited 7tates has become a ma*or concern for the .T ser!ices firms, hich earn o!er '3 per cent of their re!enues from the @orth Bmerican region. The rupee5s appreciation against dollar has no been relegated to the backseat for time being. 8.t5s the uncertainty in the ?7 that5s more a cause of orry no ,9 said an analyst ith a foreign brokerage. 8The scene in the ?7 is not !ery clear. .f there is a slo do n, !olumes might take a dip.9 Bnalysts feel the impact of the unexpected surge in rupee itnessed last eek on the margins is manageable compared to that of the last Cuarter, hen the rupee appreciated sharply by eight per cent. B one per cent rupee rise has an impact of any here bet een $,-3, basis points on the operating margins of the top-tier .ndian .T firms. 8. guess the impact of rupee on margins is manageable this Cuarter,9 said Mr +arit 7hah, .T analyst at Bngel 1roking. Ma*or .T firms had forecast their re!enue pro*ections for the

second Cuarter based on exchange rate of 4s &,.3, to a dollar. +o e!er, ith capital flo s set to mount, concerns o!er further appreciation in rupee remain, sources said. 6hile there are concerns of a ?7 slo do n, nothing is !isible on the ground as yet. The focus ould no shift to the .T budgets of ?7 firms for $,,(, hich ould be firmed up o!er the next three months or so.
;ong term pro!lem

86hile a strong rupee still remains a cause of concern, hat is more orrisome is the emerging scenario in the ?7 and annual age inflation of 13-$, per cent,9 Mr 7hah said. Though is too early to guess the possible impact of a slo do n in the ?7, it ould depend on ho things pan out. 8.n the e!ent of a slo do n, .T firms could face a problem ith !olumes and may find it difficult to get a hike in billing rates9 Mr 7hah added. 8The rising rupee and the de!elopments in the ?7 are both a cause of concern,9 said Mr 4a*esh 4amaiah, corporate treasurer, 6ipro :td. The appreciating rupee remains a concern in the short-to-medium term, but the bigger impact could be from a possible slo do n that could be long-term in nature, Mr 4amaiah said. 6ipro had earlier indicated that it expects margins to remain flat for the second Cuarter. The T=7 chief operating officer, Mr @.=handrasekaran recently said the company sa no signs of a slo do n in the ?7 and as not facing any pressure on the pricing front.
IT stocks under pressure

4eflecting the concerns, ma*ority of the frontline .T stocks ere do n on Monday hile the 17F 7ensex hit a ne high at 1',(&3. .nfosys as do n ".$$ per cent at 4s 1,#'".$", hile 7atyam lost $."$ per cent to close at 4s &,9.13. T=7

as do n about a per cent at 4s 1,,,3.93, gained marginally at &&$.#3.

hile 6ipro

Re i pact$ 9har a co panies expanding currency baskets

De"ising company-specific strategies need of the hour3 Dr Reddy)s (&O ,! %aga #ridhar +yderabad, 7ept. $& Bs rupee appreciation no appears to be a long-term phenomena, pharma companies, including ma*ors like )r 4eddy5s, are hammering out strategies including expanding foreign currency baskets to minimise the impact. 86hile nobody can predict ho rupee beha!es in the longterm, there is a need for chalking out company-specific strategies to tackle rupee appreciation. .t is certainly an issue,9 Mr >. 7atish 4eddy, Managing )irector and =hief Operating Officer, )r 4eddy5s :aboratories :td, told Business 2ine here.
#edging

The +yderabad-based ma*or could, ho e!er, manage to impro!e gross margins /31 per cent0 and net income in the first Cuarter of current fiscal by hedging and use of B)4s and hinted that its capacity to hedge in subseCuent Cuarters as limited. Bs the rupee appreciation is continuing ell into the second Cuarter ith no signs of depreciation, the company sees a need for remedial measures. 8Bs there is little to be done externally, measures like expanding other currency baskets ill be of help. This is hat e are doing no ,9 Mr 4eddy said.

%uro -actor

B greater dependence on euro ould be !ital in the current scenario, according to Mr 1haskara @arayana, ;ice-<resident /Finance0, @atco <harma :td. 8The likely oil imports next month may push up dollar a little. 1ut it ill not bring much relief and a 1, per cent hit on margins is already happening. 6e see a remedy in increasing contribution from euro,9 he said.
Cost/cutting

Bccording to Mr ;enkat Iasti, ;ice-=hairman and =hief Fxecuti!e Officer, 7u!en :ife 7ciences :td, cost-cutting may be of some help. 84upee appreciation is hitting us e!ery here. =ost-cutting and increasing internal efficiencies should be taken up,9 he opined. @ot ithstanding congruence on the need for remedial measures, many 7MFs ha!e no option but suffer hit in the margins. 8Blbeit some bulk drug exporters had increased prices to ard off rupee appreciation impact, any further hike ill result in market loss and e ha!e to digest the impact,9 Mr M. @arayana 4eddy, <resident of 1ulk )rug Manufacturers5 Bssociation /.ndia0, said.

%+s rupee strategy

D! 5urali =hennai, 7ept $$ 6ith the rupee on an o!erdri!e, .ndian 1<O /business process outsourcing0 companies are rethinking their strategies because, as exporters of ser!ices, these companies earn their re!enues predominantly in dollars. 8The .ndian rupee /.@40 is on a rising cur!e. .t has risen to "9.(3 against the ?7 dollar in recent times,9 obser!es Mr <radeep ?dhas, Global <artner-in-charge, 7ourcing Bd!isory, ><MG. 8.t has been estimated that ith e!ery 1 per cent appreciation in the .@4 the effecti!e decline in O<M /operational margin0 is almost to the tune of &,-3, basis points.9 The rising rupee has become a ma*or cause for concern among .ndian .TF7 /information technology enabled ser!ices0 and 1<O firms, especially the smaller ones, hich are not adeCuately hedged, and are likely to get significantly affected, fears Mr ?dhas, in an email interaction ith Business 2ine. Fxcerpts from a brief inter!ie L 8hat ha"e been the strategies adopted by Indian companies* Fssentially three thingsL +edging, pricing, and di!ersification. On hedging currency risk! Blmost all .ndian companies ha!e started hedging their currency positions. +ardly any of these ould be keeping the dollar exposure unhedged. 7ome companies park a part of their dollar deposits abroad, so as to a!oid the risk of currency mo!ements. On pricing!

IT companies ha"e been increasing billing rates o"er the last few Guarters! (ompanies are trying to bring in efficiency in "arious ways to mitigate the impact! The impro"ement in billing rates can offset some of the currency impact! 5ore importantly, new clients are coming in at higher price points! This may be difficult as the local companies are not affected by this trend and compete "ery well with the global deli"ery capabilities of the Indian companies H as there is "ery little to differentiate in 7body shopping: market! On client di"ersification across geographies! Indian ITIIT&# companies ha"e started di"ersifying globally in order to reduce their e posure to the C# market! Jor instance, the big fi"e Indian IT companies, which deri"e about A= per cent of their re"enues from the C#, ha"e now started focusing on &urope in a big way!

:!eoresin industry hit by rupee appreciation

2ower e port "alue realisation taking its toll India accounts for A< per cent of the world oleoresin trade with almost all the processing units located in 4erala! ,!4! %air >ochi, 7ept. $1 The appreciation of the rupee against the dollar has negati!ely impacted the export !alue realisation of the oleoresin industry, hich ships out its entire products. 7peaking to Business 2ine, Mr =.;. Iacob, =hairman of 7ynthite .ndustrial =hemicals :td /7.=:0, at nearby >olencherry, said his company A ith 3, per cent export share of the country5s total oleoresin exports A had been losing on !alue realisation due to appreciation of the rupee against the dollar.

+e said .ndia accounts for #3 per cent of the orld oleoresin trade ith almost all the processing units located in >erala. .ndia supplies full range of oleoresins as the country has most of the ra materials.
"aw 'aterials

1esides, the ra materials that are in short supply are imported on condition that it ould be re-exported ith ", per cent !alue addition. +ence, there has been no problem ra materials, he said. ith the a!ailability of

Bpart from 7ynthite there are four more units in the country that are exporting their products. Therefore, these .ndian players compete for purchasing of ra materials as ell as selling, he said. 8This competition is disad!antageous to the industry as this situation is often exploited by the o!erseas buyers,9 he said. The total exports of oleoresin and spice oils from the country are estimated at around 4s 3(, crore and of this 7ynthite accounts for 4s $(,-",, crore, he said. The company5s annual reCuirement of ra materials is &,,,,, tonnes and of this chillies make up for $3,,,, tonnes, hich is used for extracting paprika natural colour. Other ra materials are pepper, ginger, turmeric, nutmeg and !anilla.
Competitive Prices

Mr Iacob said the reCuirement of good Cuality chillies as met by farmers in +arihar @agar in Mysore. Out of the onelakh tonnes of chillies produced by farmers, 3, per cent is absorbed by the oleoresin industry and balance is bought by other sectors such as grinding industry. 7ynthite, in order to sa!e on transportation cost, has set up an extraction plant in +arihar @agar ith a capacity to

handle ",,,,, tonnes of chillies a year. The company sa!es 4s &.3 crore on this head, he said. The company imports ",,,, tonnes of light berry pepper from ;ietnam and another 3,, tonnes from 7ri :anka. To meet the demand of the o!erseas customers, $,,,, tonnes of ginger is imported from @igeria. One thousand tonnes of turmeric ith high curcumin content is bought from ;ietnam at competiti!e prices, he said. The company recently installed a ne system to produce high Cuality oleoresin using =hinese =O$ /carbon dioxide0 high pressure extraction technology. Fxtraction is done ithout heating and using any other sol!ents and hence the end product has true representation of the spices. 8There is a good market for it and the price is more than double because of the high Cuality profile,9 he said. Mr Iacob said the company as importing mustard from =anada to meet its $,,,, tonnes annual reCuirement for extraction. The Cuality mustard, he said, ould be a!ailable from Bndhra <radesh from next year.
'odern Technology

7ynthite has also recently established a spices po dering unit using modern technology at its main unit here, he said. Bpart from the +arihar @agar unit, it has a natural flo ers extraction unit at Maruthur near Mettupalayam in Tamil @adu here flo ers such as *asmine, tuberose and memosa are extracted for supplying to perfume industry. DMarigold5 is also extracted for hich $3,,,, tonnes of this flo er is culti!ated by farmers in the region on a buy-back arrangement, he said. Bnother unit, 7i*mak Oils :td at >oHhikode is mainly concentrating on production of coco fla!our, extraction of rosemary etc. +e said that 7ynthite as concentrating on

!anilla of late and it bought &3, tonnes of green beans last year for processing. .t got (, tonnes of cured beans of hich #, tonnes as exported to =anada, the ?7, Iapan, Germany etc at 2$,-2$$ a kg. Ten tonnes ere used for extraction for o!erseas buyers, he said. The company, located at 7ynthite ;alley in the rural !illage of >adayiruppu, is set to make a turno!er of o!er 4s ",, crore during the current fiscal, Mr Iacob added.

2Re appreciation a boon "or outbound touris

#hubhra Tandon Mumbai, 7ept. $1 The outbound tourism sector could be buoyant in the coming days as the rupee has appreciated further against the dollar. Bccording to tra!el industry experts, this could generate a positi!e sentiment among people tra!elling to all destinations, especially the ?7. Mr ;ishal 7uri, =OO of Thomas =ook .ndia, told Business 2ineL 8The o!erall sentiment is going to be positi!e for all markets, be it the ?7, Far Fast or Furope, as most destinations ha!e dollar as a common currency for con!ersions.9 +e addedL 8Though no immediate effect is seen in tra!el packages, it ill gi!e .ndians the freedom to spend more hile tra!elling.9 Mr Frederick )i!echa, 7enior ;ice-<resident /Marketing0, 7OT=, saidL 8<eople ould find it to be a good time to plan a holiday to the ?7.9

+o e!er, the segment that can re*oice the most is the one comprising students planning for foreign studies. 8. ill no be paying less for my education in countries like the ?7, and also sa!e after paying my education loan in .ndia,9 said Ms @eeta Mehra, ho is planning to pursue a management course in the ?7. 8.f .5m funding my education ith .ndian rupees and earning in dollars abroad, that ould help me sa!e Cuite some e!en after repaying my loan.9 Mr )i!echa saidL 8Foreign studies are going to be cheaper no . There could be an increase in the number of .ndian students illing to pursue courses abroad.9 =ox U >ings .ndia, ho e!er, is maintaining a atch approach. ait-and-

8.t is too early to comment on the rupee appreciation. One must ait and see hat impact it ill ha!e on tra!elling trends,9 said Mr Brup 7en, Fxecuti!e )irector.

;ar ent exporters are a worried !ot again

Euly-#ept knitwear shipments to feel full impact Our Bureau =oimbatore, 7ept. $1 The rupee breaching the &,-mark against the dollar in the last t o days has sent alarm bells ringing for the country5s textiles and clothing exporters yet again. 86e thought the rupee ould stabilise at &, against the dollar but the current slide the dollar has begun to post against rupee is orrying us gi!ing further uncertainty in the market,9 said the <resident of >arur Textile Federation and =hairman of the >arur-based Bmara!athi Textiles, Mr 7i!a >annan.

B dismayed Mr 7i!a >annan said 8all along e ere buying time in booking ne orders as the rupee-dollar !alue parity had kept the shippers at the negotiating table because in most cases, the buyers ere insisting on old rates9. This being the scenario, the current surge in rupee !alue ould only heighten the uncertainty, he said, adding that export ould further become un!iable because of the dollar !alue erosion.
3egative e$port growth

The knit ear exporters in Tirupur, rudely *olted by the rupee-dollar !olatility in Bpril last, are further crestfallen by Thursday5s dollar breaching the rupee belo 4s &,. 8The knit ear export gro th is sure to take a hit and in all likelihood it ill post a negati!e gro th this year by some fi!e per cent,9 said Mr B. 7akthi!el, <resident of Tirupur Fxporters Bssociation. +e felt that the Iuly-7eptember Cuarter knit ear shipments ould take full impact of a hardening rupee and the current a!e of rupee appreciation ould further distance the buyers from .ndian garment houses. The TFB <resident maintained that the interest rate cut effected by the ?7 Federal 4eser!e ould no ay be beneficial to trade such as textiles and he does not expect this mo!e to pep any increase in garment exports to the ?7 either. 7upporti!e action from the Go!ernment such as lo ering of interest rate for textile shippers and reduction in the ser!ice tax for exporting companies are being demanded by the knit ear exporters as something to ameliorate the ad!erse scenario like the one faced by them, and the TFB has approached the Tamil @adu Go!ernment to take up this issue ith the =entre.

F%3: chie" !ooks to 7a a! 4ath "or re!ie"

;RBI should cut interest rates immediately) Our Bureau @e )elhi, 7ept. $1 F!en as the ?nion =ommerce U .ndustry Minister, Mr >amal @ath, has assured that the Go!ernment ould take suitable steps to stem the appreciation of the rupee, exporters ha!e ratcheted up their plea for cuts in bank lending rates. .n a statement, the Federation of .ndian Fxport Organisation /F.FO0 chief, Mr G.>. Gupta, said that cut in the ?7 Federal rate by 3, basis points on Thursday, ith another cut of similar basis points expected in October and the one of $3 basis points effected a fortnight ago, ould together contribute to pouring of funds from abroad as long as the 4eser!e 1ank of .ndia does not effect matching cut in domestic interest rates. +ence, the 41. should immediately cut interest rates, hich ould enable the banks to lo er their prime lending rate /<:40, pro!iding some relief in export credit to trade and industry. +e added that the increase in <:4 by about $-$.3 per cent has offset the ad!antage accrued to the exporting community due to the extension of pre-shipment and postshipment credit at &.3 per cent belo <:4. The Go!ernment should bail out exporters in such a critical *uncture as order book of exporters has become thin. 7tating that the Go!ernment must forth ith implement the package announced in Iune for exporters, Mr Gupta said that most of the announcements remain on paper, ith exporters deri!ing little benefit on the ground.

+e said that arrears of increased )F<1 /)uty Fntitlement <ass 1ook0 dra back and interest rate benefits on export credit ha!e not been pro!ided to exporters, hile ser!ice tax relief has been only a small relief, since many important ser!ices ha!e been left unco!ered by the refund mechanism. Mr Gupta said that there is little *ustification in denying ser!ice tax relief on transport goods from factory inland container depots, hen relief is a!ailable from .=) to gate ay ports. The exporters ha!e also sought exemption of ser!ice tax on all ser!ices used in the export acti!ities, as the extant refund mechanism is cumbersome and ould only add to transaction cost to trade and industry.

Rupee tad weaker

Mumbai, 7ept. $1 Bfter touching a nine-year record high on Thursday the rupee ended marginally eaker against the dollar on Friday. The home currency eakened by three paise to close at "9.91, do n from the pre!ious close of "9.((%(9. The rupee opened at "9.91%9$, a tad eaker at "9.((%(9 and sa an intra-day high of "9.(' on account of good inflo s. 8The rupee remained in the range of "9.(#-"9.(9 during the ma*or part of the dayP it eakened to ards the end of the day on dollar buying by some large corporate houses,9 said a dealer ith a pri!ate bank. Foreign exchange dealers said that there ere also rumours of dollar buying by some

nationalised banks. 8The central bank as seen buying dollars through nationalised banks, hich as the reason the rupee could not breach the "9.(3 mark, 9 said a dealer. Market participants, ho e!er, expect the rupee to strengthen further to "9.#3 le!els. .n for ards, the sixmonth premium closed at 1.$1 per cent /1.'# per cent0 and the 1$-month closed at 1."( per cent /1.($ per cent0.

Forex reserves up $..< b

Our Bureau Mumbai, 7ept. $1 The country5s forex reser!es ent up by 21.(1, billion to 2$"$.1(# billion for the eek ended 7eptember 1&, backed by good inflo s and re!aluation of currency assets. 8The accretion to reser!es is by and large because of good inflo s and re!aluation of currency assets,9 said Mr <. Mukher*ee, Treasury, Bxis 1ank. The reser!es had gone up by 21.3", billion to 2$",."## billion for the eek ended 7eptember #, said a 6eekly 7tatistical 7upplement from the 4eser!e 1ank of .ndia. The foreign currency assets rose by 21.(,( billion to 2$$&.(#, billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The gold and 7)4s deposits remained unchanged at 2'.((1 billion and 2$ million, respecti!ely. The country5s reser!e position in .MF ent up by 2$ million to 2&"& million.

The gross bank credit ent up by 4s $$,,$# crore to 4s 19,',,,#$ crore for the fortnight ended Bugust "1 said 41. figures. Of this, the food credit as up by 4s 1"1 crore to 4s "(,&9, crore and the non-food credit increased by 4s $1,(9' crore to 4s 19,$1,3($ crore.

24o ti etab!e "or "u!! yuan convertibi!ity

!r "hou #iaochuan

4!R! #ri"ats +ong >ong, 7ept. $1 =hina has no timetable for full con!ertibility of the yuan, but is mo!ing in that direction, according to the <eople5s 1ank of =hina Go!ernor, )r Khou Jiaochuan. 86e don5t ha!e any timetable for the target,9 )r Khou said at the DBsian Financial Forum5 today in reply to a Cuestion on full con!ertibility of the =hinese currency. The forum as *ointly organised by the Go!ernment of +ong >ing 7pecial Bdministrati!e 4egion /+>7B40 and the +ong >ong Trade )e!elopment =ouncil. +e also said that =hina ould take a 8step-by-step9 approach to reforms process in the financial sector.

)r Khou added that =hina as committed to economic reforms, including financial sector reforms. =hina can5t focus too much on asset prices and there are other indicators to consider hen making policy decisions, he said. =hina has resisted calls from the ?7 and Furope to let the yuan strengthen at a faster pace. =urrently, =hina limits the daily mo!ement of its currency to ,.3 per cent abo!e or belo the pre!ious day5s closing !alue. .t has been contended by some critics that such a policy leads to under-!aluation of the yuan against the ?7 dollar, thereby boosting its trade surplus.

R*%

ust rein in rupee rise' say cha bers

Our Bureau @e )elhi, 7ept. $, The F.==. <resident, Mr +abil >horaki ala, has said that it is time the 4eser!e 1ank of .ndia lo ered the interest rate and inter!ened in the forex market more aggressi!ely to rein the rupee hich is at a 9year high against the dollar. +e said that feedback collected by F.==. from exporters sho ed that the current order book position of se!eral exporters had eakened compared to hat it as six months back. Bs a result, the export performance in the next six months ould not sho an encouraging trend. .n se!eral segments, exports had slo ed do n considerably, he said. +e added as a result of the Fed rate cut, more money as likely to flo into the .ndian market, exerting more pressure on the rupee. The Bssocham <resident, Mr ;enugopal )hoot,

said that rupee had appreciated !ery steeply and exporter sentiment had gone do n. Fxports ill fall short of the target by 2$, billion and the Go!ernment inter!ention had become absolutely necessary to keep the rupee at &, to a dollar, he said.

Rupee hits 0/year high on Fed

ove

Our Bureau Mumbai, 7ept. 19 The rupee extended its gains against the dollar on 6ednesday and hit &,.$,, spurred by the ?7 Federal 4eser!e5s 3, basis point cut in interest rates. The currency opened at &,.$' and closed at &,.19%$,, against Tuesday5s close of &,.&(. The appreciation as in tandem ith the strength of ma*or currencies against the greenback. The euro mo!ed up to 21."9#,, from Tuesday5s 21."(. The currency as also tracking the surge in the stock market. Forex traders said that ?7 Fed5s cut ould help attract capital flo s to emerging markets and ould aid the rupee5s strength.

8The rupee as largely dri!en by sentiments on the rate cut by Fed,9 said Mr < Mukher*ee, <resident, Treasury, BJ.7 1ank.
"7I intervention

Market participants, ho e!er, felt that the rupee could ha!e strengthened further but for the fact that the 41. as seen inter!ening at &,.$" le!els in order to cap its appreciation. 8The rupee could ha!e appreciated beyond &,.$, le!els in the absence of central bank5s inter!ention,9 said Mr ; 4a*agopal, +ead-Forex Treasury, >otak 1ank. The rupee had touched a high of &,.$9 on Iuly $" this year. .t rose to an intra-day high of &,.$, on Iuly $&. Treasury officials belie!e that as the stock markets, globally, ha!e itnessed an ups ing, the allocations to .ndia are also likely to increase. 81oth F.. and F). inflo s are likely to increase, hich means that the rupee could test the &, le!el. B stronger rupee ill also help ease inflation,9 Mr >. +arihar, +ead, Treasury, )e!elopment =redit 1ank.
;iquidity -ears

1ankers, ho e!er, cautioned that .ndia had not yet reached the peak of a hardening interest rate cycle, as liCuidity is still a constraint. =redit gro th is also likely to pick up in the coming months, they said. Oil prices ill also continue to keep inflation under pressure. 8B domestic fuel price hike has not yet taken place and gi!en that oil prices are at 2($ per barrel, it is a concern. The 41. is likely to look at all these domestic factors before

taking a call on interest rates,9 said a senior treasury official at a pri!ate sector bank. Mr :.;. <rasad, +ead- Forex, .ndus.nd 1ank, added, 8The appreciation of the rupee ill take off some pressure due to the high oil prices. The rupee could appreciate to &,.1, on Thursday9

Rupee gains against do!!ar

Mumbai, 7ept. 1( The rupee appreciated by around # paise against the dollar on Tuesday tracking the gains made in the stock market. The currency opened at &,.3'%3# and touched an intra-day lo of &,.'$. .t finally closed at &,.&( against the pre!ious close at &,.33%3'. )ealers said the currency opened eak but responded Cuickly to the ups ing in the stock market. 8There as good supply of dollars as foreign banks ere seen selling the greenback,9 said a dealer at a pri!ate bank . .n the for ard premium market, the six-month closed at 1.#' per cent /1.#$0 and the 1$ month at 1.($ per cent /1.##0. A

Rupee weaker by 0 paise

Mumbai, 7ept 1# The rupee eakened by nine paise against the greenback on Monday on speculation of rupee selling because of a decline in the offshore non-deli!erable for ards /@)F0 market. 8Foreign banks ere also seen buying dollars hich eakened the rupee further,9 said a dealer ith a pri!ate bank. The home currency opened at &,.&3%&' but fell to &,.39, hich as also the intra-day lo to close at &,.33%3', do n from the pre!ious close of &,.&'%&#. .n for ards, the sixmonth premia closed at 1.#$ per cent /1.'$ per cent0 and the 1$-month closed at 1.## per cent /1.#& per cent0. S

Rupee tad weaker

Mumbai, 7ept. 1& The rupee eakened by t o paise against the dollar on Friday and closed at &,.&'%&#, marginally do n from the pre!ious close of &,.&3%&'. The rupee as largely rangebound during the day. 8The central bank as seen buying dollars in order to cap the appreciation of rupee,9 said a dealer ith a pri!ate bank. The home currency opened at &,.&3%&' and after remaining in that range during the ma*or part of the day, closed at &,.&'%&#. .n for ards, the sixmonth prem ia closed at 1.'$ per cent /1.#$ per cent0 and the 1$-month closed at 1.#& per cent /1.## per cent0. -

Forex reserves rise $..5 b

Our Bureau Mumbai, 7ept. 1& The country5s forex reser!es increased by 21.3", billion to 2$",."## billion for the eek ended 7eptember # on account of reasonably good inflo s and re!aluation of currency assets, said a dealer ith a pri!ate bank. 8The central bank has also been constantly inter!ening in the forex market to cap the appreciation of rupee,9 said the dealer. The reser!es had fallen by 2$ million to touch 2$$(.(&# billion for the eek ended Bugust "1, according to the eekly statistics from the 4eser!e 1ank of .ndia. The foreign currency assets increased by 21.33" billion to 2$$".,'$ billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The gold and 7)4 deposits remained unchanged at 2'.((1 billion and 2$ million respecti!ely. The country5s reser!e position in .MF fell by 2$" million to 2&"$ million.

Rupee stays range/bound

Mumbai, 7ept 1" The rupee remained largely range-bound throughout the day and closed at &,.&3%&', one paise up from the pre!ious close of &,.&&%&3. The currency opened at &,.&1%&" and mo!ed in the range of &,.&$-&,.&& during the ma*or part of the day before closing at &,.&3%&'. Market participants felt that the 4eser!e 1ank of .ndia as inter!ening at &,.&$%&"

le!els in order to cap the appreciation of the rupee. 8There ill be a cash crunch follo ing the ad!ance tax outflo s next eek,9 said a dealer ith a pri!ate bank. +e felt that the 41. ould therefore try to inter!ene in order to pre!ent the appreciation of rupee. )ealers expect the rupee to appreciate to &,.$3 le!els. .n for ards, the six-month premia closed at 1.#$ per cent /1.', per cent0 and the 1$month closed at 1.## per cent /1.#, per cent0.

Rupee ends stronger

Mumbai, 7ept 1$ The rupee further strengthened against the greenback on the back of strong dollar inflo s. The domestic currency opened at &,.31%3$ and rose during the day to finally end at &,.&&%&3, against Tuesday5s close &,.3'. )ealers said the rupee appreciated as banks continued to sell dollars during the day. 8The sentiment is negati!e against the dollar as speculation continues to gain ground that the ?7 Fed ill cut interest rates in the Federal Open Market =ommittee meeting scheduled for 7eptember 1(,9 said a dealer at a pri!ate bank. .n the for ard premia market, the '-month closed at 1.', per cent /1.3(0 and the 1$-month ended at 1.#, per cent /1.#10.

Rupee gains .1 paise

Mumbai, 7ept 11 The rupee appreciated by around 1, paise against the greenback on Tuesday as banks ere selling dollars. The currency opened at &,.',%'$ and closed at &,.3', against MondayMs close at &,.''%'#. )ealers said the rupee appreciated during the day to &,.33 but trimmed its gains as there as some oil-related dollar buying. .t closed stronger as banks began selling dollars.

"Globally, the dollar has taken a beating against all the other ma*or currencies as the !ie that ?7 Fed ill cut interest rates is gaining ground. The rupee is likely to stay ithin the range of &,.3, to &,.'3," said a dealer at a pri!ate bank. .n the for ard market, the ' month closed 1.3( per cent /1.", per cent0 and the 1$ month ended at 1.#1 per cent /1.&( per cent0.

Rupee strengthens

Mumbai, 7ept. 1, The rupee strengthened by about three paise against the greenback on Monday tracking the gain in the .ndian stock market. The home currency sa a t o- ay mo!ementL it opened at &,.#3, sa an intra-day lo of &,.#( and a high of &,.',%'1 before ending the day at &,.''%'#, up from the pre!ious close of &,.''%'#. 87ome nationalised banks ere seen buying dollars at &,.',%'1 le!els, hich pushed the rupee up to the close of &,.''%'#,9 said a dealer ith a pri!ate b ank. )ealers felt that the sentiment for rupee ould continue to remain bullish and it might strengthen further to &,.3, le!el, in the absence of the 4eser!e 1ank of .ndia5s inter!ention in the market. .n for ards, the sixmonth premia closed at 1.", per cent /1.$9 per cent0 and the 1$-month closed at 1.&( per cent /1.&& per cent0. A

Rupee gains on do!!ar in"!ows

Mumbai, 7ept. # The rupee gained about 1, paise against the dollar on Friday as it tracked the domestic stock market and on good dollar supplies. The rupee opened at about &,.#3 and follo ed the stock marketMs mo!ement for most of the day, said dealers. The rupee ended the day at &,.'9 against the pre!ious close of &,.(, "Though dollar flo s are still strong, no one ants to take huge positions in the rupee," said a forex dealer ith a pri!ate bank. The ?7 non-farm payroll data, hich is scheduled to be later today, is also critical for the rupeeMs mo!ement next eek, the dealer added. )ollar inflo s ould continue to be strong as the central bank is also seen to be inter!ening in the market, said another forex dealer. "The 41. as earlier protecting the le!el of &,.#,. 1ut as the domestic currency has no crossed that le!el, no 41. ill try to protect &,.',%33 le!els," said the dealer. .n the for ard premia market, the six-month premia closed at 1.$9 per cent /1.1, per cent0 and the 1$-month closed at 1.&& per cent /1."$ per cent0.

Forex kitty down $6

Our Bureau Mumbai, 7ept # Forex reser!es fell by a meagre 2$ million to touch 2$$(.(&# billion for the eek ended Bugust "1, according to the eekly statistics from the 4eser!e 1ank of .ndia.

The decrease as mainly on account of changes in !alue of global currencies such as the euro and thepound, said the treasury chief of a public sector bank. .n the earlier eek, forex reser!es had surged by 2$.&,& billion to 2$$(.(&9.
.oreign currency assets

The foreign currency assets ent up by 2& million to touch 2$$1.3,9 in the eek under consideration. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es declined by 2' million to touch 2'.((1 billion. 7)4s and .ndia5s reser!e position remained unchanged at 2$ million and 2&33 million respecti!ely, said the 41..
,ollar in-lows

Bccording to forex dealers, there could be good dollar inflo s next eek as the central bank ould try to pre!ent the rupee from appreciating strongly. 8There as soft inter!ention by the 41. this eek also, and it may try to keep the rupee at &'.', le!els next eek,9 said a forex dealer. Gross bank credit increased by 4s #,9&$ crore to touch 4s 19,"(,,&3 crore as on Bugust 1#, according to the 41. figures. Of this, food credit as at 4s "(,"39 crore, a decline of 4s $,9'& crore. @on-food credit increased by 4s 1,,9,' crore to touch 4s 1(,99,'(' crore.

Rupee gains .3 paise

Mumbai, 7ept. ' The rupee strengthened by 1" paise against the greenback on Thursday follo ing good dollar supplies into the domestic market. The home currency opened at &,.9$, little unchanged from 6ednesdayMs close of &,.9"%9& and remained steady at that le!el throughout the day before ending the day at &,.(,, up from the pre!ious close of &,.9"%9&. "There as expectation that the .ndian markets ould take a cue from the )o hich closed eaker o!ernight yesterday. +o e!er, the rupee strengthened follo ing good inflo s into the .ndian market," said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at 1.1, per cent /1.1" per cent0 and the 1$-month closed at 1."$ per cent /1."1 per cent0. -

Rupee tad "ir er

Mumbai, 7ept. 3

The rupee strengthened by four paise against the greenback on 6ednesday backed by good inflo s into the market. The home currency as, ho e!er, range-bound during the day. .t opened at &,.9$%9& and mo!ed in the range of &,.9,&,.93 before ending the day at &,.9"%9&, up from the pre!ious close of &,.9#%9(. "There ere good inflo s into the marketP it as, ho e!er, offset by the dollar demand from some oil companies," said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at 1.1" per cent /1.1, per cent0 and the 1$month closed at 1."1 per cent /1.$3 per cent0. -

Rupee down < paise

Mumbai, 7ept. & The rupee eakened by eight paise against the greenback on Tuesday on dollar demand from a large corporate and also from banks. The home currency opened at &,.('%(( and sa an intra-day lo of &,.99 before ending the day at &,.9#%9(, do n from the pre!ious close of &,.(9%9,. Market participants expect the rupee to appreciate to &,.#3-&,.(,. .n for ards, the six-month premia closed at 1.1, per cent /1.1( per cent0 hile the 1$-month closed at 1.$3 per cent /1.", per cent0. S

Rupee weakens s!ight!y

Mumbai, 7ept. " The rupee slightly eakened against the greenback on Monday on dollar demand from banks. The home currency opened at &,.9, and touched an intra-day lo of &,.9&. .t then gained to &,.(& but ended the day at &,.(9%9,, against the pre!ious close at &,.((. )ealers said that the rupee strengthened during the day but eakened at close as banks began buying dollars. 8There could ha!e been some buying support from the 41.. Trade as dull because it as a holiday in @e Rork and there is likely to be bunched-up supply of dollars on Tuesday,9 said a dealer at a pri!ate bank. .n the for ard premia market, the six-month closed at 1.1( per cent /1.1, per cent0 and the 1$ month ended at 1.", per cent /1.$, per cent0. A

9roductive sectors wi!! be shie!ded "ro strong Re$ 9M

Te tile industry urged to ;ruthlessly cut costs) for growth

>amal @arang

Reassurance9 The Prime 'inister+ ,r 'anmohan (ingh+ addressing the valedictory session o- the 1Te$ (ummit ?@@A2+ in the Capital on (aturday.

Our Bureau @e )elhi, 7ept 1 The <rime Minister, )r Manmohan 7ingh, assured textile industry and exporters that the Go!ernment ould take all possible measures to ensure that the real producti!e portion of the economy as not hurt by the appreciation of the rupee. )eli!ering the !aledictory address on the final day of the Texsummit $,,# here on 7aturday, the <rime Minister told industry that hile sops and subsidies ould ork if currency appreciation as a transient phenomenon, industry must ad*ust itself in the long run to the ne dynamic. +e urged industry to in!est in operations hich had the scale and scope to generate desired efficiencies and augment producti!ity. 8Rou ill ha!e to engage in ruthless costcutting so that you are competiti!e,9 the <rime Minister told the captains of .ndian textile industry in categorical terms. )r 7ingh said he ould ask the Ministries of Textiles, =ommerce, Finance and the @ational =ompetiti!eness =ouncil to sit together to sort out the problems plaguing the textile sector as 8the textile industry could be the !ehicle for

nation ide industrial modernisation and re!italisation of traditional skills and designs9.
Post/quota regime

:isting out !arious measures undertaken by the Go!ernment such as integrated textile parks, reform of the domestic taxation systems, excise exemption to the entire !alue chain and expansion of the technology upgradation fund scheme /T?Fs0, )r 7ingh said the Ministry of Textiles as orking on a scheme for training one million persons in fi!e years on specific textile-related trade. +e said the @ational 7kill )e!elopment Mission, hich is being launched, ould also supplement the a!ailability of skilled manpo er needed by industry to compete globally in the post-Cuota textile regime. 7tating that gi!en the country5s traditional strengths in the textile sector, .ndia could emerge as a ma*or manufacturing hub for the global market, )r 7ingh said this could be achie!ed through a focused strategy for market expansion. +e asked the export promotion councils and the Ministry to facilitate impro!ed market access and greater !alue realisation for .ndian textile goods in o!erseas markets. +e said industry must look far into the future and in!est more for the coming t o decades, not for the next season, and asked textile industry to emulate its counterparts in automobile, steel and pharmaceuticals by sho ing aggression and enterprise. +e said textile industry must 8graduate from being lo -cost, lo -!alue suppliers to high!olume, high-!alue suppliers by de!eloping internationally kno n brands and labels9.

Forex kitty bigger by $6.4 bi!!ion

Our Bureau

Mumbai, Bug. "1 Bfter t o eeks of consecuti!e fall in reser!es, the forex kitty ent up by 2$.&,& billion to 2$$(.(&9 billion for the eek ended Bugust $&. Market participants attributed it to the re!aluation of currency assets particularly that of euro and sterling. The reser!es had fallen by 2$.331 billion to 2$$'.&&3 billion for the eek ended Bugust 1#, said the 41.5s 6eekly 7tatistical 7upplement. The foreign currency assets ent up by 2$.&,$ billion to 2$$1.3,3 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The reser!es in gold and 7)4s remained unchanged at 2'.((# billion and 2$ million respecti!ely. The reser!e position in the .MF ent up by 2$ million to 2&33 million.

Forex kitty bigger by $6.4 bi!!ion

Our Bureau Mumbai, Bug. "1 Bfter t o eeks of consecuti!e fall in reser!es, the forex kitty ent up by 2$.&,& billion to 2$$(.(&9 billion for the eek ended Bugust $&. Market participants attributed it to the re!aluation of currency assets particularly that of euro and sterling. The reser!es had fallen by 2$.331 billion to 2$$'.&&3 billion for the eek ended Bugust 1#, said the 41.5s 6eekly 7tatistical 7upplement. The foreign currency assets ent up by 2$.&,$ billion to 2$$1.3,3 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es.

The reser!es in gold and 7)4s remained unchanged at 2'.((# billion and 2$ million respecti!ely. The reser!e position in the .MF ent up by 2$ million to 2&33 million.

Rupee "a!!s on heavy do!!ar de and

Mumbai, Bug. ", The rupee fell against the greenback on Thursday on the back of hea!y corporate demand for dollars. The domestic currency opened at &1, dipped to touch an intra-day lo of &1.1( and finally ended at &1.1', against the pre!ious close at &1.1,%11. )ealers said the home currency opened strong tracking the buoyancy in the global stock markets but lost its gains as there as sustained dollar demand. 8There as strong month-end demand from importers. The rupee is likely to be range bound in the next fe days,9 said a dealer at a pri!ate bank. .n for ards, the six month closed at 1.$$ per cent /1.,#0 and the 1$ month ended at 1.$9 per cent /1.130.

Rupee ends on "ir

note

Mumbai, Bug $9 The rupee slightly appreciated against the dollar on 6ednesday buoyed by the ups ing in the stock market. The currency opened eak at &1."3%"# but gained during the day to close at &1.1,%11, against the pre!ious close at &1.1'%1#. The rupee also gained on sustained dollar selling by foreign and pri!ate banks, dealers said. 8The appreciation of the rupee as surprising as there is a lot of month-end dollar demand,9 said a dealer at a pri!ate bank. .n the for ar d premia market, the six month closed at 1.,# per cent /,.#, per cent0 and the 1$ month ended at 1.13 per cent /,.9' per cent0.

Rupee ends !ower

Mumbai, Bug. $( The forex market sa dull trade as the rupee traded in a narro range bet een &1.,( and &1.1# against the dollar on Tuesday. The rupee opened at &1.1, and closed at &1.1'%1# against the pre!ious close of &1.,$%,". Bccording to forex dealers, there as dollar demand from oil companies, hich led to the decline in the rupee5s !alue. 1anks that had tried to take ad!antage of arbitrage opportunities in the non-

deli!erable for ards market, in the last fe eeks, ere seen buying dollars today, hich also led to a fall in the rupee, dealers said. .n the for ard premia market, the sixmonth closed at ,.# per cent /,.9' per cent0 and the oneyear closed at ,.9' per cent /1.$3 per cent0. A

Rupee tad "ir er

Mumbai, Bug. $# The rupee slightly appreciated against the dollar on Monday tracking the ups ing in the domestic stock market. The home currency opened at &,.9"%93, going past the psychological mark of &1. .t , ho e!er, ga!e up its gains to touch an intra day lo of &1.,3%,' and finally ended at &1.,$%,", against FridayMs close at &1.1,. )ealers said that there as strong dollar demand from nationalised banks for defence- related payments. 7hipping =orporation of .ndia as also acti!ely buying dollars in the market, dealers said "Month-end related dollar demand is likely to continue for the rest of the eek. +o e!er, there ill also be some bunched-up supply of dollars on Tuesday as the markets in :ondon ere closed today," said a dealer at a pri!ate bank. .n the for ard premia market, the six month closed at ,.9' per cent /1.$9 per cent0 and the 1$ month at 1.$3 per cent /1.&( per cent0. -

;o!d prices get support "ro

weak do!!ar

2ooking for a triggerK poised to rise higher Bullish Outlook Every dip may be "iewed as a tactical buying opportunity!

Technical analysts say that the market will break out of its sluggishness and price "olatility will rise in the short to medium term! ,! (handrashekhar Mumbai, Bug. $' Blong ith a bounce back in global eCuity prices, the metals market too sa prices rebounding. Gold as up by 21, an ounce to trade at 2''#.&%''(.,, ably supported by a eak dollar. Blthough the metal5s underlying market fundamentals remain unchanged, in the short run, the price direction is likely to be set by the broader financial market sentiment and Furo%?7 dollar mo!ements.
'arket ,rivers

From a fundamental angle, fabrication demand has continued to reco!er. =onsumers are getting used to higher prices, but are a!erse to !olatility. Market dri!ers such as crude oil price strength and dollar eakness coupled ith uncertain global geopolitical en!ironment are supporti!e. +o e!er, de-hedging is expected to be considerably lo er in the second half of $,,# hile shortfall in the estimated sales of Furopean =entral 1ank is unlikely to be large. O!erall, gold is poised to rise to higher le!elsP but is in need of a trigger. The last fe months ha!e seen the challenge to breach 2#,,%oH unsuccessful. Bs fundamentals suggest a strong upside, e!ery dip may be !ie ed as a tactical buying opportunity. Technical analysts are of the firm !ie that the market ill break out of its sluggishness and price !olatility ill rise in the short to medium term. 8B mo!e outside of '"$ to '93 range ould imply another 1,, dollars this year,9 according to an analyst. Gold remains

ell supported abo!e '3". The first minor bullish signal to look for is a closing break of trendline resistance at ''(, hich should herald a run at the '93 s ing target. There still are higher highs to come. 5ase metals2 Blthough concerns o!er the ider financial markets continue to linger, an en!ironment characterised by lo in!entories and supply side disruptions should pro!ide support to the base metals complex, especially once the seas onally slo summer period ends. :ead, for instance, gained by as much as 1$.9 per cent last eek, trading abo!e Hinc for the first time since 19(,, ha!ing already o!ertaken aluminium prices earlier this year. For short-term directional trading, experts see Hinc, tin and lead as the base metals ith best upside potentialP hile nickel has the clearest do nside risk. =opper and aluminium are eighed do n by soft summer demand and some hefty :MF in!entory increases. :ead fundamentals remain strong ith significant production losses hampering supply gro th and the do ntrend in :MF stocks. Mean hile, Hinc market fundamentals are also tightening and :MF stocks continue to fall. 7trong demand and tightening short-term physical supply still support a potential sharp spike higher. 7tainless steel destocking has eakened the nickel market, boosting :MF nickel stocks. There is a further do nside risk to prices, before the potential for a price reco!ery emerges in fourth Cuarter. Bccording to chartists, short-term signs are increasingly turning positi!e as aluminium is pushing abo!e its pre!ious range lo $33,. B close abo!e $3#, ould point to $'', ahead of potential topping signs later this eek. Thereafter, the bear trend from the Iuly high is likely to resume. One can expect the

test of the ider range lo analysts assert.

at $&,3 into next months,

#trong rupee

eans "ewer sta"" on bench

(os impro"e utilisation rate to tackle pressure on margins

Our Bureau =hennai, Bug. $' 4eacting to the rupee strengthening against the ?7 dollar, .ndian .T soft are ser!ices companies are increasing the number of people hose ork can be billed for re!enue ith clients. .n other ords, they are all increasing their utilisation rates.

For the Cuarter ended Iune $,,#, most companies ha!e seen a rise in those rates compared to either the immediately preceding Cuarter or the year-ago Cuarter. The accompanying table gi!es us utilisation figures for the three said Cuarters, as a percentage of total number of employees, including trainees. .ndustry atchers feel that this is one measure that companies can Cuickly take to react against a stronger rupee. /6hen you earn in dollars and con!ert it into rupees for reporting purposes, a stronger rupee ould mean lo er profits.0 +o much does a strong rupee affect .ndian !endorsO Mr Gaura! )ua, analyst ith 7harekhan 7ecurities, has earlier

indicated to Business 2ine that a one per cent increase in the rupee against the dollar ould result in the impact of about &, basis points in operating margins. @o , ho much of that impact could be minimised by increasing utilisation ratesO B spokesperson for =ogniHant said that for 8e!ery one per cent increase in utilisation of our global orkforce, margins go up by about 3, basis points.9 Take an exampleL Bssume that the a!erage company in this industry makes 4s $, operating profit /ie, profit excluding expenses such as depreciation, interest and taxation0 on re!enues of 4s 1,,. @o , hen the rupee ent do n from 4s &1 to &,.39, that company ould only make 4s 19.' profit for the same 4s 1,, as re!enue, because of the loss in con!ersion from dollars to rupees. .f this company increased utilisation rates by one per cent /that is, out of, say, #,,,,, employees, it made #,, of its employees billable - from a state of being Dbenched50, it ould make 4s ,.3, more in profits. .n this example, this company has reacted to the rupee inching up one per cent against the dollar. .n reality, the rupee has appreciated nearly 1, per cent since Bpril this year. =ompanies are also addressing the issue through producti!ity impro!ements using automated tools and mo!ing more ork offshore to .ndia, among other things.

?uto parts cos hit by s!owdown in exports

5ultiple bites

Sales have either remained flat or declined in seGuential terms this Guarter! The change in emission control norms in the C# may ha"e an impact till the third Guarter! Par"atha $ardhini (! Priyanka $yas =hennai% @e )elhi, Bug. $' .t is a double hammy for auto component manufacturers. F!en as they are beginning to feel the pinch of the slo do n in the domestic auto industry, exports are beginning to bite as ell, thanks to the appreciating rupee. B study of the first Cuarter performance of fi!e representati!e component manufacturers A 7undaram =layton, 7undram Fasteners, Mun*al 7ho a, M.=O and 7ona >oyo 7teering A sho s that hile profits ha!e increased by around 1" per cent seCuentially, sales ha!e either remained flat or declined in seCuential terms. 86ith interest rates impacting the sales of !ehicle manufacturers, our sales are bound to be affected indirectly. 7ince (#-(( per cent of our sales are from our supplies to t o- heelers that remains the most affected segment and is pinching us also. 1esides, manufacturers too ask for price reductions putting the margins under pressure,9 said Mr Mahesh Tane*a, +ead - Finance, Mun*al 7ho a, hich has reported an eight per cent decrease in sales and an almost 3, per cent decrease in its net profit on a seCuential basis.
.lat sales

7undram Fasteners, hich itnessed flat sales in seCuential terms in the Iune Cuarter as ell in the pre!ious t o Cuarters, attributes the trend to the slo do n in the export market on the account of rupee appreciation as ell as

change in the emission control norms in the ?7 that ha!e an impact till the third Cuarter.

ould

8.nterest rates compounded ith mo!ement of goods becoming difficult on account of floods ha!e led to slo er sales. 6e ha!e suffered ith 1, per cent rupee appreciation in !alue of our exports, though not in !olumes. Blso last Cuarter of pre!ious fiscal, sales had been more than normal, hich led to relati!ely lo er sales reflected in the first Cuarter,9 said a senior official, 7undaram Fasteners, ho did not ant to be named.
1(luggish start2

7ona >oyo 7teering also reported a decline in its sales seCuentially in the Iune Cuarter. 8:ast Cuarter of the financial year is al ays robust and first Cuarter starts a bit sluggish. Going further, the !olume ould pick up on a Cuarterly basis and finally e expect to achie!e year-onyear gro th of approximately 13 per cent,9 said Mr 7urinder >apur, =hairman and Managing )irector, 7ona >oyo 7teering 7ystem. +e added that sales in the first Cuarter of the current fiscal year-on-year had gro n by 19 per cent in the non-column electric po er steering systems as there had been no slo do n in that segment.

Forex reserves dip by $6.5 b on F%% out"!ows

Our Bureau Mumbai, Bug. $& The country5s forex reser!es fell by 2$.331 billion to 2$$'.&&3 billion for the se!en days ended Bugust 1#, dipping for the second consecuti!e eek.

This as due both to F.. outflo s resulting from the ?7 subprime loan crisis, as ell as the 4eser!e 1ank of .ndia5s recent curbs on external commercial borro ings. Market participants also attribute the fall in reser!es to the re!aluation of other currency assets. The total F.. outflo for the eek under consideration as 4s ",9,3.#, crore. )ealers ho e!er, felt the outflo s ould only be a short term phenomenon and ould not ha!e any long-term impact on the market. The reser!es had fallen by 2"&' million for the eek ended Bugust 1, to touch 2$$(.99' billion, according to the 41.5s 6eekly 7tatistical 7upplement. Total foreign currency assets decreased by 2$.33, billion to 2$19.1," billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The reser!es in 7)4s increased by 21 million to 2$ million hile the country5s reser!e position in .MF fell by 2$ million to 2&3" million. The gold reser!es remained unchanged at 2'.((# billion. The home currency also fell to a lo of &1.#1 during the eek under consideration. )ealers said this as in reaction to the ?7 subprime crisis and the crash in the domestic eCuity market that led to huge dollar selling.

%ndia %nc raised $.5 b via 3,* in 5

Our Bureau

onths

Mumbai, Bug. $& .ndian companies ha!e borro ed about 21&.9# billion through external commercial borro ing /F=10 and foreign currency con!ertible bonds /F==10 ithin a span of fi!e months from Ianuary to May $,,#.

Bnalysts feel that the huge borro ing through F=1 route as mainly due to the high rates of interest in the domestic market. 8The interest rates for borro ing through F=1%F==1 as about t o-three per cent lo er than that offered by the domestic market,9 said a banking analyst. The month of March sa the highest borro ing at 23.,9 billion hile the borro ings in Bpril and May together stood at 23.#& billion.
,ecline e$pected

Bnalysts, ho e!er, feel that the borro ings through F=1 ould see a sharp decline ith the recent re!ision in F=1 guidelines by 41.. The recent guidelines on F=1 state that companies borro ing more than 2$, million per financial year through the F=1 route ill not be allo ed to remit the funds into .ndia except under specific appro!al. 8=ompanies looking for o!erseas borro ing ill no ha!e to comply ith a number of regulatory issues,9 said an analyst. The 4eser!e 1ank of .ndia has released data on F=1 and F==1 A both automatic and appro!al route A for Bpril and May $,,#. .n the month of Bpril, 4eliance =ommunications :td., has borro ed 23,, million /maturity period of fi!e years and ele!en months0, hich is the highest through F=1 /automatic route0, for technical assistance, telecom, import of capital goods and rupee expenditure.

Rupee tad weaker

Mumbai, Bug. $&

The rupee eakened by six paise against the greenback on Friday due to a fall in Bsian stock markets and rumours of political instability. The home currency opened at &1.,# and sa an intra-day lo of &1.19 before ending the day at &1.1,, do n from the pre!ious close of &1.,"%,&. Market participants feel the rupee could eaken further. 8There is still room for the rupee to eaken,9 said Mr ; 4a*agopal, +ead-Forex Treasury, >otak 1ank. .n for ards, the six-month premium closed at 1.$9 per cent /1.3$ per cent0 hile the 1$-month closed at 1.&( per cent /1.'1 per cent0. S

Rupee !ower in vo!ati!e trade

Mumbai, Bug $" The forex market sa !olatile mo!ement on Thursday ith the rupee ending about 1" paise lo er against the pre!ious close against the dollar. )omestic factors such as the stock market mo!ement and rumours of instability at the =entre affected the currency. The rupee closed at &1.,"%,& against 6ednesdayMs le!el of &,.9,. .t opened at &,.#9%(,, about 1, paise higher. 1ut as the eCuity market eakened, the rupee touched a lo of &1.$, during day trade, before reco!ering to ards the close. Bccording to a forex dealer ith a public sector bank, there as dollar buying by oil companies and oil refineries, hich helped the rupee gain in the first half of trade. 1ut talks of a likelihood of the =entral go!ernment collapsing eakened the rupee. WWToday, the rupee as go!erned mainly by domestic factors and pure demand and supply conditions," the dealer said. .n the for ard premia market the six-month premium closed at 1.3$ per cent /1.39 per cent0 and the one-year at 1.'1 per cent /1.'$ per cent0. -

Rupee c!oses "ir

Mumbai, Bug. $$ The rupee ended firm against the dollar on 6ednesday because the dollar supply outstripped demand. The rupee mo!ement also tracked the stock market, hich closed higher. The rupee opened at &1.,3%,' and closed at &,.9,, about 1( paise up from the pre!ious close of &1.,(%,9. B forex dealer ith a pri!ate bank said exporters sold dollars at higher le!els, hich helped the rupee gain. "The Wrisk a!ersionM attitude seems to ha!e cooled off," he said. 7entiments in the forex market ere also helped by the positi!e gains made by eCuity markets across the globe, the dealer added. The dollar sa subdued range-bound trade against o!erseas currencies like euro and pound, hich gained against the ?7 currency. .n the for ards market, the six-month premium closed at 1.3( per cent /1.&' per cent0 and the one-year closed at 1.'$ per cent /1.3' per cent0. -

Rupee c!oses higher

Mumbai, Bug. $1 The rupee sa good t o- ay mo!ement against the dollar on Tuesday and closed higher at &1.,(%,9, about $3 paise

up from Friday5s close of &1.""%"&. The rupee tracked the domestic eCuity market, hich sa continued selling by foreign in!estors, said dealers. The rupee opened higher at &1.1" and rose to touch &,.9# on dollar selling. 1ut after the 7ensex opened negati!e, the rupee fell to a lo of &1.$3 during day trade. The forex market as closed on Monday on account of a public holiday. 8There as both dollar buying and selling, but more buying because of the eCuity market related outflo ,9 said a forex dealer ith a public sector bank. The discount rate cut by ?7 Fed announced on Friday helped the rupee to some extent, hich as reflected in the higher opening, the dealer said. The for ard premia did not see much action, ith the six-month premium closing at 1.&' per cent /1." per cent0 and the 1$-month at 1.3' per cent /1.&( per cent0. S

Ahats the i pact o" a strengthening rupeeB

.f the "alue of rupee increases, what impact will it ha"e on our economy* How is rupee "alue calculated, and does inflation play a role in this* 6ati+a Sachde$a :et me ans er the second part of your Cuestion first. The !alue of the rupee depends on the demand for the currency. .f it is high the !alue rises and if it is lo /that is, the rupee is sold0, it falls. .nflation plays a role in the demand for a currency. .f inflation is high, it is an indication of bad economic management and people ill tend to buy less of that currency. Bs for the impact of a strengthening rupee on the economy, exports are likely to fall because .ndian goods suddenly get more expensi!e and there is likely to be less demand for

them. +o e!er, on the other hand, our imports cheaper.

ill become

Therefore, the final impact of any rupee rise on the economy ill depend on by ho much exports fall and by ho much imports rise. That said, this is only a rough guide and there is no clear-cut ay to measure ho the !alue of a currency affects the economy. .f you primarily an exporter it hurts, and if you are primarily an importer, it helps.
(ense$ and economic indicators

Is there a correlation between the #ense and macroeconomic indicators* 8hat are the indicators that need to be taken into consideration* An+ita 7ain There is almost al ays a positi!e correlation bet een the 7ensex and the general macroeconomic indicators. The reason is simple. The 7ensex le!el is dependent on ho ell companies are doing and companies ill do ell hen other segments of the economy are looking up. Though there are no clear-cut indicators, the ones that are generally looked at are G)<, industry and inflation rates, the interest rate le!el, credit and consumption gro th, etc.

Rupee C

oney

arkets shiver

(urrency rebounds to ?L!DDID?K call rates shoot up Je"erish Jears Most players are of the opinion that the depreciation in rupee is only short term as the fundamentals are strong!

The fall in the rupee)s "alue is more a reaction to the C# sub-prime crisis and the crash in the domestic eGuity market! Our Bureau Mumbai, Bug. 1# The fears and uncertainties of the stock market ere mirrored in the forex and money markets, hich also sa some amount of choppy trade on Friday. Mo!ing in alignment ith eCuities, the rupee opened lo er at &1.', against the dollar and touched a lo of &1.#1 during the day. 1ut it made good the losses and ended trade at &1.""%"& against Thursday5s close of &1."'%"#. Most market participants are of the opinion that the depreciation in the domestic currency is only short term as the fundamentals are strong. The fall in the rupee5s !alue is more a reaction to the ?7 sub-prime crisis and the crash in the domestic eCuity market, said forex dealers. The bond market also opened on a negati!e note on fears that liCuidity may dry up as foreign in!estors pull out of the market. +o e!er, prices reco!ered as liCuidity as seen to be comfortable and there as a rally in the ?7 securities. Fxpectations of softer inflation too helped bond prices reco!er. On Friday, yields on the #.99 per cent 1,-year benchmark go!ernment paper closed at #.99 per cent, lo er than the pre!ious yield of (.,& per cent. 1ut as the 41. announced auctions orth 4s ",3,, crore next eek, the bond market may turn bearish again, said a bond dealer ith a pri!ate bank. The call market too sa huge !olatility, ith rates touching a high of ', per cent during the day. +o e!er, the rates ere do n to (-13 per cent at close against the days5 close of around ' per cent.

Most dealers said this as an aberration and a one-off incident. 8This as reporting Friday and Monday is a holiday for money markets in Mumbai. Therefore, banks that reCuire money for other centres too may ha!e borro ed in the call market, leading to a sudden spurt in the call rates,9 said a bond dealer. The country5s foreign exchange reser!es also fell by 2"&' million for the eek ended Bugust 1, to touch 2$$(.99' billion, according to figures from the 41.. .n the pre!ious eek, reser!es had increased by 2".99$ billion to touch 2$$9."&$ billion.

Rupee tangos with #ensex on ro!!er/coaster ride

Our Bureau Mumbai, Bug. 1# The forex market reflected the !olatility of the eCuity market on Friday ith the rupee falling to lo s last seen in Bpril this year, said dealers. The rupee closed slightly higher at &1.""%"& against Thursday5s close of &1."'%"#. On Friday, the rupee opened at around &1.',. Mo!ing in tandem ith the huge fall in the stock market, the rupee then fell to the day5s lo of &1.#13, in the first half of trade. 1ut hen the stock market recouped some of its losses, the rupee also mo!ed up to touch &1.$,. :ater on, it consolidated at &1.""%"&, hich as the day5s close. :ot of exporters sold dollars at the le!els of &1.3,%',, said dealers. Bccording to Mr <rakash 4ao, +ead-Forex Trading, Bxis 1ank, the rupee mo!ed in alignment ith the stock market. 8@othing has changed fundamentally for the rupee. <eople are orried about the sub-prime crisis in the ?7 and that is

affecting sentiments here. 1ut the rupee moment the tension abroad eases.9

ill appreciate the

Bll currencies like the pound, euro and Bustralian and @e Kealand dollars are eakening against the ?7 dollar. 1ut once the crisis settles do n, there could be massi!e eakening of the ?7 dollar, Mr 4ao added. Most forex dealers said the rupee may continue to be !olatile and may trade in the broad range of &,.3,-&1.#, next eek. 1ut it ill depend on ho the ?7 markets perform on Friday and Monday. Bs the Mumbai markets ould be closed on Monday on account of <arsi @e Rear, there could be lot of flo s on Tuesday, dealers said. .n the for ards market, the six-month premium closed at 1.", per cent /1.(1 per cent0 and the one-year at 1.&( per cent /1.(# per cent0.

Rupee C

oney

arkets shiver

(urrency rebounds to ?L!DDID?K call rates shoot up Je"erish Jears Most players are of the opinion that the depreciation in rupee is only short term as the fundamentals are strong! The fall in the rupee)s "alue is more a reaction to the C# sub-prime crisis and the crash in the domestic eGuity market! Our Bureau Mumbai, Bug. 1# The fears and uncertainties of the stock market ere mirrored in the forex and money markets, hich also sa some amount of choppy trade on Friday. Mo!ing in alignment ith eCuities, the rupee opened lo er at &1.', against the dollar and touched a lo of &1.#1

during the day. 1ut it made good the losses and ended trade at &1.""%"& against Thursday5s close of &1."'%"#. Most market participants are of the opinion that the depreciation in the domestic currency is only short term as the fundamentals are strong. The fall in the rupee5s !alue is more a reaction to the ?7 sub-prime crisis and the crash in the domestic eCuity market, said forex dealers. The bond market also opened on a negati!e note on fears that liCuidity may dry up as foreign in!estors pull out of the market. +o e!er, prices reco!ered as liCuidity as seen to be comfortable and there as a rally in the ?7 securities. Fxpectations of softer inflation too helped bond prices reco!er. On Friday, yields on the #.99 per cent 1,-year benchmark go!ernment paper closed at #.99 per cent, lo er than the pre!ious yield of (.,& per cent. 1ut as the 41. announced auctions orth 4s ",3,, crore next eek, the bond market may turn bearish again, said a bond dealer ith a pri!ate bank. The call market too sa huge !olatility, ith rates touching a high of ', per cent during the day. +o e!er, the rates ere do n to (-13 per cent at close against the days5 close of around ' per cent. Most dealers said this as an aberration and a one-off incident. 8This as reporting Friday and Monday is a holiday for money markets in Mumbai. Therefore, banks that reCuire money for other centres too may ha!e borro ed in the call market, leading to a sudden spurt in the call rates,9 said a bond dealer. The country5s foreign exchange reser!es also fell by 2"&' million for the eek ended Bugust 1, to touch 2$$(.99' billion, according to figures from the 41.. .n the pre!ious

eek, reser!es had increased by 2".99$ billion to touch 2$$9."&$ billion.

Rupee tangos with #ensex on ro!!er/coaster ride

Our Bureau Mumbai, Bug. 1# The forex market reflected the !olatility of the eCuity market on Friday ith the rupee falling to lo s last seen in Bpril this year, said dealers. The rupee closed slightly higher at &1.""%"& against Thursday5s close of &1."'%"#. On Friday, the rupee opened at around &1.',. Mo!ing in tandem ith the huge fall in the stock market, the rupee then fell to the day5s lo of &1.#13, in the first half of trade. 1ut hen the stock market recouped some of its losses, the rupee also mo!ed up to touch &1.$,. :ater on, it consolidated at &1.""%"&, hich as the day5s close. :ot of exporters sold dollars at the le!els of &1.3,%',, said dealers. Bccording to Mr <rakash 4ao, +ead-Forex Trading, Bxis 1ank, the rupee mo!ed in alignment ith the stock market. 8@othing has changed fundamentally for the rupee. <eople are orried about the sub-prime crisis in the ?7 and that is affecting sentiments here. 1ut the rupee ill appreciate the moment the tension abroad eases.9 Bll currencies like the pound, euro and Bustralian and @e Kealand dollars are eakening against the ?7 dollar. 1ut once the crisis settles do n, there could be massi!e eakening of the ?7 dollar, Mr 4ao added. Most forex dealers said the rupee may continue to be !olatile and may trade in the broad range of &,.3,-&1.#,

next eek. 1ut it ill depend on ho the ?7 markets perform on Friday and Monday. Bs the Mumbai markets ould be closed on Monday on account of <arsi @e Rear, there could be lot of flo s on Tuesday, dealers said. .n the for ards market, the six-month premium closed at 1.", per cent /1.(1 per cent0 and the one-year at 1.&( per cent /1.(# per cent0.

Rupee "a!!s on g!oba! worries' e(uity se!!/o""

Our Bureau Mumbai, Bug. 1' The rupee as extremely !olatile on Thursday and closed about ', paise lo er at &1."'%"# against Tuesday5s close of &,.#&3,%#33,, follo ing a sell-off in the domestic stock market. The rupee had opened at around &1 le!els on Thursday. .t had touched le!els of &1.$, in Iune this year Follo ing the sub-prime crisis in the ?7 and sharp fall in other Bsian markets, foreign in!estors are pulling out of assets such as the .ndian rupee, said dealers. Bccording to Mr ; 4a*agopal, =hief )ealer-Forex, >otak Mahindra 1ank, the rupee mo!ed in tune ith global markets.

8The rupee is a high yielding asset, hich is hy foreign in!estors are pulling out of it. Bll negati!e factors such as the fall in the Bsian stock markets and the high oil price clubbed together pulled the rupee do n,9 he explained. Though some public sector banks ere seen selling dollars, it as unlikely that it as on behalf of the 4eser!e 1ank of .ndia, dealers said. Bmong global currencies, the pound and euro lost ground against the dollar, hile the yen gained, as Drisk a!erse5 in!estors flocked to ards it. Mr :.;. <rasad, Bssistant ;ice-<resident, +ead =orporate 7ales, .ndus.nd 1ank, said the rupee could fall further if the eCuity market continued to be bearish. Mr 4a*agopal also agreed that the rupee may touch le!els of &1.3,. .n the for ard premia market, the six-month premium closed at 1.(1 per cent /1.9' per cent0 and the 1$-month at 1.(# per cent /1.93 per cent0.

%ndia/Dapan swap dea! on cards

Our Bureau Mumbai, Bug. 1& .ndia and Iapan ill help each other if their currencies ere to come under the attack of speculators.1oth countries ill soon sign an agreement to s ap foreign currencies like ?7 dollar or euro to maintain the !alue of rupee and yen in foreign exchange markets.)etails of the agreement, such as the Cuantum of foreign exchange that ould be used is not yet kno n. The 41. confirmed today that an agreement is on the cards . B 41. spokesperson said theinformation is a!ailable at the 6eb site of 1ank of Iapan. +o e!er, this could not be !erified. The 4eser!e 1ank of .ndia, and 1ank of Iapan /1oI0

ould be the nodal agencies going by such agreements that Iapan has entered into ith other countries. Bccording to information a!ailable on the 1oI5s ebsite, Iapan has s ap deals ithother Bsian countries like Thailand, >orea, =hina, Malaysia, <hilippines, 7ingapore and .ndonesia. .n some cases the s ap is one ay, hile in some cases it is a t o- ay. The latest agreement as bet een Iapan and Thailand, in Iuly, under hich Thailand can s ap up to ?7 2' billion hile Iapan can s ap up to ?7 2" billion in case there is need for short-term liCuidity. The Iapanese <rime Minister, Mr 7hinHo Bbe is expected to finalise the agreement ith the <rime Minister, )r Manmohan 7ingh, during his !isit to .ndia next eek. Iapanese ne spaper, The 'shai #himbun, reported ne s of the agreement on Tuesday.

Rupee rise tri s va!ue o" "orex reserves by <=

#udanshu Ranade =hennai, Bug. 1" )ollar-denominated reser!es rose 2$9.&9 billion bet een mid-March and end-Iuly $,,#.

The D21 billion eCuals 4s &,,,, crore5 rule of thumb puts the rupee eCui!alent at 4s 1$,,,,, crore. 1ut 41. data sho a rise of only 4s &9,#93 crore. 6hyO

1ecause the rise of the rupee per Ddollar5 of the dollardenominated basket caused a 4s #,,,,,-crore drop in the rupee !alue of total reser!es. Bn idea that has been doing the rounds for many months is that lending surplus forex to corporates could increase yields on reser!es, hile help check their runa ay gro th. 1ut the idea has not progressed beyond the le!el of thinking. ishful

The irony is that the rise in the rupee reduced the !alue /rather than the le!el0 of our reser!es, e!en as it brought do n the liabilities of the corporates that had gone in for F=1s. Though repeated efforts to get a response from the 41. met ith no success, t o points are orth noting. First, the rupee rose !is-E-!is all ma*or currencies bet een March 1' and Iuly $#P !is-E-!is the dollar by 9.&9 per cent, the euro by 3.'# per cent, the yen by 1&."( per cent, the pound sterling by &.3" per cent, the 7 iss franc by (.9& per cent, the =hinese yuan by #.$' per cent and the 7ingapore dollar by (.#9 per cent. 7econd, as of no forex losses /or for that matter gains on F=1s0 are merely notional. Bctual losses /or gains0 are due. ill be registered only hen the bills

Rupee ends "!at as pressure eases

Mumbai, Bug. 1" The rupee closed at &,.'"3,%'&3, against the dollar on Monday, the same le!els as on Friday. +o e!er, the pressure on the domestic currency eased thanks to a positi!e domestic eCuity market, said dealers. The rupee opened at &,.'$%'3 and touched a high of &,.3"%3& in the first half, as foreign banks sold dollars. 1ut later, it fell to end at the same le!els as the pre!ious close on dollar buying, dealers added. 8The pressure on the rupee as relati!ely less today because the 7ensex closed higher and the Iapanese @ikkei also closed higher. This eek the rupee could be rangebound bet een &,.33 and &,.'3,9 said a forex dealer ith a pri!ate bank. Bmong other global currencies, the yen continued to remain strong against the dollar, though the greenback as strong against the euro. The for ard premia ere do n slightly due to the bullish rupee, the dealer added. The six-month premia closed at 1.(9 per cent /1.9 per cent0 and the 1$-month at 1.(3 per cent /1.9& per cent0. S

Forex reserves rise $4 b

Our Bureau Mumbai, Bug. 1, The forex kitty rose by 2".99$ billion to 2$$9."&$ billion for the eek ended Bugust ", backed by

strong F.. inflo s and continuous inter!ention by the 4eser!e 1ank of .ndia in the forex market. 8The strong F.. inflo s and constant 41. inter!ention to cap the appreciation of rupee has attributed to the increase in reser!es,9 said Mr M @atara*an, ;ice-<resident and +eadTrading, Forex, Fixed .ncome and )eri!ati!es, .ndus.nd 1ank. The reser!es had increased by 2".",# billion to 2 $$3."3, billion for the eek ended Iuly $#, said the 41.5s 6eekly 7tatistical 7upplement. The foreign currency assets ere up by 2".(9$ billion to 2$$1.9(( billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The gold reser!es ent up by 21,, million to 2'.((# billion hile 7)4s remained the same at 21$ million. The country5s reser!e position in the .MF also remained unchanged at 2&33 million. Market participants, ho e!er, feel that the curbs on external commercial borro ings could limit the inflo of fresh eCuity inflo s. 86ith the slo do n in inflo s, the accretion to forex reser!es ill be limited,9 said Mr @atara*an.
7ank Credit

Gross bank credit increased by 4s $,('' crore to 4s 19,1#,$"1 crore for the fortnight ended Iuly $#, according to the 4eser!e 1ank of .ndia. The gross bank credit as inclusi!e of food credit, hich ent do n by 4s 1,#$( crore to 4s &1,,39 crore and nonfood credit ent up by 4s &,39& crore to 4s 1(,#',1#$ crore.

Rupee weakens "urther

Mumbai, Bug 1, The rupee eakened for the third day on Friday o!er continued concerns about the impact of the sub-prime lending crisis in the ?7. The domestic currency opened lo er at &,.', and fell to &,.#, after the stock market opened at a much lo er le!el.. That sa a lot of dollar selling. The rupee ended trade at &,.'"3%'&3 against Thursday5s close of &,.3$%3". B forex dealer ith a pri!ate bank said there as dollar selling at !arious le!els, hich helped the rupee reco!er from the day5s lo . 6orld ide, in!estor orry appeared to be across all asset classes. .n!estors are selling assets ranging from gold, oil and dollars, and mo!ing to the yen, the dealer said. The yen is gaining across the board, not *ust against the dollar, but also against the euro and pound sterling, he added. .f the ?7 markets ere to fall further on Monday, the rupee could touch le!els of &,.#,%#3, he said. .n the for ard premia, the six-month closed at 1.9, per cent /1.9' per cent0 and the 1$-month at 1.9& per cent /1.9 per cent0.

Rupee vo!ati!e) ends "!at

Mumbai, Bug. 9 The rupee as !olatile against the dollar on Thursday, taking cues from the stock marke, hich lost hea!ily follo ing ne s that international bank 1@< <aribas has been forced to suspend calculation of the net asset !alue of three of its mutual funds due to problems in the ?7 subprime mortgage sector. The domestic currency opened higher at &,.&3%&' and strengthened to &,."9%&,, due to good dollar inflo s. +o e!er, follo ing the 1@< <aribas ne s, the rupee fell and closed at &,.3$%3", unchanged from 6ednesday5s close of &,.3$%3". B forex dealer ith a pri!ate bank said, 86hen the eCuity index turned around, some custodial banks turned dollar buyers. The good dollar inflo s in the morning, hich ere contrary to expectation, helped the rupee reduce its losses.9 )ealers also fear that the )o Iones and the ?7 stock market may open eak, hich could affect the rupee5s mo!ement on Friday. Oil-related dollar buying on Friday could eaken the rupee. The rupee may trade in the &,.3,&,.', range said the dealer. .n for ards, the six-month premia closed at 1.9' per cent /1.#9 per cent0 and the 1$-month premia closed at 1.9& per cent /1.($ per cent0.S

Forex earnings "ro

touris

up in -.

LL!@B growth in arri"als between Ean-Eune

The a"erage room rates in Delhi, 5umbai and Bangalore ha"e shot up #omasroy (hakraborty >olkata, Bug. 9 4iding on the back of an increase in foreign tra!el to .ndia, the country5s foreign exchange earnings from tourism sector during the first half of $,,# registered a 1&.& per cent gro th in rupee terms and $,.' per cent gro th in terms of ?7 dollar. Farnings during the period rose to 4s 1(,$3(.3# crore /2&,$9".&' million0 from 4s 13,93(.1& crore /2",339.#& million0 in the corresponding period a year ago. The foreign tourist arri!als in the country bet een IanuaryIuly registered 11.9 per cent gro th ith the increase in number to $#,'&,"'1 from $&,'9,3,'.
;eisure tourism

8The gro th in the tourism sector during the first half of this year has follo ed last year5s pattern. :eisure tourism still remains the main factor in attracting tourists from abroad,9 Mr M.@. Ia!ed, )eputy )irector General, Ministry of Tourism, Go!ernment of .ndia, told Business 2ine o!er the phone. +o e!er, he added that the traffic of leisure tourists has not been uniform across the country. 8<laces in Goa attract more leisure tra!ellers than Mumbai, )elhi or 1angalore. The a!erage room rates in )elhi, Mumbai and 1angalore ha!e shot up and in these places, foreign traffic consist of mostly business and corporate tra!ellers,9 he added.
7usiness travel

+oteliers across the metros confirmed that foreign business tra!el has been the main source of their re!enue. 8@early '3-#3 per cent of our earnings are in foreign exchange. .n 1angalore, around #, per cent of the business /in hotels0 comes from corporate tra!ellers, of hich foreign tra!ellers constitute a ma*or part,9 said Mr :emuel +erbert, General Manager, The <ark, 1angalore. Bccording to Mr Ia!ed, the Ministry expects 1"-13 per cent gro th in foreign tourist arri!als during this year.

Rupee weakens by .. paise

Mumbai, Bug. ( The rupee eakened by 11 paise against the greenback on 6ednesday to close at &,.3$%3", do n from the pre!ious close of &,.&1%&$. The rupee opened nearly "& paise eaker than the pre!ious close as a reaction to the curbs on external commercialborro ings /F=1s0. The currency opened at &,.#3P it regained some ground due to dollar selling by exporters and closed at &,.3$%3". .n for ards, the six-month premia closed at 1.#9 per cent /1.'" per cent0 hile the 1$-month closed at 1.($ per cent /1.#" per cent0.

Mixed views on i pact o" tighter 3,* nor s

;Indirect boost to IT, te tiles stocksK Banks to see more loan demand)

'rushi #en Mumbai, Bug. ( There are mixed !ie s in the market about the impact the ne external commercial borro ings /F=10 norms ill ha!e on different sectors that ere hit by the sharp appreciation of the rupee. Bccording to the ne regulation, companies borro ing more than 2$, million ill ha!e to park those funds o!erseas, and ill ha!e to seek permission from the 4eser!e 1ank of .ndia to repatriate the same or lesser amount of borro ings. This mo!e is to check the rise in rupee !alue against other currencies by managing flo of foreign funds into the company. On 6ednesday, the rupee closed at &,.3$%3", 1$ paise eaker than Tuesday.
IT stocks lead rally

The ne F=1 norms are expected to gi!e an indirect boost to sectors such as .T and textiles, hose stocks ha!e taken a hit due to a slo do n in exports. The immediate effects ere !isible on 6ednesday ith the .T sector leading the

rally in the 7ensex, ith the index gaining more than & per cent to close at &(,(.&". +o e!er, the consensus amongst analysts is that this is only a short-term benefit. 8Today, .T stocks rose as a knee-*erk reaction to the announcement. This sort of capital control ill be a short term benefit, in the long term, one cannot say hat the impact ill be,9 said Mr +arit 7hah, .T analyst, Bngel 1roking. The same !ie is held for the textile sector as ell.

8.t is positi!e to the extent that the rupee appreciation ill be controlled and sectors like textiles and .T, hich ere badly hit, ill stand to gain no . +o e!er, this benefit is only for the short term,9 said Mr Iigar ;alia, textile analyst, <arag <arikh.
"elie- to e$porters

8The positi!e ne s is that the rupee ill not appreciate further, hich should gi!e some relief to exporters, but the effects ill only be !isible from the next Cuarter,9 said Ms Fasiha 7haikh, textile analyst, Bngel 1roking. +o e!er, the flipside is that there is no one less a!enue for expanding companies to raise funds. 8=ompanies that are currently undertaking large capex ill lose out as their money raising a!enues are restricted, said Mr +arinder >umar, .=.=. )irect.
7ene-it to !anking

The banking sector is expected to benefit the most from these ne restrictions as companies looking to raise money abroad no ha!e to turn to domestic banks for credit.

8The domestic banking sector ould do really ell as a result of these norms. =redit had seen a degro th in the past, as companies could raise cheaper money abroad. 6ith these ne norms in place, the banking sector is poised to do !ery ell,9 said Mr >umar. The banking index gained 1.(' per cent on 6ednesday to close at (,,#'."$. 86e ill see the impact of this announcement fully after the second Cuarter because that is the Cuarter hen credit gro th picks up. 1anks ill do ell as domestic banks ill be the ob!ious substitute for F=15s and this ill lead to an impro!ement in the bank5s profitability,9 said Ms 7arika <. :ohra, banking analyst, Bngel 1roking.

Rising rupee i pacts star hote!s top!ine growth

O"erall growth maintained on booming economy #napshot Rising rupee impacts topline growth by about /-L= per cent in first Guarter! Increase in supply of room in"entory also leads to a drop in the occupancy le"el in star hotels! #omasroy (hakraborty >olkata, Bug. ( The hospitality sector is feeling the heat of the appreciating rupee. 7enior officials of hotel ma*ors, including +otel :eela!enture :td, .ndian +otels =ompany :td and 4oyal Orchid +otels :td /4O+:0, confirmed that the rising rupee had impacted their topline gro th by about (1, per cent during the first Cuarter of the current fiscal. The hotels, ho e!er, itnessed an o!erall gro th on the back of a booming economy.

8@early (, per cent of our re!enue comes from foreign business tra!ellers. @aturally, the rupee appreciation has hit our topline gro th by about (-1, per cent,9 Mr ;.:. Ganesh, =hief Financial Officer, +otel :eela!enture :td, told Business 2ine. B similar !ie as echoed by a senior official of the Ta* Group of +otels. 8B good amount of our re!enue comes from payments made in the dollar. There has certainly been an impact as a result of this /rupee appreciation0,9 he said on condition of anonymity. Mr =.>. 1al*ee, =hairman and Managing )irector, 4O+:, also confirmed the impact.
#igher room inventory

1esides rupee appreciation, the increase in supply of room in!entory has also led to a drop in the occupancy le!el in star hotels across .ndia. 8The increase in room in!entory supply has put pressure on the occupancy le!els across all the ma*or cities,9 Mr 4a*esh Mishra, <resident, Federation of +otel and 4estaurant Bssociations of .ndia, said.Bccording to Mr Taposh =hakraborty, <resident, =hancery +otels, 8There has been about 1, per cent erosion in dollar tariff. 1esides, hotels in 1angalore ha!e itnessed a 1$-13 per cent drop in occupancy le!el on account of higher room in!entory supply. The situation is more or less similar in other ma*or cities.9 Blmost all star hotels in the country until no follo a dual tariff structure here the tariff !aries depending on .ndian or foreign nationals. +o e!er, as a result of the rupee appreciation, hich has narro ed do n the differences in tariffs, hoteliers are planning to adopt a single tariff structure. The rupee has appreciated by about '.' per cent from 4s &".1, on March ",, to 4s &,.$3 on Bugust ".

Rupee c!oses "!at on do!!ar buying

Mumbai, Bug. # The rupee ended flat at &,.&1-&$ against the dollar on Tuesday against the pre!ious close of &,.&1. The rupee opened at &,."3-"', hich as also the intra-day high and closed at &,.&1-&$. .t opened strong due to the reco!ery in domestic stock market. .t, ho e!er, could not hold on its strength for long due to some dollar buying by foreign banks. .n for ards, the six-month premia closed at 1.'" per cent /1.#3 per cent0, hile the 1$-month closed at 1.#" per cent /1.(, per c ent0.

2+ax sops wi!! he!p o""set Re i pact

%asscom in talks with ,o"t for help3 4arnik Our Bureau 1angalore Bug. ' 7tung by the rupee appreciation and age inflation, the .TF7-1<O industry made a strong pitch for the continuation of tax concessions under the 7oft are Technology <arks of .ndia /7T<.0 scheme beyond $,,9. 7peaking at the inaugural of annual .TF7-1<O 7trategy 7ummit on Monday, the @asscom <resident, Mr >iran >arnik, said extension of tax incenti!es ould help the industry to partially offset losses being caused by the appreciating rupee. The rupee has appreciated by (-9 per cent four months. ithin three to

86e ha!e li!ed through it, but this is not good for the gro th of the industry,9 Mr >arnik said, adding that @asscom has been engaged in a dialogue ith the Go!ernment for some kind of inter!ention. The rupee appreciation in the long term ill not only impact the bottom lines, but also erode the country5s competiti!eness. 8The competiti!eness of our industry ill be impacted compared to other countries, hich are holding their currency steady against the ?7 dollar,9 he added. 1esides, the industry faced challenges such as 8Mo!ing up the !alue chain by tapping ne er areas and broadening that base in addition to finding, recruiting and retaining the orkforce in the industry,9 he said.
(upport -or !po sector

7tressing upon the fact that .TF7-1<O industry as in early stages and reCuired more support compared to the .T industry, the =hairperson of @asscom .TF7-1<O Forum, Mr <ramod 1hasin, predicted that 1<O ould emerge as the largest pri!ate sector employer in .ndia o!er the next fe years. 8?nfortunately, the 1<O sector gets s allo ed under the .T industry, but it should not. The 1<O sector is *ust 3-# years old hereas the .T industry has been here for the last $3 years. There ill be more employment opportunities created by the 1<O sector, hich needs to be nurtured,9 he added. Further contending that 7FKs ere no replacement for the 7T<. scheme, Mr 1hasin said more than 7FKs, the 1<O industry needs the reachability.

1<Os in Tier-. and Tier-.. cities ha!e changed the entire face of the city as ell as employment opportunities and hence this sector needed to be encouraged, he added.

Rupee sheds > paise

Mumbai, Bug. ' The rupee eakened by about se!en paise against the greenback on Monday due to the bearish domestic stock market. The home currency closed at &,.&1, do n from the pre!ious close of &,."&. .t opened at &,.&'%&# and sa an intra-day lo of &,.3$ due to the fall in stock market before ending the day at &,.&1. 8There as, ho e!er, some good dollar supplies to ards the latter part of the day hich strengthened the rupee to a close of &,.&1,9 said Mr ; 4a*agopal, +ead-Forex Treasury, >otak 1ank. Market participants expect the rupee to trade in the &,.$3&,.3, range. .n for ards, the six-month premia closed at 1.#3 per cent /1.#& per cent0 hile the 1$-month closed at 1.(, per cent /1.#9 per cent0. S

Rupee s(ueeEe pro pts texti!e cos to change tack

#hanthi $enkataraman 1: 4esearch 1ureau The Bpril-Iune Cuarter pro!ed to be dismal for textile companies, as an appreciating rupee took its toll on operating margins of ma*or exporters. For those companies that ere on an expansion spree, capital costs only orsened profit declines. <rofit gro th lagged sales for most companies, hile absolute profits actually shrank for a fe . Operating margins ha!e taken a hit, plunging by $-& percentage points for many companies. This is despite export sops /effecti!e Bpril0 to the sector that had been granted to alle!iate the impact of rupee appreciation. 7pinning companies bore the brunt of margin pressures, being at the commodity end of the business. )eclining realisations offered them little cushion to absorb the higher depreciation and interest costs, resulting from the ongoing expansion a!e in the sector. .n fact, higher interest and depreciation costs appear to ha!e been the bigger culprits behind the poor performance of se!eral textile companies. For companies such as Blok

.ndustries, hich operates in the fabric and home textiles segment, interest and depreciation costs ere as high as 13 per cent as a percentage of sales, up from 11.' per cent last year.
(trong revenue growth

+o e!er, a sil!er lining in this Cuarter5s performance has been the fairly strong re!enue gro th recorded by leading players in the sector. This suggests that the rupee factor did not materially affect demand for exporters, though it blunted margins. =ompanies such as 6elspun .ndia, 1ombay 4ayon Fashions and the recently listed .ndus Fila, hich ha!e been on a massi!e expansion spree recently, ha!e been able to ramp up !olumes on the back of strong demand. :arger exporters such as Gokaldas Fxports and 6elspun .ndia are trying to lessen the impact of the appreciating currency by negotiating for better prices ith their customers. Bccording to Mr Tapas Mitra, =FO, 6elspun .ndia, the rupee appreciation ill not significantly impact demand for .ndian merchandise, as .ndia has become among the preferred sourcing nations for global textile importers. 6hile pricing pressures exist in the export market, he belie!es that it is possible to con!ince importers to pay a higher price for Cuality. 6elspun .ndia has been among the better performers among textile companies on the back of a stronger contribution from its ne sheeting facility. Others are beginning to turn to the domestic market for better realisations. Gokaldas Fxports is looking at selling its garments to domestic retailers to reduce its dependence on the export market. 4ecently listed Mudra :ifestyle is also focusing on this market. +o e!er, Mr Mitra remains hopeful of the export scenario, despite the appreciating rupee. Bccording to him, the situation only calls for a relook at one5s o n operating costs.

8?ltimately, if the rupee has appreciated, e should be able to extract more from it,9 says Mr Mitra. 6hile companies may not be importing their ra material directly, they should be able to get their !endors / ho, in turn, import their inputs0 to pass on the sa!ings from the appreciating rupee to them, he adds

Rupee

ay keep go!d prices under check

5!R! #ubramani =hennai, Bug. 3 )omestic gold prices could be kept under check this month as the rupee is expected to remain strong against the dollar. 8The strength of the rupee remains a key factor hich has depressed the prices in the domestic markets,9 said >otak =ommodities 7er!ices :td in its outlook for gold this month. .n the global market, fundamental factors remain supporti!e of gold prices and increased security threat ould continue to pro!ide support. The larger fear for prices ould come from the re!ersal in Furo%2 pair as Furope is unlikely to let its exports remain under pressure due to rising Furo.
&( %conomy

Technically, prices are expected to face resistance at 2'(, and 2'9" an ounce le!els. The prices are expected to face support at 2'&$ le!els. .f prices break the le!el of 2'"3, there can be a do nside price mo!ement till 2'$', it said. .n!estment demand in gold has picked up to some extent after falling for eeks, >otak said. The t o largest gold FTFs ha!e sho n a stronger trend as o!erall prices ha!e reco!ered. The streetT4B=>s gold shares, ith nearly (, per cent of total gold reser!es, ha!e seen their total reser!es rising at a moderate pace. The addition of a number of gold FTFs in .ndia has also added marginally to the demand side and this ould be reflected in the annual demand, it said.

Gold prices could fall if the ?7 economy sho s more resilience. +o e!er, the long term fundamentals still support the prices.

Forex reserves up $3.3. b

Our Bureau Mumbai, Bug. " The country5s forex reser!es rose 2".",# billion to 2$$3."3, billion in the eek ended Iuly $# on account of inter!ention by the 4eser!e 1ank of .ndia. 8The 41. as seen buying dollars !igorously to cap the appreciation of rupee beyond &,."3 le!els contributing to the huge reser!es,9 said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. The home currency thereby eakened by about 13 paise in the eek under consideration to close at &,.3,%31 on Iuly $#. The reser!es had increased by 2".(,# billion to 2$$$.,&" billion for the eek ended Iuly $,, said the 41.5s 6eekly 7tatistical 7upplement. The foreign currency assets rose 2".",' billion to 2$1(.,9' billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. 7)4s increased by 211 million to 21$ million hile gold reser!es remained the same at 2'.#(# billion. The country5s reser!e position in the .MF fell by 21, million to 2&33 million. The rupee sa a nine-year high of &,.$9 on Iuly $". Market participants anticipate that the central bank5s absence from the market ould push the rupee further up to appreciate to belo &, le!els.

Rupee gains 4 paise

Mumbai, Bug. $ The rupee strengthened by about four paise on Thursday on modest gain in domestic stock markets. 8There ha!e not been any ma*or F.. pull out and they continue to be bullish,9 said a dealer ith a pri!ate bank. The home currency opened at &,.&1%&" and sa an intra-day lo of &,.&#%&( and a high of &,."9 before ending the day at &,.&1%&$, up from the pre!ious close of &,.&3%&'. Market participants expect the rupee to appreciate further. .n for ards, the sixmonth premia closed at 1.93 per cent /1.(9 per cent0 and the 1$-month at 1.91 per cent /1.(& per cent0. A

Rising rupee i pacting bench siEe at %+ cos

Recruiters see slowdown in lateral hiring ;2arge companies ha"e not been acti"ely hiring for the bench for the last few weeks! (ompanies will bank more on fresher hiring in the ne t few months)! 'n+ali Prayag 1angalore, Bug $ Bre benches getting coldO .T ma*ors in the country are reported to be trimming do n their bench strength to battle the rising rupee. Bccording to .T recruiters, bench strength in large ma*ors ha!e reduced by $,-$3 per cent. Mr >ris :akshmikanth,

Managing )irector, +eadhunters .ndia, a 1angalore-based recruitment firm, says there has been a slo do n since May this year and DIust in time hiring is the only ay they can battle the strengthening rupee and the rising age costs. 5 =ompanies are also going slo on lateral hiring, he says.

Bccording to Mr Gautam 7inha, =FO, T;B .nfotech, an .T recruitment firm, large companies ha!e not been Dacti!ely hiring,5 for the bench for the last fe eeks. =ompanies ill bank more on fresher hiring in the next fe months, he says.
"upee impact

6hile +4 managers agree that the siHe of the bench is directly proportional to business pro*ection, it is yet to be impacted by the rising rupee, they say. Mr >.<.M. )as, +ead - +4, BHtecsoft :td, says 8.f the rupee continues to strengthen, then flo of business could slo do n and this ould in turn impact the bench.9 +e, ho e!er, argues that in the short term, most companies /including BHtec0 are able to get higher rates from customers to offset the current rupee appreciation. 81ut, e!eryone ill be cautious not to o!erstaff the bench in case there is continued decline of the dollar,9 he explains. BHtec has a bench strength of $3-", per cent and has made ad*ustments to the bench in T1 but Ddoes not see any reduction in the coming months.5 Mr <uneet Ietli, ;ice-<resident and +ead, <eople Function, MindTree =onsulting, says that they D ill continue to hire as per plans but the sharp rupee appreciation has put additional pressure on us to run a tight ship in terms of operations.5

MindTree is running at a utilisation of about '3 per cent currently has Dsufficient bench strength to support ne business opportunities.5 8.t5s not about orking six days a eek or orking hard, but about orking smart,9 says Mr Flango 4., +ead, +uman 4esources, Mphasi7 F)7. 8=ompanies that ere callous ill no bring in efficiency and start seeing ho5s sitting here.5 This ill also temper some of the irrational exuberance in age increases, he says.

Re "a!!s tracking stock

Mumbai, Bug. 1

arkets

The rupee eakened by eight paise on 6ednesday after a strong rally on Tuesday tracking the fall in domestic stock market by '13 points. The home currency closed at &,.&3%&', do n from the pre!ious close of &,."(. .t opened at &,.&3%&' and after seeing an intra-day lo of &,.33, closed at &,.&3%&', unchanged from its opening le!els. Forex dealers feel that the mo!ement of rupee ill depend to a large extent on the stock market. 8.f the stock market sees some correcti on tomorro , then the rupee may eaken to &,.', le!els but if it does not, then there are chances of rupee appreciating to &,."3,9 said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at 1.(9 per cent /1.'& per cent0 hile the 1$-month closed at 1.(& per cent /1.'# per cent0. A

Rupee gains) 2bound to strengthen "urther

Mr $haskar %hose

Our Bureau Mumbai, Iuly "1 Triggered by a hike in the =ash 4eser!e 4atio by 3, basis points, the rupee strengthened by se!enteen paise against the greenback on Tuesday. Market participants feel that ith the kind of inflo s the country is itnessing, the rupee is bound to strengthen further. 8The rupee also rallied because of the good performance in the domestic stock market today,9 said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. The home currency opened at &,.&'%&# le!el and closed at &,."(, up from the pre!ious close of &,.33.
'oney supply

Forex dealers feel that the money supply gro th still continues at le!els ell abo!e the central bank5s comfort Hone, possibly seeding fresh inflationary pressures for the future.

Ms Naina &al 'id(ai

8The excessi!e money supply gro th is, of course, primarily on account of the rush of o!erseas in!estment flo s that continue to pour into .ndian eCuity markets and through the F=1 and F). routes,9 said Ms @aina :al >id ai, Group General Manager and =ountry +ead, +71= .ndia. Talking about rupee appreciation, Mr 4a!i <ai, +ead-FJ and )eri!ati!es, Treasury, +)F= 1ank, said, 8O!er a medium term, rupee ill depreciate at a slo and steady pace due to co!ering of short positions, but e!entually it ill strengthen, though it ould not go belo &, le!els.9 Mr Mohan 7henoi, Group +ead-Treasury, >otak Mahindra 1ank, saidL 8The 41. allo ed the rupee to appreciate sharply not too long back but more recent trends indicate a resol!e to pre!ent any further appreciation.9 +e felt that the 41.5s fight against foreign currency inflo s is likely to continue and pose a challenge so far as liCuidity management is concerned. 8To this end, the 41. has resol!ed to acti!ely manage liCuidity through use of =44, OMO, :BF and M77,9 he said. 86ith the cap of 4s ",,,, crore on re!erse repo being remo!ed and ith the hike in =44, the rupee is bound to strengthen to &,,9 said Mr 1haskar Ghose, Managing )irector and =FO, .ndus.nd 1ank. +e, ho e!er, felt that if the 41. acts aggressi!ely to halt rupee appreciation, easy liCuidity ould continue and nullify the impact. .n for ards, the six-month premia closed at 1.'& per cent /1.,& per cent0 hile the 1$-month closed at 1.'# per cent /1.$' per cent0.

F%3: upset over credit po!icy

Our Bureau

@e )elhi, Iuly "1 The Federation of .ndian Fxport Organisation has expressed disappointment o!er the first Cuarter re!ie of monetary policy. .n a statement, the F.FO <resident, Mr Ganesh >umar Gupta, said that he expected the $ per cent interest sub!ention on export credit to be extended to all export sectors across the board and irrespecti!e of the in!estment made in plant and machinery. To offset the ad!erse impact of rupee appreciation against ?7 dollar, the Go!ernment had recently announced $ per cent interest sub!ention on nine export sectors including leather and garments.

Rupee sheds 5 paise

3ur 5ureau Mumbai, Iuly ", The rupee eakened by fi!e paise against the dollar on Monday due to dollar demand from oil companies to meet their month-end demands. The home currency opened at &,.3' and sa an intra-day high of &,.&& due to some dollar selling, before ending the day at &,.33, do n from the pre!ious close of &,.3,%31. .n for ards, the six-month premia closed at 1.,& per cent /1.$# per cent0 hile the 1$month closed at 1.$' per cent /1.&" per cent0.

Forex reserves up by $3.. b

Our Bureau Mumbai, Iuly $# The country5s forex kitty s elled by 2".,(# billion to 2$$$.,&" billion for the eek ended Iuly $, on continuous 41. inter!ention in the forex market and re!aluation of non-dollar currencies, especially the euro against dollar.

The reser!es had gone up by 2&.1$ billion to 2$1(.93' billion for the eek ended Iuly 1". Foreign currency assets rose 2".,(# billion to 2$1&.#9 billion, said the 41.5s 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. 8The 41. has been inter!ening in the forex market at &,."3 and &,.$# le!els, trying to put a cap on rupee appreciation,9 said a dealer ith a pri!ate bank. Gold reser!es and 7)4s remained the same at 2'.#(# billion and 21 million, respecti!ely. The country5s reser!e position in the .MF fell by 2& million to 2&'3 million.

Rupee sheds .5 paise against do!!ar

Mumbai, Iuly $# The rupee depreciated against the dollar tracking the eakness of other ma*or currencies /against the dollar0 and the domestic stock market. The domestic currency opened at &,.3, and as range bound bet een &,.&3 and &,.3$. .t finally closed the day at &,.3,%31, against the pre!ious close at &,."3. )ealers said the rupee opened eak, as globally, the dollar had strengthened against all the ma*or currencies. 8The rupee5s eakness as compounded by the fall in th e stock markets. 1esides, traders usually end up booking profits on Friday,9 said a dealer at a pri!ate bank. .n for ards, the six-month premium closed at 1.$# per cent /,.9'0 and the 1$-month ended at 1.&" per cent /1."0. A

Rupee surge needs to be checked$ F%,,%

Our Bureau +yderabad, Iuly $# The <resident of the Federation of .ndian =hambers of =ommerce and .ndustry /F.==.0, Mr +abil >horaki ala, today said 8if the rupee appreciation is not checked in the next three to six months and this continues for a year or more, it ill ha!e an ad!erse impact on industrial gro th and G)<.9 +e said the problem is fundamentally on the supply side. The gro th in food related prices is fuelling inflation hich has to be managed in the long run by increasing the o!erall output. 7peaking on the sidelines of F.==. national executi!e meeting here today he hinted that the 41. had managed it efficiently earlier and they no expect it to tackle the issue in a similar manner. The Fxecuti!e =ouncil of F.==., here o!er #3 chief executi!e officers of companies from about "( sectors including technology and manufacturing, are meeting here. On reser!ation in the pri!ate sector, Mr >horaki ala said society had already been di!ided on the lines of reser!ations and asked hy should it be allo ed in the pri!ate sector too. 8.nstead, e need to address this by stepping up ork on corporate social responsibility and increasing pri!ate participation in education.9 The F.==. Fxecuti!e =ouncil hinted it as keen to take part in !arious de!elopment programmes in the country as a part of corporate social responsibility. <ro*ects of )r 4eddy5s :ab and 7atyam =omputer 7er!ices ha!e been taken as ones that could be replicated in other parts of the country.

The 7tate =hief Minister, )r R.7. 4a*asekhara 4eddy5s, suggestion about setting up rural public schools through public pri!ate participation /<<<0 recei!ed encouraging response from the F.==. Fxecuti!e =ouncil, hich agreed to partner in setting up fi!e of them initially as a pilot pro*ect. The F.==. ;ice-<resident, Mr @. 7rini!asan, commended the strides made by Bndhra <radesh in terms of attracting ne in!estments. B big chunk of the gro th in the 7tate as dri!en by some of the pro*ects of the Go!ernment. 4eferring to the increasing consumption of cement in the 7tate, Mr 7rini!asan said that this reflected the buoyancy in the economy. .n the last three years, no 7tate in the country itnessed the kind of gro th seen in Bndhra <radesh. The cement consumption in the 7tate has tripled in the last three years. Bs against consumption of about 3 lakh tonnes per month, this has shot up to 1' lakh tonnes a month mainly due Go!ernment pro*ects including housing for the poor. Bndhra <radesh is the only 7tate in the country that has initiated ork on housing for the poor in such a large scale and this in turn has kicked up significant cement offtake, he said.

Rupee ends "!at on do!!ar buying

Mumbai, Iuly $' The rupee ended flat at &,."3 on Thursday. The home currency opened at &,."3 and sa an intra-day high of &,.$( due to some selling but subseCuently ent up to close

at &,."3. 8The nationalised banks ere buying dollars and that eakened rupee,9 said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at ,.9' per cent /1.1& per cent0 and the 1$-month at 1." per cent /1.&1 per cent0.

Rupee sheds < paise

Mumbai, Iuly $3 The rupee eakened by eight paise against the greenback on 6ednesday due to dollar buying by some nationalised banks, said a dealer. The home currency eased from its nine-year high to close at &,."3, do n from the pre!ious close of &,.$#. The rupee opened at &,.$9%", and sa an intra-day high of &,.$# before ending the day at &,."3. 8B drop in 7ensex dro!e people5s sentiments and some of the buying as related to this,9 said Mr ;. 4a*agopal, +eadForex Tr easury, >otak 1ank. .n for ards, the six-month premia closed at 1.1& per cent /,.9' per cent0 hile the 1$month ended at 1.&, per cent /1.$9 per cent0.

Rupee$ +rade weak' capita! strong

#! Balakrishnan .t5s not a conundrum but a Cuandary. 7hould the rupee be allo ed to appreciate at this rateO .t has mo!ed up from a lo of 4s &9 to around 4s &, in *ust a couple of years. The dollar has fallen 1( per cent. .s it a good or bad thingO

The stock arguments for the t o sides are aplenty. The antistrength camp argues that, at these le!els, exports ill be crippled. Fe exporters can take a hit of the order of $, per cent in their prices ithout serious damage to their profits or profits turning into losses. This is likely to be true of the !ast ma*ority of Dcommodity5 /in the sense of unbranded0 products or subcontract type exports, hich are no more than labour cost arbitrage operations. Gi!en its high !alue addition, soft are is possibly relati!ely cushioned from rupee appreciation.
"elying on theory

The Dlet the rupee find its o n le!el5 group relies on high theory. Foreign in!estment is a gi!en, essential to accelerate gro th. .ndia, ith its booming economy, is /fortunately0 one of the most attracti!e in!estment destinations in the orld. .f offshore capital flo s dri!e up the currency, so be it. )o not inter!ene to stop currency appreciation. Rou ill only flood the market ith rupees. 1esides, mopping up surplus liCuidity has fiscal costs, apart from the lo yields on the /un anted0 additions to forex reser!es. B significant beneficial side effect, according to these orthies, is lo er inflation, as the lo er dollar translates to cheaper imports. .s it a case of putting the cart before the horseO 7hould trade or capital dri!e the exchange rateO .ndia is running a current account deficit /although the last Cuarter sa a small surplus0 and, in the natural order of things, should see a eaker currency. 1ut such is the magnitude and po er of portfolio flo s that they simply o!er helm the trade effect.

That our reser!es are the counterpart of in!estments and borro ings is confirmed by the latest 41. data on external assets and liabilities, hich sho that our forex balance sheet is net orth negati!e, i.e., liabilities exceed assets. Our currency5s strength is therefore, artificial. The absurdity becomes all the more e!ident in contrast to =hina5s !ast trade surplus /2$'X billion last month alone0, forex reser!es of 21.1" trillion, lo er interest rates, lo er inflation and /yes, hard to belie!e but true0 lo er currency S the dollar is do n *ust # per cent against the yuan in the last t o years. 7o hom are e foolingO Foreign capital is coming into infrastructure S building, *ob-creating and export-oriented pro*ects, but that is far surpassed by the flo s into stocks, bonds and real estate /and disguised real estate !entures like 7FKs0. 6e are fighting a losing exchange rate battle because of in!estment flo s that do not add sine s or !alue to the economy.

Rupee ends up against do!!ar

Mumbai, Iuly $& The rupee touched a fresh nine-year intra-day high of &,.$, backed by strong F.. inflo s into the domestic stock market. The rupee closed at &,.$# against the greenback on

Tuesday, about t o paise up from the pre!ious close of &,.$9. Traders saidL 8Bbsence of dollar demand from oil refiners and aggressi!e inter!ention by the 41. has helped the rupee to surge ne heights.9 The home currency opened at &,.$3%$', and sa an intra-day high of &,.$, before ending the day at &,.$#. Mr <aresh @ayar, =hief )ealer, )e!elopment =redit 1ank, saidL 8?nless there is some change in policy as far as foreign currency inflo s are concerned, the rupee ould continue to sho substantial strength.9 .n for ards, the six-month premia closed at ,.9' per cent /,.'3 per cent0 hile the 1$-month closed at 1.$9 per cent /1.1" per cent0. A

F!ux in "orex accounting nor s

D! 5urali =hennai, Iuly $$ .t is not only the rupee that has been in a flux these days. The accounting guidelines on the sub*ect too are apparently in a state of indefiniteness. B recent announcement by the .nstitute of =hartered Bccountants of .ndia /.=B.0 has deferred to Bpril 1, $,,(, the applicability of its guidance on DBccounting for exchange differences arising on a for ard exchange contract entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction5. .ssued in Ianuary $,,', the guidance had been earlier announced to be applicable to accounting periods commencing on or after Bpril 1, $,,#. The current postponement, decided at the .=B.5s council meeting on Iuly 1(, is due to the non-finalisation of the Bccounting 7tandard on DFinancial .nstrumentsL 4ecognition and Measurement5 no under formulation. Bnother recent announcement on .nstitute5s homepage, is about ho .icai.org, the the accounting

treatment of exchange differences contained in B7 11 is applicable, and not the reCuirements of 7chedule ;. to the =ompanies Bct, 193', in respect of accounting periods commencing on or after )ecember #, $,,'.

%ndias ho!dings o" @# ;/secs "a!! in May

Our Bureau 1angalore, Iuly $, .ndia5s holdings of ?7 treasury securities dropped 2&.# billion in May this year, sharpest fall on a month-on-month basis, since the country began in!esting surplus reser!es in foreign go!ernment securities. Bccording to data released by the ?7 Treasury )epartment, holdings of ?7 treasuries eCualled 213." billion in May do n from Bpril5s figure of 2$, billion. Ma*or financial institutions that are in!estors in ?7 go!ernment securities, besides the 4eser!e 1ank of .ndia, include General .nsurance =orporation of .ndia, hich ha!e global reinsurance operations, foreign branches%subsidiaries of domestic banks and domestic mutual funds, are permitted to in!est in foreign go!ernment securities. The 41.5s in!estments in foreign go!ernment securities are mostly at the short-end of the yield cur!e, unlike Bsian central banks that in!est largely in middle and long-term securities for higher yields. The central bank5s preference is more for liCuidity of the portfolio and insulation from excessi!e !olatility.
Port-olio reshu--le

1ankers said that the drop in May as largely on account of a rebalancing of portfolios by domestic institutional in!estors. The resultant impact as a sale of dollar denominated securities by in!estors that as also partly influenced by expectations of large-scale redemptions by the

=entral 1ank of =hina. =hina5s central bank liCuidated about 2'.' billion during the period. They said during the period, .ndian in!estors including the 41., reshuffled portfolios a ay from dollar denominated securities into cash balances ith multilateral institutions, other central banks /1ank of Fngland, Furopean =entral 1ank and 1ank of Iapan0 and foreign commercial banks and in!estments in Furopean go!ernment securities. The shifts ere e!ident from the falling holdings of ?7 treasuries despite the rise in external reser!es by 2&.1," billion in May o!er Bpril to 2$,1 billion.

Rupee gains 5 paise against do!!ar

Mumbai, Iuly 19 The rupee strengthened by about fi!e paise against the greenback on Thursday backed by strong dollar supplies into the domestic market. The home currency closed at &,."3%"', up from the pre!ious close of &,.&,%&1. .t opened at &,."(%&, and sa a high of &,."3 but immediately slipped to &,.&$ le!els due to dollar buying by a fe nationalised banks, before ending the day at &,."3%"'. Market participants expect the rupee to strengthen to &,."" le!els. .n for ards, the six-mon th premia closed at 1.'& per cent /1.1( per cent0 hile the 1$-month premia closed at 1.## per cent /1.3# per cent0. A

Rupee weakens against do!!ar

Mumbai, Iuly 1( The rupee eakened by about four paise against the greenback on 6ednesday due to concerns about a loss of risk appetite among global in!estors prompting traders to pare their holdings. The home currency opened at &,."&%"' and sa a lo of &,.&3 before closing at &,.&,%&1, do n from the pre!ious close of &,."'%"#. 8There ere not much of capital inflo s and dollar supplies in the market today,9 said a dealer ith a pri!ate bank. Market participants expect the ru pee to strengthen this eek. .n for ards, the sixmonth premia closed at 1.1( per cent /1.&1 per cent0 hile the 1$-month closed at 1.3# per cent /1.'3 per cent0. A

Aeak rupee not the cure/a!!

#. RA8A0HANDRAN Policy-makers want a weaker rupee so that India)s e port competiti"eness will rise! They do not think that it is normal for the rupee to appreciate as a result of greater foreign e change inflows into the economy! This absurdity will continue until policy-makers turn their attention to raising producti"ity of go"ernance and the competiti"eness of the aggregate supply chain, says ,! R'5'(H'%DR'%!

.t is a pity that many of .ndia5s exporters ha!e chosen to rely on a eak rupee to sustain their competiti!eness. They are no deeply disturbed. Their future Drupee profitability5 is in *eopardy. They are horrified that the 4eser!e 1ank of .ndia /41.0 has allo ed the rupee to strengthen. They are ner!ous that the 41. may ha!e gi!en up its policy of D eakening through inter!ention5 in the foreign exchange markets. .t is orse that some policy-makers really belie!e that a strong rupee is a threat to .ndia5s competiti!eness. They ha!e come ith a set of sops aimed at compensating exporters for the losses stemming from the strong rupee. They do not think that it is normal for the rupee to appreciate as a result of greater foreign exchange inflo s into the economy. They ha!e opted to ignore the cause of the rising inflo s. There is some nai!etY in this. 6hat they ant is a eaker rupee so that .ndia5s export competiti!eness ill rise. They ant more exports to lead to greater foreign exchange inflo s. They ant these inflo s to rise so that .ndia can fund its imports. 1ut the rupee ill ine!itably strengthen if inflo s of foreign exchange exceed outflo s. They ill then argue that the strong rupee is a threat to .ndia5s competiti!eness. There ill be more sops. There ill ha!e to be.

This absurdity ill continue until policy-makers turn their attention to raising producti!ity of go!ernance and the competiti!eness of the aggregate supply chain. 4aising the producti!ity of go!ernance A and not merely of corporate go!ernance A is a prereCuisite for raising the producti!ity of the aggregate supply function and the markets for inputs and output. Farnest effort is reCuired in this direction. 7ops postpone such earnestness.
Productivity and competitiveness

7ops are seducti!e and magical. They ha!e numerous supporters. The reasons are ob!ious and straightfor ard. They turn unprofitable exporters profitable. They take a ay the pressure of ha!ing to be the best in the orld. Mediocre firms that are not so competiti!e can turn in big profits because of sops. They can sho off their profits ithout ha!ing to ork their muscles. @o body mocks at re ards that come ithout effort. The reasons once again are straightfor ard. <rofitability and competiti!eness are not the same. =ompetiti!eness stems from producti!ity. @ational competiti!eness and economic elfare are determined primarily by producti!ity in both the traded and non-traded sectors. .t is important to emphasise that go!ernance is a non-traded sector. <roducti!ity is the amount of output produced relati!e to the amount of resources /human effort, and physical and technological assets0 that go into the production. .t is Cuantitati!e. .t does not depend on the monetary !alue of the output relati!e to the inputs. <roducti!ity and competiti!eness impro!e hen the Cuantity of output increases relati!e to the Cuantity of input. They are the eCui!alents of the strike rates of batsmen and bo lers. 1y contrast, profitability is the !alue of output relati!e to the cost of inputs used. <rofitability impro!es hen the cost of inputs used is reduced relati!e to the !alue of output. 7ops

are aimed at reducing the cost of inputs ithout reducing the Cuantity of inputs. .t is no surprise that superficial commentators lo!e sops. <rofitability also impro!es hen the !alue of output is raised. The eak rupee is aimed at raising the rupee !alue of output ithout raising the Cuantity. .t is no surprise once again that the merits of the eak rupee are presented most asserti!ely by those ho ha!e no clue about making the .ndian economy more producti!e and more competiti!e. 6orse, they regard the eak rupee as a cure-all for the shortcomings in aggregate competiti!eness.
China2s earnestness

6hile presenting the case for the eak rupee, influential thought leaders often cite =hina5s example. =hina has a record of keeping the yuan eak against the ?7 dollar to boost its ad!antages in global trade. .t has accomplished this by pegging A more or less A the yuan to the dollar. 1ut there is little proof that it is dodging the issues pertinent to its aggregate competiti!eness. There is significant proof that =hina has been earnest about its competiti!eness. .ts output per employee has risen by o!er (.3 per cent annually since 199" against only &.' per cent for .ndia in the same period. The Total Factor <roducti!ity /TF<0 has risen at an annual rate of o!er & per cent in =hina, and by merely $." per cent in .ndia. @o one seems to be too concerned about the idth of these gaps.
#ow a!out )ermany?

4aising competiti!eness reCuires that both TF< and output per employee should be raised. 1ut raising profitability reCuires neither. .t is not so demanding. 7ops and the eak rupee are the laHy, easy solutions. <rofits can be sho n off ithout orking the muscles. B profitable firm need not be competiti!eP there is no compulsion for .ndia5s profitable

exporters to pursue competiti!eness. .t ould be enough for them to lobby for sops or for a eaker rupee or both. <rofitable exporters propped by these ill not make the .ndian economy competiti!e. 1y contrast, competiti!e firms ill be profitable. =ompetiti!e economies such as Germany5s ill ha!e numerous exporters that are profitable e!en hen the euro rises in !alue against the ?7 dollar. 7imilarly, most Iapanese exporters ill stay profitable e!en if the yen ere to rise from 1$" per dollar to 1,3. Bnd, more than #, per cent of Iapan5s exporters ill stay out of trouble if it appreciated further to 9, yen per dollar. Germany5s share of global trade is high despite the rising !alue of the euro. .ts exports *umped by 9 per cent e!en as the euro appreciated by ( per cent. German exports no constitute nearly 1, per cent of international trade. .n particular, Germany5s share of exports to the ne lyindustrialised economies is about "1 per cent. That is hopping. .t is also ironical. Fconomists in the ne ly industrialised economies ha!e argued for eakening their currencies e!en as German exports gre despite an appreciating euro. Their case for eakening their currencies appears eak indeed. The main reason for the greater and rising share of Germany5s exports is its competiti!eness. This competiti!e ad!antage has resulted from the tough restructuring measures undertaken by Germany5s exporters. Moreo!er, they ha!e orked hard to o!ercome the impact of a hike in the rate of !alue-added tax.
'issing the point+ -orever

.ndia5s policymakers should pay careful attention to the difference bet een the profitability and competiti!eness of exporters. 4ising competiti!eness is the result of rising

producti!ity. 7o, it is frustrating that sops ackno ledge .ndia5s shortcomings in producti!ity and competiti!eness but turn a blind eye to the causes of sagging producti!ity and lagging competiti!eness. 1ut hat is of gra!er concern is that .ndia5s influential thought leaders think that a eak rupee creates more inners and a strong rupee creates numerous losers. There are four problems they dodge. First, they do not explain hat competiti!eness is. 7econd, they do not explain hy .ndia5s exporters struggle. Third, they do not explain that exporters flourish at the expense of domestic manufacturers that ser!e domestic customers. Fourth, they seldom explain ho domestic manufacturers too lo!e a eak rupee because it stifles competition from imports. 6hen the rupee is eak, imported goods are costly. This permits domestic producers to raise their prices up to that point here they are a touch lo er than the landed price of imports. 7o, the Destablishment5 lo!es a eak rupee because it is the beneficiary. The eak rupee is like a good drought in .ndia.

Rising rupee$ 3xporters !ook "or "urther re!ie"

,! #rini"asan @e )elhi, Iuly 1# Bfter the announcement of some relief to exporters reeling under the appreciation of the rupee "is-."is ?7 dollar on Iuly 1$, the exporting community is hoping more mitigating measures against the blo s of exchangerate induced shocks to its business calculations. Fxporters told Business 2ine here that though the measures announced by the Finance Ministry on Iuly 1$ such as interest rate relief, ad*ustment of duty dra back rates and s ifter reimbursement of past export claims ere elcome,

t hey meet only half- ay of hat the )epartment of =ommerce-commissioned report of the =ommittee5s recommendations. The =ommittee to assess the impact of rupee appreciation on exports headed by the Bdditional 7ecretary in the =ommerce Ministry, Mr 4. Gopalan, incidentally submitted its report on Iuly 1$, $,,# hen the Finance Ministry un!eiled the package, pro!oking some exporters to say that the package as pre-arranged ithout duly factoring in the recommendations of the =ommerce )epartment. The =ommittee of the =ommerce Ministry, mandated to ensure that exporters do not lose their competiti!eness o ing to the relentless onslaught of an appreciating rupee, ackno ledged that .ndian exports ere likely to lose their market share to their nearest competitors hose currencies ha!e appreciated at a lo er clip than the .ndian rupee or ha!e e!en depreciated ith respect to the ma*or con!ertible currencies. The exporters say that hile the =ommittee sought enhancement of the )uty Fntitlement <assbook and duty dra back rates by 3 per cent for the nine sectors, !iH., textiles, readymade garments, , leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys, the actual announced package ranged from $.3 to " per cent. .t also suggested that rate of interest on pre and post shipment credit to all exports be cut by around & per cent. .t said that though this extent of reduction recommended might not be fully consistent ith the 6TO rules, it ould at least pro!ide immediate benefit to the exporting community by reducing their cost of final products for export. Bdditional important recommendations of the =ommittee include mandating the scheduled commercial banks to meet the 13 per cent export credit disbursement target and making Fxchange Farners5 Foreign =urrency Bccounts

interest-bearing and interest rate needs to be built-in in line ith the interest disbursed on foreign currency non-resident account. .t also sought notification of the ser!ice tax exemption%refunds for exports announced in the Foreign Trade <olicy $,,# ithout further delay. The <resident, F.FO, Mr Ganesh >umar Gupta, said that the relief of duty dra back announced on Iuly 1$ as a seCuel to the report submitted by )r 7aumitra =haudhuri, Member, <rime Minister5s Fconomic Bd!isory =ouncil, after he made some spot study about the !arious taxes such as furnace oil, diesel consumed by exporting units hich remained unrebated hich ere duly factored in the Iuly 1$ package ithout any ay pro!iding additional relief to exporters hit by the appreciating rupee. +e said that the $ per cent increase in interest subsidy for pre-shipment credit no a!ailable for 1(, days should be applicable to post-shipment credit hich as restricted to 9, days only. The ;ice-<resident, F.FO, Mr B. 7akti!el, felt that some crucial measures such as exemption from ser!ice tax%refund and fringe benefit tax had not been duly addressed and he felt that $ per cent interest subsidy to exporters should be continued beyond )ecember $,,# by ay of relief to exporters. The =ommerce 7ecretary, Mr Gopal >. <illai, said that the Iuly 1$ package had not fully addressed the concerns articulated by exporters and the =ommerce Ministry commissioned report has been for arded to the <rime Minister, )r Manmohan 7ingh, and 8 e do hope for some more relief9. +e said that the =ommittee5s recommendation of 3 per cent increase in dra back rate has not been fully taken care of hile interest rate subsidy is linked to prime lending rate of the banks.

Rupee re ains range bound

Mumbai, Iuly 1# The rupee remained range bound on Tuesday. The domestic currency closed at &,."'%"# against the pre!ious close of &,."3%"#. .t opened at &,."'%"# and sa an intra-day high of &,."" backed by strong dollar supplies before ending the day at &,."'%"#. 8There as strong dollar supply into the domestic market,9 said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. Market participants expect the rupee to strengthen further this eek. .n for ards, the six-month premi a closed at 1.&1 per cent /1.## per cent0 hile the 1$month premia closed at 1.'3 per cent /1.(' per cent0. A

Rupee gains against do!!ar

Mumbai, Iuly 1' 1uoyed by dollar inflo s, the rupee mo!ed up against the greenback. The domestic currency opened at &,."'%"#, touched an intra-day lo of &,.&$ but crept up to end at &,."3%"#, against the pre!ious close at &,.&$. 8There has been good supply of dollar from Foreign .nstitutional .n!estors as ell as exporters. +o e!er, nationalised banks ere stepping in to rein in the rupee on behalf of the 4eser!e 1ank of .ndia,9 said a dealer at a pri!ate bank. Market partici pants expect the rupee to be range bound this eek. .n for ards, the six-month premium closed at 1.## per cent /1.990 and the 1$-month ended at 1.(' per cent /1.9"0. A

R*% picks up $4.4 b in May

=hennai, Iuly 1' The 4eser!e 1ank of .ndia purchased 2&.& billion in May, according to figures pro!ided in the table on the sale%purchase of the ?7 dollar by the 41., gi!en in its Iuly monthly bulletin. .t had purchased about 2$ billion in Bpril. =umulati!ely, the purchases o!er the first t o months of the fiscal ha!e released about 4s $',#9, crore of liCuidity into the system. .t had purchased 2$'.( billion during the fiscal ended March $,,#. There has been no sale of dollars by the 41 . during the last 1& months, according to the bulletin. A

Forex reserves up by $..35 b

Mumbai, Iuly 1" Forex reser!es ha!e increased by 21."&9 billion to 2$1&.("3 billion for the eek-ended Iuly ' on strengthening of nondollar currencies against the greenback and strong dollar inflo s. Forex reser!es had increased by 29"# million to 2$1".&(' billion for the eek-ended Iune $9. Foreign currency assets rose 21.&#1 million to 2$,#.3(3 billion, said the 41.5s 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciati on or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. 8The 41. as acti!ely seen in the market, buying dollars, during the eek under consideration. The rupee is expected to strengthen further to reach &,.$3 le!els in the next 1, days,9 said a treasury head of a pri!ate sector bank. Gold reser!es fell by 21$& million to 2'.#(# billion and 7)4s remained unchanged at 21 million. The country5s reser!e position in the .MF increased 2$ million to 2&'$ million. A

Rupee gains on do!!ar in"!ows

Mumbai, Iuly 1" The rupee appreciated by eight paise against the greenback on sustained dollar inflo s. The domestic currency opened at &,.&(%3, and strengthened through the day to close at &,.&$, against the pre!ious close of &,.3,. 8The rupee made up for Thursday5s losses as there ere strong dollar inflo s. The central bank did try and inter!ene to pre!ent the appreciation but the rupee managed to stay firm,9 said a dealer at a pri!ate bank. Market participants said t hat despite the 41.5s inter!ention, the rupee as likely to steadily appreciate next eek. Globally, traders said the dollar has been eakening against all the other ma*or currencies. .n for ards, the six-month premium closed at 1.91 per cent /$.,9 per cent0 and the 1$-month ended at 1.9" per cent /$.,$ per cent0. A

Rupee sheds .1 paise against do!!ar

Mumbai, Iuly 1$ The rupee eakened by about 1, paise against the dollar on Thursday due to dollar buying by banks and ma*or corporate houses. The domestic currency sa a t o- ay mo!ement

today. .t opened at &,."(%"9 and Cuickly strengthened to &,."3 hich as the intra-day highP the rupee then shed its gain due to dollar buying and sa an intra-day lo of &,.#&3,. The home currency closed at &,.3,, do n from the pre!ious close of &,.&,. 8The 4eser!e 1ank of .ndia as seen at !arious le!els in the marketP banks and corporate houses ere also seen buying dollars hich eakened the rupee,9 said Mr <aresh @ayar, =hief )ealer, )e!elopment =redit 1ank. The other ma*or currencies ere seen appreciating against the dollar on Thursday according to market participants ho expect the rupee to appreciate to &,."3 this eek. .n for ards, the six-month premia closed at $.,9 per cent /1.(# per cent0 and the 1$-month closed at $.,$ per cent /1.9( per cent0. A

3xporters get interest re!ie" on credit' higher re"unds

#pecial focus on sectors most affected by rupee appreciation The Package Two percentage point interest relief to e porters to cost about Rs <== crore to e cheGuer Increase in all industry drawback rates of most itemsK increase to be applicable retrospecti"ely Speedy release of deemed e port benefit claims facilitated Our Bureau @e )elhi, Iuly 1$

The Go!ernment on Thursday un!eiled a Drelief5 package for exporters reeling under the relentless rise of rupee !is-E-!is

the ?7 dollar in recent months, ith special focus on sectors that ha!e been affected the most by rupee appreciation. The Finance Ministry5s package essentially comprises three components SA interest relief on export credit, hich means that the Go!ernment ill bear interest cost to the extent of $ percentage points , increase in duty dra back rates in nearly all items and an administrati!e action to enable the =ommerce Ministry to expeditiously settle deemed export benefit reimbursement claims. Bnnouncing the features of the package, the Finance 7ecretary, )r )u!!uri 7ubbarao, said that the Go!ernment has been especially 8sympathetic9 to sectors that are less import intensi!e and are unable to take ad!antage of cheaper imported inputs, but ha!e high !alue addition possibilities.
Interest su!vention

Fxplaining the interest sub!ention measure, Mr ;inod 4ai, 7ecretary /Financial 7ector0, said that all exporters in nine identified sectors ould get $ percentage point interest relief on both post-shipment as ell as pre-shipment credit. The sub!ention ould be pro!ided by the Go!ernment to the banks through the 4eser!e 1ank of .ndia. The nine sectors are textiles /including handloom0, readymade garments, leather products, handicrafts, engineering products, processed agricultural products, marine products, sports goods and toys. Blso, all exporters from the small and medium enterprises /e!en those outside the identified nine sectors0 ould be entitled for the $ percentage point sub!ention on preshipment credit up to 1(, days, as ell as post shipment credit up to 9, days for the period Bpril-)ecember $,,#. The $ percentage point sub!ention ould in all cost about 4s 3,, crore to the excheCuer, Mr 4ai added.

The 4e!enue 7ecretary, Mr <.;. 1hide, said that the Finance Ministry has orked out the re!ised Bll .ndustry duty dra back rates for $,,#-,( and ould be notified shortly. +e said that the dra back rates ha!e been increased in nearly all products and the increased rate of dra back ould take effect from Bpril 1 this year.
Additional lines

4esponding to exporters5 reCuests, he said that some additional lines ha!e been introduced in the dra back schedule. These include leather-cum-synthetic textile, foot ear upper, coir mats, handicrafts%art are of stainless steel, and certain dye and dye intermediates. .n a fe cases such as primary steel, dyes and chemicals, the dra back rates ha!e been reduced taking into account the reduction of duty on inputs. The reduced rates ould be effecti!e prospecti!ely from the date of issue of notification. =ommenting on the administrati!e measure, )r 7ubbarao said that the Finance Ministry has relaxed the monthly and Cuarterly ceiling on expenditure, thereby enabling the =ommerce Ministry to meet in full the pending reimbursement claims to the tune of about 4s ',, crore in respect of deemed export benefits. The Finance 7ecretary pointed out that the rupee had appreciated only ith reference to the ?7 dollar and not other currency like the euro. ith

Re a tad down against do!!ar

Mumbai, Iuly 11 The rupee slightly depreciated against the greenback as nationalised banks bought dollars. The domestic currency opened at &,.&,%&$, touched an intra-day high of &,."' and finally closed at &,.&,, against the pre!ious close of &,."(. Market participants said dollar buying by nationalised banks, possibly on behalf of the 4eser!e 1ank pre!ented the rupee from appreciating beyond &,."'. 8There is good supply of dollars in the market from Foreign .nstitutional .n!estors. The sentiment is that the rupee may not substantially eaken,9 said Mr <aresh @ayar, =hief )ealer, )e!elopment =redit 1ank. .n for ards, the six-month closed at 1.(# per cent /1.#10 and the 1$-month ended at 1.9( per cent /1.($0. A

Reddy
Our Bureau @e

eets ,hida bara

)elhi, Iuly 1,

The 4eser!e 1ank of .ndia Go!ernor, )r R.;. 4eddy, on Tuesday called on the ?nion Finance Minister, Mr <. =hidambaram, at the latter5s @orth 1lock office here. .ndications are that the discussions, hich lasted o!er t o hours, centred around issues such as rupee appreciation and its impact on exporters, inflation situation in the economy and policy initiati!es that may be reCuired at the =entral 1ank5s forthcoming Cuarterly re!ie of monetary policy on Iuly "1. 1esides the 41. )eputy Go!ernor, )r 4akesh Mohan, sources said that the =hief Fconomic Bd!isor, )r Bshok :ahiri, as also present at the meeting.

Rupee rises against do!!ar

Mumbai, Iuly 1, 1acked by strong dollar supplies into the domestic market, the rupee strengthened by fi!e paise against the greenback on Tuesday. The home currency opened at &,."9%&, and after trading in a narro range throughout the day, closed at &,."(, up from the pre!ious close of &,.&". 8The rupee has a good scope to strengthen further,9 said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. .n for ards, the six-month premia closed at 1.#1 per cent /1.#9 per cent0 hile t he 1$-month closed at 1.($ per cent /1.(3 per cent0. A

Re gains on strong F%% in"!ows

Mumbai, Iuly 9 The rupee appreciated by almost t o paise against the greenback on Monday, backed by strong F.. inflo s into the domestic stock market but traders felt that the gains ere checked by suspected 41. inter!ention in the market. 8The central bank5s presence in the forex market is keeping the home currency steady,9 said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. The domestic currency opened at &,.&1 and traded in a narro range to finally close at &,.&" , up from the pre!ious close of &,.&3. .n for ards, the six-month premia closed at 1.#9 per cent /$.&( per cent0 hile the 1$-month closed at 1.(3 per cent /$."# per cent0. A

#tung by rising rupee' %+ "ir s !ook to auto ation

Reconciliation, performance appraisal, compensation are target areas 5anaging costs Satyam has automated ?< pc of all HR practices

Transaction issues low priority for HR manager

Accenture mulls higher employee engagement 'rchana $enkat =hennai, Iuly ( Bfter ha!ing looked at ob!ious derisking solutions such as hedging, offering high-end ser!ices and controlling recruitment in response to the strengthening rupee, .T, .TF7 and 1<O companies no seem to be focusing on automating their +4 solutions to increase employee producti!ity. Though companies agree that re!enues recruitment ill proceed as planned. ill be impacted,

8One cannot increase ork hours, o!er ork employees or stall recruitment to meet re!enues targets,9 said Mr )eepak )ha an, ;ice-<resident and Global +ead /+40, FJ: 7er!ice. 8Butomating process-oriented ork such as handling reconciliation, performance appraisal and compensation derisk a company5s cost structure.9 ill

For instance, if rules for performance appraisal are ell defined, there is no need for a ;ice-<resident to e!aluate e!ery employee5s appraisal. .n such cases, one can hire an assistant managerial candidate instead of a relati!ely more expensi!e ;ice<resident le!el candidate for the *ob, Mr )ha an told Business 2ine on the sidelines of the @asscom +4 7ummit. FJ: 7er!ice is planning to automate +4 processes like recruitment, compensation and benefits, lea!e and attendance tracking and performance management. 7atyam =omputer 7er!ices has automated about &3 per cent of all its +4 practices and is aiming at (, per cent. Bccording to senior industry sources, the benchmark for optimum +4 automation is that transaction-related issues and processes occupy under $, per cent of an +4 manager5s time, the rest being de!oted to tackle attrition and people issues. Mr +ari. T, +ead /+40, 7atyam, said the automation dri!e had increased employee delight le!els from ".' to &." /on a scale of 30 o!er the last six Cuarters, contradicting popular perceptions that automation ill impersonalise +4 practices. =ommunications soft are pro!ider Bricent has automated #3 per cent of its +4 tasks and is mo!ing to ards the 9, per cent mark. The company is planning skill training programmes for nonbillable employees to increase their utilisation rate, said Mr Badesh Goyal, ;ice-<resident /+40 and General Manager of the company5s Gurgaon centre. +a!ing automated repetiti!e practices, Bccenture too is no looking at higher employee engagement and offers about

1',,,, online courses for employees to pursue are not orking on a pro*ect.

hile they

These companies said that it as too premature to calculate costs sa!ings from automation.

#trong rupee$ +exti!e exporters go "or "abric i ports "ro ,hina' other neighbours
#maller players relying on local inputs are the hardest hit 'nil #asi @e )elhi, Iuly # .n an all-out effort to soften the impact of the hardening rupee-dollar eCuation, the bigger .ndian textile and apparel exporters are going in for increased imports, especially of yarn and fabrics, from neighbouring =hina, <akistan and 7ri :anka. Other measures include denominating a significant portion of the total export contracts in euro or other currencies and co!ering the ?7 dollar in the for ard market, besides trimming production costs on a ar front to stay competiti!e in the export market. Fxport firms are also increasingly looking at ramping up exposure in the domestic market to hedge business risks. Bccording to latest Go!ernment estimates, import of cotton yarn and fabrics from <akistan itnessed an increase of #$ per cent during Bpril-)ecember $,,', hile imports from 7ri :anka ere up 3$ per cent. Manmade filaments and spun yarn imports from =hina ere up $" per cent during the same period. Gokaldas Fxports :td, among the largest garment exporters, is countering the increasingly unfa!ourable rupee-dollar eCuation by ensuring siHeable imports, 4s "3, crore for $,,'-,#, hich is about "& per cent of the annual turno!er of 4s 1,,"& crore. The company is also denominating 1, per cent of the total contracts in euro currency, according to

industry sources. .t is co!ering a good portion of the ?7 dollar in the for ard market and trying to impro!e realisations by stepping up producti!ity through cost-cutting measures. Gokaldas is also looking at tapping the domestic retail market ith a targeted turno!er of around 4s 1,, crore during the current fiscal. Terry-to el exporter 6elspun .ndia :td is taking a sle of measures to mitigate the currency risk and has hedged close to a Cuarter of its annual sales for the current fiscal at 4s &3 to a dollar, besides initiating cost containment initiati!es, it said. 8The small and medium enterprises are the ones that are most se!erely hit due to rupee appreciation. 6hile larger players are in a position to offset the impact of the rising rupee on their exports through cheaper imports, 7MFs suffer on this count as almost all of them source local inputs,9 an industry player said.

Rupee weakens on do!!ar buying

Mumbai, Iuly ' The rupee eakened by almost t o paise on 41.5s inter!ention in the forex market. The home currency opened at &,.&', touched an intra-day lo of &,.&9 and finally closed at &,.&3, against the pre!ious day5s close of &,.&". 8The rupee gained from the le!els of &1 to &,.&3 due to strong F.. inflo s into the domestic stock markets but soon pared its gains on dollar buying by some public sector banks,9 said the dealer. )ealers said 41. ould like to restrict the rupee in the range of &,.',-&,.#,. .n for ards, the six-month premia closed at $.&( per cent /$.$( per

cent0 and the 1$-month ended at $."# per cent /$.$# per cent0. A

Forex reserves rise $03>

Our 1ureau Mumbai, Iuly ' Forex reser!es ha!e increased by 29"# million to 2$1".&(' billion for the eek-ended Iune $9 on strengthening of non-dollar currencies against the greenback. The reser!es had increased by 21.3"& billion to 2$1$.3&9 billion for the eek ended Iune $$. Foreign currency assets rose 29"' million to 2$,'.11& billion, said the 41.5s 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. 8The main reason for an increase in forex reser!es is due to re!aluation of non-dollar currencies against the dollar. The euro has strengthened to 21."'' le!els against the greenback,9 said a dealer at a pri!ate bank. Gold reser!es and 7)4s remained unchanged at 2'.911 billion and 21 million, respecti!ely. The country5s reser!e position in the .MF increased 21 million at 2&', million. )ealers said the rupee is expected to trade in the range of &,.3,-&,.',.

? disappointing 5. seen "or tech cos

Rupee impact, rising wage costs to hit margins Outlook Impact from rising salaries may be 0== bps, and that due to the rupee L1=-0== bps!

Higher yield on cash balance, fore gains will partially offset the sharp &BITD' decline! Perked up utilisation, upward mo"ement in pricing may soften the blow somewhat! 5oumita Bakshi (hatter+ee @e )elhi, Iuly 3 F!en as it raises a toast to an upbeat annual forecast by @asscom, the .ndian .T sector - no headed for first Cuarter results - may ha!e little to cheer. Faced ith double hammy of sharp rupee appreciation and age hikes, leading .T companies could itness a margin decline of up to $,,-&,, basis points, in hat analysts term as a 8disappointing9 first Cuarter. 86e expect a disappointing T1FR,( performance S in line ith expectations. 6hile the re!enue gro th in dollar term continues to be strong at 3-9 per cent Cuarter-on-Cuarter, the negati!e margin impact of rupee, age increases for some companies and !isa costs, is expected to result in marginal decline /bet een "3,-&,, basis points Cuarter-on Cuarter0. 8+igher yield on cash balances and forex gains ill partially offset the sharp F1.T)B decline,9 says =itigroup in its preearnings report, hich bases the pre!ie on 4s &1%dollar assumption. =itigroup sees .nfosys re!enue at an estimated 4s ",($1.9 crore for the Cuarter ended Iune, for T=7 at 4s 3,$,9.' crore, 7atyam at 4s 1,(11.3 crore and +=: Technologies at 4s 1,',3.( crore.
"ising salaries

:eading analysts tracking the sector expect the Cuarter to be a 8disappointing9 one for .T firms, here impact on account

of rising salaries could be $,,-basis points, and that due to the rupee 1',-$,, basis points. Mr Bsh in Mehta, 7enior 4esearch Bnalyst at Bmbit =apital, says positi!e factors such as perked-up utilisation and an up ard mo!ement in pricing may soften the blo some hat. 8O!erall, this may ease the impact on margins to about ",, basis points,9 he said. For the first Cuarter, Bmbit =apital sees $9,-basis points impact on margins in case of .nfosys Technologies hile for 7atyam, the hit could be to the extent of 1,, basis points. 8This is because 7atyam had guided at 4s &$.", against .nfosys5 4s &".1,. Blso, 7atyam salary hikes come in the second Cuarter,9 Mr Mehta said. Bn analysts ith 14.=7 7ecurities said the firm expected all .T companies to be hit badly due to rupee appreciation by more than six per cent from the a!erage realised rate of T& $,,'-,#. 86e ha!e built in F1.T)B margins falls ranging from 1,, basis points for 6ipro to more than &3, basis points for .nfosys and T=7 for T1. 7imilarly, e expect the rupee re!enue gro th to be muted /around three per cent0 during the Cuarter,9 the analyst said.

Rupee strengthens against do!!ar

Mumbai, Iuly 3

The rupee strengthened by t o paise on Thursday against the greenback on strong F.. inflo s into the market. The home currency opened at &,, hich as also the intra-day high and sa a lo of &,.31 before ending the day at &,.&", marginally up from the pre!ious close of &,.&3. 8The central bank as seen buying dollars through the state-run banks to cap the appreciation of rupee,9 said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at $.$ ( per cent /$.,9 per cent0 hile the 1$-month closed at $.$# per cent /$.1( per cent0. A

2+exti!e' !eather exporters hit by rising rupee

Our Bureau @e )elhi, Iuly 3 )ue to appreciating !alue of the rupee against the ?7 dollar, the textile and apparel manufacturers engaged in exports ha!e suffered decline in total re!enue, operating income and net profit margin to the tune of #.9 per cent, (.9 per cent and #.9 per cent, respecti!ely. There could be an erosion of net profit margins to the extent of 1,.& per cent during the next six months on account of rupee appreciation, according to a sur!ey conducted by the =onfederation of .ndian .ndustry. The impact of the appreciation is orse in the leather and leather products sector. The erosion of net profits expected in the next six months is 1".# per cent and the industry is already facing an erosion of (.( per cent on its net profits margin. The exporters remain in a disad!antageous position in price sensiti!e international markets. =ompeting Bsian countries ha!e experienced either significantly lo er rates of appreciation of their respecti!e currencies or their currencies ha!e depreciated during the same period.

=hinese Ruan has appreciated by &.' per cent and, on the other hand, <akistani 4upee and 1angladeshi Taka ha!e depreciated by 1.& and ,.&" per cent, respecti!ely, making their products more competiti!e in the international markets against .ndian exports, according to the chamber. The chamber has suggested a number of initiati!es to counter the impact of the appreciating rupee. Firstly, )uty Fntitlement <ass 1ook and )uty )ra back rates may be enhanced by fi!e per cent. 7econdly, rate of interest on preshipment and post-shipment credit be reduced for exporters to six per cent. Thirdly, Fxchange Farners5 Foreign =urrency Bccounts may be made interest bearing. Fourthly, commercial banks may be mandated to meet 13 per cent export credit disbursement target.

&ess "or ore$ +exti!e export va!ue to @# down even as vo!u es surge
Hardening rupee, interest rates hit realisations 'nil #asi @e )elhi, Iuly & The hardening of the rupee against the greenback is hitting textile exporters here it hurts, ith .ndia5s exports to the ?7 taking a plunge in !alue terms e!en though !olumes ha!e surged during Ianuary-March this year. The dip in .ndia5s export !alue, primarily on account of the appreciating rupee and a sustained rise in the domestic interest rate regime, has translated into a 1,-13 per cent dip in the realisation for most textile exporters during the last six months, according to industry estimates. O!er ', per cent of .ndia5s apparel exports are headed for the ?7. Bs per the ?7 Office of Textiles and Bpparel data, during the first three months of $,,#, .ndia5s exports of textile and apparel products to the ?7 declined ,.&" per cent in !alue terms e!en as export !olumes surged #.&9 per cent against the corresponding period of the pre!ious year.

=hina, on the other hand, has registered increases in both !olume and !alue terms, up $&.(' per cent and &'.&# per cent respecti!ely. Other key exporting nations such as <akistan, 7ri :anka and .ndonesia, here local currencies ha!e depreciated against the ?7 dollar, ha!e seen higher gro th in !alue terms, e!en though export !olume gro th has not been significant. <akistan5s textile exports to the ?7 gre by '.3& per cent in !alue terms e!en as the !olume gro th as only ,.3# per cent. The do nturn in .ndian textile exports has prompted the <rime Minister to mandate the @ational Manufacturing =ompetiti!eness =ouncil ith the task of suggesting measures to neutralise the effect of the surging rupee on textile exports. The rupee has appreciated against the ?7 dollar by 9.& per cent on a year-on-year basis till May this year. The =hinese yuan appreciated by a much lo er &.'( per cent and the 1angladesh taka by ,.93 per cent.

Rupee gains 0 paise

Mumbai, Iuly & 1acked by the strong F.. inflo s and good dollar supplies into the market, the rupee appreciated by almost nine paise against the greenback on 6ednesday. The home currency opened at &,.3'%3# and closed the day at &,.&3, up from the pre!ious close of &,.3&%33. 8The supplies seem to be !ery strong hich ill cause further strengthening of the

rupee helping it to appreciate to &, or e!en belo &, le!els. Other currencies ha!e also been strengthening against the dollar,U Z($$1P said Mr ;. 4a*agopal, +ead-Forex Treasury, >otak 1ank. .n for ards, the six-month premia closed at $.,9 per cent /$.1" per cent0 hile the 1$-month closed at $.1( per cent /$.$' per cent0. A

Rupee gains .1 paise

Mumbai, Iuly " The rupee gained by 1, paise on strong dollar supplies. The domestic currency opened at &,.',, touched an intra-day high of &,.&& before closing at &,.3&%33, against the pre!ious close of &,.'3%''. 8The home currency could not sustain the le!el of &,.&& due to 41. inter!ention in the forex market. <ublic sector banks ere seen buying dollars in the market at those le!els of the rupee,9 said a dealer at a pri!ate bank. )ealers said 41. is expected to inter!ene a cti!ely in the market to restrict the rupee in the range of &,.',-&,.#,. The six-month for ard premia is at $.1" per cent /$.,# per cent0 and 1$-month premia remained unchanged at $.$' per cent. A

<1 !akh Fobs at risk due to strong rupee$ F%3:

;'bout >L0!< billion will be lost) & ports hit E!port realisation has declined by L0 per cent for chemical industries, 1-1!< per cent for te tile industries!

E!ports are likely to fall by 0=-0< per cent for processed food and agro-based products, electronics and electrical goods too! Our Bureau =hennai, Iuly " Bs many as (, lakh *obs are at the risk of being lost due to loss of export business because of the appreciation of the rupee. .f the Go!ernment does not take steps immediately to check the rupee5s rise, about 21$.3 billion of exports ould be lost in the current year, estimates the Federation of .ndian Fxport Organisations /F.FO0. 8Fifteen per cent of the exporters ould need to cut do n 3, per cent of their orkforce,9 Mr Ganesh >umar Gupta, <resident, F.FO, said at a conference here. The F.FO ;ice-<resident, Mr B. 7akthi!el, obser!es that ith the ?7 running a current account deficit of se!en per cent of G)<, the dollar ould only slide further. The only option ith .ndian exporters is to balance the impact ith cost-cutting and mo!ing up the !alue chain. 81ut, in !ie of afer thin margins, e!en that seems to be a difficult task,9 he said. The rupee has appreciated by more than 1& per cent from its lo of &#.,& touched in Iuly $,,'. More than half the appreciation came o!er in the past t o months, resulting in erosion of export realisation by 1$ per cent for chemical industries, '-'.3 per cent for textile industries. Fxports are likely to fall by $,-$3 per cent for processed food and agrobased products, electronics and electrical goods too. 1esides, hardening interest rates ha!e further affected exports.
#its all segments

Bccording to Mr @a!ratan 7amdria, =hairman, .ndia Fxposition Mart and past =hairman of the Fxport <romotion =ouncil for +andicrafts, though the rupee appreciation has resulted in loss to all segment of exports, traditional sectors such as handicrafts, incense sticks are the orst hit as there is no or !ery less import content. Talking on behalf of the synthetic textile exporters, Mr 7an*ee! 7aran, =hairman of the 7ynthetic U 4ayon Textiles Fxport <romotion =ouncil, said the industry last year exported goods orth 2$." billion, and plans to take it to o!er 2" billion this fiscal and to 2'.( billion by $,1,. The council has been making all-out efforts to achie!e the target. 1ut, if the present trend continues for a fe more months, it might be difficult for the industry to e!en repeat last year5s performance.

Rising rupee s!ows down export growth

%on-oil imports in 5ay record growth of ?0B 2iability E!ports in the first two months of the current fiscal up 0=!DA per cent! Imports in this period rise DD!=< per cent! Trade deficit rises to >LD!0 billion from >/!0 billion! Our Bureau @e )elhi, Iuly $ B sharply appreciating rupee !is-E-!is the ?7 dollar in hich most of .ndia5s exports are denominated has taken its toll in the month of May $,,# hen exports increased by a modest '.,& per cent in rupee terms o!er the corresponding month in $,,'.

F!en as the export gro th in dollar terms during May $,,#, the latest monthly figure put out by the )epartment of =ommerce based on pro!isional figures from the )irectorate of =ommercial .ntelligence U 7tatistics /)G=.U70, sho ed a relati!ely robust gro th of 1(.,# per cent at 211.( billion /21,.,& billion0, the tepid gro th of ' per cent in rupee terms o ed itself to the relentless appreciation of the .ndian rupee !is-E-!is the ?7 dollar. 7ources said the slo do n in export gro th during May $,,# as orrisome. 6hile officials in the =ommerce Ministry contend that the rupee appreciation during the first t o months of the current fiscal as a steep # per cent, exporting community here said that it had already cautioned the =ommerce Minister about the slo do n in export gro th during the rest of the current fiscal if fire-fighting measures ere not in put place to stem the ad!erse repercussions of the appreciating rupee on the exporters5 earnings. The <resident of the Federation of .ndian Fxport Organisation /F.FO0, Mr Ganesh >umar Gupta, told Business 2ine that if the authorities do not take action to stem the rising rupee !alue, the export figure for the month of Iune and then on ards ould be in negati!e as the appreciating rupee has made foreign buyers to shift to competing countries such as <akistan, 7ri :anka and 1angladesh. 8They do not ant to fork out more dollars for .ndian exporters and of course, exports ha!e become a buyers5 market and not a sellers5 market,9 said Mr Gupta. +is estimate is that in the last three months rupee has appreciated against the ?7 dollar by 1, per cent. 6hile appreciating rupee might be good for the country, he said, it ould cause large scale unemployment because imports ould be cheaper and imported goods ould s amp the market, iping out the small and medium industries across the country and exports ould no longer be a !iable proposition. +e said that after the =ommerce Minister, Mr

>amal @ath, announced a package on Iune 1", nothing has come to the exporters and the rupee continues to get strengthened against the dollar. +e said the re!ision of dra back rates as announced must be done immediately and export credit at ' per cent rate should be a!ailable for "'& days. =umulati!ely, hile exports during the first t o months of the current fiscal amounted to 2$$.& billion /21(.' billion0 sho ing a gro th of $,."# per cent, imports during the period amounted to 2"3.# billion /2$'.( billion0 sho ing a gro th of "".,3 per cent. .nterestingly, oil imports during May $,,# ere !alued at 2&,#&,.$9 million hich as close to " per cent lo er than oil imports !alued at 2&,(('.&& million in the corresponding month of $,,'. )espite the appreciating rupee making the import cost relati!ely cheaper, the decline in import as attributed to the firming up of a!erage crude prices hich as Cuoted at 2'3.3$ per barrel, against 2'3.#& per barrel in the pre!ious month. 6ith rupee making import cost slightly cheaper, this is reflected in export-related imports embedded in non-oil imports hich sho ed a sharp &1.3( per cent gro th in May $,,# at 21"." billion against 29.&$ billion in May $,,'. @onoil imports during the first t o months of the current fiscal at 2$'.3 billion ere higher by &9.&$ per cent o!er 21#.# billion in Bpril-May $,,'. Trade deficit during the first t o months of the fiscal $,,#,( has shot up to 21".$ billion, against 2(.$ billion during the corresponding months of $,,'.

Re gains 5 paise on do!!ar in"!ows

Mumbai, Iuly $ The rupee strengthened by 3 paise against the greenback on Monday backed by good dollar supplies into the market. The home currency opened at &,.''%'#, sa an intra-day high of &,.'$ before closing the day at &,.'3%''. 8There has been reasonably good supplies throughout the day,9 said a dealer ith a pri!ate bank. Bccording to dealers, 41. as not seen in the market. Market participants expect the rupee to trade in the &,.3,-&,.(3 range. .n for ards, the six-mo nth premia closed at $.,# per cent /$.3" per cent0 hile the 1$-month closed at $.$' per cent /$.3# per cent0. A

+op .1 cos raise $3.. bi!!ion through F,,*s

Our Bureau Mumbai, Iuly 1 Ten .ndian companies ha!e raised a total of 2".1 billion through issue of foreign currency con!ertible bonds /F==1s0 in the first half of $,,#, as per the financial data released by 1loomberg on 7unday. The total !olume of F==1s issue is 2&.( billion. 6hile 4eliance =ommunications :td issued the largest F==1 of 21,,,, million among .ndian companies, Tata Motors :td stood at second position ith an issue siHe of 2&9, million. The other companies include I76 7teel :td, 7terling 1iotech :td, Bdani Fnterprises :td, 7ubex BHure :td, Orchid =hemicals U <harmaceuticals, 4olta .ndia :td, 4a*esh Fxports :td and Tulip .T 7er!ices :td. The data also re!ealed that Hero coupon seemed to be a preferred mode by most.

For Tata Motors the bonds ould be con!ertible at an initial con!ersion price of 4s 9',.9' per share, hich is at a premium of &, per cent to the company5s closing share price on the @7F as on Iune $,, $,,#. .n case of I76, con!ersion price is of 4s 93".&, per share hich ould be 3, per cent premium to the closing price of 4s '"3.', on the @7F on May $9, $,,#. 7terling 1iotech ith an issue siHe of 2$3, million ould ha!e its bonds con!ertible into eCuity shares any time after Iune 1(, $,,#, at a con!ersion price of 4s $,&.3# per share hich represents a premium of $3 per cent to the a!erage price.

Ahat drives corporate hedging po!icyB

T!B!4apali The analysis in the abo!e article indicates that steady gro th in business !olumes and a policy of systematically hedging operating foreign exchange exposures ha!e lo ered earnings !olatility for the .T sector. The stock market seems to ha!e recognised that and has consistently pro!ided robust !aluations for the sector. The lesson, therefore, for companies ith an export bias is to ha!e a proper hedging policy in place and, more importantly, implement the policy. For instance, if the policy mandates compulsory hedging of re!enue flo s if the market pro!ides hedging le!els /prices0 hich co!er the internally budgeted cost le!els, the hedging action should follo almost automatically. )iscretion should be allo ed only in respect of the instruments utilised for hedging A for instance, for ard contracts or options A but not on the price le!el to be hedged.
#edging imperatives

+edging is imperati!e for companies hich ha!e re!enue flo s ith a single-currency bias or that are denominated in a single currency. .n that case, the flexibility and cushion pro!ided by a currency-di!ersified re!enue stream is not a!ailable. Official statistics sho that .ndian exports are still predominantly in!oiced in the ?7 dollar. Therefore, .ndian companies, by and large, do not en*oy the benefits of the foreign exchange market eCui!alent of portfolio di!ersification. Of course, an alternati!e in such a situation is to mo!e the cost base itself to the currency in hich companies5 exports are predominantly in!oiced. This could in!ol!e a shift to imported ra materials from locally procured ra materials and%or financing A both for orking capital and capital expenditure A in the currency hich causes exposure on the income side. Official balance of payments statistics sho that .ndian companies are trying out these strategies. @on-oil and non-consumption imports ha!e registered strong gro th o!er the past fe years. /The recent permission for also hedging the price risk on the commodities planned to be imported is another important step to ards reducing the o!erall le!el of risk on companies5 operating cash flo s, as this ould ser!e to fix the dollar or foreign currency price of the commodity being imported0. .ndian companies ha!e also taken to foreign currency borro ings for their orking capital%capital expenditure in a big ay.
C"ITICA; (C%3A"I0(

7ystematic hedging also becomes critical in scenarios currencies are sub*ect to secular trends.

here

The earnings stream of a company ith international exposures could remain broadly anchored to its medium-

term gro th rate if hat is lost in one year is made up in another year on account of !olatility in exchange rates. The stock market also may not orry much about companies ith currency exposures A e!en if the exposures are not hedged A in such a scenario. 1ut here currency !olatility becomes minimal or negligible, a company has to methodically hedge its operating exposures. .t ill other ise face considerable erosion of its local currency earnings base or could face pressure on the expenditure side. There is an in!erse relationship bet een the le!el of currency !olatility and the stability%gro th of the earnings stream. The rupee, for instance, appears to be in the midst of a secular and structural run against the dollar. .t has risen &-3 per cent per annum, on a!erage, against the dollar in the past fi!e years, interrupted only by brief re!ersals. .n other ords, !olatility in the bilateral dollar-rupee currency pair has been lo , though that in the deri!ed currency pairs A such as, say, in the Furo-rupee or 1ritish <ound-rupee A has been notable because of the !ariability in the Furo-dollar or <ound-dollar pairs. From a capital market perspecti!e, the corporate policy on earnings distribution or the di!idend policy, for instance, could ha!e an important bearing on companies5 decision to hedge and the formulation of a hedging policy. +igh di!idend pay-outs could be considered the managements5 ay of assuring its shareholders /and prospecti!e in!estors0 about the inherent strengths and, more important, the gro th potential of the earnings stream and operating cash flo s.

.t then becomes incumbent on the finance manager to minimise !olatility in the earnings stream and in the cashflo s generated so that the di!idend payouts are ser!iced smoothly. The need to preser!e the stability and inherent gro th potential of the earnings stream could also be strong for those companies that ha!e to, say, carry on 4U) operations uninterrupted. The pharma sector, for instance, could fall in this category. <harma 4U) is a long-dra n-out affair, in!ol!ing the commitment of considerable amounts of money and time before a product or formula can be commercialised. ?sually, the 4U) effort consumes so much resources that local sales alone may not be enough. 6ider markets /exports0 and the re!enues they bring are also necessary to *ustify the resources consumed in the 4U) phase. There is a mutually reinforcing relationship here. +igh expenditure during the 4U) stage demands !ery ide markets but the re!enue flo s from those markets ha!e to be protected%hedged so that the earnings stream%cash-flo remains strong enough to support continued 4U). B 4anbaxy or a )r 4eddy5s, for instance, ould need a comprehensi!e hedging policy to be in place, gi!en their 4U) efforts and the di!erse markets in hich they sell.

Forex reserves up by $..53 b

Our Bureau Mumbai, Iune $9 Forex reser!es ha!e increased by 21.3"& billion to 2$1$.3&9 billion for the eek ended Iune $$ on re!aluation of non-dollar currencies against the dollar and 41.5s inter!ention in the forex market. 8There ha!e been

good F.. inflo s into the market hich also contributed to the reser!es,9 said a dealer ith a pri!ate bank. The reser!es had increased by 21.&'( billion to 2$11.,13 billion for the eek ended Iune 13. Foreign currency assets rose 21.3"$ billion to 2$,3.1#( billion, said the 41.5s 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. 8The 41. has been inter!ening in the forex market, trying to keep the rupee at &,.3, le!el against the greenback. The euro has eakened against the dollar hich has also attributed to the reser!es,9 said a dealer ith a pri!ate bank. Gold reser!es and 7)4s remained the same at 2'.911 billion and 21 million, respecti!ely. The country5s reser!e position in the .MF rose 2$ million to 2&39 million.

Rupee gains on strong $ in"!ows

Mumbai, Iune $9 The rupee strengthened by almost 1" paise on strong dollar inflo s. The home currency opened at &,.($ and closed at &,.#,, against the pre!ious close of &,.(" on Thursday. 8The month end demand from importers is almost o!er and the domestic eCuity market sa F.. inflo s,9 said a dealer at a pri!ate bank. Bccording to dealers, 41. as not seen in

the market. 8The rupee is expected to trade in the range of &,.3,-&,.#, next eek,9 said the dealer. The six-month for ard premia is at $.3" per cent /$.91 per cent0 and 1$month premia is at $.3# per cent /$.(" per cent0. A

Re gains .6 paise on good supp!ies

Mumbai, Iune $( The rupee strengthened by 1' paise against the greenback backed by good supplies and closed at &,.(" on Thursday up from the pre!ious close of &,.99%&1. The domestic currency opened a bit eaker at &,.93 and sa an intra-day lo of &1 before ending the day at &,.(". 8There as some dollar buying during the day hich eakened the rupee to &1, but good supplies strengthened the rupee to a close of &,.(",9 said a dealer ith a pri!ate bank. Market participants exp ect the rupee to trade in the &,.#3-&1.1, range this eek. .n for ards, the six-month premia closed at $.91 per cent /"."& per cent0 hile the 1$-month closed at $.(" per cent /".," per cent0. A

Rupee weakens by 5 paise

3ur 5ureau

Mumbai, Iune $'

The rupee eakened by fi!e paise on demand for greenback and closed at &,.9$%9" on Tuesday, lo er than the pre!ious close of &,.(#%((. There as a t o- ay mo!ement in the market today. The home currency opened at &,.9&%9' and sa an intraday high of &,.(9 and a lo of &1.,1 before ending the day at &,.9$%9". "The market as !olatile today. The rupee sa an intra-day high of &,.(9 spurred by some dollar selling by some foreign banks and large corporates," said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at $.9# per cent /$.&" per cent0 hile the 1$-month closed at $.(1 per cent /$.33 per cent0.

Rupee sheds .6 paise

3ur 5ureau

Mumbai, Iune $3 The rupee fell against the dollar on demand for greenback. The domestic currency opened at &,.##%#9 and closed at &,.(#%((, against the pre!ious close at &,.#3%#'. "The sentiment as negati!e as traders felt that the 41. ould inter!ene in the forex market to pre!ent the appreciation of the rupee.

There as dollar demand seen from nationalised banks," said a dealer at a pri!ate bank. Traders said that ith inflo s from ):F and .=.=. 1ank public offerings drying up, the rupee might depreciate to &1.$, by the end of the eek. .n for ards, the six-month premium closed at $.&" per cent /$.'#0 and the 1$-month ended at $.33 per cent /$.'#0.

:n purchasing power parity' the rupee is underva!ued substantia!!y

D. 8urali 0. Ramesh =hennai, Iune $3 The rupee appreciation story is sho ing no signs of lea!ing the limelight. .ndustry, Go!ernment and other stakeholders are battling ith the fallout of the domestic currencyMs sudden spurt A about eight percentage points in the past fe months A and debating here it is headed in the medium term. )r Mano* ;aish, <resident U =FO /.ndia0, )un U 1radstreet .nformation 7er!ices, foresees a "secular trend" of a stronger rupee continuing o!er the medium term /)un U 1radstreet is a pro!ider of business-to-business credit, marketing, purchasing, collection ser!ices and decisionsupport ser!ices0. 7peaking to Business 2ine on the basis of his reasoning, he said that hile the 4eser!e 1ank of .ndia has been "extremely effecti!e" in ha!ing full control o!er the rupee !alue in the past, it may not be able to do so as absolutely from no , due to t o reasons. "The capital account surplus ould far exceed the current account deficit in the coming years. The siHe of trade and current account flo s, the balance of payments surplus and the cost of inter!ention are increasing to an extent that it may *ust be getting out of hand for the 41. to fully control

the !alue." On purchasing po er parity, he said that the rupee is under!alued substantiallyP "but for 41. inter!ention, the rupee ould ha!e been much higher by no ."
"upee -utures

Bnother de!elopment on rupee price disco!ery has been the commencement of international trading of the currency. "6hile rupee non-deli!erable for ards /@)F0 ha!e been around for a long time, the market siHe has been small. For the first time, a regulated exchange A )ubai Gold U =ommodities Fxchange /)G=J0 A is introducing dollar%rupee futures." Bccording to )r ;aish, this ill ha!e its o n implications for price disco!ery on the rupee, as players ho ha!e not been able to participate in the for ard%future markets in .ndia ill no be able to do so. ".f the market becomes liCuid and trades at a significantly different !alue in this market, it ill ha!e a ma*or impact on hedging pattern in .ndia and conseCuently, the rupeeMs !alue here." On the rupeeMs rise, he said that it is likely to be smooth o!er a period of time and not "*erky or immediate". Bccording to him, this should gi!e corporates enough time to take appropriate hedging strategies on one hand and cost control on the other.

Forex reserves up by $..46 b

3ur 5ureau Mumbai Iune $$ The countryMs foreign exchange reser!es rose 21.&'( billion to 2$11.,13 billion in the eek ended Iune $$ mainly due to the 41.Ms inter!ention in the forex market.

The reser!es had increased by 21.1#& billion to 2$,9.3&# billion in the eek ended Iune (. The foreign exchange kitty has seen accretion to the tune of 2#.,$( billion in four consecuti!e eeks. Foreign currency assets rose 21.&'9 billion to 2$,".'&' billion, according to 41.Ms 6eekly 7tatistical 7upplement. Treasury officials said the 41. had continued to inter!ene in the forex market last eek to rein in the appreciating rupee. "The 41.Ms presence in the market is e!ident in the excess cash in the system. The inter!ention is shoring up the forex reser!es," said a senior treasury official at a pri!ate bank. Foreign currency assets, expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es and 7)4s remained the same at 2'.911 billion and 21 million, respecti!ely. The countryMs reser!e position in the .MF fell by 21 million to 2&3# million. Market participants expect the 41. to continue inter!ening in the forex market and pre!ent the rupee from appreciating belo &,.3,.

Rupee down on do!!ar buying

3ur 5ureau

Mumbai, Iune $$ The rupee eakened on Friday by around three-four paise on dollar buying by some foreign banks. The home currency opened at &,.#3%##, touched an intra-day high of &,.#9-(, to finally close at &,.#3%#' against ThursdayMs close of &,.#1%#$. "Foreign banks ere seen buying dollars in the market on corporate demand, helping the rupee to gain. The 41. as not present in the forex market," said a dealer at a pri!ate bank. )ealers said the rupee traded ithin the range of &,.#1-&,.#$ during the day. The six-month for ard premia stood at $.'# per cent /$.9" per cent0 and 1$-month premia at $.'# per cent /$.(" per cent0.

Rising rupee i pact$ 9ackage !ike!y "or exporters soon

#. Srini$asan P5 looking into the matter, says (ommerce #ecy

'r )opal :. Pillai

@e )elhi Iune $$ Fxporters groaning under the gruelling impact of an appreciating rupee !is-[-!is the dollar could look for some modicum of relief as the Finance Ministry and the 4eser!e 1ank of .ndia /41.0 are directly engaged in hammering out a solution to cushion the harsh effects on their earnings. )isclosing this to Business 2ine here in an inter!ie , the =ommerce 7ecretary, Mr Gopal >. <illai, said that after the ?nion =ommerce and .ndustry Minister, Mr >amal @ath, interacted ith export promotion councils, he sent a letter to the <rime Minister about the !ie s !oiced by the exporting community. +e said the <rime Minister had taken up the matter ith the Finance Minister and the 41., and " e do hope of some positi!e steps" to result from this *oint efforts. Bsked about the success stories of only t o sectors !iH, petroleum products and engineering goods exports, in the countryMs o!erall salutary export performance last fiscal, he said that the )epartment is pushing up a number of sectors such as agri exports, gem and *e ellery and leather exports. ". am Cuite confident that o!erall once the rupee appreciation part of it stabilises, export thrust ill continue /in other segments too0".
B(%C here to stayD

To a specific Cuery about the continued criticism of special economic Hones /7FKs0 being a land grab and real estate proposition as alleged by the schemeMs detractors, the =ommerce 7ecretary asserted that "7FKs are here to stay as formally appro!ed 7FKs today stand at ""9MM. This means ""9 7FKs lands are already in the hands of the de!elopers, and tomorro if the 7FK policy is scrapped ""9 7FKs ith lands ould be functioning, he said. .n order to dispel the fears of farmers losing their prime land for 7FKs, Mr <illai, as =hairman of the 1oard of Bppro!al for 7FKs, saidL ".n the case of any compulsory acCuisition, consent of all the farmers ha!e to be taken and e!en if one farmer ob*ects, the acCuisition cannot take place". 7tating that the 7FKs ould continue to hold its s ay, Mr <illai saidL "6e belie!e that in the current situation here there is intense global competition, 7FKs pro!ide that small measure of comfort for the exporting community." On the issue of 4eliance .ndustries-promoted @a!i Mumbai multiproduct 7FK clearance hich has been postponed a fe times hen it came before the board, Mr <illai said that "the clarification from the 7tate Go!ernment has come and e ha!e sent this to all other members of the 1oard for their comments and it might come up for consideration in the 1oardMs next meeting on Iuly 1$, $,,#".
)E negotiations

To a Cuery about the collapse of G& and .ndiaMs position in the trade negotiations, Mr <illai said that the negotiations ould no shift to Gene!a. +e said the Bgriculture =hair is expected to come out ith a second set of papers and the non-agricultural market access /@BMB0 chair has not presented its report. ".t is likely that the @BMB chair the challenge paper by the first ill present hat is called eek of Iuly. My o n

assessment is that the 6TO )irector General, Mr <ascal :amy, ill call the trade ministers meeting by the end of Iuly $,,# to take their !ie s". Mr <illai said that the first round of negotiations for a =omprehensi!e Fconomic =ooperation Bgreement /=F=B0 bet een .ndia and the Furopean ?nion, pro!iding for freer trade in goods, ser!ices and in!estment, ould begin in 1russels on Iune $(-$9, $,,#.

3xterna! borrowings beco ing expensive

0. Shi$+umar

ore

,lobal interest rates show signs of hardening Reasons cited Indications a"ailable from the recent hardening of C# Treasury yields "irming of dollar yields triggered by (hinaMs sale of C# Treasuries Sell off of holdings by (hina and Hong 4ong in 'pril led to hardening of dollar yields 1angalore Iune $1 6ith global interest rates sho ing signs of hardening, external commercial borro ings /F=1s0 are beginning to become more expensi!e. 1ankers said they ha!e already cautioned some of the intending external commercial borro ers to hedge their open positions. Most international borro ings are currently linked to the :ondon .nter 1ank Offered 4ate /:.1O40. 7ix-month :.1O4 is currently 3.3 per cent. .nclusi!e of s ap and hedging costs, the effecti!e rates ere currently in the region of about 9 per cent. This as assuming that corporates ere borro ing at rates of about 1,, basis points o!er :.1O4.

The bankers said that indications of a potential hardening of rates ere a!ailable from the recent hardening of ?7 Treasury yields. The 1,-year ?7 Treasury has mo!ed up to 3.$ per cent no from &.' per cent in March end, a ,.' percentage point increase. They said that this trend as likely to continue. Firming of international dollar yields as triggered by =hinaMs sale of ?7 Treasuries as a mo!e to reshuffle its 21.$-billion dollar holdings of exchange reser!es. =hinaMs international reser!es are mostly in!ested in ?7 Treasuries, and long-term bonds. Bccording to data from the ?7 Treasury )epartment, =hina and +ong >ong together sold close to about 2# billion bet een March and Bpril this year. .ndiaMs holdings of ?7 Treasuries on the other hand remained constant at 2$, billion for the same period, according to the data. This sell off as leading to a hardening of dollar yields, the bankers said. The rising yields not ithstanding, .ndia .ncMs interest in F=1s stemmed from the ad!antageous interest rate situation, the bankers said. =urrently, F=1s despite rising yields ere still cheaper than comparable domestic borro ings by at least $.3 to " per cent. )omestic corporates as a result had borro ed a little o!er 23 billion to fund their rupee expenditure till March $,,#. The F=1 flo s ha!e continued ell into this year and medium rung companies ha!e also begun exploring the option of tapping foreign currency borro ings.
;ow -orward premia

1esides, the current lo for ard premia regime is also dri!ing F=1 interest. 7ix-month for ard premia is *ust about

" per cent. This had gone as high as ( per cent in Bpril at the peak of the tight liCuidity situation. :o premia as also dri!en by inflo s for the public offerings, including pri!ate sector .=.=. 1ank. .=.=. 1ankMs public issue has so far netted bids in excess of 4s $3,,,, crore. These flo s along ith funds from other capital in!estors, including foreign portfolio in!estors, prompted a hea!y inter!ention by the 4eser!e 1ank of .ndia in the foreign exchange markets. The inter!ention and the conseCuent liCuidity resulted in pushing do n the yield at the 91-day Treasury bill auctions do n to #.1( per cent at 6ednesdayMs /Iune $,0 auctions do n ', basis points o!er the pre!ious eek. This situation could yet re!erse, the bankers said, once the refunds on the public issue starts and ad!ance tax payments are completed.

Rupee gains on do!!ar in"!ows

3ur 5ureau

Mumbai, Iune $1 The rupee strengthened by three to four paise on strong dollar inflo s into the domestic stock markets. ".nflo s due to .=.=. 1ankMs follo -on public offer and the ):F issue has

helped strengthen the home currency," said a dealer at a pri!ate bank. The home currency opened at &,.(,%($, touched an intraday high of &,.#, to finally close at &,.#1%#$ against 6ednesdayMs close of &,.#3. "7ome nationalised banks ere seen buying dollars in the market, pushing the rupee to &,.## during the day," said the dealer. )ealers expect the rupee to trade bet een the range of &,.3,-&,.#, in the next ten days. The six-month for ard premia stood at $.9" per cent /$.(1 per cent0 and 1$-month premia at $.(" per cent /$.#" per cent0.

Rupee i pact$ *!uechip %+ stocks s!u p >/ .4= in Dan/Dune

8oumita 5a+shi 0hatter9ee Only H(2 Technologies has risen <!AB during this period

@e )elhi Iune $1 4eeling under the impact of appreciating rupee, the share price of bluechip .T stocks such as Tata =onsultancy 7er!ices, .nfosys, 6ipro and 7atyam =omputer 7er!ices ha!e slumped bet een # per cent and 1& per cent since early-Ianuary.

The share price of the countryMs largest soft are exporter, T=7, has fallen by o!er ( per cent on the 17F, hile .nfosys and 6ipro ha!e lost 1& per cent and 1&.' per cent, respecti!ely.

.n stark contrast, the countryMs fifth largest soft are exporter +=: Technologies sa its shares rising 3.#per cent on the 17F during this period. 1ucking the o!erall trend in frontline .T stocks, +=: Technologies shares closed at 4s ""#.$, on Iune $, against a price of 4s "1(.# per share on Ianuary $.
B'assive appreciationD

"The fall in .T scrips ha!e been primarily on account of massi!e rupee appreciation. The rupee has appreciated from 4s &&.$9 to a dollar in beginning of Ianuary to 4s &,.#3 no . That means an ( per cent appreciation, hich has in turn led to a correction in stocks. =onsidering that a one per cent appreciation in rupee reduces margins by ",-&, basis points, an ( per cent rise, can ha!e a margin impact of $-& per cent," Mr Bsh in Mehta, senior research analyst at Bmbit =apital said.

)ata on share price mo!ement of these .T stocks sho s that T=7 shares fell from early Ianuary le!el of 4s 1,$&(.3 to

close at 4s 1,1&3.(, on Iune $,. .nfosys has dropped from 4s $,$#$.&3 in Ianuary to 4s 1,93&.1, no . 6ipro, hich has seen the maximum drop, Cuoted at 4s 3$1.#3 on 6ednesday against the Ianuary-le!el of 4s '11.3, on the 17F, hile 7atyam =omputer 7er!ice slipped #.1( per cent to 4s &#1.(, on Iune $,. "+=: Technologies, on the other hand, has been re-rated, as the company has consistently performed in the last fe Cuarters. The market realises that the companyMs strategy to play in uncontested space is orking," an analyst ith 1rics 7ecurities said.

4M,, voices concern over rupee appreciation

3ur 5ureau @e )elhi Iune $, The @ational Manufacturing =ompetiti!e =ouncil /@M==0 has expressed concerns o!er the impact of appreciating rupee in the manufacturing sector, especially ith reference to the small and medium enterprises /7MFs0. "The rupee has appreciated by around 1, per cent in past 1$ months, hich is hurting the manufacturing sector, especially the 7MFs. This is a cause of concern," )r ;. >rishnamurthy, =hairman of the @ational Manufacturing =ompetiti!eness =ouncil, told reporters on the sidelines of a press conference here on Tuesday. +e added that though the Go!ernment as looking into the issue, measures needed to be taken Cuickly to pro!ide relief to the 7MF sector that has close to '3 per cent share in the manufacturing sector. )r >rishnamurthy also allayed apprehensions that the high gro th of o!er 1" per cent in the manufacturing sector ould lead to inflation. ".nflation is not only due to gro th in

the manufacturing sector. 4ather, emphasis on key manufacturing sectors such as textile, food processing and auto components ill help contain inflation that has come do n to &.( per cent," he said. 7peaking on the high share of the manufacturing sector in the G)< of other countries, )r >rishnamurthy said, "The .ndian manufacturing sector reCuired gro th of 1$-1& per cent o!er a decade to create *obs for the gro ing orkforce. Bnd e!en if this gro th is maintained o!er the next decade it ould lead to only around $3-$' per cent of the G)< share coming from the sector as against a target of o!er ", per cent."

Re strengthens on do!!ar weakness

3ur 5ureau

Mumbai, Iune $, The rupee slightly appreciated against the greenback aided by dollar inflo s in the domestic market and buoyed by the o!erseas eakness of the dollar. The domestic currency

opened at &,.(,%($ and touched an intra-day lo of &,.('. .t closed the day at &,.#3, against TuesdayMs close at &,.(1. )ealers said the rupee as eak earlier in the day as there as corporate demand as ell as some oil related buying. .t as also aided by the eakening of the dollar against other ma*or currencies. The sterling climbed against the dollar as the minutes of 1ank of FnglandMs policy committee meeting sho ed that the Go!ernor and three other members !oted in fa!our of an interest rate hike. "The global eakness of the dollar aided the rupee. 1esides, the ample rupee liCuidity in the system meant it pre!ented the 41. from inter!ening in the forex market," said a dealer at a pri!ate bank. .n for ards, the six-month premium closed at $.(1 per cent /$.($0 and the 1$-month ended at $.#" per cent /$.#30.

3xchange "!uctuations cause shi"ts in Gcost o" !ivingH

D. 8urali 0. Ramesh Rising property prices ha"e caused Indian cities to mo"e up ranking Mercer survey Mum#ai has +umped from position 1/ to <0 $ew %elhi has mo"ed up from AD to 1/ &hennai '())* and Bangalore NLD?O continue to remain at the lower end of the spectrum =hennai Iune 19 Mosco continues to be the orldMs most expensi!e city for expatriates, hile Bsian cities dominate the top fi!e most expensi!e cities on the global list, according to the latest 6orld ide =ost of :i!ing 7ur!ey $,,# by Mercer, a global human resources consulting company.

:ondon, in second position, has climbed three places since last year. 7eoul has mo!ed do n one place to third, follo ed by Tokyo and +ong >ong. The sur!ey, hich co!ered 1&" cities across six continents, measures the comparati!e cost of o!er $,, items in each location, including housing, transport, food, clothing, household goods and entertainment. "There ha!e been some significant changes in the ranking since last year. These are primarily due to exchange rate fluctuations - in particular, the eakening of the ?7 dollar and strengthening of the euro," Ms 4ebecca <o ers, a principal and senior consultant at Mercer, said in a release. "Bs companies continue to send employees on expatriate assignments, they must closely monitor changes in cost of li!ing to ensure their expatriate compensation packages are fair and competiti!e." Ms R!onne Traber, research manager and senior associate at Mercer, saidL "The appreciation of the rouble against the ?7 dollar, combined ith e!er-increasing accommodation charges, has dri!en up costs for expatriates in Mosco ." 4ising property prices ha!e caused .ndian cities to mo!e up the ranking. For instance, Mumbai has *umped from position '( to 3$ hile @e )elhi has mo!ed up from #" to '(. +o e!er, =hennai /1""0 and 1angalore /1"&0 continue to remain at the lo er end of the spectrum. @e Rork remains the most expensi!e city in @orth Bmerica but has dropped fi!e places to position 13. Other @orth Bmerican cities ha!e dropped more steeply and only @e Rork and :os Bngeles rank in the top 3, cities.

"The decline of most ?7 cities in the ranking can be attributed to the depreciation of the ?7 dollar against the euro and other ma*or currencies orld ide. The change reflects a re!ersal of the situation experienced this time last year, hen the ma*ority of ?7 cities climbed the ranking due to the strength of the dollar," said Ms <o ers. Globally, the least costly city is Bsuncion in <araguay for the fifth consecuti!e year.

Rupee "a!!s against greenback

3ur 5ureau

Mumbai, Iune 19 The rupee fell by around & paise against the dollar on the back of demand from banks. The domestic currency opened at &,.#, and fell to close the day at &,.(1, against the pre!ious close at &,.##%#(. )ealers said strong dollar inflo s pushed the currency up earlier in the day. +o e!er, demand from banks pulled the currency do n. "There as strong demand from nationalised banks hich caused the currency to dip. :ater, foreign banks

ere seen going long on dollars," said a dealer at a pri!ate bank. Market participants expect the rupee to appreciate in the next fe days as inflo s related to public offerings ill flood the forex market. .n for ards, the six-month premium closed at $.($ per cent /$.9" per cent0 and the 1$-month ended at $.#3 per cent /$.($ per cent0.

#*- workshop on Forex

3ur 5ureau +yderabad, Iune 19 7tate 1ank of +yderabad is organising a one- eek orientation orkshop on Forex under the auspices of Foreign Fxchange )ealersM Bssociation of .ndia and the 41. at its 7taff Training =entre here. Many officials from authorised dealer branches of !arious banks, including 7tate 1ank of .ndia, 1ank of .ndia, .ndustrial )e!elopment 1ank of .ndia and Bndhra 1ank ere participating in the orkshop. Mr <. 7ubrahmanyam, )eputy General Manager, 41., +yderabad inaugurated the orkshop on Monday in the presence of Mr )ilip Ma!inkur!e, General Manager, 71+, according to a release.

Re gains .1 paise against do!!ar

3ur 5ureau

Mumbai, Iune 1( The rupee strengthened by about 1, paise against the greenback on Monday backed by strong inflo s into the market. 4upee closed at &,.##%#(, up from the pre!ious close of &,.(#. The home currency opened at &,.#' and sa an intra-day high of &,.#1 before ending the day at &,.##%#(. "The 41. as seen buying dollars through the state-run banks around the &,.#1 le!els to cap the further appreciation of rupee," said a dealer ith a pri!ate bank. Market participants expect the domestic currency to trade in the range of &,.3,-&,.9,. .n for ards, the six-month premia closed at $.9" per cent /".1& per cent0 hile the 1$-month closed at $.($ per cent /$.(( per cent0.

Foreign currency !oans$ %:, .51 cr on interest

ay save Rs

Pratim Ran9an 5ose Jore rate of Eune 0@ will be benchmark for interest payments >olkata Iune 1( 1ut for any ma*or change in foreign exchange rates during the remaining period of this month, .ndianOil may sa!e close to 4s 13, crore on interest payment on foreign currency loans during the first Cuarter of this fiscal due to appreciation of rupee against dollar. The decider, ho e!er, ill be played on Iune $9 A the last orking day of this Cuarter A as the foreign exchange rate of that day ill be used as benchmark for interest payments for the period. The rupee appreciated by #.& per cent on an a!erage during the first t o-and-a-half months of this fiscal. The a!erage exchange rate in Iune as 4s &,.31 compared to 4s &".#9 in March. Bs on Iune 13, the exchange rate stands at 4s &,.3$ compared to 4s &".,3 a dollar on Bpril $ /the first orking day of this fiscal0 this year. 7ince the company hedges the exchange rate fluctuation risk through for ard co!er, the actual gain may be lo er than the a!erage. The countryMs largest refiner has foreign currency loans orth 2$.' billion, roughly &, per cent of its total loan portfolio of 4s $',,,, crore. Bccording to sources, fluctuation in rupee-dollar exchange by 1,, paise lea!es an annual impact of 4s $3, crore on the annual interest payout of .O=. .O= paid 4s ""& crore on interest /inclusi!e both domestic and foreign currency borro ings0 during the Bpril-Iune Cuarter of $,,'-,#.

Though the total borro ings remain similar to last year, pro!isions for the Cuarter ending in Iune $,,# are expected to mo!e up due to firming up of interest rates especially that for the short-term loans. The share of foreign currency loans has increased. Bfter some early signs of appreciation bet een Ianuary and February, the rupee started appreciating at a fast pace since March. The trend became stronger in Bpril and May and stabilised in Iune. The slide of dollar as more or less consistent and touched its lo est at 4s &,.1& on May $$. The peak as touched on Ianuary 11 at 4s &&.&9. The fall of dollar has already helped .O= to sa!e o!er 4s &3, crore in $,,'-,# on foreign currency borro ings.

@sing "orex reserves "or "unding in"rastructure

8. Sitarama 8urthy Forex reser!es !irtually make up the 4eser!e 1ank of .ndiaMs entire assets. From a position of shipping gold to :ondon to borro a fe millions to the 2$,,-billion reser!es today, it has been a remarkable *ourney. B debate on making funds a!ailable for infrastructure pro*ects has ensued. To sustain the booming economy there is need for huge in!estments in infrastructure, but the prospects of rationing of funds and increased costs ould act as a dampener. 6hen scarce resources ha!e to be deployed *udiciously, some selecti!ity and rationing are ine!itable. Though costlier, opening the :BF or repos indo by the 41. ould lead to more efficient use of resources. ?sing borro ed

funds ould also mean stringent scrutiny of their application. B reduction in =44 amounts to releasing the banksM o n funds across the board. B percentage point reduction in =44 can in*ect as much as 4s $',,,, crore in to the system. Bs an alternati!e can 41. bring back some of the reser!es to ease the positionO The 41. buys most forex inflo s, both on capital and current account, to ensure an orderly market and also build-up international in!estorsM confidence. .t has helped the countryMs exports too by keeping the rupee rise under check These funds, if used in domestic markets, ould in*ect liCuidity into the market a second time and can create inflationary pressures. Off-loading huge forex funds could further strengthen the rupee, upsetting the exchange rate eCuilibrium and aggra!ating concerns of the exporters. To insulate the markets, once again, the 41. only has to suck out the dollars%euros, the reser!es position re!erting to sCuare one. .n effect, it amounts to the 41. pumping rupees into the markets ith all its attendant conseCuences. Bpart from lo er yields on reser!es, an appreciating rupee means depreciation of reser!es. The 41., thus, finds itself in an unen!iable position. Those looking to push the infrastructure pro*ects such as roads, ports, airports, rail ays, po er and irrigation eye the billions, thanks to the publication of the reser!es and the media glare. The funds ould become a!ailable if the 41. decides on lending this money either to the Go!ernment, commercial banks or directly to pri!ate enterprises. The Go!ernment need not borro in foreign exchange as its borro ings are not ne and the forex reser!es are not a indfall or ne found treasure.

Bs part of the economic reforms, monetisation of deficit has been put an end to. Go!ernment borro ings no ha!e to be at market rates. .n the past, the markets and to some extent the 41., helped the Go!ernment in raising resources at relati!ely lo coupons. 6ith the credit off-take being poor the banks too put more money in securities than reCuired by la . The Go!ernment lured the banks looking to take care of the @<B pro!isioning reCuirements, ith their buyback %s itch of high coupon securities by offering tax incenti!es. .n the recent tight money market conditions, the banks, in fact, ere compelled to shed some of the securities booking losses, causing depreciation of their holdings and necessitating further pro!isions The GO. has been signalling to the market that rates ould be reigned-in and they ould not like a hike in the coupon. The 41. has been assiduously monitoring and managing the money supply through measures like le!eraging the Wrepo rateM. .t canMt permit go!ernment borro ings beyond the planned limit as e!en lending from the forex reser!es could impact the money supply. The Go!ernmentMs dilemma too is that in*ecting a fe billions of dollars into the economy can negate the efforts in containing inflation, leading to a cascading effect. There has been a clamour from borro ers for foreign currency denominated lending to take ad!antage of the lo interest rates and the stable or fa!ourable rupee. 1anks couldnMt meet the demand for ant of funds. @4. deposit accretion has been tardy because of a cap on rates imposed by the 41., as a part of its efforts to contain the inflo of funds. Markets ould be happy if the 41. decides on opening the tap no . 1anks did approach the 41. in the past for a line in

dollars but the central bank re*ected the idea, fearing dilution of its monetary policy. Bt one time, the 41. e!en did not keep e!en a part of its reser!es ith .ndian banks abroad, as the amounts did not count for reser!es. @o the scenario has undergone a sea change. .f the 41. decides to lighten its kitty ithout impacting the money supply and exchange rates the best option ould be to fund only the import%forex reCuirements of pro*ects. The funds can be routed through the commercial banks sub*ecting the in!estments to !iability scrutiny. To o!ercome the inhibitions on using reser!es to lend for pro*ects, a forex refinance indo of the 41. can be opened.

Rupee i pact$ 3xporters hedge receivab!es to cut !osses

0. Shi$+umar Infosys, T(# ha"e raised their risk co"erage limits 1angalore Iune 1' O!er helmed by the rupeeMs appreciation, exporters ha!e once again begun hedging their recei!ables in a bid to cut losses. 1anking sources said exporters ere alarmed by the rupeeMs steep appreciation since the beginning of this fiscal year, propelled by in ard capital account flo s.
.%A"(

7ince the beginning of Bpril this year, the rupee has appreciated by o!er 3 per cent. .n fact, there ere fears that the capital flo s ould dri!e the rupee-dollar exchange rate abo!e 4s &,. 6ith exporters no resorting to hedging their recei!ables, the for ard

premia has dipped to " per cent from about 3 per cent during the beginning of this fiscal year. .n fact, during the eek the frenHy of hedging had dri!en do n the six-month for ard premia to as lo as $.1 per cent. 1ankers said commodity exporters and soft are companies ere among those ho had resorted to hedging. .nfosys and T=7 ha!e already increased their hedging limits. T=7 has increased the co!er from 21.$ billion to 21.3 billion. .nfosys has raised its for ard co!er from 2&3, million to 2#,, million. Most exporters had left some of their positions open till early this year, hoping that firm oil prices ould ensure that the exchange rates ould remain stable. +o e!er bankers said the re!ersal in sentiment follo ed the large inflo s taking place into the country by ay of external commercial borro ings, non-resident in!estment flo s for subscription to the initial public offerings such as .=.=. 1ank. More .<Os are in the pipeline by both public and pri!ate sector enterprises during the next fe eeks, bankers said. This as likely to bring more pressure on the rupee. Bnticipating these flo s, some oil companies and importers ha!e no logged off the for ard co!er markets. .n fact, some of them ha!e opted to lea!e their positions open, anticipating the rupee to harden further. .n doing so, importers hope to gain from the rupeeMs appreciation. Bmong those resorting to lea!ing open position, included capital goods importers, bankers said. The inflo s ha!e triggered a liCuidity build up due to sudden

step in inter!entions by the foreign exchange markets by the 4eser!e 1ank after eeks of restraint. The inter!entions ha!e pushed up foreign exchange reser!e to 2$,9.33 billion. 1ut the liCuidity impact of this inter!ention as e!ident from the bids made at the liCuidity ad*ustment facility auctions. Bt the t o :BF auctions, the bids made amounted to 4s '9,,,, crore. The liCuidity o!erhang has reinforced speculation of a potential inter!ention by the 41., through the cash reser!e ratio route for soaking up excess liCuidity. The expectations ere one of the ma*or factors dri!ing up yields. Ten-year bond yields as a result hardened to (."3 per cent up from last eekendMs (.1' per cent.
B"ise will dent IT industry marginsD

7trengthening of the rupee ill ha!e an impact .T industry margins, said .nfosys Technologies =hief Operating Officer and =FO-designate, Mr 7. Gopalakrishnan, in 1angalore. "The rupee appreciation ill definitely dent the industry. The estimates depend on ho much business happens, in hich location and in hat currency," Mr Gopalakrishnan told presspersons on the sidelines of the =.. .nno!ation 7ummit. "F!ery one percentage point appreciation ill ha!e an impact of bet een ", and &, basis points on the margin," he said. The !alue of the rupee has risen by 9 per cent against the dollar since )ecember $,,'. =urrency hedging, Mr Gopalakrishnan said as a short-term measure to offset the impact of the strengthening rupee.

.n the longer term, companies need to look at their portfolio of ser!ices, the geographies in hich they sell and the prices that they charge from customers to mitigate the impact, Mr Gopalakrishnan added.

#trong Re$ 339, sees negative i pact on exports

8ohan Padmana"han PIf the rupee goes below ?=-le"el, e porters will not get into new contractsM Rising worries Engineering e!porters began feeling the impact of a stronger rupee from mid-'pril The average e port growth rate had fallen to 0D!@0B in dollar terms from around D=B during 'pril 0==1-=A

'" "A:%(# (#A#

>olkata Iune 13 The Fngineering Fxport <romotion =ouncil /FF<=0, hose members account for one-fifth of the countryMs total exports at 2$' billion, is of the !ie that e!en though the export gro th figures from Bpril $,,# on ards do not sho the full impact of rupee appreciation, there ere enough indications no that engineering exports may be impacted negati!ely in the coming months. Bccording to the FF<=, most engineering exporters ere certain that if the rupee touches &,-le!el or dips belo in

Iune /remaining period0, they for the time being.

ill not get into ne

contracts

The council has based its fears on a Cuick sur!ey carried out by it in Bpril of /export gro th0 some 3$-member companies in the large, medium and small categories. Mr 4akesh 7hah, =hairman of the council, told Business 2ine that hen rupee appreciation takes place for an extended period of time, .ndian engineering exporters do find it tough to export to the competiti!e markets in the ?7 and the F?, especially at a time hen export credit cost and domestic prices of steel and other ra materials are also north bound.
(ti-- glo!al competition

+e said in an extremely competiti!e scenario, especially hen the =hinese companies are flooding the global market ith bulk exports, it as !irtually impossible for .ndian exporters to pass on the increased cost of production to the foreign buyers. Fngineering exporters, he felt, began feeling the impact of a stronger rupee from mid-Bpril, and this got accentuated from end-Bpril. The rupee breached the &1-barrier from mid-Bpril, before it came back to rest *ust o!er &, around Bpril $3. Bs per the )G=.7 data released on Iune 1, it is estimated that during Bpril, the countryMs export gro th as $".,' per cent in ?7 dollar terms and 13."9 per cent in rupee terms. Bccording to Mr 7hah, the full impact as likely to be felt in May and Iune, hen the final figures come in. =iting sensiti!ity to exchange rate !ariations as a typical characteristic of .ndian commodity exports, the FF<= =hairman said this as because a large number of engineering exporters ere Wlo or no importM exporters, being mostly in the 7MF sector.

+e said their !olumes do not economically *ustify import of ra material inputs such as steel, copper, nickel and so on. +e said the sur!ey found that the a!erage export gro th rate had fallen to $".9$ per cent in dollar terms from around ", per cent during Bpril $,,'-,#, raising genuine fears of a possible negati!e future trend. The fall in export gro th rate in rupee terms in Bpril, it is stated, as much sharper.

Rupee gains on sustained in"!ows

3ur 5ureau

Mumbai, Iune 13 The rupee strengthened by about & paise against the greenback backed by sustained inflo s into the domestic market, said a dealer ith a pri!ate bank. The domestic currency closed at &,.(# on Friday, up from the pre!ious close of &,.91%9$. 4upee opened at &,.9$%9&, a tad eaker than the pre!ious close of &,.91%9$ and sa an intra-day lo of &1.,13, before ending the day at &,.(#. Market

participants expect the rupee to trade in the range of &,.#3&1.$3. Mean hile, Res 1ank has asked exporters to hold back before taking a position on dollar-rupee because currently the market is !ery !olatile. ".n the longer duration, it is expected that the rupee ill eaken to trade in the range of &$-&$.3,. .nterest rates ill also soften," said Mr B*ay Maha*an, Group <resident, Financial Markets, .nstitutions and .n!estment Management, at the sidelines of a press conference here today. +e felt that by Iuly, the market might see comfortable liCuidity. .n for ards, the six-month premia closed at ".1& per cent /".,3 per cent0 hile the 1$month closed at $.(( per cent /$.(3 per cent0.

Forex reserves rise $...> b

3ur 5ureau Mumbai Iune 13 The countryMs foreign exchange reser!e rose 21.1#& billion to touch 2$,9.3&# billion in the eek ended Iune ( mainly due to the inter!ention of 41. in the forex market. The reser!es had surged by 2".&"9 billion in the eek ended Iune 1. They ha!e no gone up by 23.3' billion in the past three consecuti!e eeks. Foreign currency assets rose 21.1#3 billion to 2$,$.1## billion, according to 41.Ms 6eekly 7tatistical 7upplement. Treasury officials said that the 41. had been buying dollars in the forex market to pre!ent the undue appreciation of the rupee. "Ma*or currencies like the yen had depreciated against the dollar. 7o, the 41. could ha!e bought more than 21 billion

taking into the re!aluation effect," said a senior treasury official at a pri!ate bank. Foreign currency assets, expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es and 7)4s remained the same at 2'.911 billion and 21 million, respecti!ely. The countryMs reser!e position in the .MF also remained unchanged at 2&3( million. )ealers said the rupee could appreciate to &,.3, as strong dollar inflo s are expected from .=.=. 1ankMs fund raising programme next eek. Bd!ance tax outflo s may put rupee liCuidity under pressure and hence aid the appreciation of the domestic currency.

Rupee gains against do!!ar

3ur 5ureau

Mumbai, Iune 1&

The rupee crept up by around 3 paise against the dollar tracking the bullish domestic stock market. The domestic currency opened at &,.(1%(", up from 6ednesdayMs close of &,.9(. .t touched an intra day lo of &,.9'%9# but finally closed the day at &,.91%9$. )ealers said the rupee mo!ed bet een &,.(' and &,.(( for most of the day. "The rupee opened higher in anticipation of a bullish stock market as globally, stock markets ha!e been registering strong gains," said a dealer at a pri!ate bank. .n for ards, the six-month premium closed at ".,3 per cent /".$" per cent0 and the 1$-month ended at $.(3 per cent /".,1 per cent0.

Rupee turns weak by 63 paise

3ur 5ureau

Mumbai, Iune 1" The rupee eakened by about $" paise on dollar buying by importers. The home currency as also seen tracking the Iapanese yen against the dollar. "The market does not expect any interest rate mo!ement in Iapan so the yen

eakened against the greenback," said a dealer at a pri!ate bank. The home currency opened at &,.('%(9, touched an intraday lo of &1.,( and finally closed at &,.9(, against the pre!ious dayMs close of &,.#3. "The 41. as not seen in the market," said the dealer. .n for ards, the six-month premia closed at ".$" per cent /$.93 per cent0 and the 1$-month ended at ".,1 per cent /$.(& per cent0.

#ea"ood industry hit by rising rupee

3ur 5ureau Higher interest rate adds to the woesK industry unable to pass on burden to fishermen >ochi Iune 1$ The seafood export industry has been badly affected by the appreciating rupee as ell as the soaring interest rates, and the impact ould soon manifest on the 3, lakh people ho depend on this sector for their sur!i!al, according to Mr B.I. Tharakan, <resident of the 7eafood Fxporters Bssociation of .ndia /7FB.0.
;oss su--ered

Bs a result of the rupeeMs relentless up ard mo!e, exporters ha!e suffered a loss of o!er 4s 3,, crore on existing stock. The industry is in a spot of bother, as it cannot pass on the impact of the rising rupee to the farmers and fishermen since it ould e!entually lead to a shortage of ra materials. Fishing ould become a less !iable economic acti!ity and the seeding of aCuaculture ponds ould also stop, Mr Tharakan said.
Poor reaslisation

The fishing and culture shrimp season has *ust begun and exporters are not able to confirm orders because of the poor realisation of !alue in rupees. 1esides, the seafood export industry has also been suffering since $,,& from o!er-supply of cultured shrimp from 7outhFast Bsian and 7outh Bmerican countries, resulting in poor demand for .ndian shrimp, the association said.
(tate o- crisis

7hrimp exports from .ndia, hich accounted for close to 21 billion re!enue, ha!e been in a state of crisis for the last t o years ith the ?7 )epartment of =ommerce initiating antidumping duty on .ndian exports. The number of shrimp exporters from .ndia to the ?7 has come do n from $3( in $,,1 to (, in $,,#. 6ith the reigning lo international prices and a strong rupee, seafood exports are expected to come do n during the current year. +ighlighting the social dimension of the problem, the 7FB. said the seafood industry is most often located in back ard and remote areas here no other industry can be de!eloped and uneducated people belo po!erty line are often engaged in fishing and fish processing.
3o domestic demand

O!er 1',$,, fishing !essels 1,$,,,,, country craft and $, lakh fishermen depend on the seafood industry for sur!i!al. 7ome of the products caught by them ha!e !alue only in the international market, ith absolutely no domestic demand. F!en though the dollar !alue is fluctuating daily, the international prices are not impro!ing. This ill lead to fishing acti!ities becoming un!iable and uneconomical, the 7FB. said.

(eeks relie-

The aCuaculture industry is also completely dependant on the export market. The 7FB. has reCuested the Go!ernment to pro!ide some incenti!e and relief to offset the rupee appreciation and also put in place some mechanism hereby the high bank interest burden is reduced for packing credit.

Rupee c!oses higher

3ur 5ureau

Mumbai, Iune 1$ The rupee strengthened by almost four to fi!e paise on dollar selling by some foreign banks. The home currency opened at &,.##%#9, touched an intra-day high of &,.'', to finally close at &,.#3 against the pre!ious close of &,.#9%(,. ")ollar selling strengthened the rupee to &,.'', but soon the 41. as seen in the market as public sector banks bought dollars and the home currency dipped to &,.#& against the greenback," said a dealer at a pri!ate bank.

)ealers said the rupee is likely to trade in the range of &,.',-&,.#3 this eek. .n for ards, the six-month premia closed at $.93 per cent /$.'& per cent0 and the 1$-month ended at $.(& per cent /$.'9 per cent0.

Rupee gains 34 paise on F%% in"!ows

3ur 5ureau

Mumbai, Iune 11 The rupee appreciated by "& paise against the greenback beyond the psychological le!el of &1 on Monday, backed by strong F.. inflo s into the market. The domestic currency opened at &,.9(%99 and sa an intra-day lo of &1.,&%,3 before ending the day at &,.#9%(, up from the pre!ious close of &1.1". ".t as a !olatile market. The rupee sa an intra-day lo of &1.,&%,3 on speculation the central bank as buying dollars through the state run banks. The home currency also sa a high of &,.#9 as a ma*or corporate house as seen selling dollars," said a dealer ith a pri!ate bank. Market participants expect the rupee to trade in the &1-&1.1 range. .n for ards, the sixmonth premia closed at $.'& per cent /$.1& per cent0 hile the 1$-month closed at $.'9 per cent /$."# per cent0.

G:n a structura! basis' rupee appreciating against do!!arH

D. 8urali 0. Ramesh

ay keep

The rising rupee should help reduce imported inflation, particularly that of necessities such as crude oil! =hennai, Iune 11 The rupeeMs sharp rise in the past fe months has become a ma*or cause of concern in industry circles, especially in sectors like .T here a large percentage of companies are dependent on exports for bulk of their re!enues. 7peaking to Business 2ine on the fallout of the strengthening rupee, <rof 4amkishen 7. 4a*an, forex expert and associate professor ith the 7chool of <ublic <olicy of the ?7-based George Mason ?ni!ersity, said that further strengthening may be seen in the !ery near term, thanks to lack of 41. inter!ention. 1ut, he added, the current spike is likely to be a purely temporary phenomenon as the apex bank may step in to inter!ene again at some stage. The ob!ious concern ith such a sharp nominal appreciation is that it could curtail the countryMs export competiti!eness. "Bs long as other Bsian countries like =hina do not permit more flexibility, it is unlikely that .ndia - hich has become much more export-oriented and cost-conscious - ill be illing to accept persistent rupee appreciation." +o e!er, <rof 4a*an said, on a structural basis the expected eakness of the dollar due to large-scale external imbalances and the strength of the .ndian economy, along ith rising domestic producti!ity and gro ing

competiti!eness, dollar.
In-lation

ill see the rupee appreciating against the

+e added that the rising rupee should help reduce imported inflation, particularly that of necessities such as crude oil. ".n addition, some of the speculati!e capital inflo s might re!erse direction, as foreign in!estors choose to book profits follo ing the capital gains they made due to the rupee appreciation. This may help ease the pressure on .ndiaMs balance of payments surplus." Bccording to <rof 4a*an, the rupeeMs strength has been dri!en by persistent balance of payments surpluses, " hich, in turn, ha!e been primarily dri!en by net capital inflo s /F.. and F).0." The 41. responded to the sharp influx of capital inflo s through a combination of a gradual rupee appreciation !is-[!is the dollar as ell as by inter!ening directly in the forex market. This led to the steady rise in forex to o!er 2$,, billion by Bpril $,,#. 6ithout forex inter!ention by the 41., the rupee risen much more sharply, he added. ould ha!e

"+o e!er, the effecti!eness of monetary sterilisation to offset the liCuidity conseCuences of the forex inter!ention has declined and costs ha!e escalated." .n a paper on reser!e stockpiling - WManaging its Monetary =onseCuencesL The .ndian FxperienceM - ritten ith <rof Blice Ouyang, <rof 4a*an has dealt ith the concerns of hether the 41. could sterilise as aggressi!ely it had been doing earlier.

".t is one of the fe papers to actually broach the issue of monetary sterilisation in .ndia systematically."
"7I intervention

Bccording to him, if the 41. keeps inter!ening ithout sterilising, domestic liCuidity ould rise sharply, thus hurting efforts to rein in inflation. ".n !ie of the gro ing external balance of payments pressure and in the background of rising domestic inflation rates, the 41. appears to ha!e decided to allo a much greater share of the impact of the capital inflo s to be reflected in the rupee appreciation." To partly counteract the impact of the appreciating rupee, there is some discussion in the Ministry of =ommerce about establishing a scheme to refund local taxes and le!ies to labour-intensi!e industries ith little import content, <rof 4a*an said. "This is not surprising. +o e!er, these policies are ad hoc and run against the attempts of the Go!ernment to trim the consolidated fiscal deficit." ?ntil $,,$, the rupee had been eak against all ma*or currencies. For instance, it as ruling at around &9 against the dollar in mid-$,,$. 7ince then there has been a ma*or turnaround, ith the rupee experiencing a definite and sustained strengthening. The latest rate of &, against the dollar as last seen in May 199(. "+o e!er, until $,,'-end, part of the rupeeMs sustained rise as more a reflection of the dollarMs generalised eakness o!er the $,,$-$,,' period," <rof 4a*an said. "This is e!idenced by the fact that the bilateral exchange rates ith respect to a number of other ma*or currencies,

such as the euro, pound, =anadian dollar and the Bustralian dollar, ere fairly stable."

DR; #ecurities announces rupee contracts on 8;,I

3ur 5ureau Jirst trade inaugurated in 'bu Dhabi Hedging +pportunity %,&- will be the first e change in the world to trade a rupee deri"ati"e The company has set up trading infrastructure in the 8est 'sian offices for trading in Rupee contracts! >ochi Iune ( I4G 7ecurities has announced the launch of futures trading in .ndian rupee contracts at the )ubai Gold and =ommodity Fxchange /)G=J0. Mr 4egi Iacob, Managing )irector, I4G 7ecurities, said that all rupee contracts ould be undertaken by its subsidiary, I4G Metals and =ommodities. Mr 7udhir >umar 7hetty, =hief Operating Officer and General Manager of the ?BF Fxchange, inaugurated the first trade on the I4G platform in .ndian 4upee futures contracts in Bbu )habi.
Currency Contracts

)G=J listed the futures contract in .ndian rupee on Thursday. This ill be the first time that .ndian rupee is going to be traded in the global futures market and )G=J ill be the first exchange in the orld to trade a rupee deri!ati!e. Trades are already in !ogue in three currency contracts such as euro%?7 dollar, pound sterling%?7 dollar and Iapanese yen%?7 dollar, a press release issued here has said.

Mr Iacob said that the company has set up trading infrastructure in the 6est Bsian offices to pro!ide the global in!estors an opportunity to trade in .ndian rupee contracts. ".n!estors can trade through the .nternet, Mobile and .ndoor Trading Terminals in the I4G offices in 6est Bsia," Mr Iacob said.
Price .luctuation

+e said the .ndian rupee contract ould pro!ide indi!iduals and companies the opportunity to hedge and trade their .ndian rupee risk in a transparent and eCual basis that the exchange pro!ides. I4G made has made all the arrangements to pro!ide the details of .ndian rupee contract through its 31, branches across .ndia and in 6est Bsia. Fach )G=J .ndian rupee contract represents 4s $, lakh. <rices ill be Cuoted in ?7 cents per 4s 1,,, ith a minimum price fluctuation of ,.,,,,,1 ?7 )ollars per 4upee /2$ per contract0. Bt any point in time, )G=J ill list the current and next t o calendar months, plus the next three calendar Cuarterly months. )aily !ariation margin /mark-to-market0 is payable by each member holding open position till expiration date. Open positions at expiry of contract shall be settled in ?7 dollars as per )aily 7ettlement <rice /)7<0 declared by the Fxchange.

GRe appreciation hitting exportsH

3ur 5ureau @e )elhi, Iune (

The export prices of .ndian products in ma*or exporting sectors ha!e become uncompetiti!e by 1,-1$ per cent on an a!erage compared to competing countriesM products as a

result of rupee appreciation against the ?7 )ollar, according to a sur!ey conducted by industry chamber F.==.. The ma*or sectors, that together constitute about half of the countryMs exports, are textiles, garments, electronics, handicraft, machinery, bicycle, chemicals, processed foods, carpets, auto components and medical instruments. <rofitability has fallen in most cases. .n the case of manufactured items of metals, profitability has come do n from 1$.' per cent to as lo as 1.' per cent in the last fe months, according to the sur!ey.

Forex reserves rise $3.430 b

3ur 5ureau Mumbai, Iune ( Forex reser!es ha!e increased by 2".&"9 billion to 2$,(."#" billion for the eek-ended Iune 1 on re!aluation of nondollar currencies against the dollar and 41.Ms inter!ention in the forex market. Forex reser!es had gone up by 293$ million to 2$,&.9"& billion for the eek-ended May $3. Foreign currency assets rose 2".3'& million to 2$,1.,,$ billion, said the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es declined by 21$3 million to 2'.911 billion and 7)4s remained the same at 21 million. The countryMs reser!e position in the .MF also remained unchanged at 2&39 million. )ealers said the rupee is expected to eaken next eek and likely to trade in the range of &1.,3-&1.13.

GForeign in"!ows bound to create pressure on do!!arH

S. Shan+er P& pectations of rupee touching D<-D1 le"els far-fetchedM Mumbai Iune # 6ith the primary market slated to mop up around 4s 3,,,,, crore, there are conflicting !ie s on hat it could spell for the rupee-dollar rate. Bccording to some experts, the dollar may come under further pressure as they estimate the foreign institutional support to these offerings to be in the region of 4s 1,,,,, crore. Mr >alpesh <arekh, +ead of .nstitutional 7ales, B7> 7ecurities .ndia :td, saidL ".t ould suck up some of the liCuidity, but expectations of the rupee touching "3-"' le!els are far-fetched. =lose to "9 ould be more realistic. .t ould ha!e a significant negati!e impact on export re!enues. Bnd, some pressure is likely to be felt for "-' months." The .ndia head of an asset ad!isory company, ho did not ish to be named, said that inflo s in the range of 4s 1,,,,, crore ere bound to create additional pressure on the dollar, gi!en the anticipated contraction in the ?7 economy. .n his !ie , o!erseas in!estors consider !aluations in the .ndian market to be high. +is company manages funds for t o internationally listed companies ith primary in!estment of about 2$3, million.
"upee movement

Tracking the future course of rupee, a recent Mecklai report saidL ".n the short term, the rupee is expected at &1.3 /due to stabilised capital inflo s0 and in the medium term, its !alue ould range bet een &1 and &".3. .n the long term, the rupee is predicted to appreciate again and stand at "(."

1ut French in!estment bank =alyon has a contrary !ie . .t has said that the rupee is likely to slip from a recent nineyear peak as a global re!ersal in risk appetite triggers a a!e of capital outflo s. "B possible correction in the =hinese stock market could spill o!er to .ndia, and foreign funds that poured a net 2".9 billion into local eCuities this year could begin to ithdra ."
Pu!lic issues

):F, hose .<O is slated to hit the market on Iune 11, ill set the ball in motion for a flurry of such offerings o!er the next six months. The ):F issue ill be follo ed by Omaxe, another real estate firm, hich is planning to raise 4s 1,3,, crore. Other issues to follo are +industhan )e!elopment and .nfrastructure :td /4s $,3,, crore0, @ational +ydroelectric <o er =orporation /4s $,,,, crore0 and <o er Grid =orporation of .ndia /4s 1,3,, crore0. 1esides, follo -on issues slated for the next t o months include those of .=.=. 1ank /4s 13,,,, crore0, 71. /4s 1$,,,, crore0 and +)F= /4s &,,,, crore0.

Jaghe!a hints at re!ie" "or rupee/hit texti!e exporters

3ur 5ureau Interest subsidy outstanding under TCJ# may be released

'r (hankar (inh Vaghela

Tirupur /T@0 Iune # Textile exporters, hit by the rising rupee, can expect some early relief from the Go!ernment, according to the ?nion Textile Minister, Mr 7hankar 7inh ;aghela. Talking to ne spersons here on Thursday, Mr ;aghela said that the textile export sector is among the orst hit in the rupee-dollar turmoil and his Ministry had taken up the issue ith the <rime Minister and the Finance Minister for necessary inter!ention and relief. )eclining to re!eal the contours of the relief, Mr ;aghela said " e may get some announcement by next eek or so". The MinisterMs obser!ation comes in the ake of idespread anxiety of textile exporters ho, upset o!er the unrelenting rupee appreciation against the dollar, had been pleading for inter!ention to check the !alue loss. Bmong the measures sought by them are cut in interest rate for export finance, raising the duty dra back rate to neutralise !alue loss suffered in exports by shippers and early 41. inter!ention in the forex market. Mr ;aghela also hinted at the possibility of the Go!ernment initiating steps to release the outstanding interest subsidy due to the textile%garment companies for their borro als under the technology upgradation fund scheme /T?F70. Bcross the country, the outstanding interest subsidy for the T?F7 loanees has remained uncleared for the past six months or so.

The ?nion Minister felt that textile and clothing exports to the ?7 and the F? had sho ed a decline ranging from four to six per cent compared to the pre!ious year, though the decline as not in rupee terms. This might be partly due to the o!erall do n ard trend in imports across-the-board in those countries and partly due to the exchange rate fluctuations. On the proposed changes to T?F7, the Minister said the need to modify the T?F7 allocation as felt because most of the benefits ere cornered by largest in!estments and specific sectors such as spinning. To make the scheme needbased, it as no proposed to cap the in!estment or the in!estment%interest subsidy eligibility so that sectors like processing, technical textiles and po erlooms ould get due attention, he added. The Minister as here to inaugurate a ne the 4oyal =lassic group. trouser plant of

Re appreciation$ F%3: chie" ,o erce #ecy

3ur 5ureau

eets

@e )elhi Iune # The Federation of .ndian Fxport Organisations /F.FO0 has made a sle of suggestions to the Go!ernment to help soften the blo of appreciating rupee on the exporting community. .n his meeting ith the =ommerce 7ecretary, Mr G. >. <illai, here on Thursday, the F.FO <resident, Mr Ganesh >umar Gupta, suggested that the existing exchange earnersM foreign currency /FFF=0 account should be made an interest bearing account. 7tating that cost of credit to exporters has increased substantially, Mr Gupta suggested that export credit should

be pro!ided at bank rate rather than 1enchmark <rime :ending 4ate minus $.3 per cent. +e also said that the 7MF export sector as a aiting an announcement on a mechanism for refund of local taxes to labour intensi!e units, as stated by the =ommerce and .ndustry Minister, Mr >amal @ath, to take care of the impact of the appreciating rupee.

Rupee weakens by 5 paise

3ur 5ureau

Mumbai, Iune # The rupee eakened by about 3 paise against the dollar on sustained buying of the greenback. B dealer ith a pri!ate bank saidL "There as good dollar buying to ards the latter part of the day." The home currency opened at &,.''%'# and sa an intraday lo of &,.#'%## before closing the day at &,.#1 do n from the pre!ious close of &,.''%'#. Market participants expect rupee to trade in the &,.3,-&,.#, range. .n for ards, the six-month premia closed at $.&( per cent /$.'( per

cent0 hile the 1$-month closed at $.'& per cent /$.#' per cent0.

#trong rupee is cause "or concern$ 7arnik

3ur 5ureau IT cos get 1<B of re"enues from C#

'" :I"A3 :A"3I:

1angalore Iune ' The @ational Bssociation of 7oft are and 7er!ices =ompanies /@asscom0 said on 6ednesday that the rupee emerging stronger against dollar has become a cause of concern for the .T industry. "6e ha!e had an (-9 per cent rise in the rupee against the dollar in *ust "-& months. This is something hich the entire industry is greatly concerned about," said Mr >iran >arnik, <resident of @asscom, on 6ednesday. Further, any hope for the industry lies in the ?7 economy performing better than expected and the ?7 t eaking interest rates to prop up the dollar, he added. .ndian .T firms deri!e ',-'3 per cent of their re!enues from the ?7, hich is a ma*or destination for .T exports.

Mr >arnik as speaking on the sidelines of the inauguration of .ndiaMs first .T finishing school. The Mysore-based 4aman .nternational .nstitute of Technology, under an Mo? ith the ?ni!ersity of Mysore, has set up the .T finishing school for .T and non-.T engineers and science graduates. The industry-oriented course trains technical as ell as nontechnical skills like soft skills, communication and language skills, to make the students apt for .T industry absorption. Mr >arnik said that the countryMs .T sector ould reCuire nearly fi!e lakh professionals a year in the next fi!e years to cater to the gro ing needs of the industry. =urrently, the industry reCuired three lakh professionals

Rupee weakens by .4 paise

3ur 5ureau

Mumbai, Iune '

The rupee eakened by about 1& paise against the greenback on speculation that "the central bank as buying dollars to curb its appreciation," said a dealer ith a pri!ate bank. The domestic currency opened at &,.3&%3' and sa an intra-day lo of &,.#$ to end the day at &,.''%'# do n from the pre!ious close of &,.3$%3". Mr =. 4angara*an, =hairman, Fconomic Bd!isory =ouncil to the <rime Minister, said, "To some extent, the appreciation of the rupee has had a dampening effect on inflation." .n for ards, the six-month premia closed at $.'( per cent /$.&$ per cent0 hile the 1$-month closed at $.#' per cent /$.'$ per cent0.

Rupee ends "!at

3ur 5ureau

Mumbai, Iune 3 The rupee ended flat to close at &,.3$%3" against the pre!ious close of &,.3"%3& on 41.Ms continued inter!ention. "There as good dollar supplies in the market," said a dealer ith a pri!ate bank. The domestic currency opened at &,.3"%33 and sa an intra-day lo of &,.3# before ending the day at &,.3$%3".

"The 41. as seen buying dollar through state run banks to cap the strengthening of rupee," said the dealer. +e felt that the rupee ill be range bound and ould continue to remain at the &,.3, le!els as long as the central bank continues to inter!ene in the forex market. .n for ards, the six-month premia closed at $.&$ per cent /$."" per cent0 hile the 1$month closed at $.'$ per cent /$.31 per cent0.

Rupee gains s!ight!y

3ur 5ureau

Mumbai, Iune & The rupee slightly appreciated on Monday against the greenback on the back of dollar inflo s. The domestic currency opened at &,.3,%3$, touched an intra day high of &,.&3%&' but fell to finally end the day at &,.3"%3&, against FridayMs close of &,.33%3'. ")ollar inflo s during the day buoyed the rupee but the central bank stepped in to stem the gains," said a dealer at a pri!ate bank. Market participants said that ith .<O related inflo s expected in the forex market, the rupee is likely to appreciate further. .n for ards, the six-month premium

closed at $."" per cent /$.3( per cent0 and the 1$-month ended at $.31 per cent /$.#" per cent0.

;ovt "or u!ates sche e to he!p exporters hedge

3ur 5ureau =hennai Iune " .t is not Cuite clear hat exactly the Ministry of =ommerce has in mind, but the =ommerce 7ecretary, Mr G.>. <illai, is talking in terms of the Go!ernment gi!ing .ndian exporters some help in hedging against the appreciation of the rupee. "Rou ill get to kno the details in a fe eeks," Mr <illai told *ournalists, in an informal chat here on 7aturday, hen asked if the rising rupee ould affect exports. The .ndian rupee has appreciated 1& per cent since last Iuly, to about 4s &,.', a dollar. 4ight no , the Go!ernment is engaged in doing a "micro analysis" of W hich sectors are affected by ho muchM because of the appreciation of the rupee A mainly against the ?7 dollar, but also against all ma*or currencies.
B'icro analysisD

The study is expected to be completed before the end of this month after hich the Go!ernment ould formulate a scheme to help the more affected exporters. Bns ering a Cuestion, Mr <illai said that such a measure had ne!er been taken before. The exporting community is not also not Cuite a are of hat scheme the Go!ernment has in mind. Mr T. ;asu, =hairman, Fxport <romotion =ouncil for FO?s U 7FK ?nits, told Business 2ine that the =ouncil as gi!en to understand that

the Go!ernment as orking out a scheme but familiar ith the details.

as not

The council reCuested the Go!ernment to pro!ide some "support" at least to those exporters hose costs are all in rupees. To the reCuest made in an Open +ouse in :udhiana in early May, the =ommerce 7ecretary is said to ha!e replied in the affirmati!e. Mr <illai said that at least &3, special economic Hones ould come up in the country ithout facing any issues o!er land acCuisition.
EF@ (%C( <IT#0&T ;A3, P"07;%'

O!er 11, ha!e been appro!ed. For more than ",, pro*ect proposals, land has already been acCuired. Bnother $,,-odd applicants ha!e said that they ould acCuire the land themsel!es, Mr <illai said. +e said that industrial de!elopment bodies of se!eral state go!ernments ere sitting ith huge land banks. For example, the Maharashtra .ndustrial )e!elopment =orporation had about #,,,,, hectares of land near ;idarbha, he pointed out.

8o!!ar to decide go!d price direction

#. 0handrashe+har ,eopolitical considerations would continue to impact the market Mumbai Iune " .n recent days, gold has been taking much of its directional cue from the dollar, and it is likely to continue to remain that ay in the coming days.

:ast eek, the market as buffeted by dollar mo!ements as also ?7 data releases. To ards the end of a !olatile eek, gold put in a more positi!e performance. Tracking the dollar and crude prices, the metal gained strength.
B3o more salesD

Bnnouncement from Furopean =entral 1ank that it has no plans to sell any more gold this year added to the up ard thrust. .n :ondon, on Friday, the <M Fix as 2'''.3, an ounce, up from 2'39.1,%oH the pre!ious day. 7il!er as fixed /BM0 at 21".3"%oH !ersus 21".$3%oH the pre!ious day. .n @e Rork, spot gold inched to ards 2'#,%oH on Friday, almost 21, up from the pre!ious day. Geopolitical considerations and currency gyrations ould continue to impact the market. Foreign exchange experts ha!e turned more positi!e on the dollarMs short-term prospect as incoming data suggest that the ?7 economy is poised to stage a !igorous acceleration in the second Cuarter. 7hould this expectation materialise, then the dollar can be expected to gain further strength, something that ill not bode ell for the yello metal, at least in the short-term.
,i--erent view

Technical analysts, ho e!er, see it differently. From a technical perspecti!e it is said a clear bullish di!ergence is de!eloping on daily momentum oscillators further increasing the odds for additional topside to come. +o e!er, if prices do not breach the 2''3 le!els, then further do nside cannot be ruled out. Follo ing the softening of sentiment, there as redemption of about $3 tonnes from the 7treetTracks Gold FTF last one

month, the largest ithdra al recorded o!er a month. +o e!er, the inflo s are expected to turn positi!e if the current ner!ousness subsides. Total gold held in trust currently is '", tonnes. Technically, sil!er continues to outperform in the near-term. There could be a run to ards the mid-Bpril high of 21&.",.
,ATA (&PP0"T

5ase metalsL =opper prices rebounded o!er the past eek /up nearly & per cent0 on stronger physical buying follo ing the pull-back in prices from o!er 2(,,,, a tonne to around 2#,,,,%tonne and also concerns about possible impact of strike action. On Friday, metals prices ere supported by stronger economic data mainly manufacturing data including ?7 .7M purchasing managers M index and impro!ed ?7 consumer sentiment. The latest :MF in!entory data sho mixed flo s hile both copper and aluminium stocks at 7hanghai futures exchange fell o!er the eek. :MF Hinc stocks continue to be at their lo est le!els in sixteen years. :ast eek, lead prices had rallied to a fresh all-time high breaching the 2$,",,%tonne le!el despite :MF stocks rising. Fxperts see a further upside risk to lead in the light of marketMs tightness amid supply disruptions, strong demand from the battery sector head of the summer dri!ing season and recent changes to =hinaMs lead export taxes.
0il de-icit

0rudeL B recent sur!ey sho ed that O<F= production edged higher in May, increasing by 1,$,,,,, barrels a day ith Blgeria, 7audi Brabia and ?BF accounting for the bulk of the increase. Bt $'.#' mbd /million barrels a day0, O<F= production continues to flo at roughly one mbd belo last

yearMs le!el and some (,,,,,,-9,,,,,, bpd belo recorded in October.

that

6ith global oil balance sho ing deficit in the order of magnitude of 1 mbd, an O<F= production increase of that siHe is far from sufficient to rebalance to bring the market into balance, experts assert.

Forex reserves rise $056

3ur 5ureau Mumbai Iune 1 The countryMs foreign exchange reser!es rose by around 293$ million to 2$,&.9"& billion for the eek ended May $3, due to the 41.Ms inter!ention in the forex market. .n the eek ended May 1(, the reser!es had fallen by 29 million to 2$,".9( billion. Bccording to the 41.Ms 6eekly 7tatistical 7upplement, foreign currency assets increased by 293" million to 219#.&"( billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. )ealers said the 41. had bought dollars in the forex market during the eek under consideration to rein in the appreciating rupee. "The 41. had been buying in the market hen the rupee as strengthening beyond &,.3,," said a senior treasury official at a pri!ate bank.
"evaluation e--ect

)ealers also said there could ha!e been a partial re!aluation effect. The sterling had strengthened against the dollar during the eek in Cuestion from 21.9'9# to 21.9(&3.

Gold reser!es and 7)4s remained unchanged at 2#.,"' billion and 21 million, respecti!ely. The countryMs reser!e position in the .MF dropped 21 million to 2&39 million.

Rupee gains 0 paise

3ur 5ureau

Mumbai, Iune 1 The rupee strengthened by about 9 paise against the greenback on Friday "o ing to strong F.. inflo s into the market," said a dealer ith a pri!ate bank. )ealers said that the rupee as largely range-bound throughout the day. The domestic currency opened the day at &,.3&%3' to close at &,.3$%3" up from the pre!ious close of &,.'1. "The 41. as seen buying dollars through the state-run banks to cap the further appreciation of rupee around the &,.3$ le!els," said the dealer. Market participants feel that the central bank ill allo the gradual appreciation of rupee. "The rupee rally might continue ith huge capital inflo s slated for local eCuities and se!eral initial public offerings like that of ):F and .=.=. 1ank opening for subscription," the dealer added. .n for ards, the six-month premia closed

at $.3( per cent /$.'$ per cent0 hile the 1$-month ended at $.#" per cent /$.#& per cent0.

+irupur knitwear exporters seek (uick re!ie"

# #urumurthy =oimbatore Iune 1 B delegation representing knit ear exporters from Tirupur hich recently called on )r =. 4angara*an, =hairman of the Fconomic Bd!isory =ouncil to the <rime Minister, to highlight the ad!erse impact caused by the appreciating rupee on their exports, has sought some urgent relief from the =entre. The delegation has pleaded for pegging the rupee !is-[-!is dollar parity at a fa!ourable le!el, since no rise in their product price to compensate the rupee !alue appreciation ould be acceptable by the importers ho may shift to buying from other countries. The Tirupur Fxporters Bssociation /TFB0 delegation comprising its secretary Mr G. >arthikeyan, chairman of TFBMs banking sub-committee, Mr 4a*a M. 7hanmugam, and executi!e committee member, Mr 4. 7hanmugam, has sought go!ernmental inter!ention, according to a TFB press release. F!en as the Tirupur garment exporters had to bear the brunt of the !alue losses their exports suffered on account of 1& per cent rise in the rupee !alue bet een Iuly $,,' and May this year, the currencies of other competing countries such as 1angladesh, <akistan, .ndonesia and 7ri :anka largely remained stable. .n the case of =hina, the countryMs biggest competitor in the field, its currency too remained pegged against dollar and hence remained insulated against exchange fluctuation. The delegation members noted that Tirupur exporters could build their export market o!er the past $, years and in the

e!ent they lose out their market, it regain it.

ould be difficult task to

,hida bara con"ident o" sustaining over 0= growth rate

3ur 5ureau PThe way forward to eradicate po"erty, generate Guality employmentM

T#I( <A49 A -ile photo o- the .inance 'inister+ 'r P. Chidam!aram.

@e )elhi May "1 The ?nion Finance Minister, Mr <. =hidambaram, on Thursday said that it as time to shed lingering doubts about the sustainability and scepticism about the high gro th in the .ndian economy and its shift to a higher gro th tra*ectory. Bddressing a press conference here after the official G)< figures ere released, Mr =hidambaram, said, ". ould argue the high gro th e ha!e itnessed in the three years of the ?<B Go!ernment needs to be sustained ith utmost care A because that is the ay for ard to eradicate po!erty, generate Cuality *obs and impro!e human de!elopment indicators." +e added that economy as capable of sustaining o!er 9 per cent gro th during $,,#-,( too. =iting examples on ho Fast Bsia and =hina had demonstrated that high gro th as possible o!er long periods, Mr =hidambaram said, "=hina as gro ing at

double digit rate for the last four years. .t is in the larger interest of .ndia that e maintain a high gro th rate for 1,13 years. 1eyond that, another generation ill address the issue," he said. The Finance Minister brushed aside apprehensions of a possible slo do n. +e, ho e!er, cautioned that the high gro th could put pressure on prices, especially essential commodities, in case supply fails to match demand. ". ha!e al ays maintained that ho e!er unpalatable it may be, high gro th leads to high demand. Bnd high demand does put pressure on prices. ?nless supply catches up ith demand, there ill be some pressure on prices," he said.
Concern over rupee

Mr =hidambaram admitted that rupee appreciating to a nine-year high as affecting certain sectors such as textile exports, though the market largely determined it. ". ha!e taken note of the concern about one or t o sectors being affected by strengthening of the rupee. Those concerns ill be addressed. The 41. is monitoring the mo!ement of rupee. . suppose it is taking or ill take hate!er steps ha!e to be taken," he said.
(o-tening rates

7peaking about the possibility of softening of interest rates, Mr =hidambaram said, "7oftening of interest rates, especially in the housing sector, ould depend on the inflation. The holesale price index-based inflation has been mo!ing do n ard in the last three eeks but then three eeks is too short a period to reach a definite conclusion. 7o, e ill atch the situation carefully." Bdmitting that there as excessi!e flo of around 2$3 billion of foreign exchange through the external commercial borro ing /F=10 route, he said it could pose a challenge as

far as managing money supply as concerned. "The figure sho s the ability of the .ndian industry to attract capital at competiti!e rate hich is good. 1ut unfortunately, the other side is that it increases money supply and then puts pressure on managing the money supply," he added. ". think 41. and the go!ernment ha!e been fairly successful in balancing the need for capital and to maintain price stability," he said. The Finance Minister, ho e!er, declined to gi!e any specific ans er hen asked hether high gro th could lead to o!erheating of economy as ell.

Rupee gains 65 paise

3ur 5ureau

Mumbai, May "1

The rupee strengthened by about $3 paise against the greenback o ing to strong inflo s into market. "There as good dollar supplies throughout the day," said a dealer ith a pri!ate bank. The domestic currency opened at &,.("%(3. 7trong inflo s coupled ith the absence of 4eser!e 1ank of .ndia in the market helped appreciate the rupee hich closed at &,.'1 up from the pre!ious dayMs close of &,.('. Market participants feel that the home currency ould appreciate further to &,.3, this eek. .n for ards, the sixmonth premia closed at $.'$ per cent /$.,# per cent0 hile the 1$-month ended at $.#& per cent /$.&( per cent0.

Rupee "a!!s on sustained buying

3ur 5ureau Mumbai, May ", The rupee eakened by about "' paise against the greenback "on sustained buying of dollars by ma*or corporate houses," said a dealer ith a pri!ate bank. The home currency closed at &,.(' do n from the pre!ious close of &,.3,. The rupee eased a ay from the MondayMs nineyear intra-day high of &,.$(. The rupee opened at &,.33 but immediately fell to &,.'3%#, le!el intra-day, "follo ing dollar buying by oil companies to meet their month-end demands," the dealer added. .n for ards, the six-month premia closed at $.,# per cent /".,3 per cent0 hile the 1$-month premia ended at $.&( per cent /" per cent0.

Rupee gains a tad

3ur 5ureau

Mumbai, May $9 The rupee edged up slightly against the greenback on dollar inflo s. The domestic currency opened at &,.&3%&# and touched an intra day high of &,.&". .t then dropped to close the day at &,.3,, against MondayMs close at &,.31%3$. )ealers said there ere some rumours the central bank had inter!ened to pre!ent the rupee from appreciating beyond its intra day high. "The mo!ement of the rupee no depends on 41.Ms inter!ention in the market. .f the forex inflo s persist, the rupee ill Cuickly appreciate to &,," said a dealer at a pri!ate bank. .n for ards, the six-month premium ended at ".,3 per cent /".1( per cent0 and the 1$month ended at " per cent /".,9 per cent0.

&eather industry "ee!s the sting o" strong rupee

3ur 5ureau

'" GAI"A' "A'%(#

=hennai May $9 The leather industry, hich has sustained an annual export gro th of about 13 per cent in $,,'-,#, could take a drastic hit in the current year due to the strengthening rupee, according to the =ouncil for :eather Fxports /=:F0. 1riefing reporters after a re!ie ith representati!es of the =ouncil for :eather Fxports, the ?nion Minister of 7tate for =ommerce, Mr Iairam 4amesh, said that the =:F has sought the =ommerce MinistryMs assistance in bringing do n transaction cost to offset the impact of rupeeMs appreciation against the dollar.
,ou!ling %$ports

The =:F had brought this up as its single largest concern. The =ommerce Ministry ould apprise the Finance Ministry of the industryMs concern A a concern shared by exporters across industry segments, he said. :o ering the transaction cost ould ha!e to be through enhancing dra back rates. The leather industry as no at a disad!antage compared ith its competitors such as =hina and ;ietnam, he said. The leather industryMs exports stood at 2".1 billion in $,,',# against 2$.# billion in $,,3-,'. .t as slightly off its target of 2"." billion, hich as needed to reach its longterm plan of doubling exports to 2# billion by $,1,-11. The gro th during the year has resulted in one-lakh ne *obs.

The industry hopes to generate o!er half a million ne *obs by $,1,-11 to employ a total of $.$ million persons. The industry has been able to sustain a 13 per cent gro th since $,,"-,&.
(ustaining )rowth

Mr +abib +ussain, ;ice-=hairman, =ouncil for :eather Fxports, said that the leather industry ould soon feel the pinch of the strengthening rupee. 6hile it ould manage to sustain the gro th in the first Cuarter of the current year, it could not hold out long. @o industry can bear up to a ( per cent change in currency !alue in a six- eek period, he said. "The impact ill be dramatic" hen it happens, he said. Mr Iairam 4amesh said the =:F is pushing for the de!elopment of the leather industry in Iammu and >ashmir, here sheep skin is a!ailable, and 1ihar, a good source of ra hides. The =:F ould meet in 7rinagar in Iuly to chalk out a plan to de!elop !alue added leather industries there.

+he "inancia! !ibera!isation tri!e

S. 5ala+rishnan

Interest rates should deter inflation but not in"estment, the e change rate should foster e ports and both should be effecti"ely managed without fetters on capital flows! The WimpossibleM trinity, it is called - you cannot simultaneously control the interest rate and exchange rate and ha!e full currency con!ertibility. =omplete freedom in any one of these restricts your freedom of action on the others. Bmbiguity and ambi!alence are part of the +indu ay of life and existence. F!en in economic /and political0 decisionmaking, e postpone difficult decisions till the !ery end often till it is too late.

Thus, it is not surprising that e gamely continue ith the impossible act of finding the right balance of interest rates, exchange rates and capital mobility. =entral banks of the G-# countries donMt e!en attempt it. Their mandate is clear-cut - keep inflation lo and do hate!er it takes in terms of interest rates to achie!e it. They hardly bother about currency mo!ements, hich is the pro!ince of go!ernments orried about the trade effects of their currency appreciating /as the ?7 has long about the yen and no the =hinese yuan0. .n this sense, the *ob of a G-# central bank is easier than that of the 41., hich must engage in multitasking and satisfy multiple goals. .nterest rates should deter inflation but not in!estment, the exchange rate should foster exports and both should be effecti!ely managed ithout fetters on capital flo s. The 41. has a truly heroic remit. .t has managed the trilemma ell. The price e pay is the high cost of ser!icing foreign in!estment, but that, clearly, is not the 41.Ms fault. .t has to determine its interest and exchange rate coordinates ithin the frame ork of go!ernment policy on foreign direct and portfolio in!estment. Bs economists like Ioseph 7tiglitH and Iagdish 1hag ati ha!e pointed out, financial liberalisation is Cualitati!ely different from trade liberalisation. The latter indisputably promotes competition and exports. .ts effects are there for all to see - better Cuality products and ser!ices and cheaper prices in almost the complete array of industrial and consumer goods. Most important, .ndian manufacturers are beginning to make their presence felt in orld markets and it ouldnMt be a surprise if e emerge as a manufacturing export machine in the next fe years.

The difficulty is ith foreign portfolio funds /and not capital flight e!en if e ha!e full con!ertibility0. This often is a all of money follo ing 6all 7treetMs latest craHe and dri!es up asset prices of all descriptions. 6ith .ndia no being on e!ery global in!estorMs radar screen, high returns are being racked up. The side effect is exchange, interest rate and liCuidity !olatility. O!erall, are e better offO )ata certainly sho the economy gro ing at near double digits. Bsset appreciation does ha!e primary and secondary spending effects. 1ut hat is the mix of in!estment and consumptionO Bnd hat is the forex intensityO =learly, deeper research is necessary to understand the net impact of e!en a ell-managed trilemma.

Re$ Further strength aheadB

T.5. :a ali 2atest le"els make it a frontrunner for best performing 'sian currency Pro imate cause of the rupeeMs recent rise is the RBI refraining from acti"e market inter"ention in the dollarMs support =hennai May $( )ouble-digit mo!ements in currencies are normal in the international markets. @ot so in the .ndian rupee market. Therefore, hen the rupee mo!es more than 1, per cent in the space of a fe eeks, more than eyebro s are raised. Bt its current le!els of &,.', to the dollar, the rupee is a stunning 1& per cent up in the past 1, months /from &#.,3 le!els in Iuly last0 and half of that around ' per cent has come in the past month and a half alone as the .ndian currency raced from the &".$, le!els.

The speed of the mo!e has surprised e!en rupee bulls expecting a more gradual mo!e up in the currency. .ts latest le!els make the rupee a frontrunner for best performing Bsian currency in the past year beating the Thai baht hich has risen around 1" per cent against the dollar. 7o, hat is happening and hat lies aheadO

Rupee gains against do!!ar

3ur 5ureau

Mumbai, May $( The rupee strengthened by about # paise against the greenback to close at &,.31%3$ on Monday do n from the pre!ious close of &,.3(3,%393,. The domestic currency rose intra-day to a nine-year high of &,.$( dri!en by strong F.. inflo s in the market. .t opened at &,.3"%33 and sa a high of &,.$( but Cuickly slipped from the position due to suspected 41. inter!ention in the market. "The central bank as seen buying dollars in a bid to curb the rise of home currency," said a dealer ith a pri!ate bank. .n for ards, the six-month premia closed at ".1( per cent /&.$" per

cent0 hile the 1$-month closed at ".,9 per cent /".# per cent0.

G9ressure on rupee wi!! continueH

3ur 5ureau

'" :.V.:A'AT#

@e

)elhi, May $3

.=.=. 1ank, the countryMs largest pri!ate bank, said on Thursday that the rupee ould continue to be under pressure to appreciate against the dollar as long as capital inflo s exceed outflo s. "There ill be pressure on the rupee to strengthen as long as inflo s exceed outflo s," Mr >.;. >amath, .=.=. 1ank =FO, told presspersons on the sidelines of an industry function here on Thursday. The rupee hit a nine-year high of 4s &,.3, on Monday. +e added that interest rates in the country ere currently sho ing a moderating trend. ". belie!e interest rates are moderating. 1ut if they continue to rise, it can put pressure on the economy," Mr >amath said.

Forex reserves "a!! $0

3ur 5ureau

i!!ion

Mumbai May $3 The countryMs foreign exchange reser!es fell by 29 million to 2$,".9( billion for the eek ended May 1(, due to a drop in foreign currency assets.

Forex reser!es had fallen by 21( million to 2$,".99 billion in the pre!ious eek. Bccording to 41.Ms 6eekly 7tatistical 7upplement, foreign currency assets fell by 2( million to 219'.&(3 billion. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es.
"evaluation e--ect

)ealers said the fall in forex reser!es might ha!e been due to a slight re!aluation effect. "The euro and the yen had eakened against the dollar during the eek under consideration. The 41. had also not inter!ened to buy dollars in the forex market," said a dealer at a pri!ate bank. The euro had fallen from 21."3 to 21."&( and the yen had eakened to 1$1.", yen from 1$,."1 yen, during the eek. Gold reser!es and 7)4s remained unchanged at 2#.,"' billion and 21 million, respecti!ely. The countryMs reser!e position in the .MF dropped 21 million to 2&', million.

Rupee weakens by 3/4 paise

3ur 5ureau

Mumbai, May $& The rupee eakened by around three to four paise on the 41. inter!ention in the forex market on Thursday. The home currency opened at &,.3"%33, traded in a range of &,.3"&,.'1 and finally closed at &,.',%'1 against the pre!ious close of &,.3#%3( on 6ednesday. "The rupee opened strong on dollar supplies in the market but soon public sector banks ere seen buying dollars. The 41.Ms presence in the market brought do n the rupee to &,.'1 le!el," said a dealer at a pri!ate bank. )ealers said the rupee is likely to trade in the &,.33-&,.#3 range in the next 1, days. .n for ards, the six-month premia closed at &.$( per cent /&.&1 per cent0 and the 1$month ended at ".# per cent /".( per cent0.

+rading at the "orex

S. Ra$i

argins

B plethora of small steps ha!e been taken to ards fuller =apital Bccount =on!ertibility, by easing further the restrictions on capital outflo s. B bold mo!e to ards a liberalised remittance scheme allo s remittances up to 21,,,,,, per financial year for any permissible or capital account transactions or a combination of both. 4esident indi!iduals are free to acCuire and hold immo!able property or shares or any other asset outside .ndia ithout prior appro!al. 4esidents can also open, maintain and hold foreign currency accounts ith a bank outside .ndia for making remittances ithout prior appro!al. Many of these steps are primarily aimed at easing outflo of capital from the economy, thus pre-empting some hat the need for the central bank to sterilise the appreciati!e bias on the currency arising out of strong capital inflo s @o the resident has a range of products to trade and hedge his exposure. +e can trade in offshore eCuities, commodities, currency-rates, stocks and indices, treasury products, including margin trading, structured products, immo!able property, and a ide array of in!estment products.

6hile residents can no do freely forex margin trading and structured products o!erseas, does the country offer margin trading in forex and structured productsO The ans er is no. 7o, hat !alue addition and ad!antages participants get by margin tradingO
Advantages o- margin trading and structured products9

ill the market

Highly customised2 To fit the uniCue reCuirements of particular in!estor. They create risk-return profiles and easily a!ailable in many currency pairs. Enhanced yield2 1y expressing a !ie on an underlying currency, in!estors can achie!e higher returns on their in!estments than on traditional products. Denomination2 B!ailable in minimum lot siHe of 21,,,,,or eCui!alent for margin trading. For structured products it is 23,,,,, or more. 3$ercome regulatory issues2 <ackaged products allo for easy access to markets and products other ise prohibited to certain in!estors =lients may benefit from hedging and arbitrage opportunities.
Asymmetric volatility

The cascading effect hen anything happens in the forex market is carried o!er to the call money and stock markets, and it is &' per cent and 33 per cent, respecti!ely. 6hereas in the case of eCuity to call money it is 1&, per cent. The effect of stock market to forex is "$3 per cent, hereas that of the re!erse of forex to stock market is only 33 per cent. 1y studying the asymmetric relationships, the customer s itch from one product to another depending on the market conditions. ill

'arketing (trategy and cost !ene-it analysis

Allows all residents and @4.s to benefit from price mo!ements in international markets for ma*or currencies and allo s them to initiate a trade in any permitted currency. 6ets "an+s decide on the margin money and the le!erage that should be allo ed. Allows all forex and money market brokers in .ndia under pressure to close do n due to number of direct deals taking place among the banks through the trading platforms and gi!e them brokerage. If the trade is carried o!ernight, then it ill ha!e a financing cost. .f the position is long then the a financing cost is payable to the bank. The trading platform ill be eb based, ith li!e prices and deals ill be done at current market prices. 3ffers a !ariety of orders to choose from such as stop-loss, take profit, one cancels the other. 0lients can !ie pending orders. their positions on line, past trades,

5ro+ers may be able to put in trades through .nternet on behalf of their clients. As 8T8 is done on a daily basis market risk is mitigated and there ill only be the counterparty risk. The #o$ernment is making all efforts to promote retailing of G-7ecs to retailers and banks are promoting the business. The same brokers and staff can be used to cross-selling the product hich ill sa!e a lot of money for the banks.
The .lipside

6hen the market picks up, it ill find itself pitched into direct competition ith each other and there ill be emerging trading platforms. This ill force banks to go in for e-Treasury and eb-based technology trading platforms. This threat, compounded by increasingly demanding customers, ill prompt ser!ice pro!iders to sho case their technology Cualifications. 7ome ill go further and commit themsel!es to big in!estments in systems to address particular reCuirements of the directi!e, the speed and resilience of their trading systems or the demand for crossasset trading.
"7IDs clari-ication circular

4esidents cannot remit margin money under the :M7 for doing FJ margin trading ith any o!erseas counter-party, and they cannot remit margin calls for doing any kind of trading ith any exchange house for .nterest 4ate Futures or =urrency Futures. Though the 41. circular is silent about structured products, market participants feel that the residents should not be allo ed to remit money outside .ndia for structured products, as the product ill ha!e a deri!ati!e instrument built into it and its final !alue is not a predetermined one, but is liable for market risk and its return is liable for change hich tantamounts for speculation by the in!estor.
(ituation 0verview

=an the resident trade in FJ margin trading and structured products either in .ndia or outsideO The ans er is no. Though it is understandable that the 41. ould not like to open the doors to full con!ertibility for residents in one go and ould like to mo!e slo on the liberalisation process, let us analyse as to hat are the !alue addition and ad!antages that the market participants ill get by allo ing to trade in .ndia.

8argin trading2 1y in!esting a certain amount of margin money, say 1 per cent, you can initiate a trade in any currency pair up to 1,, per cent. :e!erage is possible. Mark to Market /MTM0 ill be done on a daily basis to mitigate the market risk and margin money ill be reco!ered or paid as per the closing price. Structured roduct transactions are inno!ati!e financing techniCues creating customised financing and in!estment products to suit the financial needs of customers. 1eing customised, they are often uniCue, illiCuid and difficult to price. 6hen used appropriately, they can add positi!e contributions to the efficiency of markets, risk management, and to the elfare of customers and o!erall financial and economic de!elopment. They may di!ersify risks, allocate cash flo s, or reduce costs. .nterest in these in!estments has been gro ing in recent years and high-net- orth in!estors use structured products as ay of portfolio di!ersification. .t is also a!ailable at the mass retail le!el, particularly in Furope and Bsia here national post offices and e!en super markets, sell in!estments on these to their customers
Types o- (tructured Products

E,uity Structures :iability <roduct /ob*ecti!e to reduce the cost0L )ifferent kinds of con!ertibles, !ariants to con!ertibles, con!ertible eCuity, arrants. Bsset products /ob*ecti!e to enhance the returns0L .n!estment structures ith payoff linked to the eCuity. Interest Rate 7tructures :iabilityL Floaters, .n!erse Floaters, =aps, Floors, =ollars, 4ange @otes, 7tep up%do n instruments.

Bsset productsL Treasury .nflation <rotection 7ecurities /T.<70. 7eparately Traded .nterest and <rincipal 7ecurities /7T4.<70, <rincipal protection bonds, 4ore/ Structures2 =hoice of currency and interest rate to reduce the liability costs. =urrency s aps, currency options, etc. Bsset productsL .n!estment structures the forex.
%roding Prices+ 'argin

ith payoff linked to

Future pricing of Treasury is likely to be ske ed by the ondemand phenomenon, but it may not be as out-of- hack as other products. Margins are likely to erode and ill be offset by a more predictable recurring re!enue stream once the critical mass is achie!ed.
,i--erentiating -actors

Those ho offer the !arious products under one trading platform ill be biggest beneficiary and the dealers and trading systems are fully geared to meet the gro ing demand. Technology is potentially a crucial differentiator and can help banks engage ith corporates across the length of the supply chain, rather than *ust at the settlement end of the transaction. 1anks should analyse and compare returns on the !arious products current and for other maturities up to one year, hich ill be a po erful tool for the indi!iduals and portfolio manager to churn and see the impact hen the markets are turning upside do n.
The <ay .orward

6hen residents can no do margin trading o!erseas, it begs the Cuestion hy cannot banks in .ndia tap the local market. .t is high time the 41. accorded the permission Cuickly. Bs it is a non-funded business all banks ill offer the product to all its customers and it ill be ell recei!ed by the residents.

G%ndian exporters can active!y start invoicing in rupeesH

D. 8urali 0. Ramesh Q(ompanies must try and ensure that foreign re"enues are retained abroad to fund cash outflows o"erseas!MM =hennai May $" 6ith the rupee gaining in strength significantly in a remarkably short span, acti!e foreign exchange risk management has assumed enormous importance at .ndian firms hose re!enues are substantially export-dri!en and ho in!oice primarily in ?7 dollars. .mporters, ho e!er, find the situation to be !ery fa!ourable from the cost control angle. 4etaining foreign re!enues abroad for cash outflo s o!erseas and in!oicing in a basket of currencies are t o approaches that companies can adopt to ards meeting this challenge, according to Mr 7unil <arames aran, =FO of Tarheel =onsultancy 7er!ices, 1angalore. +e has authored books on bonds, financial markets, options and so on. 7peaking to Business 2ine on hat companies can do in the face of the rupeeMs unfettered ascent, he said that firms that are acti!e importers and those in the process of acCuiring businesses abroad should try and ensure that foreign re!enues are retained abroad to fund cash outflo s o!erseas, "sub*ect to Go!ernment regulations of courseMM.

"Most .ndian businessmen ha!e a tendency to think in terms of the dollar, and therefore ha!e a habit of Cuoting in terms of it," he said. ". ha!e al ays ondered hy .ndian exporters are not acti!ely starting to in!oice in .ndian rupees." +e added that this should be a feasible option for firms that command considerable clout A "like the ma*or firms in the .T sector" A at least hile dealing ith small and mid-siHe clients. Bccording to him, foreign companies are deri!ing substantial benefits due to lo er production and de!elopment costs in .ndia.
.ore$ risk

".t is about time that some of them are persuaded to face the forex risk inherent in cross-border transactions." Other currencies, particularly the euro, are no firmly established as !ehicle currencies for international trade. "They can, and should, be explored as options for in!oicing exports." Mr <arames aranMs rationale is that an appreciating rupee need not do so simultaneously against all ma*or foreign currencies, at least not to the same extent. +e also belie!es that it is imperati!e that smaller and midsiHe firms take steps to acti!ely manage their risk exposure. "They ha!e a tendency to lea!e their exposure open. .n the past, such entities ha!e often gained significantly due to a depreciating rupee. This happy state of affairs has no been disturbed."

Mr <arames aran sees the appreciating rupee as an indicator of the gro ing strength of the .ndian economy and the maturing of the rupee as a currency. ".t could ha!e ramifications for our decision to go in for full currency con!ertibility sooner rather than later. .n turn, it could open up ne !istas for forex risk management, like the a!ailability of forex futures contracts."
.utures trading

+e pointed out that futures trading has been a spectacular success in .ndia, ith the exception of interest rate futures contracts. "The a!ailability of such instruments ould offer .ndian businessmen an additional tool for hedging their exchangerelated risks."

Rupee ends "!at

3ur 5ureau

Mumbai, May $" The rupee ended flat on 6ednesday. The home currency opened at &,.33%3#, traded in a range of &,.3"-&,.'1 and finally closed at &,.3#%3( against the pre!ious close of &,.3# on Tuesday. The rupee strengthened to &,.3" on strong dollar supplies in the market. "The 41. soon inter!ened in the market, hich brought do n the rupee to &,.',%'1 during the day," said a dealer at a pri!ate bank. )ealers said the rupee as likely to trade in the range of &,.3,-&,.', this eek. .n for ards, the six-month premia closed at &.&1 per cent /&.1" per cent0 and the 1$-month ended at ".( per cent /".'' per cent0.

G9rice action in rupee overextendedH

D. 8urali 0. Ramesh

arket see s to have

=hennai May $$ ;ariation in exchange rates does not pose a risk to gro th in the near term, according to Mr @.7. <aramasi!am, +ead of Forex U Treasury, Fssar Group. 7peaking to Business 2ine on issues surrounding the strengthening rupee, he said that .ndiaMs gro th of (-(.3 per cent in the last fiscal as achie!ed despite the sharp rise in the domestic currency against the ?7 dollar. "=omparati!ely, =hina is gro ing at 9.3 per cent, supported by an under!alued currency to boost export gro th. 7o, there is no risk in the near term." The rupeeMs appreciation is of ma*or concern mainly to soft are exporters and .T-enabled ser!ices, as they are expected to take a topline hit. "This hit of $-" per cent ill get reflected in the first-Cuarter results."

+o e!er, he added, the rise in commodity prices has helped exporters in the manufacturing sector neutralise the negati!e impact of rupee appreciation.
7est per-ormer

The domestic currency has been the best performing in Bsia, appreciating by o!er #.3 per cent in the current calendar compared to $-" per cent in the case of most other currencies. "The price action in the rupee market seems to ha!e o!erextended, aided by lack of inter!ention support from Go!ernment banks from the middle of March $,,#." The rupee touched a nine-year high of &,.3" on May #. "The o!er!aluation in the rupee exchange rate on 4FF4 /real effecti!e exchange rate0 basis has crossed 13 per cent, as per the ' currency trade- eighted, multiplicati!e real exchange rate index /I< Morgan index0 for the .@4 ha!ing FR $,,"%,& Q 1,, as the base." 4FF4 is defined on .in!estopedia.com as Wthe eighted a!erage of a countryMs currency relati!e to an index or basket of other ma*or currencies ad*usted for the effects of inflation.M The eights are determined by comparing the relati!e trade balances, in terms of one countryMs currency, ith each other country ithin the index, says the site. Bccording to Mr <aramasi!am, further sustained appreciation may possibly hamper double-digit gro th in exports in the current year. "Fxporters ha!e started to !oice concerns on the rising rupee affecting their competiti!eness in o!erseas markets. .t has already sCueeHed the margins of exporters in textiles, garments, gem and *e ellery."

+e also said that a drop in 6<.-based inflation to around fi!e per cent remains a crucial factor in triggering a sharp correction in the nominal exchange rate. "The 4eser!e 1ank of .ndia recently increased the limits for issuance of bonds under the market stabilisation scheme from 4s 93,,,, crore to 4s 1,1,,,,, crore, making room for its inter!ention at the appropriate le!el."

:i! cos$ Rupee gain so"tens i pact o" crude prices

Richa 8ishra The rupee appreciation has had a beneficial impact on oil marketing firms as their purchase prices are benchmarked to international product prices! @e )elhi May $$ The rupeeMs appreciation against the dollar has to some extent offset the impact of !olatility in the crude prices on oil marketing companies. "The dent ould ha!e been larger had not the rupee appreciated," a senior oil company official said. The companies are losing 4s '.1, per litre on petrol and 4s ".#3 per litre on diesel because the product is sold belo cost price. The under-realisation on sale of kerosene is 4s 1&.#3 per litre and 4s 1#, per cylinder of :<G. .O= has said that at the current le!el it is losing 4s (, crore a day. On a comparati!e basis, in first fortnight of May last year /as on May 1'0, the companies ere losing 4s '.31 per litre on petrol and 4s '.'' per litre on diesel. Bs on May 1, $,,' the under-reco!ery on a cylinder of :<G as 4s 113 and 4s 1'.1" per litre on kerosene.

:ast year, hen the .ndia crude basket as at 2'#, the rupee as around &3 to a dollar. The rupeeMs current le!el against the dollar is around &1. The rupee has appreciated by around eight percentage points since Ianuary $,,#. .ndiaMs crude basket on Monday rose to 2'#.39 a barrel from 2'#.& on Friday. .t comprises Oman-)ubai sour grade crude and 1rent dated s eet crude in 3(L&$ ratio. 1rent crude on Monday closed at 2'9.(" a barrel, up 3( cents from the pre!ious close. +o e!er, )ubai benchmark settled eight cents lo er at 2'3.91, hile Oman dropped fi!e cents to close at 2''.$'. The .ndian basket a!erage for the current month so far stands at 2'&.(9 compared to 2'3.3$ in Bpril and 2',.$' in March. .n the fiscal ended March, the basket price a!eraged 2'$.&', compared to 233.#$ the pre!ious year. The rupee appreciation has had a beneficial impact on oil marketing companies as their procurement prices are benchmarked to international product prices, denominated in dollars. Oil company sources agreed that the rupee appreciation has offset the impact of increase in crude prices, hen compared ith the same period last year. 1ut they ere Cuick to add that the Go!ernment must put in place a burden-sharing mechanism before the situation gets out of hand as a result of spiralling crude prices. 1esides, for $,,'-,# the OM=s did not get any discounts from the standalone refiners on purchase of :<G and kerosene.

Foreign invest ents / va!ue subtractingB

S. 5ala+rishnan Forget =B=11, or, for that matter, =B=1 - the t o reports on the road map for capital account con!ertibility. The real issues are different. 7ome eeks back, the countryMs forex reser!es crossed 2$,, billion. There ere the usual self-congratulations and back slapping. :ost in the euphoria as the fact that the reser!es can hardly be called our o n. For, they are exceeded by claims from foreign in!estments of the direct /F).0 and portfolio /F..0 types, @4. deposits, external commercial borro ings /F=1s0, foreign aid and other capital account transactions. 6e ha!e a pretty big deficit on current account /i.e., exports less imports of goods and ser!ices and net in!isibles0. Fortunately, this is more than adeCuately funded by capital flo s. .n March $,,', our external liabilities ere 2&' billion more than forex assets. /7ee the 41.Ms 4eport on Foreign Fxchange 4eser!es - Ianuary $,,#0. This situation is !ery different from =hinaMs, assets are more than liabilities. hose foreign

Their reser!es of o!er 21 trillion contain a ma*or WeCuityM component. 6e ha!e forex liCuidity, hich, ithout Cuestion, is absolutely critical to the gro th process, but, in corporate finance terms, =hinaMs forex balance sheet is net orth positi!e hile ours is negati!e. 1y itself, an eCuity deficit is no great cause for orry. 1ut hat is of concern are the astronomical returns on foreign portfolio in!estments in stock markets, pri!ate eCuity and /no 0 property. These are easily in the region of ", per cent and abo!e /annualised0 and entirely free of tax.

.n effect, foreigners are taking a significant share of corporate profits in the booming economy, compounded by the /usual0 phenomenon of stock prices running ahead because they also reflect future profits. Bs the !ast ma*ority of /listed and unlisted0 .ndian companies operate only in the domestic economy ith purely rupee cost and re!enue streams, dollar in!estments add no !alue to either the economy or these businesses but morph their large rupee profits into high double-digit dollar returns through the medium of stock markets. =an e afford itO Bfter all, the other side of the coin is the measly lo single digit earnings on our reser!es. The gap bet een the cost of ser!icing foreign in!estment and yield on our dollar in!estments is probably of the order of $,-", per cent and could easily amount to !alue subtraction of 21,-13 billion from the economy. @either =B= 11 or 1 seems to ha!e touched on this. <erhaps they did not consider it to be in their remit. Time for another committee to study the issueO

Rupee gains on strong in"!ows

3ur 5ureau

Mumbai, May $$ The rupee strengthened by around 1, paise on Tuesday against the greenback on strong dollar inflo s. The domestic currency opened at &,.'1%'", touched an intra-day high of &,.3$%3& and finally closed at &,.3#, against MondayMs close of &,.'#%'(. "There ere hea!y foreign institutional in!estor dollar inflo s of around 2",, million and 211, million in the past t o days. This ould ha!e made its ay to the forex market," said a dealer at a pri!ate bank. Traders said nationalised banks ere seen buying dollars during the day, hich partially trimmed the rupeeMs gains. "The demand could ha!e either been from oil companies or it could be inter!ention from the central bank," said a trader. .n for ards, the six-month premium closed at &.1" per cent /&.,( per cent0 and the 1$-month as unchanged at ".'' per cent.

Rupee gains around 3 paise

3ur 5ureau

Mumbai, May $1 The rupee gained on Monday by around three paise on strengthening of non-dollar currencies against the dollar. The home currency opened at &,.#3%##, touched an intraday high of &,.3", a fresh nine-year high and finally closed at &,.'#%'(. On Friday, the rupee ended at &,.#1%#$. =hinaMs central bank has idened the daily trading band of yuan against the dollar by ,.3 per cent /against ,." per cent0. "B strong =hinese yuan ill strengthen the yen. This ill strengthen the rupee," said a dealer ith a pri!ate bank. Bccording to dealers, the rupee also gained due to strong F.. inflo s into the domestic eCuities. .n for ards, the six-month premia closed at &.,( per cent /&.31 per cent0 and the 1$-month ended at ".'' per cent /".9# per cent0.

GRising rupee hasnHt hurt usH

#. #urumurthy

'r P. 3atara*

=oimbatore May $1 .f the last t o months of slide in dollar rate against rupee ere agonising for most garment exporters in Tirupur, ><4 Mill managed to insulate itself from the !alue loss arising from the strengthening rupee. "Though e export 93 per cent of our garments to the Furopean ?nion countries, e ere not unduly affected because ', per cent of our export trade ere done on euro. 6ith regard to the remaining "3 per cent, e ha!e largely had for ard co!er," said Mr <. @atara*, Managing )irector, ><4 Mill. F!en other ise, ><4 has adopted the cautious approach of not entering on long-term contract and most of the garment shipments by the company ere being booked on Worder-toorderM basis. "The lo export order cycle lasting ithin three or four months adopted by us enabled us to o!ercome this and the current dollar-rupee s ings had, therefore, not unduly affected us," said Mr >. >uppu )handapani, =hief Financial Officer, ><4 Mill. The millMs garment exports gre from 4s 11 crore in $,,1 to 4s 1", crore last year. The company has a tie-up ith ?7 pri!ate eCuity partner Martin Trust, hich has in!ested in ><4 Mill, through its pri!ate eCuity in!estment arm 1randot .nternational.

3xporters ay turn to 3@ as rupee rises against do!!ar

3ur 5ureau @e )elhi May $, 6ith the strengthening of the rupee against the ?7 dollar, .ndian exporters are exploring eurodenominated trade opportunities, according to a sur!ey on exports conducted by the industry chamber F.==.. B combination of factors such as rising cost of ra materials, hike in interest rates and appreciating rupee has eroded the confidence le!el of .ndian exporters, according to the sur!ey. Margins of the exporters are getting sCueeHed to the point here some of them are contemplating catering only to the domestic market for the time being. <articipants to the sur!ey ha!e reported that exports in segments such as textiles, gems and *e ellery, tea, spices, leather and marine products are extremely price-sensiti!e and the recent mo!ement in the rupeeMs !alue has started impinging on their export performance. The sur!ey, hich as carried out during Bpril-May, dre responses from ",& companies. The most se!erely hit ere the small and medium enterprises that had neither the option of reducing their cost burden by resorting to external sources of finance such as external commercial borro ings nor the kno ledge about ho to safeguard and hedge currency exposure using sophisticated techniCues such as for ard contracts. Bd*usting to the phenomenon of rising rupee, exporters are on the lookout for clients and markets here the euro could be replaced as a medium of exchange for the ?7 dollar. This mo!e on part of the exporters indicates that o!er the next fe months the countryMs exports to the ?7 may itness a slo do n, hile exports to the F? may increase.

Rupee appreciation and ?#/..

The rupee has appreciated L=-LL per cent against the dollar in recent times! 'ccounting #tandard N'#-LLO of the Institute of (hartered 'ccountants of India NI('IO go"erns accounting of foreign currency transactions and translations! Those who ha"e long-term loans in dollar such as e ternal commercial borrowings N&(BsO ha"e to book huge gains on account of this fluctuation, when re-stating the balancesheet! Is this correct* The rupee appreciation in the past few weeks was "ery fast and it is difficult to assume that the appreciation will sustain in the long run! How do we proceed to simultaneously comply with the standard and recognise the currency "olatility* 8e ha"e to be prudent while recognising income and booking losses! The gain on account of the appreciation may not be sustainable, and hence is it prudent to recognise the same in the profit and loss NP62O account* (an it be a good practice, not to recognise the income and pass it on to an e change risk administration reser"e to meet future liabilities* Is '#-LL eGuipped to meet this scenario* Bnil <. @air <rudence is no longer an ob*ecti!e of most accounting frame ork. Fair presentation is. Therefore, it is important that assets and liabilities are represented at fair !alues. .n the case of forex loan, fair presentation ould be to account for the loan at the exchange rate pre!ailing on the balancesheet date. Bs a corollary, the corresponding gain%loss is recognised in the Wprofit and lossM account / here else can it goO0. .t ould be incorrect not to recognise the gain, since it ould tantamount to creating a secret reser!e. .t is also not appropriate to suggest that the gain is not being recognised, since exchange rates can cause the re!erse moment in the

future. 6hat if they do notO Bccounting cannot be based on prediction. Iust another point, if the loan as used for financing a fixed asset, then the exchange difference may !ery ell be termed as a borro ing cost under B7-1' and to that extent the same may be capitalised or de-capitalised.

#o e ?sian currencies not "!exib!e' says 3,*Hs 4oyer

3ur 5ureau P& cessi"e accumulation of reser"es a problemM

7I%3V%3&%9 The )overnor+ 7anque de .rance+ 'r Christian 3oyer 5right6+ with the Adviser+ 'errill ;ynch H Co ;td+ 'r 7.,. 3arang+ at a luncheon meeting with CII mem!ers in the Capital on .riday. / "amesh (harma

@e )elhi May 1( :ack of flexible exchange rates among a fe Bsian countries is leading to excessi!e accumulation of reser!es in these countries, hich does not seem to be sustainable in the medium term, the Furopean =entral 1ank Go!erning =ouncil member, Mr =hristian @oyer, has said. "The ma*or concern e ha!e today is ith fe currencies especially in Bsia /does not concern .ndia0, here the lack of flexibility is leading to excessi!e accumulation of reser!es," Mr @oyer, ho is also the French central bank Go!ernor,

said at an industry gathering organised by the =onfederation of .ndian .ndustry /=..0. +e said these countries are being encouraged to progress as rapidly as possible to ards greater flexibility. "This is reCuired to help better eCuilibrium among ma*or economies and reduce global imbalances," he said. Mr @oyer, ho as on a eeklong official !isit to .ndia, met the Finance Minister, Mr <. =hidambaram, later in the day.
&: adopting euro

On the Cuestion of ?> adopting euro as its currency, Mr @oyer said " e !ery much hope they ould *oin us as soon as possible". Bsked hether he sees the euro supplanting the ?7 dollar as the main reser!e currency at any point, Mr @oyer said that he ould not like to make pro*ections of that kind. ".nternational monetary and financial system ill benefit from better balance bet een se!eral ma*or currencies. The ay it is organised, itMs Cuite good," he said. +e also highlighted that this as also good thing for international financing by ma*or companies in the orld hich ha!e the possibility of raising funds in not only one currency but also in se!eral from deep and liCuid markets.

Rupee gains on ,hinaHs

3ur 5ureau

ove

Mumbai, May 1( The rupee strengthened by about 1& paise against the greenback on Friday. B ma*or reason of todayMs appreciation of the rupee, according to dealers, is the announcement of the =hinaMs central bank that it ould be idening the daily trading band of yuan against dollar by ,.3 per cent /against ,." per cent0 effecti!e May $1. " B strong =hinese yuan may strengthen the yen hich might lead to further strengthening of the rupee," said a dealer ith a pri!ate bank. The home currency closed at &,.#1%#$, up from the pre!ious close of &,.(3%(#. The rupee opened at &,.(9%9, and sa an intra-day lo of &,.9$ before closing at &,.#1%#$. Market participants expect the rupee to trade in the &,.3, - &1 range in the coming eek. .n for ards, the six-month premia closed at &.31 per cent /&.3$ per cent0 and the 1$month ended at ".9# per cent /".9# per cent0.

Forex reserves "a!! $.< currencies

on weak non/do!!ar

3ur 5ureau Mumbai May 1( Forex reser!es ha!e dropped 21( million to 2$,".991 billion for the eek-ended May 11 on eakening of non-dollar currencies against the dollar. Forex reser!es had gone do n 21$' million to 2$,&.,,9 billion for the eek ended May &. Foreign currency assets decreased 2# million to 219'.&9" billion, said the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. ")ollar has gained against o!erseas currencies like yen, euro and pound. The market does not expect any cut in interest rates in the ?7. The ?7 economy is also doing better than market expectations," said a dealer at a pri!ate bank. Gold reser!es remained unchanged at 2#.,"' billion hile 7)4s decreased 21, million to 21 million. The countryMs reser!e position in the .MF dropped 21 million to 2&'1 million.

%+' %+e# cos bid to o""set i pact o" rising rupee

Priyan+a Vyas @e )elhi May 1# Fnhanced hedging co!er, denominating a higher share of re!enues in euros or pound sterling, up ard re!ision of billing rates... ell, these are broadly the strategies that .T and 1<O ma*ors are adopting in their effort to offset the impact of the rising rupee. Bccording to Mr 7rini!as ;adlamani, =FO of 7atyam =omputers, e!ery one per cent appreciation in the rupee !is-

[-!is the ?7 dollar pares margins /earnings before interest, depreciation and tax as a percentage of sales0 by roughly ", basis points. Mr ;ineet @ayar, <resident and =FO, +=: Technologies, puts the figure at around "3 basis points. 7imply put, the 1, per cent-odd appreciation in the rupee since early March ould ha!e reduced margins of top .T companies by "-".3 per cent. 7o, ho are they going about cutting their lossesO

Increase o--shore work

7atyam =omputers, for one, is looking to increase its offshore ork, employing more entry-le!el professionals that ould help it reduce a!erage deli!ery costs. "6e are looking to increase the offshore component of our business in contrast to other centres here e offer onshore ser!ices," said Mr ;adlamani. Further, 7atyam, hich had earlier a forex hedge co!er of 2",,-&,, million for about six months, has recently re!ised it to 2'$, million for the same period. 6ipro, on its part, has started changing its billing from the dollar to euros and pound sterling. "6e try to balance the portfolio of our billings on a continuous basis. For instance, some of our clients are global for hom e offer ser!ices in the ?7 and other regions. 7o, for ser!ices offered in other regions, e ha!e started billing in local currency," said Mr 4a*esh 4amaiah, =orporate Treasurer. 7imilarly, .ntegreon, a Mumbai-based outsourcing company, has con!erted its billing into euro and pound sterling for its Furopean clients.
"evising prices

=ompanies such as iGBTF and 6@7 are orking on strategies to pass on the cost of the appreciating rupee to their customers in the ?7 by re!ising prices. "6e ha!e started talking to customers to re!ise prices," said Mr Br*un

7ingh, =FO, 1F7., 6@7. iGBTF, ho e!er, has chosen the ait and atch approach. "6e are already co!ered up to Oct-@o!ember. 7o, unless e see a better rate in the for ard market, e ill continue to atch," said Mr @. 4amchandran, =FO, iGBTF. FJ: 7er!ices is looking to set up deli!ery centre in other locations to reduce rupee denominated costs, said Mr 4ohit >apoor, <resident, FJ: 7er!ices.

Rupee recedes against do!!ar

3ur 5ureau

Mumbai, May 1# The rupee eakened on Thursday by around 1, paise on dollar buying by some oil importers. The home currency opened at &,.(1, touched an intra-day high of &,.## to finally close at &,.(3%(# against 6ednesdayMs close of &,.#(. "@ationalised banks ere seen buying dollars due to demand from importers. The 41. as not seen in the market," said a dealer at a pri!ate bank. )ealers expect the rupee to breach the &1-le!el in the next 1, days.

The six-month for ard premia stood at &.3$ per cent /&.19 per cent0 and 1$-month premia at ".9# per cent /".($ per cent0.

Re strengthens against do!!ar

3ur 5ureau

Mumbai, May 1' The rupee strengthened by about 19 paise on 6ednesday. B currency dealer said large dollar selling by a leading pri!ate sector bank has aided the rupee gain strength. The domestic currency closed at &,.#( a dollar against the pre!ious close of &,.9#. 4upee opened at &,.(3 and sa an intra-day lo of &,.9, before closing at &,.#(. )ealers said there as not much of 41. inter!ention in the market. Farlier in the day, addressing a seminar, Mr 4akesh Mohan, )eputy Go!ernor of 41., said, "F!en though the 41. does inter!ene acti!ely in the currency market, if you look at the !olume of inter!ention, it is really !ery small compared to the o!erall turno!er in the forex market." "4obust capital inflo s coupled ith strong collection had posed problems of liCuidity management in the money market," Mr Mohan

added. .n for ards, the six-month premia closed at &.19 per cent /&.#& per cent0 hile the 1$-month ended at ".($ per cent /&.1$ per cent0.

%ntervention in currency Rakesh Mohan

3ur 5ureau

arket s a!!$

P2iGuidity management has been a challenging taskM At a glance .The Indian approach to e change rate management has been to a"oid e cessi"e "olatility!M PRBI lays stress on maintaining financial stabilityM

'" C#"I(TIA3 304%" 5le-t6+ )overnor o- 7anque de .rance+ with ,r "akesh 'ohan+ ,eputy )overnor o- the "eserve 7ank o- India+ at the International .inancial .orum in 'um!ai on <ednesday. Paul 3oronha

Mumbai May 1' O!erall liCuidity management has been a challenge in the past fi!e to six months but the 41. has to deal ith it, said )r 4akesh Mohan, )eputy Go!ernor, 4eser!e 1ank of .ndia. ".ncreased !olatility in capital flo s tending to in*ect excess liCuidity into the system and bunching of tax payments that suck liCuidity out of the system, ha!e made the task of liCuidity management some hat more difficult o!er the past year," he said at a seminar on WFuropean financial marketsM.

On the 41.Ms inter!ention in the forex market, )r Mohan said the central bank does inter!ene in the currency market but the !olume of inter!ention as smaller than the total turno!er in the forex market. Fxchange rate is market determined, he said. "The .ndian approach to exchange rate management has been to a!oid excessi!e !olatility," he added. Bccording to )r Mohan, "The recent change in legislation enables the 41. to reduce the statutory liCuidity ratio depending on the macro and monetary conditions." The Go!ernment has recently allo ed the central bank to lo er 7:4 belo $3 per cent. The 41. as cautious and laid stress on maintaining financial stability in the country, he added. ".n a lo -income economy like ours, the cost of do nside risk is !ery high, so the ob*ecti!e of maintaining financial stability has to be constantly kept in !ie as e de!elop financial markets," he said.
'oney markets

On money markets, )r Mohan saidL ".n line ith the shifts in policy emphasis, !arious segments of the money markets ha!e acCuired greater depth and liCuidity. The price disco!ery process has also impro!ed." +e added, "The call money market has been transformed into a pure inter-bank market, hile other money market instruments such as repo and =1:O ha!e de!eloped to pro!ide a!enues to non-banks for managing their short-term liCuidity mismatches."

On go!ernment securities market, he said there as a need to make the market more liCuid and increase the number of players.

Rupee "a!!s 0 paise

3ur 5ureau

Mumbai, May 13 The rupee eakened by around nine paise on Tuesday due to strong demand from oil importers. The home currency opened at &,.#( and closed at &,.9# against MondayMs close of &,.((. "7ome nationalised banks ere seen buying dollars but the market does not percei!e it as a central bank inter!ention," said a dealer at a pri!ate bank. Bccording to dealers, month-end demand from importers push do n the rupee to &1.$,. The six-month for ard premia closed at &.#& per cent /&.9$ per cent0 hile 1$month premia ended at &.1$ per cent /&.$3 per cent0. ill

Rupee e""ect$ ,o""ee exporters stop signing new orders

8.R. Su"ramani

(urrency gains /B o"er >K growers reluctant to lower prices /rewing pro#lem Permits issued for coffee e ports till 5ay L? were @L,/11 tonnes against /A,L1@ tonnes during the same period a year ago! The rupee has gained from ??!0= to the dollar since the beginning of the year to ?=!@1! =hennai May 13 =offee exporters ha!e stopped booking ne contracts in !ie of the gain the rupee has made against the dollar and their differences ith gro ers on the offer prices. "@o contracts are being signed for exports. Bny shipments being do n no are those contracted already," said an exporter from 1angalore.
Incurring losses

Bccording to Mr Milan 7hah of the Iayanthi Group, exporters are incurring losses bet een eight per cent and nine per cent in fulfilling their commitments. Trade sources said gro ers ere reluctant to offer coffee at lo er prices. "Gro ers are not ready to scale do n their prices. They may ha!e to lo er their prices by (-9 per cent. Fxporters are, therefore, reluctant to buy coffee," Mr 7hah said.
'onsoon pro!lem

6hile a!ailability of stock is not a problem, the trade percei!es a change in the situation ith monsoon round the corner. "Gro ers ill ha!e to decide fast on selling their produce. Once monsoon sets in, they ill ha!e problem in disposing of their stocks. Blso, it ill affect the Cuality of coffee," trade sources said.

Bccording to the .ndia Meteorological )epartment, the monsoon is set to arri!e a eek ahead this year around May $&.
%$port permits up

Bs per the data posted on the =offee 1oardMs 6eb site, permits issued for coffee exports till May 1& ere 91,('' tonnes against (#,1'9 tonnes during the same period a year ago. Bctual shipments reported are '',((, tonnes against (1,311 tonnes. Bctual exports are likely to be higher than this since exporters take at least three eeks to report on the shipments. On Tuesday, the rupee declined to &,.9'%# against the dollar from &,.(( on Monday. The rupee has gained from &&.$, to the dollar since the beginning of the year. Farmgate arabica parchment prices are currently being Cuoted at 4s &,,,3-&,$(, against 4s &,"$3-&,&,, in early March for a 3,-kg bag, hile robusta cherry is ruling at 4s 1,'',-1,#13 against 1,'1,-1,'3,. 4obusta prices are being Cuoted higher due to lack of stocks, especially in ;ietnam.
"ecord Vietnam prices

Blso, prices in ;ietnam are ruling at record high as the ;ietnamese dong hasnMt increased the ay .ndian rupee has against the dollar, according to trade sources. ;ietnam robusta $,3 grade is being Cuoted around 21,',, a tonne f.o.b +o =hi Minh =ity. Fxporters here are Cuoting 21,(,, a tonne f.o.b =ochin for robusta cherry B1, hile arabica plantation grade B is Cuoted at 2$,(3,.

Rupee gains 35 paise

3ur 5ureau

Mumbai, May 1& The rupee strengthened by about "3 paise against the greenback on Monday on sustained selling of dollars by ma*or corporates. The domestic currency closed at &,.((, a dollar, higher than the pre!ious close of &1.$"%$&. "There as strong F.. inflo s into the market," said a dealer ith a pri!ate bank. The rupee opened at &1.,3, hich as also the intra-day lo , to close at &,.((. Forex dealers expect rupee to trade in the &,.#3 - &1 range this eek. .n for ards, the sixmonth premia closed at &.9$ per cent /&.&$ per cent0 hile the 1$-month ended at &.$3 per cent /".9' per cent0.

R*% picks up $6.3 b in March

3ur 5ureau

=hennai May 1& The 4eser!e 1ank of .ndia purchased 2$." billion in March, according to figures pro!ided in the table on the sale%purchase of the ?7 dollar by the 41., gi!en in its monthly bulletin. The 41. has purchased 2$'.( billion during the fiscal ended March $,,#. That ould ha!e released rupee currency eCui!alent to 4s 1,1(,99& crore into the system. Forex reser!es had risen by nearly 2&, billion during the fiscal ended March $,,#. The bulk of the purchases came in the month of February hen the 41. bought nearly 21$ billion. The 41. purchased about 2&." billion in Bpril $,,' and another 2,.3 billion in May $,,'. This as follo ed by a spell of keeping a ay from the market for the next fi!e months. .n @o!ember, the bank resumed buying dollars, and totted up 2".$ billion. The rupee started appreciating sharply from mid-March hen it as trading at &&.$1 to the dollar. There has been no sale of dollars during the fiscal, according to the bulletin. .n the pre!ious fiscal ended March $,,', there as a purchase of about 213 billion and a sale of about 2# billion.

;o!d s!ips in "orward gains

Pratim Ran9an 5ose

arket on rupeeHs

%o benefit to customers as +ewellery prices rule steady on demand Indicators Prices were down by D!?< per cent to Rs @,=@/ on 5(R

during Eanuary DL and 'pril 01 against D!=? per cent rise at (ome during the same period 0ewellers riding high on good business from lesser known religious festi"als >olkata. May 1$ The appreciation of rupee has made gold cheaper in domestic for ard markets !is-a-!is the rise in prices in the global market bet een February and Bpril. .t is, ho e!er, doubtful hether the end customers ha!e got the full benefit of the same as demand for *e elleries has been exceptionally high in the local market during this period.
(tudyDs -indings

Bccording to a study conducted by =omtrendH 4esearch, gold prices ha!e come do n by ".&3 per cent to 4s 9,,9( on M=J bet een Ianuary "1 and Bpril $'. This is against a ".,& per cent rise in prices on =omex during the same period. =omtrendH has considered the most acti!e contracts for this comparati!e analysis. The reason is a clear #.$$ per cent appreciation of the rupee from 4s &&.,# a dollar to 4s &,.(9 during the period. "The appreciation of rupee has clearly spoilt the party on gold in .ndia for the time being," feels Mr 7i >annan, Bssociate ;ice-president of >otak =7: 4esearch.
3o more rise?

Bccording to him, e!ery 1, paise appreciation of rupee negates one-dollar up ard mo!ement in orld gold prices. +e is, ho e!er, hopeful that no ma*or appreciation of rupee is expected any longer. 1ut ha!e the customers en*oyed the full benefit of the sameO Market sources feel that a strong demand push has

orked against the customers. Ie ellery prices ha!e a strong correlation ith demand factor. Mr )e!asis Moitra, head of the 6est and @orthern region of the 6orld Gold =ouncil, .ndia chapter, does not ha!e any ready figures of retail *e ellery prices during March-Bpril.
)ood !usiness

+e, ho e!er, claimed that the *e ellers had made unexpectedly good business till date taking a ride on T; soaps promoting the buying of gold on the occasion of lesser kno n regional festi!als such as "Bkshaya Tritya", "1aisakhi", and "Guru <ushya @akshtra" during the first four months of the year. "Generally, ",-"3 per cent of the total demand for gold is generated in the first half of the year. :ast year, it as e!en orse hen sales ere hardly $3 per cent due to !olatility in gold prices. 1ut this year the market may ha!e already consumed &3 per cent of the total consumption in a mere four-and-a-half months," Mr Moitra said. .n fact, 33 to ', tonnes of gold *e ellery Bkshaya Tritya on Bpril 19 and $,. ere sold on

Forex reserves down $.66

3ur 5ureau Mumbai May 11 Forex reser!es ha!e gone do n 21$' million to 2$,&.,,9 billion for the eek ended May & on eakening of non-dollar currencies against the dollar. Forex reser!es had gone up by 2$3& million to 2$,&.1"3 billion for the eek ended Bpril $#. Foreign currency assets decreased 2"## million to 219'.3,, billion, said the 41.Ms 6eekly 7tatistical 7upplement.

Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. "=urrencies like the euro eakened against the greenback hich is reflected in the countryMs forex kitty," said a dealer at a pri!ate bank. Gold reser!es increased 2$3$ million to 2#.,"' billion hile 7)4s remained unchanged at 211 million. The countryMs reser!e position in the .MF dropped 21 million to 2&'$ million.

Rupee gains 5 paise

3ur 5ureau

Mumbai, May 11 The rupee strengthened against the dollar by about 3 paise on Friday as corporates sold dollars. +o e!er, dealers said,

the trading as !olatile during the day. The domestic currency closed at &1.$"%$& on Friday against the pre!ious close of &1.$(%$9. The rupee opened the day at &1.&', hich as also the intra - day lo , to close at &1.$"%$&. The greenback as, ho e!er, seen strengthening against other ma*or currencies. ")ollar has appreciated against euro and pound," the dealer said. Traders expect the rupee to trade in the &1.1, - &1.3, range in the coming eek. .n for ards, the six-month premia closed at &.&$ per cent /&.9, per cent0 and the 1$-month ended at ".9' per cent /&.$' per cent0.

Aestern @nion in pact with #pandana

3ur 5ureau 8ill co"er semi-urban, rural areas in 4arnataka and 'P +yderabad May 9 Global money transfer ser!ices pro!ider 6estern ?nion ill offer its ser!ices in about $&3 semi-urban and rural locations in Bndhra <radesh and >arnataka. The company has tied up ith 7pandana, a micro finance institution, for the purpose, Mr 4atheesh >umar, =ountry )irector, 6estern ?nion, told ne spersons here on 6ednesday. "Blbeit no primary data is a!ailable, there has been considerable migration of rural men from Bndhra <radesh and >arnataka to the Gulf countries and other regions on ork permits and the remittances to families from there are Cuite significant. 6e see huge potential in semi-urban and rural areas," he said. The tie-up ith 7pandana ould pro!ide 6estern ?nion the data of about 1 million households. "6e are also open for more tie-ups to expand our reach," he added.

Ms G. <adma*a 4eddy, Managing )irector, 7pandana, said the tie up ith 6estern ?nion ould be a !alue addition to its ser!ices. "This offers a broader platform for our rural customers," she said. Bccording to 6orld 1ankMs Global Fconomic <rospects $,,', .ndia is the largest recipient of remittances in the orld.

GRising rupee has not hit re ittancesH

3ur 5ureau India likely to maintain its leading position this year too >ochi May 9 .ndia as the leading remittance recei!ing country in the orld last year and recei!ed 2$'.9 billion from expatriate .ndians. "The gro ing strength of the rupee !is-[-!is the dollar has not affected the inflo of remittances into the country to any considerable extent," Mr 7u!odeep )as, Marketing )irector for 7outh Bsia of 6estern ?nion, told Business 2ine. Most of the remittances come for consumption expenditure and there is no ay @4.s can hold back these despatches and they form a !ital and assured stream of foreign exchange inflo . .ndia, hich recorded a 1, per cent gro th in remittances from 2$".& billion in the earlier year, is likely to maintain its leading position this year as ell. The inflo in terms of foreign exchange is likely to remain unaffected but se!eral of the lo and middle-income households might be put to difficulties since they ould be recei!ing lesser income in rupee terms, Mr )as said.
<estern &nionDs share

6estern ?nion had a 1#.& per cent share of the global remittances of 2$'9 billion last year. The 13,-million customer-to-customer transactions generated 2&# billion turno!er. The company clocked a total re!enue of 2&.3 billion. The global remittances are expected to gro to 2$(9 billion this year and the company expects a re!enue gro th of 9-1$ per cent, Mr )as said.

Re sheds > paise against do!!ar

3ur 5ureau

Mumbai, May 9 4upee eakened by around # paise against the greenback to close at &,.9$%9" on 6ednesday against the pre!ious close of &,.(3%('. The domestic currency opened at &,.9"%93, sa an intra-day high of &,.(# and an intra-day lo of &1.,$. "There as some dollar buying hich eakened the rupee to an intra-day lo of &1.,$," said a dealer ith a pri!ate bank. Market participants expect the rupee to trade in the &,.#3-&1.13 range in the coming eek. .n for ards, the six-

month premia closed at 3."9 per cent /3.3$ per cent0 and the 1$-month ended at &.33 per cent /&.#" per cent0.

GRising Re wi!! hit synthetic exportsH

3ur 5ureau Mumbai, May ( Fxports of man-made fibre textiles are expected to slo do n as a result of the appreciating rupee. The target of 2$,9$1 million set for the current financial year looks a distant possibility in the current scenario, according to Mr 7an*ee! 7aran, =hairman of the 7ynthetic U 4ayon Textiles Fxport <romotion =ouncil /74TF<=0. )uring the last three months, currencies of competing countries like =hina and .ndonesia ha!e remained almost unchanged hile those of 7outh >orea and Thailand ha!e gained 1-" per cent, making .ndian exporters uncompetiti!e in the international market.

Rising rupee$ 7a a! 4ath seeks 9MHs intervention

3ur 5ureau ,o"t must help e porters maintain competiti"e edge3 JI&O @e )elhi May ( 6ith the rupee rising to a ne high !is-[!is the ?7 dollar, the =ommerce and .ndustry Minister, Mr >amal @ath, has sought the inter!ention of <rime Minister, )r Manmohan 7ingh, in the issue, particularly to address the concerns of the exporting community. "The =ommerce Minister has ritten to the <rime Minister on this issue. <eople at the highest le!el are a are and something is being done. 7ome action ill be taken. .t is of

concern to us too," Mr G.>. <illai, =ommerce 7ecretary, told the Federation of .ndian Fxport Organisations /F.FO0 members at an open house meet on foreign trade policy. Official sources said that the <rime Minister had been reCuested to con!ene a meeting of all agencies concerned to discuss the matter and take appropriate action. The rupee has been scaling ne heights against the dollar and has touched a nine-year high of 4s &,.33. The F.FO <resident, Mr G.>. Gupta, on Tuesday urged the Go!ernment to inter!ene in the larger interest of exporters so that they are able to maintain their competiti!e edge in the global market and also achie!e the target set by the Go!ernment. The Go!ernment has set an export target of 21', billion for $,,#-,( and 2$,, billion for $,,(-,9. Mr Gupta said that the continuous appreciation of the rupee as exerting pressure on profit margins of exporters. "The sharp fluctuation in the exchange rate is not good for any serious importer or exporter. Fxports costing, particularly for those getting spot orders, becomes complicated and uncertainty looms until they realise money for shipments effected." +e added that small exporters, particularly those in traditional sectors ho are ignorant of risk co!er mechanisms, ere "feeling the pinch." Mr Gupta also said that increase in ra material cost and interest rates had compounded the exportersM oes. Bn exporter said that export credit rates had gone up by three per cent in recent eeks.

Mean hile, Mr <illai indicated that all notifications relating to the announcements made in the annual supplement to the foreign trade policy ould be issued by the 4e!enue )epartment by May 19. +e also said that the benefits of the Focus <roduct and Focus Market schemes ould be extended to exports made from non-F). ports as ell. This has been a long-pending demand of exporters. The =ommerce 7ecretary also said that all ports in the country ould be electronically connected in (-9 months. The Go!ernment is keen on reducing transaction cost and simplifying procedures for exporters, and looks at this as a better ay to boost exports in the long run rather than relying on !arious incenti!es.

Rupee c!oses "!at

3ur 5ureau

Mumbai, May ( The rupee closed almost flat on Tuesday. The currency closed at &,.(3%(' against the pre!ious close of &,.(#. "The domestic currency sa a t o- ay mo!ement. .t opened at

&,.(#, hich as also the intra-day lo day high of &,.#,%#$.

and sa

an intra-

There as some dollar buying by foreign banks," said a dealer ith a pri!ate bank. The rupee has been gaining against dollar in the past fe months. Market participants expect the rupee to trade in the range of &,.#, - &1.1,. .n for ards, the six-month premia closed at 3.", per cent /3.'1 per cent0 and the 1$-month ended at &.3, per cent /&.#1 per cent0.

Rupee ends "!at) touches intra/day high o" 41.54

3ur 5ureau #oftware and ser"ice e porters are the losers from the rupee gains, said (redit #uisse report! Mumbai May # The rupee ended almost flat on Monday against the FridayMs close but touched an intra-day high of &,.3"%3&, a fresh nine-year high. ")ecent amount of F). inflo s and steady F.. inflo s ha!e helped the rupee to gain against the greenback. There are large public issues hitting the domestic capital market, hich ill attract o!erseas interest," said Mr >. +arihar, +eadTreasury, )e!elopment =redit 1ank. Till no in $,,#, F..s ha!e in!ested o!er 2$.9 billion in the eCuity and 2$9" million in the debt markets. The rupee opened strong at around &,.'3%#,, mo!ed in the range of &,.3"-&,.', but finally dipped sharply by around $3 paise to close at &,.(#. The rupee closed at &,.(3%(# on Friday.
#eavy dollar !uying

)ealers said there as hea!y dollar buying from corporates hich pushed do n the rupee. "The rupee also tracked the mo!ement of o!erseas currencies against the dollar. )ollar eakened against the yen on eak non-farm payroll data," said the dealer. The rupeeMs appreciation is certainly expected to hurt exporters e!en more. Bccording to a report by =redit 7uisse, soft are and ser!ice exporters are the losers from the rupee gains. 4ecently, T=7 admitted to hedging its dollar earnings for 21 billion at &".3,. "7ome pharmaceutical ma*ors could also face profit pressure due to eak pricing po er on exports. +otels and transportation companies too ha!e ad!erse exposures but ha!e much better pricing po er to eather the appreciation," said the report. Many metal companies are benefiting from the impact of a eak dollar on commodity prices, but the genuine direct beneficiaries ould be media, engineering and certain consumer companies, the report added.
.orward Premia

The six-month for ard premia is at 3.", per cent /3.'1 per cent0 and 1$-month premia is at &.3, per cent /&.#1 per cent0. )ealers feel rupee is on an appreciating mode and is expected to go up further. 7tandard =hartered 1ank said it has lo ered year-end rupee forecast to &$.$, from &".(, against the ?7 dollar. The bank further said the rupee has been on an appreciating path since *ust before the fiscal year-end, breaching one psychological le!el after another.

".ndeed, during that period, it has appreciated by around eight per cent. <re!iously, the 4eser!e 1ank of .ndia has not tolerated the exchange rate stronger than present le!els going back to 199"-9&. This rupee strength has been largely due to the relati!e absence of the 41. from the forex market despite the rise in rupee. The currency as allo ed to trade more in sync ith demand and supply conditions," said a press release by the bank. Mr 7undeep 1handari, Managing )irector and 4egional +ead - Global Markets, 7outh Bsia, 7tandard =hartered 1ank, said, "The 41. appears to be tolerating a much greater degree of rupee strength than e had pre!iously expected. This is indicated by its o!er!aluation on a real effecti!e exchange rate /4FF40 basis. Our o n proprietary 7=1 .@4 4FF4 indicates a multiyear Mo!er!aluationM of around 1# per cent. This comes from assuming that the base year of FR9"9& is here the 41. sees fair !alue for the rupee. "

;ar ent exporters worried over rising rupee

Swetha :annan Hope for RBI inter"ention to keep e ports competiti"e QThe long-term solution would be to impro"e operational efficiency and look at domestic markets tooMM 1angalore May # Garment exporters are facing a crunch situation ith the rupee rapidly appreciating. Fxporters fear that re!enues could take a big hit if the Go!ernment does not inter!ene to effect a correction. Mr 4. 7i!aram, Fxecuti!e )irector of the Tirupur-based 4oyal =lassic Group, saysL "6ith the rupee-dollar exchange rate dropping to 4s &1 from 4s &' in Bpril, e ha!e already had a ( per cent hit in our realisation. .f this continues, profits are bound to erode. 6e may ha!e to operate at cost price or incur marginal losses."

6ith buyers not illing to pay more, the going could indeed get tough, adds Mr 7i!aram. Bccording to Mr 7ampath >asira*an, =FO, +ydra, a 1angalore-based textile consulting company, the current Cuarter could see a 3-( per cent drop in garment export re!enues. /.n $,,'-,#, .ndiaMs garment exports ere estimated at 29.3 billion.0 +e fears a "drop in enCuiries and an e!entual slo do n in orders" if the current trend continues. "There could be a $, per cent drop in !olume of exports in Iune-Iuly." +e also sees the rupee strengthening further for another t o months before settling do n at 4s &,.
Tiding over

7o, hat has the exporting community done to stem or curtail its lossesO Mr 4a*endra +indu*a, )irector, Gokaldas Fxports, says the company ill tide o!er the current situation partially as it has taken a for ard co!er for part of its exposure. "The ad!antage of hedging at the 4s &"%&& le!els ill come through no ," he says. Gokaldas also has a strong import component, hich could offset the impact of a hardening rupee. +e sees a marginal one per cent dip in T1 net profits. Mr >asira*an ad!ises exporters to reduce their profit margins. 7omething that Mr 7i!aram also agrees ithL ".f e *ack-up our prices, buyers may run to =hina."
(eeking "7I

6hile the exporters fer!ently hope that the 41. inter!enes and buys dollars to keep "exports competiti!e", they must look beyond the current fluctuation and think long term. 7ays Mr >asira*anL "The long-term solution ould be to impro!e operational efficiency and go up the !alue line by

looking at the domestic market too and not *ust rely on exports, because rupee appreciation is a fact of life."

G#tart!ingH portion o" %ndiaHs new reserves in @# treasuries

D. 8urali

'" "A':I(#%3 (. "AGA3

=hennai May ' Bs recently reported, .ndian financial institutions and the central bank ha!e been in!esting hea!ily in ?7 treasury securities. Total in!estment stood at close to 2$, billion in February. Bre there any patterns or trends in the in!estment by de!eloping countries in ?7 treasury securitiesO "@o ob!ious trends, except .ndia and 1raHil seem to be more aggressi!e buyers hile some like >orea are selling and the O<F= and 4ussia seem to be di!ersifying out of ?7 assets," comments Mr 4amkishen 7. 4a*an, Bssociate <rofessor, 7chool of <ublic <olicy, George Mason ?ni!ersity, ?7, interacting ith Business 2ine! +e finds the .ndia data Wrather startlingM. 6hy soO ".t sho s that until last year about # per cent of .ndiaMs reser!es ere in the ?7 short-term treasuries, and o!er the last year the share has risen to 1, per cent implying around $, per cent

of the ne reser!es o!er the year ha!e been in!ested in short-term ?7 assets," reasons Mr 4a*an. "<art of the reason for this appears to be the fact that a large part of .ndiaMs reser!e build-up recently has been because of short-term capital inflo s and there may be some concern that these reser!es ill be drained suddenly in the e!ent of a sell-off. The 41. is, therefore, comfortable holding more of these ne reser!es in relati!e liCuid assets." The a!erage yield on three-month ?7 treasury bill in February as 3.,( per cent, hile the 41.Ms re!erse repurchase /re!erse repo0 rates ere ' per cent, implying a deficit, reported the media. @o , is the WdeficitM orryingO "The negati!e interest rate differential bet een the ?7 treasuries and 41. repo illustrates the fiscal costs of sterilisation. +erein lies the conundrum," says Mr 4a*an. +e explains the puHHle as follo sL ".nter!ene in forex markets to pre!ent Wexcessi!eM exchange rate appreciation especially because the appreciation could re!erse course *ust as Cuickly if there is a sell-off. "The reser!e accumulation implies under-!aluation of the rupee in the short term so there is further capital inflo s of the short-term nature. Gi!en the existing inflationary concerns, the 41. has to sterilise aggressi!ely /i.e. mop up the liCuidity conseCuences of forex inter!ention0 and in the process it faces the fiscal losses." Mr 4a*an onders hy there is this much concern about ensuring such a large proportion of ne reser!es are maintained in liCuid the ?7 assets, gi!en the siHe of .ndiaMs existing reser!e assets. "The 41. appears to be o!er cautious about ensuring liCuidity and it also suggests that they may be especially

concerned about possible panic selling and postulates.

ithdra als," he

Forex reserves rise $654

3ur 5ureau

on F%% in"!ows

Mumbai May & Forex reser!es ha!e gone up 2$3& million to 2$,&.1"3 billion for the eek-ended Bpril $# on F.. inflo s and strengthening of the non-dollar currencies against the greenback. The forex kitty had crossed 2#(9 million to reach 2$,".((1 billion for the eek ended Bpril $,. Foreign currency assets increased 2$&3 million to 219'.(## billion, said the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. "The rise in forex reser!es as basically due to F.. inflo s of o!er 2"3& million into the domestic eCuity markets during the eek under consideration," said a dealer at a pri!ate bank. Gold reser!es remained unchanged at 2'.#(& billion hile 7)4s increased by 29 million to 211 million. The countryMs reser!e position in the .MF remained the same at 2&'" million

Rupee gains 65 paise

3ur 5ureau

Mumbai, May & The rupee strengthened almost $3 paise on dollar selling by some corporates. The home currency opened at &1.,&%,3 and finally closed at &,.(3%(# against the pre!ious close of &1.1, on Thursday. "7trong F.. inflo s into the domestic eCuities also helped the rupee gain," said a dealer at a pri!ate bank. The rupee is expected to trade in the range of &,.&,-&1.$,, said the dealer. The six-month for ard premia is at 3.'1 per cent /3.9' per cent0 and 1$-month premia is at &.#1 per cent /&.($ per cent0.

#trong rupee prices by 5=

3ur 5ureau

ay reduce i ported radia!

Imports rise to ?<,===Imonth during 5arch-'pril 1angalore May $ The rupee appreciation by six to se!en per cent in the last eight eeks against the dollar is expected to bring do n the price of imported radial tyres by 4s ',, to (,,. The reduction in the price by about four to fi!e per cent

comes soon after the reduction in the peak import duty announced in the current 1udget. This has come as a indfall to the freight truck operators. The rupee appreciation and peak-duty reduction has helped in not only bringing do n the price but ill also bring radial tyres usage ithin the reach of o ners ith a smaller fleet of fi!e to six trucks, said the Bll .ndia Tyre )ealers Federation /B.T)F0. @o , a pair of truck%bus tyres ill cost 4s $,,#,, in comparison to its price of 4s $1,3,, in February $,,#. The freight truck operators had been reeling under !olatility in the diesel price and freCuent increase in the price of tyres in the last t o years. The t o key inputs, hich together account for more than (, per cent of the operating cost, had ad!ersely affected the freight operators business. +o e!er, ith a semblance of stability in the diesel price in the last one year, and the stronger rupee and import duty reduction, the trade expects to impro!e its business in the long run.
"elie- impetus

The Federation said the supply of radial tyres ould get further fillip ith the recent reliefs. .mport of radial tyres has gone up three-fold to &3,,,, per month during March-Bpril this year, compared to 13,,,, for the same period last year. The .ndian commercial !ehicle tyre market is dominated by the cross-ply @ylon fabric truck%bus tyres.

+he
1orro

yth o" e erging

arket risk

S. 5ala+rishnan at ", per cent and in!est at 3 per centO

7omething like this is happening in .ndiaMs forex balance sheet. Foreigners are getting ", per cent on their in!estments hile e are content ith 3 per cent on ?7 Treasury bills and bonds. .ndiaMs stock market is in an extraordinary boom as the global in!estment community sees another =hina in the making. The 7ensex has increased almost se!enfold from the $,,,s to 1&,,, in less than fi!e years, deli!ering super profits to F..s. Bnd this is *ust an a!erage. 7tories abound of their and pri!ate eCuity /<F0 in!estors making far more in many indi!idual in!estments. The /about0 23, billion of net F.. in!estment in .ndian stocks does not con!ey the full picture as there is considerable churning through a!erage sales and purchases of the order of 4s 1,,,,-1,3,, crore a day. .t is /good0 ne s that the liCuidity in the .ndian stock market is good enough to absorb such high !olumes of F.. acti!ity. .t also indicates foreign in!estors are booking profits at e!ery opportunity /although, on balance, inflo s are ell into positi!e territory0. +o , one may ask, does the in!estment of F..s constitute borro ingO Flo s into the stock market add to forex reser!es. 6hen the in!estment and profit are repatriated, it is eCui!alent to repaying borro ing ith interest. The higher the rate of profit, the higher is the effecti!e rate of WinterestM paid on the Wborro ingM. =onferring eCuity repatriation rights at market price on foreign in!estment /of the direct or portfolio type0 makes it no different from debt. To oneMs kno ledge, there is no data on the exact rates of return earned by F..s. 1ut there is little doubt that they are se!eral multiples of the dollar rate of interest. 1ut is not an eCuity in!estor exposed to riskO .t is true that he could lose some of or all his capital.

+o e!er, gi!en the double digit gro th rates in se!eral emerging economies, in!estments in their markets ha!e been a one ay ticket to huge profits. .n reality, contrary to popular perception, emerging market risk is extremely lo . Bsk a Mark Mobius or Marc Faber and they ould agree that these countries abound in !ery lo or no risk opportunities. =ontrast this ith WefficientM /in a theoretical sense0 first orld markets, here fund managers ha!e to s eat it out to eke out that ee bit of extra return o!er market and it is clear the risk-re ard ratio is o!er helmingly in fa!our of emerging markets. 7hould e offer such WexcessM returns to foreign in!estors, that too tax-freeO The case for a nominal tax on F.. profits seems compelling. 6ith such *uicy returns, it is certain F..s ill not turn a ay from .ndia, e!en if their profits are taxed. B 1, per cent tax ould reduce a ", per cent return *ust by " per cent to a still !ery high $# per cent. The Finance Minister could easily earn, from this source, 4s 3,,,,-1,,,,, crore annually, considerably easing his budgetary oes and making a!ailable more resources for elfare spending.

7nitwear exportersH concern over rising rupee

3ur 5ureau =oimbatore May 1 Tirupur knit ear exporters say the strengthening rupee is a orry despite the higher gro th rate clocked by them in exports. >nit ear exports from Tirupur during $,,'-,# had registered a $3 per cent gro th at 4s 11,,,, crore. 1ut the

rupee !alue had ithin a short time risen by 1& per cent against the dollar rendering their exports uncompetiti!e and causing shippers to suffer hea!y losses, according to Mr B. 7akthi!el, <resident of the Tirupur Fxporters Bssociation. The TFB in a communication addressed to the ?nion Finance Minister has pointed out that =hina, the main competitor in global knit ear segment, has insulated its position by pegging its currency against the dollar and ould, therefore, further emerge stronger. .t ould be impossible for .ndia to compete and stay in the market, it said. =alling upon the Finance Minister to pre!ail upon the 41. to urgently inter!ene in the forex market, the TFB also suggested a fe more ameliorati!e steps in aid of the exporters, such as reducing the packing credit rate by at least three per cent as the recent 41. monetary policy to contain inflation has led to interest rate hike. This is necessary in the light of the fact that exporters ho had already booked their export orders and ere in the midst of executing them too ere not in a position to get any compensation from the importers for the !alue losses suffered on account of the erosion in dollar !alue against the rupee, the TFB president has said.

Rupee weakens against greenback

3ur 5ureau

Mumbai, Bpril ", The rupee eakened by around eight paise against the greenback to close at &1.1( on Monday against the pre!ious close of &1.,(3,%1,,, on dollar buying by importers to meet month-end demand. The domestic currency opened at &1.$,%$3 and sa an intra-day lo of &1.&3 before closing at &1.1(. Market participants expect the rupee to trade in the &1.,3&1.3, range. .n for ards, the six-month premia closed at '.,' per cent /'.(, per cent0 hile the 1$-month premia ended at &.(3 per cent /3.1$ per cent0.

Forex reserves rise $><0

3ur 5ureau

to touch $613 b

Mumbai Bpril $# The countryMs foreign exchange reser!es rose by 2#(9 million to touch 2$,".((1 billion in the eek ended Bpril $,, due to the re!aluation effect. The forex kitty had seen an accretion of 2$.##$ billion to 2$,".,9$ billion in the pre!ious eek. Bccording to the 41.Ms 6eekly 7tatistical 7upplement, foreign currency assets during the eek ended Bpril $, increased by 2#(( million to 219'.'"$ billion.

Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. "The relati!ely marginal rise in forex reser!es ould ha!e been due to the re!aluation effect. 1esides, the 41. had not inter!ened in the forex market," said a senior treasury official. The euro gained from 21."3 to 21."' against the dollar hile the pound *umped from 21.9( to 2$ during the eek under consideration. Foreign institutional in!estor inflo s into the eCuity market ere 2'$3 million. Gold reser!es and 7)4s remained unchanged at 2'.#(& billion and 2$ million, respecti!ely. The countryMs reser!e position in the .MF rose by 21 million to 2&'" million.

%ndia now a tri!!ion/do!!ar econo y

3ur 5ureau

Mumbai Bpril $' .ndia has become the t elfth country in the orld to become a trillion-dollar economy, said a report from 7 iss in!estment firm =redit 7uisse. 6ith the Gross )omestic <roduct /G)<0 at 4s &1 trillion and the rupee appreciating to belo &1 against the ?7 dollar, 6ednesday as the first day for the .ndian economy to become a trillion dollar economy, the report said. Th*e rupee today closed flat at &,.9,%91 against the pre!ious closing of &,.(9%9,. The stock market capitalisation at 29&& billion is still shy of the one trillion mark, it said. The report maintained its rating of Wunder eightM on the country.

Going by history, stock markets in eight out of ten countries had risen in a one-year period after they first crossed the 21 trillion mark in G)<, said the report.
Capitalisation mark

The note says, "The 1ombay 7tock FxchangeMs total capitalisation is 29&& billion as of 6ednesday. 1y including the capitalisation of .ndian entities listed in :ondonMs Blternati!e .n!estment Market /B.M0, the global companies acCuired by the listed .ndian companies in the last t o months and some others that are often considered a part of the .ndian uni!erse /either because of their operations, management structure and-or because they are co!ered by .ndian analysts0, e reach a total of 299$ billion." The 17F benchmark index closed 11.11 points or ,.,( per cent higher at 1&,$$(.(( on Thursday. +o e!er, the report added the capitalisation is likely to go do n again in the near future before it sustainably stands abo!e this mark.

GRising rupee wi!! dent ho e texti!e exportsH

#. #urumurthy =oimbatore Bpril $' Fxporters of home textiles from the handloom to n of >arur fear that the strengthening rupee ill se!erely dent shipments of made-ups, hich are a key !alue-earner in the countryMs textile export basket.
Impact

"6ith the rupee ha!ing breached the psychological barrier mark of &1 against the dollar, our future export orders ould not be competiti!e if the currency is allo ed on its up ard spiral," said Mr 7usindran, =FO of 7abare .nternational :td, a home textile exporting company.

Bccording to him, the impact of the rising rupee on textile exports ould be felt o!er the next t o months. The home textiles shippers ho ill ha!e to book future orders under the ne con!ersion rate may find it difficult to con!ince buyers, he told Business 2ine.
%$ports

The export deli!eries to be made in Bugust%7eptember ould be hit. Mr 7usidran anticipates that textile exporters ould lose one-fourth of the usual orders to <akistan or =hina, hich continue to retain price competiti!eness !is-[-!is .ndia. Mr 7i!a >annan, former =hairman of the +andloom Fxport <romotion =ouncil and Managing )irector of the >arur-based Bmara!athi Textiles, said that all the textile made-ups shipments being undertaken no ere booked hen the rupee as Cuoting at &&. Bs such, the exporters a fall in realisation. ill hardly be able to cope ith such

6ith supply chain difficulties normally associated ith all local textile production centres leading to deli!ery hiccups, most home textiles exporters in the region donMt opt for for ard co!er for currency fluctuation. The unrelenting surge in rupee !alue ill thus lea!e exporters at the mercy of importers, Mr 7i!a >annan added.

Rupee ends "!at

3ur 5ureau

Mumbai, Bpril $' 4upee ended flat on Thursday at &,.9,%91 against the pre!ious close of &,.(9%9,. "The domestic currency as !olatile. .t opened at &,.#9, sa an intra - day high of &,.#" on F.. inflo s and a lo of &,.9' on strong demand from oil companies," said a dealer ith a pri!ate bank. Market participants expect the rupee to depreciate to &1 next eek. .n for ards, the six-month premia closed at '.33 per cent /'.1# per cent0 and the 1$-month ended at 3 per cent /&.($ per cent0.

Meta! #M3s a!!owed to hedge risk in g!oba! exchanges

3ur 5ureau The RBI has also allowed actual users of a"iation turbine fuel N'TJO to hedge their economic e posures in the international commodity e changes based on their domestic purchase!

Mumbai Bpril $3 .n a ma*or boost to small and medium metal companies, the 4eser!e 1ank of .ndia has allo ed domestic producers and industrial users of base metals such as aluminium, copper, lead, nickel and Hinc to hedge their price risk in international exchanges, such as the :ondon Metal Fxchange /:MF0.This ill be based on their underlying economic exposure. Farlier, those ith genuine underlying exposure ere allo ed, but the facility as restricted to exporters and importers. Others ere not allo ed to hedge in international exchanges. The mo!e comes at a time hen the .ndian commodity futures exchanges are registering huge turno!er on metals. "The 41. has recei!ed representation from domestic producers and users of certain metals for permission to hedge the price risk on domestic purchases and sale in international exchanges in order to take ad!antage of greater depth and liCuidity in such exchanges," the 41. report said. ".t ill be interesting to see ho many domestic companies ill be interested in tapping international markets, as they ha!e an .ndian market hich has 9( per cent co-relation ith international prices," said Mr Ioseph Massey, Ioint Managing )irector of M=J, hich records the maximum !olumes in metals futures trading.
Advantage

"The main ad!antage for us is that trading happens in .ndian currency and our exchanges are open till the foreign exchange closes. The 41. should also consider opening the doors for foreign in!estments in .ndian commodity

exchanges. The biggest challenge for .ndian companies ould be access to authorised brokers." The 41. has also allo ed actual users of a!iation turbine fuel /BTF0 to hedge their economic exposures in the international commodity exchanges based on their domestic purchase. Bpart from domestic producers and users, players such as traders and trading houses ho are exposed to systemic international price risk and are keen on hedging their risk in international exchanges can seek permission from the 41. through authorised dealer banks, the =redit <olicy said.
%nhanced limits

The =entral bank has enhanced the eligible limits of exporters and imports for booking for ard contracts from 3, per cent to #3 per cent. .mporters and exporters of goods and ser!ices are no permitted to book for ard contracts on the basis of a declaration of exposure and past performance. =ontracts booked in excess of 3, per cent /no raised to #3 per cent0 of eligible limits ha!e to be on deli!erable basis and cannot be cancelled.

R*% re!axes contro!s on do!!ar spend

3ur 5ureau O"erseas in"estment limit raised for companiesK key rates unchanged

.%%;/)00, P0;IC49 The "7I )overnor+ ,r 4.V. "eddy+ addressing a press con-erence in 'um!ai on Tuesday. (hashi Ashiwal

Mumbai Bpril $& 7plurge in dollars is the missi!e from the 41. in its Bnnual <olicy statement for $,,#-,(, released on Tuesday, hich left key interest rates unchanged. Bfter long years, .ndia can afford to indulge ith forex reser!es crossing the 2$,,-billion markP some analysts may term the mo!e to ards free rupee con!ertibility as a necessity. .ndian corporates and indi!iduals ha!e been allo ed by the 41. to spend more dollars on foreign eCuity markets, acCuisitions and hedging in international commodity markets. That could ease the pressure on the 41. and banks from mopping up flooding dollar inflo s ith rupees and limit the chances of the local currency chasing goods to lift prices. For Cuite some time no , forex flo s ha!e stranded 41., as buying dollars added to the sum of rupees hile keeping off the forex market meant a sharp rupee appreciation against the dollar /less rupees per dollar0. Foreign deposits are less elcome ith the interest rate cap on F=@4/10 deposits being pruned by 3, basis points to :ibor minus #3 basis points. .ndi!iduals can no send out 21,,,,,, /23,,,,,0 per financial year hile .ndian companies can in!est o!erseas ",, per cent of their net orth against the existing limit of $,, per cent. They can also place "3 per cent /$3 per cent

no 0 of their net orth on portfolio in!estment in listed o!erseas companies.

#edging risks

The limit on foreign in!estment by mutual funds has been pushed up to 2& billion from 2" billion. .ndian companies, including airlines, can hedge their price risks on metals and a!iation turbine fuel in international commodity exchanges. Other companies "exposed to systemic international price risk" can also go for co!ering their price risks and in a ay temper inflation. =urrently, residents ith o!erseas direct in!estments in eCuity and debt are permitted to protect their exchange risk, pro!ided the for ard contracts are completed by deli!ery /of currency0 or rolled o!er on the due date and not cancelled. The 41. on Tuesday tagged on the facility to cancel and rebook contracts and extended it to small and medium enterprises /7MFs0. ?nHipping the dollar allet, the 41. has gi!en its nod for .ndian companies to remit up to 21, million /21 million0 for consultancy ser!ices for executing infrastructure pro*ects. For indi!iduals, "a uniform period of six months" has been proposed for surrender of unspent dollars. .f the measures together do not tamp do n prices, the 41. could s itch on the interest meter. For the moment, the 41. prefers to pause and atch the rollout of its dear money policy.
In-lation check

)r Raga ;enugopal 4eddy, 41. Go!ernor, ould like to contain inflation in the current year at "close to 3 per cent" against 3-3.3 per cent last year. Bdd on the medium-term inflation target of &-&.3 per cent, and bankers are sure of the 41. spanking any unruliness in the financial system. The

41. saysL "There are indications supporting the belief that this approach has had a salutary effect on inflation expectations and the socially tolerable rate of inflation has come do n. .n recognition of .ndiaMs e!ol!ing integration ith the global economy and societal preferences in this regard, the resol!e, going for ard, ould be to condition policy and perceptions for inflation in the range of &-&.3 per cent. This ob*ecti!e ould be conduci!e for maintaining selfaccelerating gro th o!er the medium term."

Ai!! rupee rise ste

S. 5ala+rishnan

in"!ationB

6ith the dollar flood threatening to become a deluge, from the single-minded focus on tinkering repo rates and the =44, the 41., in its annual monetary policy statement, has turned its attention to measures that could arrest capital inflo s, hich complicate both exchange rate and liCuidity management. The un anted dollars ha!e dri!en up the rupee, forcing the central bank of one of the /still0 poorest countries in the orld to defend the currency of the orldMs richest countryN The 41.Ms measures are significant steps to encourage both corporate and indi!idual citiHens to look out ard - est ard hoN might be an apt description. =onsider the follo ingL o!erseas in!estment limit of corporates enhanced to ",, per cent of net orth from $,, per cent, mutual funds allo ed to in!est up to 2& billion abroad /2" billion no 0, ceiling on prepayments of foreign borro ing increased to 2 &,, million from 2 ",, million and Wno Cuestions asked remittances%in!estmentsM of indi!iduals raised to 21,,,,,, from 23,,,,,.

1esides, interest rates on F=@4 deposits ha!e been reduced belo :.1O4 and those on @4. rupee deposits eCuated to :.1O4 - effecti!ely near-Hero rates gi!en for ard premiums. 6ill these steps staunch the dollar inflo sO ?nlikely, ith .ndia being on the radar screen of in!estors and fund managers in /one is told0 distant and remote Finland and .celand. Blso, e are being s amped by the ne found lo!e of @4.s for their country. Tens of billions of dollars are being repatriated home by .ndians or those of .ndian origin li!ing abroad. B little reflection suggests that this is one gift horse e must not look too closely in the mouth. For, ith international oil prices in orbit, there might ha!e been a problem meeting the import bill ithout running do n reser!es. <ortfolio inflo s ha!e immeasurably shored up our forex resources and enabled us to carry on as if nothing has changed. The 41. has started to breathe more easily on the monetary front. .t has not mo!ed the /benchmark0 repo rate and the =44 stick as ielded before the policy itself. The big ne s is undoubtedly the marked absence of dollar support operations in the last fe eeks, allo ing the rupee to appreciate sharply. .t as the compulsion to check the rupee that created un anted liCuidity in the first place. The 41.Ms hope and calculation must be that go!ernment spending ill keep the market adeCuately supplied and the rising rupee ill hold inflation in the desired range. 6hile the former assumption could be right, an appreciating rupee may not necessarily translate to lo er inflation. .t all depends on the source of price pressures and the speed and scope of supply-augmenting strategies. Going for ard, a lot ill ride on the monsoon. @ormal rainfall should see containment of inflation risk. 1ut, gi!en the economyMs gro th momentum, the 41. cannot but

exercise eternal !igil on the goods and asset price fronts and respond appropriately to any emerging problems.

Rupee c!oses at 4...> on !ower in"!ation target

3ur 5ureau

Mumbai, Bpril $& The rupee closed to yet another high of &1.1#, reacting to the annual monetary policy statement of the 41.. The rupee ent from strength to strength during the day. .t opened at &1.'3 and touched an intra-day high of &1.,3 to finally end the day at &1.1# against MondayMs close at &1.'#%'(. Market participants said all-round selling of dollars buoyed the domestic currency to touch a le!el it has not seen since May 199(. "The primary focus of the 41.Ms monetary policy is to contain inflation and this means that the central bank may not inter!ene to create excess liCuidity in the system," said the chief currency dealer at a pri!ate bank. The 41. has reduced the inflation target to 3 per cent in $,,#-,( and set a range of & to &.3 per cent o!er the medium term. On the recent strength of the rupee, )r R.;. 4eddy, Go!ernor, 41., as guarded at a press conference. ".n many human relationships and economic relations, it is easy

to insist one is not unhappy but difficult to affirm that one is happy", he said. . "This time round, the monetary policy has completely focused on the exchange rate. The measures are aimed at arresting foreign currency inflo s and accelerating the outflo s hich ould bridge the demand - supply gap and depreciate the rupee," said Mr Moses +arding, Fxecuti!e ;ice <resident, .ndus.nd 1ank. +e added increasing the outflo limits ould not ho e!er make a significant impact as existing concessions lay unutiliHed. 1esides .ndian companies ould not in!est abroad at lo er returns at the risk of a depreciating rupee. "The 41. has not announced an interest rate hike as it ill tighten liCuidity and cause further appreciation in the rupee," Mr +arding said. Mr Mohan 7henoi, Group +ead, Treasury, >otak Mahindra 1ank said, ")espite 41. announcing measures to relax foreign currency outflo s, there is no diminishing of our !ie that foreign currency inflo s ill be robust and ill continually pose a challenge to 41. so far as liCuidity management is

9ros and cons o" convertibi!ity

<lease e plain 4indly elucidate what is rupee con"ertibility and what are its merits and demerits if we go for it* #o alan S. #ounder 4upee con!ertibility or capital account con!ertibility is a !ery simple concept. Bll it means is that if you take your rupee to a bank or foreign exchange dealer and ant to exchange it into another currency, such as the ?7 dollar or the euro, it they should be done exchange the money ith no Cuestions asked hatsoe!er. There should also be no limit on the

amount that can be exchanged into another currency as there is no . =urrently there is some amount of rupee con!ertibility is allo ed to some extent in .ndia but not full capital account con!ertibility. There ha!e been se!eral committees to discuss hen and ho .ndia can go become fully con!ertible on the capital account, the latest being the W=ommittee on Fuller =apital Bccount =on!ertibilityM under the former 41. )eputy Go!ernor, Mr 7. 7. Tarapore. The merits are2 .t pa!es the ay for companies to access funds from outside ithout hindrance. .t makes it far easier for foreign companies to in!est in .ndia. .t sends a signal to international in!estors as ell as the financial orld that .ndia is confident of itselfherself in the economic and financial arena and has the capability to ithstand anything that is thro n at ither. 7ince it exposes makes .ndia more exposed to the !agaries of the international financial sector, it forces the go!ernment to become more disciplined on the fiscal side of things. .t forces the financial sector to be become more efficient, more disciplined, and much stronger. The demerits are2 .t exposes the country .ndia to the !olatility of the financial system. The rupee can possibly become more !olatile. That said, there are infinitely more merits than demerits to going becoming con!ertible on the capital account. The Bs orld

far as the demerits are concerned, they are only demerits so only as long as the financial system and go!ernment accounts are shoddy. .f they it become orld class financial system, the it can easily manage !olatility can be managed ithout any problem.

Forex reserves surge $6.> b

3ur 5ureau Mumbai Bpril $, Forex reser!es ha!e increased by o!er 2$.# billion for the eek ended Bpril 1" on the back of F.. inflo s and strengthening of non-dollar currencies against the greenback. The countryMs forex reser!es gre 2$,".,9$ billion. by 2$.##$ billion to

.ndiaMs forex kitty had crossed 2$,, billion the pre!ious eek. .t had increased by 21.1&1 billion to touch 2$,,."$, billion for the eek ended Bpril '. Foreign currency assets during the eek ended Bpril 1" increased by 2$.#'9 billion to 2193.(&& billion, according to the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. "The rise in forex reser!es as basically due to strengthening of euro against the dollar to 21."&. Other non-dollar currencies, like sterling, also gained against the dollar," said a dealer at a pri!ate bank. Gold reser!es and 7)4s remained unchanged at 2'.#(& billion and 2$ million respecti!ely. The countryMs reser!e position in the .MF increased by 2" million to 2&'$ million.

Rupee gains 3. paise

3ur 5ureau

Mumbai, Bpril $, The rupee strengthened by around "1 paise against the greenback and closed at a nine-year high of &1.#'%## on Friday against the pre!ious close of &$.,#. "1anks ere running short of cash and ere seen selling dollars against rupees, " said a dealer ith a pri!ate bank. The currency opened at &$.,3 and eakened to an intra-day lo of &$.13 on banksM buying dollars on behalf of oil companies, before closing at &1.#'. .nflation is at '.,9 per cent against the pre!ious eekMs 3.#9 per cent. )ealers are expecting the 4eser!e 1ank of .ndia to raise rates, hich ill result in a cash crunch for banks, prompting them to buy dollars. .n the for ards, the six-month premia closed at '.3& per cent /'.1, per cent0 and the 1$-month closed at &.(( per cent /&.'( per cent0.

Rupee weakens
3ur 5ureau

Mumbai, Bpril 19 The rupee eakened by around six paise on Thursday on profit booking by traders. The currency opened at &$.,3%,#, touched an intra-day lo of &$.$, and finally closed at &$.,#, against the pre!ious close of &$.,1. ")emand for dollars from the importers also eakened the rupee," said a dealer at a pri!ate bank. )ealers said the 4eser!e 1ank of .ndia as not seen in the market. The rupee is expected to touch &$.&, in the next eek. The six-month for ard premia ended at '.1, per cent /'.$( per cent0 and the 1$-month for ard premia at &.'( per cent /&.#( per cent0.

Rupee ends down

3ur 5ureau

Mumbai, Bpril 1( The rupee eakened by around " paise against the greenback on 6ednesday to close at &$.,1 on reports of inter!ention by the 4eser!e 1ank of .ndia. The currency opened at &1.9(, sa an intra-day high of &1.(, before closing at &$.,1 against the pre!ious close of &1.9(. .n the for ards, the six-month premia closed at '.$( per cent /'.$1 per cent0 and the 1$-month closed at &.#( per cent /&.'( per cent0.

+exti!e

i!!sH body "or ste

ing rising rupee

3ur 5ureau Industry competiti"eness is hit, it says =oimbatore Bpril 1( The strengthening of rupee against dollar is pro!ing detrimental to the countryMs lo importintensi!e and price-sensiti!e textile industry and any further !alue appreciation of rupee ould blunt the industry competiti!eness, said the 7outhern .ndia Mills Bssociation /7.MB0. =alling upon the =entre to initiate urgent measures to stem the rupeeMs rising !alue, the 7.MB =hairman, Mr 7.;.

Brumugam, said the surge in recent textile and clothing exports.

eeks has affected

.n a communication, he said rupee has surged by six per cent bet een Bpril $,,' and Bpril $,,#. Though the =hinese yuan rose #.$& per cent during the period, the country has built-in ad!antages that ha!e resulted in =hinaMs textiles and garments shipments too rising significantly. .n contrast, the !alue of currencies of .ndiaMs other competitors in textiles namely <akistan and .ndonesia depreciated by 1."" per cent and ,."' per cent. 6hereas 1angladeshMs taka could register a rise of only 1.93 per cent during the period.

#trong rupee$ 3xporters want ;ovt to step in

3ur 5ureau @e )elhi Bpril 1# Faced ith lo er unit !alue realisation due to the strengthening rupee against dollar, the exporting community has sought Go!ernment inter!ention to help tackle the recent turn of e!ents at the forex market. Fxport organisations such as the Bpparel Fxport <romotion =ouncil /BF<=0 ha!e e!en appealed to the Go!ernment to "halt the appreciation of rupee". The BF<= feels that the strengthening .ndian rupee ould be particularly detrimental to a lo import intensi!e and price sensiti!e industry like clothing. On its part, the Federation of .ndian Fxport Organisation /F.FO0 plans to ad!ise its members, especially small and medium exporters, to go in for hedging instruments to co!er their currency exposures. "Blthough an appreciating rupee has beneficial effect on the economy and imports become cheaper, something has to be

done /by the go!ernment0 to help exporters," )r 4.>. )ha an, F.FO /@orthern 4egion0, told Business 2ine.
,ual e$change rate

+e also felt the time as ripe for a dual exchange rate system A pegged and floating A at hich rupee can be exchanged for any foreign currency. The fixed rate of exchange, hich may be applied to exports, can be about 4s &3 to a dollar to pro!ide competiti!eness to exports. The floating exchange rate may be applied to imports, he suggested. Bbout &, per cent of the export proceeds realised may be con!erted into fixed exchange rate hile the rest may be con!erted at floating exchange rate, he said.

Rupee vo!ati!e' c!oses tad weaker

3ur 5ureau Mumbai Bpril 1# The rupee extended its !olatile *ourney against the dollar before ending eak as importers bought dollars. The domestic currency opened at &1.9& and appreciated intra-day to &1.'". .t, ho e!er, ended the day at &1.9( against MondayMs close at &1.9,%91. )ealers said the rupee gained earlier in the day as exporters ere selling dollars in anticipation of a further rupee appreciation. "The 4eser!e 1ank of .ndiaMs absence in the forex market may ha!e also emboldened players to sell dollars earlier in the day," said a senior treasury official.

.mporter-buying pared the early rupee gains. ".mporters ere buying dollars either to book profits or ere shortco!ering to make payments," said a dealer. There as also a cash-sCueeHe as call rates closed at 13-1' per cent. Traders ere speculating on the possible reasons for 41. staying a ay. "The tolerance le!el of the central bank may ha!e increased since its inter!ention bet een )ecember and March led to substantial infusion of liCuidity as ell as t o hikes in the =ash 4eser!e 4atio. +o e!er, there may not be a change in 41.Ms core stance of limiting the undue appreciation of the rupee," said Mr B. <rasanna, ;ice <resident, .=.=. 7ecurities. Bnalysts said the rupee has appreciated by ".3 per cent in Bpril. +o e!er, dealers obser!e the strength of the rupee had been in tandem ith the appreciation of ma*or currencies such as the euro and the pound against the dollar. .n the past t o eeks, the euro had risen 13, basis points to 2$.,,$, and the pound gained ",, basis points to 21."3&3. .nterest rate hikes in the ?> and Furo Hone, and the slo do n of the ?7 economy ha!e led to the eakening of the dollar. The for ard premia on dollar continued to remain high. The '-month premium closed at '.$9 per cent /'.&3 per cent0 and the 1$-month premium ended at &.#& per cent /&.(" per cent0.

+,# has $ ./b hedge cushion' says ,F:

:ri a Raman Mumbai Bpril 1# 6ith international re!enues comprising 9, per cent of Tata =onsultancy 7er!icesM total re!enues, the

recent rise of the rupee sa a negati!e impact on its financials. .t had a 3#-basis point negati!e impact on its profit margin for $,,'-,#, and a negati!e impact of 1.( per cent on re!enues, said Mr 7. Mahalingam, =hief Financial Officer of the company. ">eeping our operating margins strong in an en!ironment of age increase and international expansion as challenging. 6e ha!e to take currency fluctuations in our stride, and our currency management strategy is in place," said Mr Mahalingam. The company has hedged its dollar earnings for 21 billion, protecting itself at 4s &".3 to the dollar, he said.
&( slowdown

"6e do not see any impact on us of a ?7 slo do n," said Mr 7. 4amadorai, after the results ne s conference. "6e see a !ery strong en!ironment there," added Mr @. =handrasekaran, head, global sales and operations. "There are no signs of any slo do n in our pipeline or in our clients spending money. Our offshoring /to .ndia0 has increased by "1, basis points to &1.' per cent of re!enues, and most of that mo!ement came from the ?7." O!erall re!enues from the ?7 dropped to 31.1 per cent of total T=7 re!enues, do n from 3' per cent in the last fiscal. There as a &', basis point increase in the percentage of ork mo!ing to the global de!elopment centres in addition to the "1, basis point mo!e to offshoring in .ndia, said Mr Mahalingam.

0/yr high$ Re ends at 4..01 on strong capita! in"!ows

3ur 5ureau

The rupee touched an intra-day high of ?L!/< as was seen in Eune L@@/! Mumbai Bpril 1' The rupee breached the psychological le!el of &$ and surged to a near nine-year high of &1.9,%91 on Monday on strong capital inflo s and the 4eser!e 1ank of .ndiaMs absence in the forex market. .t strengthened by about ', paise against the dollar from its pre!ious close of &$.31%3$ on Friday. .t also touched an intra-day high of &1.(3 as as last seen around Iune 199(. The 41. usually buys dollars ith rupees through public sector banks to rein in a rising rupee. The central bankMs absence suggests its reluctance to add to the sum of rupees in the system and add to inflation, say dealers. ".n the medium term, the trend for rupee, in the absence of 41., is positi!e. .t is likely to trade in the !olatile range of &1-&$.$3,MM said Mr 4a!i <ai, +ead-Forex and )eri!ati!es, +)F= 1ank. The 41.Ms absence after March got exporters to sell dollars as they ere unsure of the rupee-dollar parity. F..s in!ested o!er 2$ billion in the eCuities and 2"#1.1 million in debt market since Ianuary .

Rupee gain
3ur 5ureau

ay hit exporters hard

Mumbai Bpril 1' The sharp appreciation of the rupee by o!er 3 per cent in the current year is expected to ad!ersely impact the margins of most exporters. The rupee opened at &$.33%3# and closed at &1.9,%91, stronger by about ', paise against the pre!ious close of &$.31%3$ on Friday. "The rupee is o!er-!alued by almost 1, per cent according to the real effecti!e exchange rate. The 41. has also not been acti!ely seen in the market because of inflationary concerns. 1ut this kind of an appreciation of the rupee is not conduci!e to the export gro th of the country," said )r 4upa 4ege @itsure, =hief Fconomist, 1ank of 1aroda. "Going for ard, in an emerging economy an o!er-!alued currency is not good so the central bank is expected to inter!ene soon to stabilise the rupee," she added. "One per cent appreciation in the rupee hits the re!enues of an export-oriented .T company by one per cent and margins by ",-3, basis points. +o e!er, one has to also see ho the .T companies ha!e hedged their positions in the market," Mr >rupal Maniar, 4esearch Bssociate-.T, Fmkay 7hare and 7tock 1rokers.

Forex reserves have very high opportunity cost

D. 8urali

'" .(&3I; "03)A;A

=hennai Bpril 13 .ndiaMs foreign exchange /forex0 reser!es ha!e crossed 2$,, billion, from a near-Hero position less than t o decades ago. Though our current reser!es are *ust about a sixth of hat =hina holds, there are some important Cuestions the lay may like to ask. 7uch asL .snMt e!ery dollar in the pile of 41.Ms forex reser!es represented as rupee eCui!alent in the current money supplyO )oes a surge in forex reser!es cause inflationary pressureO $0 +o can forex reser!es be WutilisedM for infrastructure, as recommended by someO "0 +o different ill any such WutilisationM be different from printing more currencyO Bre there examples of such forex use from around the orldO )r 7unil 4ongala, Group Fconomist, Murugappa Group, ans ers these posers from Business 2ine. 3n fore/ $s money su ly.

Theoretically, e!ery dollar or euro or yen that enters .ndia for purposes such as in!esting in eCuities or as part of F). /foreign direct in!estment0 or hen the 41. /4eser!e 1ank of .ndia0 buys dollars and hich form the forex reser!es of

the 41., is represented as the rupee eCui!alent in the money supply. 3n fore/ surge and inflation. B surge in forex reser!es can potentially cause inflationary pressures. .t needs to be understood that an increase in forex reser!es is because of increased foreign inflo s. Foreign inflo s increase ill impact the monetary base and conseCuently the money supply and since inflation is defined as "too much money chasing too fe goods", an inflo can potentially add to inflation or cause inflationary pressure. +o e!er, the 41. or any central bank can reduce this inflationary pressure by WsterilisingM foreign inflo s. 7ay 21 billion comes into the system because some foreign in!estor ants to in!est here. This 21 billion is eCui!alent to around 4s &,",, crore and this means that the monetary base has increased by the same amount. The 41., to neutralise this inflo , ill issue bonds to suck the 4s &,",, crore out of the system. .n effect, the money supply remains unchanged. +o e!er, hile steriliHation may th art inflationary pressures, it is a fairly expensi!e process since the 41. gets a smaller return on the foreign money !is-[-!is hat they pay on the bonds. 3n utilising fore/ reser$es for infrastructure. Forex reser!es ha!e a !ery high opportunity cost, as the return on them is typically !ery lo as compared to hen the money is used for something else. Therefore, many ha!e suggested that the money can be used for infrastructure pro*ects because the go!ernment canMt afford to pay for them and the 41.Ms foreign reser!es are doing nothing and they could earn some extra money for the 41.. .n theory it sounds like a !ery simple and a Wno-brainerM thing to do, but in reality it is a far more complicated issue. 6hose money is itL the 41.Ms or the go!ernmentMsO =an the

go!ernment force the 41. into this and if it does, hat does it do for the image of the 41. as an independent central bankO The 41. is supposed to be fairly independent from the politicians and if this is forced upon them, it could ha!e a catastrophic effect on the perception that people ha!e of the 41. regarding its independence. <eople are more likely to trust the 41. because it is run by technocrats as opposed to the go!ernment, hich is run by politicians ho are focused on inning the next election. The other issues areL A The reser!es of the 41. are meant as an insurance against speculati!e attacks as ell as pay for imports. =an the money be di!ertedO A 6ill the spending on infrastructure create no extra liability for the go!ernmentO )oes this ne channel of resources for the go!ernment reduce its ill to decrease its fiscal deficitO A +o ill the con!ersion of dollars into rupees affect the exchange rate of the rupeeO A 6ill it be non-inflationaryO <roponents say that using forex for infrastructure spending is not inflationary hile opponents say that hile spending on traded goods may not be non-inflationary, spending on non-traded goods is. A Gi!en the !ery high presence of Whot-moneyM in .ndia, can the 41. afford to let some money go to fund infrastructure spending. The list of issues goes on and on. 3n the difference "etween utilising fore/ reser$es and rinting more currency. .t is a huge difference from *ust printing more money. <rinting more money for infrastructure funding is ruinous for

a country because it causes inflation on a massi!e scale. <rinting money for infrastructure pro*ects is essentially creating ne money hereas foreign reser!es are existing monies and already part of the system. .n terms of perceptions, printing money for any purpose other than for the normal running of an economy ill be !ie ed a !ery bad thing and something that is only done by a country in desperation. Any e/am le of fore/ use from around the world. =hina is planning to use its massi!e 21.$ trillion in forex for other purposes. They ha!e established an agency to find ays of using these reser!es and ensure a higher return than they ould get if they ere idle. =hina also ants to do this because it has been causing massi!e inflationary pressure on the system though they ha!e managed to contain it. They donMt need to use it for infrastructureP they already ha!e superb infrastructure because their go!ernment had far more foresight. .nstead they plan to use it for in!esting outside the country in such things as eCuities etc.

Rupee gains 36 paise

3ur 5ureau

Mumbai, Bpril 1" The rupee appreciated by around "$ paise against the dollar on Friday to close at &$.3$%3" on Friday, compared to the pre!ious close of &$.(&. The domestic currency opened at &$.##, touched an intra-day lo of &$.($, before closing at &$.3$%3". "There as hea!y selling of dollars in the market and hopes of any inter!ention by the 4eser!e 1ank of .ndia ere fading," said a dealer ith a pri!ate bank. Market participants expect the rupee to trade in the &$.&3&$.(, range. .n the for ards, the six-month premia closed at 3.93 per cent /3."' per cent0, hile the 1$-month closed at &.3# per cent /&.$, per cent0.

+exti!e exportersH concern over hardening rupee

3ur 5ureau =oimbatore Bpril 1" Fxport of textiles and clothing from .ndia to ma*or markets is sliding on account of strong rupee. The orried textile exporters ha!e urged the =entral Go!ernment to inter!ene so that the country does not lose

its share in the orld textile markets due to the lo realisation in rupee terms. The sharp appreciation in the rupee !is-[-!is dollar itnessed in the past nine months has resulted in slo do n in textile%clothing exports from .ndia, said Mr <rem Malik, =hairman of the =otton Textile Fxport <romotion =ouncil /Texprocil0. The !alue of rupee, according to him, rose to 4s &$.'3 to a dollar as on Bpril 9, $,,# compared to 4s &'.31 in Bugust $,,', an increase of 9 per cent. This rise had a direct bearing on export realisation leading to a slo do n in exports. +e said in the case of the ?7, hile textile imports from .ndia for the year ending Ianuary $,,# had gro n by only 3 per cent, imports from =hina, .ndonesia, 1angladesh and =ambodia for the same period rose by $# per cent, $' per cent $, per cent and $" per cent respecti!ely. The consistently under!alued yuan had led to =hinaMs strong presence in textiles and clothing products in ma*or markets. =hina could achie!e $# per cent gro th in exports to the ?7 despite restrictions on its products imposed by the latter. F!en as the appreciating rupee as making the countryMs exports uncompetiti!e, textile exporters ere being further burdened by high production costs caused by high interests costs, pressure on prices and gro ing costs of inputs, Mr Malik pointed out.

G$611 b "orex no reason to reFoiceH

N.S.Vageesh P2etting rupee appreciate may help tackle problem of plentyM

=hennai Bpril 1" "Rou canMt eat foreign exchangeN Bccumulation of forex reser!es is not bliss. .t is a curse," says Mr >.<. Geethakrishnan, former Finance 7ecretary, ith *ust a touch of acerbity, hen asked to react to the ne s of .ndiaMs forex reser!es touching 2$,, billion. =iting the parallel of bumper crops and reaping a huge mountain of foodgrain, and then coping ith the resultant problems of storage and disposal, he saidL "6e are used to problems of deficit. 6e donMt kno ho to handle problems of plenty." True enough. 1ut ha!ing a stockpile of 2$,, billion is a far cry from ha!ing almost nothing in 1991. Go!ernment officials and the then 41. go!ernor, Mr 7. ;enkitaramanan, had to run from country to country to seek help and sta!e off a default in payments. Only a pledge of gold sa!ed the countryMs reputation then. The situation has changed, and the change has been slo at first and more rapid o!er the past fe years. 4eforms helped fuel increasing portfolio and direct in!estment o!er the last fe years and bring more foreign money into the country. Fiscal $,,# alone sa reser!es go up by nearly 23, billion.

;et rupee -irm up

6hile expressing delight at reaching this landmark, Mr ;enkitaramanan saidL "Bffluence can be too hard to bear. Bccumulating reser!es is no only in*ecting more liCuidity and helping fuel inflation. Maybe it is time to allo the rupee to appreciate a bit more. Bccumulation of reser!es is not an end in itself. There is no point in gi!ing a return of ", per cent to F..s and earning only about fi!e per cent on the in!estments of these reser!es." Mr Geethakrishnan ad!ocates using a part of the forex stockpile for infrastructure pro*ectsP this ill not lead to an immediate increase of consumption expenditure that ould be inflationary. +e also suggests letting the rupee appreciate to reflect impro!ed fundamentals. /The rupee has appreciated about four per cent o!er the last year and nearly 1, per cent from its lo of &# against the dollar in Iuly $,,'.0 Mr >. 7ubramaniam, retired ci!il ser!ant, differs on this issue. "There is al ays a trade-off bet een the exporter and the importer. The appreciation of the rupee may not hurt .T companies muchP but they ill certainly affect manufacturing exports here margins are much smaller."
Volatile in-lows

On the issue of forex reser!es accumulation, he saidL "6ith regard to the composition of these reser!es and their !olatile nature, it is a matter of concern. These are not trade flo s or F). that ould be here for a longer duration. These are fair eather remittances, hich ill flee either in a crisis or a perception of a crisis. Gi!en global imbalances and mobility of capital, Bsian countries ha!e to be on guard and fight the flight of capital." 4epeating an obser!ation he had made many years earlier, 41. Go!ernor )r R.;. 4eddy, said at 7ingapore couple of months agoL "The reser!e accumulation could also be seen in the context of the a!ailability of abundant international liCuidity follo ing the easing of the monetary policy in industrial countries. "The resultant excess liCuidity flo ed into the emerging markets. ".n the e!ent of hardening of interest rates in industrialised countries, this liCuidity may as Cuickly dry upP in that situation, emerging markets should ha!e sufficient cushion to ithstand such re!erse flo s of capital." +e addedL "@o , ith the global rise in the interest rates, there is al ays a lurking fear in the emerging market economies, that the le!el of capital flo s may not be maintained. Thus, the comfort le!el of reser!es should not be !ie ed ith respect to the current situation alone but should also reckon the assessment of the emerging risks. "Moreo!er, at this moment the global economy has not been tested on the e!entuality of a not-so-orderly correction of the current global imbalances. .n that e!entuality, as the experts caution, disruption in financial markets in the form of large cross-currency !olatility and sharp rise in interest rates are not unlikely in the global economy." @oteL Figures for March $,,#.

Rupee ends higher

3ur 5ureau

Mumbai, Bpril 1$ The rupee opened at &$.9&%93 against the dollar, hich as also the intra day lo , and closed at &$.(& on Thursday against the pre!ious close of &$.(#. "The rupee sa a t oay mo!ement today," said a dealer ith a pri!ate bank. Market participants expect the rupee to trade in the &$.#3&" range. .n the for ards, the '-month premia closed at 3."' per cent /&.9" per cent0 and the 1$-month closed at &.$, per cent /".99 per cent0.

Rupee weakens 4 paise

3ur 5ureau

Mumbai, Bpril 11 Fxporters may be facing a difficult situation ith the rupee continuing to be in the &$ range against the dollar for the fourth consecuti!e day. The domestic currency eakened by around & paise but still remained close to the eight - year high mark at &$.(# on 6ednesday against the pre!ious close at &$.(". 4upee opened at &$.(,%(1, sa an intra-day lo of &$.9" before closing at &$.(#."=ash related imports ere seen in the morning," said a dealer ith a pri!ate bank. "There as hea!y buying by foreign banks," he added. Market participants expect the rupee to appreciate to &$.#3. .n the for ards, the '-month premia closed at &.9" per cent /3 per cent0 and the 1$-month closed at ".99 per cent /&.,& per cent0.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, Bpril 9 The rupee traded around the eight-year high mark and strengthened marginally on Monday to close at &$.91 against the dollar. The currency opened at &$.9$, sa an intra-day high of &$.#3 before closing at &$.91 against ThursdayMs close of &$.9". The 4eser!e 1ank of .ndia as seen in the market around the &$.#3 mark," said a dealer ith a pri!ate bank. "F.. inflo s helped maintain a strong rupee, " the dealer added. Market participants expect the rupee to trade in the range of &$.(, - &".$,. .n for ards, '-month premia closed at 3.1" per cent /3.&10 and 1$-month closed at &.,( per cent /&.$#0.

Rising rupee has exporters worried' says study

3ur 5ureau @e )elhi Bpril ( The recent appreciation in the !alue of the rupee against the ?7 dollar has caused anxiety among exporters, according to a sur!ey conducted by the <+) =hamber of =ommerce.

Bs per the sur!ey findings, exporters are perturbed by the fall in resultant profits. The international buyer is not illing to pay the exporter the extra price accruing from currency appreciation. The appreciation percentage has hence to be borne by the exporter, hich in turn lo ers his export proceeds and ser!es to erode his profit margin, the sur!ey finds. Fxporters also complain of incurring a loss bet een the period of in!oicing and realisation of proceeds on account of rupee appreciation. The strengthening rupee is particularly detrimental to the lo import intensi!e and price sensiti!e industries such as textiles, especially hen competitors such as <akistan ha!e not itnessed a similar currency appreciation.
IT revenue impact

7imilarly, the re!enues of .T companies are expected to take a hit and ould lead to a pressure on their margins on account of rupee appreciation, according to the chamber. Fxporters of capital goods find that they ha!e to bear the double hammy of ha!ing to put up ith the cost escalation arising out of the rising rupee and the recent build-up in domestic prices of inputs of items such as steel, copper, aluminium, and Hinc on account of inflation. These de!elopments ha!e put capital goods exporters in a !ery tight position in international bids.

%:, pins hopes on strong rupee

Pratim Ran9an 5ose Cnder-reco"ery straining working capital >olkata Bpril ' 1eing faced ith a !olatile undertone in crude and product prices leading to rise in under-reco!eries, .O= /and other marketing companies0 is pinning hopes on a strong rupee to ease pressure on orking capital.

Though he prefers to consider the present slide of dollar as a "temporary phenomenon", Mr 7.;. @arasimhan, )irector /Finance0 of .O=, says that a stronger rupee partially sets aside the impact of up ard trends in crude prices. ".f rupee gains by 1,, paise against dollar, our cost of crude comes do n by $ per cent," he said. @aturally the orking capital A hich is under strain in the face of 4s '3 crore under-reco!ery a day by the company A gets some relief. B strong rupee may also help the company to sa!e on foreign currency loan repayment. +o e!er, that seems to be too distant a possibility. Bccording to sources, .O= has roughly 2$.3 billion foreign currency loan and may gain by o!er 4s $,, crore in case of e!ery 1,, paise gain by rupee. Mean hile, firming up of crude and product prices had led to rise in under-reco!eries in petrol, diesel and kerosene. Bs on Bpril 1, .O= recorded under-reco!eries of 4s & a litre on petrol, 4s ".$, a litre on diesel and 4s 1".3, on kerosene primarily due to !olatility in international product prices. .n the international market, <etrol has become costlier by 21, a barrel in Bpril. )iesel is dearer by 2"-& and kerosene by 2$-". The only exception is :<G, hich is no ruling at 23,# do n from 23&,. Bccordingly, the subsidy per cylinder has come do n from as high as 4s 1(, to 4s 1'1. "6e are hopeful that the first Cuarter of $,,#-,( ill not pro!e as bad as it as during the last year. +o e!er, product prices generally remain firm during this period due to se!eral reasons, including the scheduled maintenance shutdo n of Bsian refineries," Mr @arasimhan said.

Forex reserves pushing $611/bi!!ion

ark

3ur 5ureau >?< billion added to kitty in fiscal 0==1-=A Mumbai Bpril ' .ndiaMs foreign exchange reser!es ha!e !aulted by around 2&3 billion during the *ust ended fiscal $,,'-,# to 2199.1#9 billion A nearly kissing the 2$,,billion mark. The reser!es stood at 213&.$,9 at the beginning of the last fiscal. The forex kitty has seen a surge of 21.&"" billion to 2199.1#9 billion in the eek ended March ",. )uring the pre!ious eek, the reser!es expanded by 21.#(9 billion. Forex reser!es ha!e seen an accretion of around 2&.# billion in three consecuti!e eeks. Mr >. +arihar, +ead, Treasury, )e!elopment =redit 1ank, said there had been strong dollar inflo s in the forex market during the eek under consideration. "6hile there ha!e been F.. inflo s, companies ha!e been repatriating Fxternal =ommercial 1orro ings parked abroad due to year-end considerations," he said. Treasury officials said companies may ha!e also been repatriating funds and locking it in .ndian deposits to take ad!antage of the high interest rates. The F.. inflo s during the million. eek ha!e been around 2$&&

Treasury officials said that strong F.., F). and F=1 inflo s ould continue to shore up the countryMs forex reser!es and the 2$,,-billion mark as ell ithin reach. The .ndian rupee, hich has been consistently gaining against the dollar, closed at an (-year high of &$.9$ on Thursday.

Foreign currency assets during the eek increased by 21.3"$ billion to 2191.9$& billion during the eek under consideration, said the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es dipped by 299 million to 2'.#(& billion. 7)4s and the countryMs reser!e position in the .MF remained unchanged at 2$ million and 2&'9 million, respecti!ely. Forex reser!es ha!e seen strong accretion since @o!ember as the 41. has been inter!ening to rein in the appreciating rupee. The 41. is belie!ed to ha!e bought 2( billion from @o!ember to Ianuary and around 21$ billion in February.

Rupee c!oses on high note

3ur 5ureau

Mumbai, Bpril 3 The rupee breached the psychological le!el of &" and surged to close at an eight-year high of &$.9$%9" on Thursday. The currency gained by around 1' paise as banks built shortpositions on dollars. The home currency opened at &".,$%,& and rose to see an intra - day lo of &".$, before closing at &$.9$%9" against 6ednesdayMs close at &".,(%,9.

)ealers said the currency as at &".13 for most of the day and the surge came as a surprise. "There as strong dollar selling by banks as traders ere perhaps not expecting the central bank to inter!ene in the market," said a dealer ith a pri!ate bank. Market participants expect the rupee to appreciate further to &$.(, next eek. .n for ards, premia '-month closed at 3.&1 per cent /3.110 and 1$-month closed at &.$# per cent /&.110.

Rupee breaches 43/!eve!

3ur 5ureau (limbs down from intra-day high to close tad lower 'ccording to treasury officials, the appreciation of rupee on JII inflows and domestic liGuidity crunch is not warranted by fundamental factors! Mumbai Bpril & The rupee breached the psychological mark of &" and soared to an eight year high of &$.((%(9 intra-day on strong dollar supplies. +o e!er, the rupee closed around one to t o paise lo er at &".,(%,9 against yesterdayMs close of &".,#. Mr <aresh @ayar, =hief )ealer, )e!elopment =redit 1ank, said traders had cashed in on the arbitrage opportunity bet een offshore and onshore markets /borro cheap dollar o!erseas, con!ert them into rupees and make money on the interest differential0 resulting in dollar sales against the rupee. "The rupee has been strengthening all through March as dollar inflo s ha!e come in through external commercial borro ings and other loans of corporates as ell as F.. inflo sP the tightness in call rates also led to inter-bank selling of dollars. .f the 4eser!e 1ank of .ndia does not inter!ene in the market, the rupee could strengthen further and appreciate to &$.3, and &$.(,," he said.

The rupeeMs rise continues to hurt exporters importers.

hile benefiting

Bccording to economists and treasury officials, the appreciation of rupee on F.. inflo s and domestic liCuidity crunch is not arranted by fundamental factors. "The rupeeMs appreciation has reduced external competiti!eness of the countryMs exports and high inflation has pushed up input costs. This ill certainly impact the merchandise trade of .ndia," said )r 4upa 4ege @itsure, =hief Fconomist, 1ank of 1aroda.
0vervalued

Today the rupee could not sustain the le!el of &$.((%(9 as oil importers ere seen buying dollars in the market. "The rupee has been on a strengthening mode. Today e sa short co!ering by most players in the market, hich pushed do n the rupee to &" le!els," said Mr 4a!i <ai, +ead Forex and )eri!ati!es /Treasury0, +)F= 1ank. Bccording to dealers, the rupee is o!er!alued by almost 1,11 per cent going by the real effecti!e exchange rate. Other Bsian currencies such as yen ha!e been stableP so the central bank may ant to inter!ene in the market to reduce the rupeeMs !olatility. .f the 41. consistently inter!enes in the market, the rupee is likely to touch &&.3, in the next t o months, said a senior treasury official. Though the 41. as not seen in the market, dealers expect the central bank to act if rupee continues to strengthen further.

The six-month for ard premia closed higher at 3.11 per cent /3.9" per cent0 and the one-year closed at &.11 per cent /&.3' per cent0.

#ervices receipts he!p reduce current aKc gap

3ur 5ureau Trade balance continues to be negati"e #lowdown in manufactured goods and sharp growth in oil imports contributed to the widening gap between e ports and imports! =hennai March ", B doubling of receipts due to ser!ices rendered by soft are companies, tourism earnings and remittances from .ndians orking abroad helped .ndia reduce its current account deficit for the third Cuarter of this fiscal. =urrent account measures the Cuantum of both trade and ser!ices that the country has ith the rest of the orld. Bccording to statistics put out by the 4eser!e 1ank of .ndia, the current account deficit as at 2" billion for the third Cuarter ended )ecember "1, $,,', compared ith 2&.# billion in the corresponding period in the pre!ious fiscal. For the nine-month period co!ering /Bpril-)ecember $,,'0, the current account deficit as at about 21$ billion, at the same le!el as in the pre!ious corresponding period. The trade balance continued to be negati!e as .ndia imported more goods than it exported. .mports during the Cuarter ere orth 2&( billion hile the country exported goods orth 2$9 billion. B slo do n in exports, principally in manufactured goods, and sharp gro th in oil imports as ell as other products such as capital goods, gems, precious stones, gold and other metallic ores contributed to the idening gap bet een exports and imports.

Fxports gre 1& per cent in this Cuarter compared ith $1 per cent in the corresponding Cuarter of the pre!ious fiscal, hile imports gre $3 per cent in this Cuarter as against 1# per cent in the corresponding earlier period.
'illennium ,eposit

1ut receipts from ser!ices, hich doubled to about 21' billion for the Cuarter ended )ecember "1, $,,', compared ith the 2( billion in the corresponding period, helped reduce the current account deficit to 2" billion. @et soft are earnings for the 9-month period /Bpril)ecember $,,'0 as at about 2$, billion compared ith about 213.3 billion in the corresponding 9-month period of the pre!ious fiscal. 7oft are earnings accounted for half the receipts on the "in!isibles" head in the current account of the country. =apital flo s /comprising mainly of Fxternal commercial borro ings /F=1s0, @4. deposits, foreign direct in!estment and portfolio inflo s0 into the country rose to 21,.3 billion during this Cuarter compared ith less than 2,.1 billion in the corresponding period. +o e!er, the lo figure of the pre!ious fiscal is explained by the outflo of 23.3 billion that took place in )ecember $,,3 to repay the Millennium )eposit of the 7tate 1ank of .ndia.

Forex reserves rise $..><0 b

3ur 5ureau Our 1ureau Mumbai March ", The countryMs foreign exchange reser!es surged by 21.#(9 billion to touch 219#.#&' billion in the eek ended March $", $,,#.

The reser!es ha!e increased by o!er 2"." billion in t o consecuti!e eeks. )uring the eek ended March 1', the reser!es had touched 21.3&# billion to 2 193.93# billion. Bccording to the 41.Ms 6eekly 7tatistical 7upplement, foreign currency assets increased by 21.#(9 billion to 219,."9$ billion. Treasury officials said strong F.. inflo s ould ha!e resulted in the accretion to the reser!es. "The 41. as conspicuous by its absence last eek. 7o, the increase could ha!e come only ith strong dollar inflo s," said a senior treasury official. Bccording to data from 7F1., F.. inflo s million. ere around 2"$3.3

Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es remained unchanged at 2'.((" billion hile 7)4s ere at 2$ million. .ndiaMs reser!e position in the .MF remained the same at 2&'9 million.

3xterna! debt surges by $6..0 b in 53

3ur 5ureau On the back of commercial borrowings, %RI deposits @e )elhi March ", The countryMs external debt stock shot up by 2'.19 billion in the Cuarter ended )ecember $,,' to 21&$.'' billion on the back of a sharp increase in commercial borro ings by corporates and also due to rise in non-resident .ndia /@4.0 deposits.

The pre!ious Cuarter sa an increase of 2&.$# billion in external debt to touch 21"'.&# billion at end-7eptember $,,'. .n the first Cuarter, the external debt stock had increased by 23.(1 billion to 21"$.$, billion as on end-Iune $,,'.
%merging 'arkets

6hile long-term debt outstanding for the Cuarter ended )ecember $,,' increased by 2'.(, billion to 21"$.'& billion, short-term debt declined by 2'1, million to 21,.,$ billion at end-)ecember $,,'. Bt end-)ecember $,,', the foreign exchange reser!es stood at 21##." billion. This as the fifth largest stock of reser!es among the emerging markets and sixth largest in the orld. 6ith the .ndian corporate sector acCuiring assets o!erseas in a big ay and spreading its footprints abroad, the commercial borro ings ha!e also been on the rise.
3"I/,eposits

?nder long-term debt, the largest increase o!er the Cuarter as recorded by commercial borro ings. This component gre 11 per cent from debt outstanding of 2"$.&$ billion as on end-7eptember $,,' to 2"3.9( billion as on end)ecember $,,'. @4.-deposits /long term0 increased by 21.(# billion for the period under re!ie to 2"(."( billion at end-)ecember $,,' from 2"'.3$ billion at end-7eptember $,,'. Blthough the proportion of short-term debt to total debt declined to # per cent as at end-)ecember $,,' compared ith #.( per cent at end-7eptember, this as much higher than the &." per cent recorded at the post reform period of 1993.
%$port Credit

For the Cuarter ended )ecember $,,', multilateral debt increased by 29#3 million to 2"&.3# billion and bilateral debt sho ed an increase of 2"' million to 213.## billion. Fxport credit outstanding rose by 2$99 million to 23.93# billion at end-)ecember $,,'. 4upee debt remained broadly at the same le!el as at the end of pre!ious Cuarter. @on-resident deposits continued to account for the largest share of $'.9 per cent in the total debt outstanding at end)ecember $,,', follo ed by commercial borro ings at $3.$ per cent and multilateral debt at $&.$ per cent. The share of bilateral debt as 11.1 per cent. Fxport credit and rupee debt accounted for &.$ per cent and 1.& per cent respecti!ely.

Rupee sheds >1 paise

3ur 5ureau Mumabi March $9 Bfter ha!ing surged to an eight-year high at &".,3, the rupee on Thursday plunged to &".#'%##. The domestic currency opened eak at &".$3%$', touched an intra-day lo of &".(, and closed the day at &".#'.## A around #, paise lo er than its pre!ious close. Forex dealers said the rupee retreated as banks, hich had gone short /selling dollars ithout ha!ing them0, began co!ering by buying dollars. The 41., hich had been on the sidelines, also made its appearance and purchased the greenback. There as also some importer-related demand from oil companies, traders said. .n the past one eek, the rupee had been steadily gaining against the dollar, buoyed by an acute rupee-shortage ith call rates Hooming to ',-#3 per cent le!els. )ealers ere expecting a correction, hich came faster than expected.

The easing of call rates and liCuidity conditions ere expected to pull do n the rupee. =all rates on Thursday closed at 1,-11 per cent and banks borro ed 4s 1#,('3 crore from 41.Ms repo indo at #.3 per cent. On 6ednesday, banks borro ed 4s $#,"93 crore from the central bank. "1anks ere going long on dollars as the correction in the rupeeMs appreciation as expected and represented a trading opportunity," said Mr 4.;.7. 7ridhar, ;ice-<resident /Treasury0, ?T. 1ank. "The interest rate differential bet een rupee and dollar funding hich has been ruling at 13-$, per cent, dri!en by high call rates is expected to soon disappear," added Mr 7ridhar. Traders said some foreign banks ere also un inding their s aps /selling rupees for dollars0. The 41. is belie!ed to ha!e purchased a total of 2$, billion in the last four months ending February, said an analyst.

Re surges to eight/year high

3ur 5ureau Mumbai March $( On the back of a cash crunch, the rupee surged to an eight-year high of &".,&%,3, last seen in 1999. 1anks s apped dollars for rupees to meet immediate needs, gi!ing a fillip to the domestic currency. The rupee opened at about &".1&%13 and touched an intraday high of &".,1%,$. On Monday, the rupee had ended at &".",. The six-month for ard premia ended at 3."1 per cent /3.&3 per cent0 and 1$-month for ard premia closed at &.,& per cent /&.13 per cent0.

4upee liCuidity dried up, pushing call rates to an intra-day high of $3-", per cent, forcing banks to borro 4s $#,"93 crore under the 41.Ms repo indo at #.3 per cent. Bd!ance tax outflo s of around 4s "3,,,, crore also sucked out cash from the system. 6ith the financial year dra ing to a close, banks are selling dollars in the market to meet cash reCuirements. "There as huge inflo of dollar in the market as banks ere liCuidating their dollar positions in !ie of the high call rates," said Mr <. Mukher*ee, 7enior ;ice-<resident /Treasury0, ?T. 1ank. "This le!el of rupee is highly unsustainable and one has to ait for the financial year to end to see the direction of rupee." Market participants said that the 41.Ms absence in the market implied that it as trying to tame inflation by denying rupees. The apex bank is belie!ed to ha!e bought 2( billion from the forex market bet een @o!ember and Ianuary. Fxporters are concerned o!er rupee appreciation importers are happy o!er the de!elopment. hile

)ealers said that most exporters ould ha!e co!ered their positions for the next six months /the for ard premia has been ruling high0. Mr I. Moses +arding, +ead /6holesale 1anking0, .ndus.nd 1ank, saidL ".mporters ho had not co!ered their positions hen the rupee touched && can do so no ."

%+ stocks take a beating on strong rupee

Adith 0harlie PInfotech sector earns o"er 1=B re"enues in foreign

e changeM

Mumbai March $( .nformation Technology /.T0 shares fell sharply on 6ednesday, ith the rupee touching an eightyear high against the dollar at &".,&%.,3. B strong rupee ad!ersely impacts the profits of .T companies /they earn less rupees against e!ery dollar earned0 and may affect their sales targets. The rupee today ended at &".,&%,3 against the ?7 currency as banks stepped up dollar sales to generate rupee funds to tide o!er a cash crunch in the money market, dealers said. Market analysts belie!e if the rupee continues to rule strong, .T companies ill be forced to re!isit the guidance they had gi!en for the next Cuarter /first half $,,#-,(0. Most .ndian .T companies had pegged next yearMs estimated earnings based on the rupee ho!ering around the &3-mark to the dollar. They might e!en ha!e to gi!e a conser!ati!e guidance for the year ending March "1, $,,(, said Mr +arit 7hah, 4esearch Bnalyst, Bngel 1roking "One per cent change in the rupee ill hit the operating margins of .T companies for FR,( by ",-3, basis points," said Mr 7hah. .t is imperati!e that bottom lines ill be affected as the .T sector earns o!er ', per cent of its

re!enues in foreign exchange, said Mr >rupal Maniar, 4esearch Bssociate-.T, Fmkay 7hare and 7tock 1rokers.
"e to remain -irm

=urrency dealers expect the rupee to firm further and that could place .T stocks under selling pressure o!er the next fe days. The .T industry is eyeing turno!er of 2"1 billion from soft are exports for the fiscal ending March $,,#. 7hares of .nfosys Technologies, the second most hea!ily eighted stock on 7ensex, as do n ".13 per cent to 4s 1,99$." hile 6ipro slid &.## per cent to 4s 33(.$P T=7 ent do n 4s &.#( per cent to 1,$,1.

The 17F .T index fell ".3& per cent or 1##.3# points to close at &,("1.(3 points as nine of the ten benchmark .T stocks recorded loses. B crisis in the ?7 mortgage sector, hich issues mortgages to high-risk borro ers, has raised concerns o!er the orking of the ?7 economy. "The eak consumer confidence report has raised concerns of a slo do n in the ?7 hich is the place to land for .ndian .T companies," added another .T analyst.

,a!! rates c!ose !ower

3ur 5ureau Mumbai, March $( 1anks borro ed 4s $#,"93 crore from the 41. through the repo indo e!en as call closed lo er at #-9 per cent on 6ednesday against MondayMs ending at 1"-13 per cent. .n the first one-day repo auction, 41. recei!ed and accepted thirty-three bids for 4s $',#$3 crore. .n the second one-day repo auction, 41. recei!ed and accepted three bids for 4s '#, crore. .n the second re!erse repo auction /there as no re!erse repo auction in the morning0, the central bank recei!ed ele!en bids for 4s ",$13 crore hile accepting 4s 1,,,, crore. The =1:O market sa "9# trades aggregating 4s 1(,,'&.#, crore in the $ per cent-$, per cent range.

Rupee c!oses at 61/ onth high

3ur 5ureau Mumbai, March $' The rupee closed at a $,-month high of &".", against the dollar on Monday due to a liCuidity crunch in the banking system. The home currency opened at &".3,%3$ but finally rose by $' paise to close at &".", against the pre!ious close of &".3'%3# on Friday. Bccording to dealers, the tight liCuidity prompted banks to sell dollars to meet their cash reCuirements. "There as strong dollar selling by banks," said a dealer ith a pri!ate bank. "The central bank ould not inter!ene in the forex market to lo er the inflation, currently ho!ering at '.&' per cent," he added.

The dealers expect the rupee to trade in the range of &".1,&".13 this eek. .n the for ard premia, '-month closed at 3.&3 per cent /".9#0 and the 1$-month closed at &.13 per cent /"."#0. "Bs the financial year comes to an end, banks in need for funds are s apping dollars, pressuring the for ardpremia," the dealer said. "The market ill normalise in the first eek of Bpril," he added.

Forex reserves up by $..54 b

3ur 5ureau

Mumbai March $" Forex reser!es rose by 21.3&# billion to 2193.93# billion in the eek ended March 1'. This as mainly due to appreciation of non-dollar currencies against the dollar and net F.. inflo s into the domestic eCuity market. Foreign currency assets increased by 21.3&3 billion to 21((.'," billion. The reser!es had declined marginally by 2$$& million to 219&.&1, billion, during the eek ended March 9. "The forex reser!es ha!e risen mainly because the euro appreciated to about 21."" against the dollar and there as strong net F.. inflo s into the stock markets," said Mr >. +arihar, +ead, Treasury, )e!elopment =redit 1ank. )ealers said the rupee is likely to trade in the range of &".(3-&& next eek.

Foreign currency assets, as expressed in dollars, include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es remained unchanged at 2'.((" billion, hile 7)4s ere at 2$ million. .ndiaMs reser!e position in the .MF increased by 2$ million to 2&'9 million.

Foreign trave! props up invisib!es account

0.7. Punnathara

The ubiCuitous .ndian middle-class has begun to pack its bags and tra!el abroad in such huge numbers that it could soon ri!al the hordes of foreign tourists, businessmen, delegates and foreign academics descending on the country e!ery year. That is the clear indication emerging from the 1alance of <ayments 7ummary of the .n!isibles Bccount of the country. .n a break from the 19(,s and the 199,s, the total expenditure incurred on foreign tra!el by .ndians last year has nudged tantalisingly close to the foreign exchange recei!ed from the four-million-plus foreigners !isiting the country. F!en as receipts from foreign !isitors added up to 2'.'' billion in $,,&-,3, the expenditure by .ndians tra!elling abroad gre to 23.$& billion A and the country netted 21.&$ billion under the foreign tra!el account.

.n $,,3-,', the receipts surged to 2#.(3 billion hile the expenditure on foreign tra!el gre to 2'.&' billion, and the net realisation shrunk modestly to 21."9 billion. .ndia has been the focus of global attention, not only for the impressi!e eight-per-cent-plus gro th, but also for its transformation into a key tourist destination.
Tourism growth

.n Ianuary, the 6orld Tourism Organisation noted the emergence of 7outh Bsia as a tourist destination ith a remarkable gro th of 1, per cent in tourist arri!als in $,,', more than double the global a!erage. 1ut, more importantly, it obser!ed that this gro th as boosted by .ndia, hich accounted for half the arri!als in the region. Gi!en the attention .ndia is attracting, it is ine!itable that the focus should shift almost exclusi!ely to the surging inbound tourist traffic, ith scant attention to the e!en fasterpaced gro th in foreign tra!el by .ndians. Though the gro th in out-bound tra!el seems to be the result of .ndiaMs impressi!e performance, the surge of in-bound !isitors must be sustained to keep the net returns from the in!isibles account ringing.
Travel receipts

1et een 199,-91 and $,,,-,1, receipts under foreign tra!el gre handsomely at an a!erage of 1& per cent an year. The surge in foreign tourist arri!als, as noted by the 6orld Tourism Organisation, as also reflected in the double-digit gro th in foreign exchange earnings. +o e!er, the expenditure on foreign !isits by .ndians gre at an alarming '1 per cent per annum. 1ut one must not lose sight of the extremely small base of this gro th cycle. The trend of foreign tra!el expenditure outpacing receipts continued in this decade. 6hile foreign exchange receipts gre by 1$ per cent bet een $,,,-,1 and $,,3-,', the gro th in expenditure as still modestly ahead at 1" per

cent. )oes the narro ing of net receipts from foreign tra!el in recent years signal a crisis on the 1o< frontO 7urge in foreign tra!el expenditure is ine!itable in any accelerating economy as business !isits by domestic delegations become common, placement by companies of their personnel abroad expands, and !isits in pursuit of technology, eCuity partnerships and for mergers and acCuisitions increase.
(horing up receipts

6hile the surge in business !isits has reduced the net realisation from foreign tra!el, it has helped to shore up receipts from other sectors of the in!isibles account. The t o heads that contribute to the surplus in the in!isibles account in almost eCual measure are pri!ate transfers and the miscellaneous account. <ri!ate transfers constitute remittances from .ndians orking abroad, hich topped 2$& billion in $,,3-,'. .ncreased tra!el expenditure is an inherent pre-condition for remittances to sustain their gro th cur!e. 7oft are and business ser!ices constitute the biggest component in the miscellaneous account. On a net basis in $,,3-,', the rapid gro th of soft are ser!ices /"1.# per cent0 and business ser!ices receipts helped non-factor ser!ices to bridge the gap ith pri!ate transfers in the in!isibles account. The gro th in soft are and business ser!ices has resulted in increased foreign tra!el. Ma*or soft are companies ha!e offices in Furope, the ?7 and other countries, hich necessitates the maintenance of large number of personnel abroad. This increased expenditure on tra!el has been more than offset by heightened soft are and business ser!ice receipts, hich together contributed o!er 2$& billion in $,,3-,'.

The 2&$.'3-billion surplus in the in!isibles account has helped a great deal in bridging the ya ning balance of trade deficit at 231.(& billion for $,,3-,'. .n fact, increased tra!el and communication is an inherent feature of an accelerating economy. Bnd increased foreign tra!el is an ine!itable conseCuence of the integration of the .ndian economy through globalisation and liberalisation. The country should accelerate inbound tourist arri!als instead of being o!erly concerned about the gro th in foreign tra!el.

Rupee s!ips against do!!ar

3ur 5ureau

Mumbai, March $$ The rupee lost marginally against the dollar on Thursday ith the easing of inter-bank call money rates, dealers said. The domestic currency opened at &".3#%39 and closed at &".#&%#3, do n from 6ednesdayMs &".&3%&'. )ealers said there had been impro!ement in the rupee liCuidity as call rates eased to 1,-13 per cent. .n the past t o days, call rates ha!e ruled at 3,-', per cent as ad!ance tax outflo s sucked out 4s "3,,,, crore from the system. The eakening of the yen by ', basis points to 11#.(, also affected the rupee. "The rupee is likely to fall to

&& ith the cooling of call rates. 1esides, the 41. may not be comfortable ith a strong rupee," said a dealer at a pri!ate bank. There as some ease in for ard premia ith the '-month closing at ".&( per cent /&.#"0 and the 1$month ending at ".1$ per cent /".#&0.

Rupee strengthens
3ur 5ureau Mumbai, March $1 The rupee strengthened by around ", paise and closed at &".&3 against the dollar on 6ednesday against TuesdayMs close of &".#3. The rupee opened at &".'#, sa an intra-day lo of &".#$, and finally closed at &".&3. "=all rates at #, per cent is hurting," said a dealer ith a pri!ate bank. ".n the morning, the 4eser!e 1ank of .ndia as acti!e in the market at &".'3, and also later hen the rupee as at &".',. The latter part of the day as marked by 41.Ms absence," the dealer added. There as a lot of dollar selling. "+olding the dollar as a costly affair," said a dealer. .n the for ards, the six-month closed at &.#" per cent /&.&10 and the 1$-month ended at ".#& per cent /".'10.

Forex reserves dip $664

3ur 5ureau Mumbai March 1' For the first time in eight eeks, .ndiaMs forex reser!es dipped 2$$& million to 219&.&1, billion for the eek ended March 9. .n the last t o months, the reser!es had surged 21#.# billion primarily on 41.Ms inter!ention in the forex market. .n the pre!ious eek, reser!es rose 21.3 billion to touch 219&.' billion.

Foreign currency assets dropped 2$$& million to 21(#.,3( billion during the eek under consideration, said the 41.Ms 6eekly 7tatistical 7upplement. Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /such as euro, sterling and yen0 held in reser!es. B senior treasury official said during the eek under consideration, 41. had not bought dollars in the forex market to rein-in the rupee. "The rupee as steady at &&.$1 at the end of the eek under consideration. There might ha!e also been a small re!aluation effect," said the official. The yen had fallen from 113.1' to11#.3, against the dollar hile the euro as steady at 21."13,. There ere F.. outflo s of around 2'&.( million from the stock market during the eek. Gold and 7)4s remained unchanged at 2'.((" billion and 2$ million respecti!ely. The countryMs position in the .MF ho e!er fell by 2& million. The rupee is likely to be in the range of &&-&&.$, in the next eek as dollar inflo s in the forex market are likely to continue, said a dealer.

Rupee strengthens
3ur 5ureau

Mumbai, March 1' The rupee strengthened on Friday against the dollar ith the currency opening at &&.$,, hich as also the intra-day lo , and closing at &&.11%1$ against yesterdayMs close at &&.$,. The dealer at a pri!ate bank said, "tight call money, absence of the 41., an across-the-board firming up of all ma*or currencies against the dollar ere the reasons for the strengthening of rupee. The 41. may come in but at a lo er le!el." .n for ards, the six-month closed at ".3( per cent /".3$0 and the 1$-month at ".$1 per cent /".$,0.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, March 13 The rupee gained marginally against the dollar on Thursday in line ith the gains in the domestic stock market. The currency opened at &&.$"%$& and closed at &&.$, against 6ednesdayMs &&.$&3,%$3. "The 17F as in the positi!e territory for most of the day, aiding the rupee," said a dealer at a pri!ate bank. Market participants expect the rupee to be in the range of &&.$,-&&.3, in the next fe days. +o e!er, the 4eser!e 1ank of .ndia could inter!ene to protect exporters, if the rupee falls belo &&.$,, said traders. .n for ards, the 'month closed at ".3$ per cent /".&$0 and the 1$-month ended at ".$, per cent /".1&0.

Rupee "a!!s by 4 paise

3ur 5ureau

Mumbai, March 1& The rupee eakened by about three paise on eakness in the domestic stock markets. "The market fears the global in!estors may turn sellers in the eCuity market," said a dealer at a pri!ate bank. The home currency opened at &&.",%"$, touched an intra-day lo of &&."'%"# to finally close at &&.$&3,%$3, against the pre!ious close of &&.$,3,%$13, on Tuesday. "The rupee also tracked the depreciation of the yen against the dollar," said the dealer. Bccording to dealers, the rupee reco!ered during the day on the dollar selling by some foreign banks. The six-month for ard premia closed at ".&$ per cent /".$# per cent0 and the one-year closed at ".1& per cent /".,# per cent0.

Rupee tad "ir er

3ur 5ureau

Mumbai, March 1" The rupee strengthened by around 3 paise on Tuesday due to stable stock market conditions. The currency opened at &&.$"%$&, sa an intra day high of &&.19.3,%$, and finally closed at &&.$,.3, % $1.3, against the pre!ious close at &&.$' on Monday. )ealers said that there as selling of dollars from foreign banks but the 4eser!e 1ank of .ndia absorbed it. .n for ards, the six-month premia closed at ".,& per cent /".,&0 and the 1$-month ended at ".,# per cent /$.9"0.

Rupee dips against do!!ar

3ur 5ureau

Mumbai, March 1$ The rupee dipped against the greenback on dollar demand on Monday. The currency opened at &&.$,%$" and fell to a lo of &&.$'. .t finally closed at &&.$' against FridayMs &&.$,%$1. )ealers said the rupee opened slightly lo er tracking the eakness in the yen. The domestic currency as also trailing the mo!ements in the domestic eCuity market. "7ome foreign banks ere buying dollars during the day hich caused the rupee to fall to a lo of &&.$', hile a second set sold dollars to prop the rupee at close," said a dealer at a pri!ate bank. Market participants said the domestic currency is expected to continue tracking the stock market and be in the &&.1# &&.$3 range. .n for ards, the six-month closed at ".,& per cent /".130 and the 1$-month ended at $.9" per cent /$.9(0.

? yen "or carry/trades

Sri$idhya Si$a+umar .f you are ondering ho the strengthening of the yen "isS-"is the dollar has anything to do ith the the stock market meltdo n, read on. Bmong the many reasons attributed to the slump in the orld markets, the yen carry-trade is the one cited most often. 1ut, before e learn ho the yen carry-trade affected the stock market, a look at hat "carry trade" is and ho it orks.
<hat is currency carry trade?

=urrency carry-trade is a strategy by hich an in!estor borro s in the currency of a market that offers lo interest rates and uses the proceeds to fund the purchase of assets in a market that yields a higher interest rate. Thus, using this strategy, in!estors seek to pocket the difference bet een the rates, leading to gains, depending on the

extent of le!erage . Ob!iously, the key risk to such transactions is the uncertainty of ho the t o currencies mo!e relati!e to each other /exchange risk0.

ill

The yen carry-trade, in a similar manner, seeks to use the differentials bet een the Iapanese yen and the ?7 dollar. For example, an in!estor may obtain yen-denominated borro ings at an interest rate of ,.3 per cent. @o , as long as this can be in!ested for a higher return, in!estors could profit from the WspreadM or WcarryM bet een the t o markets. .n!esting the funds in dollar-denominated bonds that pay 3 per cent, gi!es in!estors a spread of &.3 per cent /3-,.3 per cent0, assuming the exchange rate bet een the t o currencies does not change during the holding period. 6hen the same is done ith le!erage, the returns are phenomenal. .f the dollar strengthens "is-S-"is the yen, profits get magnifiedP ho e!er, if the yen ere to strengthen, losses can be siHeable too.
#ow carry/trade a--ects stock markets?

7ince Iapan has been holding its interest rates near Hero for the past six years, the WyenM has emerged as a fa!ourite currency for in!estors ho indulge in carry trades. The ease of making money on the yen carry-trade has, in part, contributed to a higher risk appetite on the part of global in!estors. .n!estors began to take more risk, so much so that the funds arising out of yen borro ings ere in!ested in emerging markets such as =hina and .ndia, usually percei!ed more riskier than the de!eloped markets. The going as good till the recent mark-up in Iapanese interest rates and the meltdo n in the =hinese market, hich dragged portfolio !alues for many in!estors deep into red. Those ho had borro ed a large sum of money in yen ere forced to close their carry-trade positions to limit losses. The hurried buying in the yen led to its strengthening "is-S"is the dollar, forcing many in!estors, hitherto unaffected by the =hinese market correction, to un ind their carry-trade

positions. This led to money flo ing out of emerging stock markets, such as that of .ndia, hich depend to a significant extent on foreign institutional in!estors. B correction in the markets, thus, becomes imminent. The sell-off in the =hinese market has sno balled into a global phenomena, leading to the meltdo n in global indices. 6hile such incidents ha!e not made yen carrytrades unpopular, they ha!e certainly forced in!estors to redefine their risk appetite.

Forex reserves up $..5 b

3ur 5ureau =hennai March 9 .ndiaMs forex reser!es rose 21.3 billion to touch 219&.' billion for the eek ended March $.4eser!es ha!e been going up continuously o!er the past t o months. The last fortnight has seen about 2( billion being added. 7tock markets sa net foreign institutional in!estor inflo s of around 2,.3 billion during the eek under consideration. The first t o days /February $' and $#0 sa cumulati!e F.. inflo s of about 21.1 billion. 1ut the next three days sa a little o!er 2,.3 billion pulled out. The rupee eakened a bit during that eek, going do n by about 1, paise to the dollar to close at about &&."' for e!ery dollar at the end of that eek.Gold reser!es ere up about 2"3& million at 2'.((" billion, hile 7)4s /special dra ing rights0 ere at 2$ million.

Rupee gains 61 paise

3ur 5ureau

Mumbai, March ( The rupee gained by around $, paise against the greenback tracking the surge in the domestic stock market. The domestic currency opened at &&.3,%3$ and touched an intraday lo of &&.3#%3(. .t finally closed the day at &&.""%"& against 6ednesdayMs &&.3,%31. )ealers said the home currency as closely follo ing the mo!ements on the 1ombay 7tock Fxchange. "The co-relation bet een the rupee and the stock market is no !ery strong, hich is hy the 3$, points gain at the 17F aided the $, paise *ump in the domestic currency," said a dealer at a pri!ate bank. Market participants said foreign banks ere selling dollars during the day. .f the upturn in the stock market continues, the rupee could appreciate to &&.$3, said traders. .n for ards, the '-month closed at ".1# per cent /$.9# per cent0 and the 1$- month ended at ".," per cent /$.910.

Rupee recovers

3ur 5ureau

Mumbai, March ' The rupee reco!ered against the greenback on hea!y dollarselling by corporates. The domestic currency opened at &&.33%3# and touched an intra-day lo of &&.39. .t closed the day at &&.&'%&# against MondayMs close at &&.'"%'&. The rupee opened strong on the reco!ery of stock markets across the globe. 7ensex gained $($ points on Tuesday. "There as some speculati!e dollar-buying by corporates, hich initially eakened the rupee. 1ut all-round selling of dollars by corporates helped the domestic currency in paring losses," said a dealer at a pri!ate bank. For ard premia inched up slightly, ith the ' month closing at $.9, per cent /$.($ per cent0 and the 1$ month ended at $.(' per cent /$.(10.

Rupee !oses 31 paise

3ur 5ureau

Mumbai, March 3 The rupee shed o!er ", paise against the dollar tracking the do nturn in the domestic stock market. The currency opened at &&.""%"3 and touched an intra-day lo of &&.#,%#1. .t closed the day at &&.'"%'&, against FridayMs close at &&.$9%",. The crash of &#1 points on the 1ombay 7tock Fxchange led to demand for dollars in the forex market. "There as all round dollar-buying by banks. .t as completely a one- ay market," said a dealer at a pri!ate bank. Traders expect the currency to be !olatile as long as the meltdo n in the stock market continues. The rupee is likely to mo!e in the broad range of &&.',-&3.,,, said a dealer. There as a fall in for ard premia ith the six-month closing at $.($ per cent /".,"0 and the 1$-month ending at $.(1 /$.9&0.

#ensex crashes tracking weak g!oba! arkets

3ur 5ureaus 2oses ?AL points, %ifty declines ?B ,rey Monday 12 of D= #ense stocks post losses 3456 per cent of all traded stocks decline Rupee slumps by D= paise against dollar

Bd!ertisement

Mumbai%>olkata March 3 .ndian stocks plunged across the board on Monday, taking cue from the rout in global, particularly Bsian, markets.

The benchmark 17F 7ensex lost &#1.,9 points or ".'' per cent from FridayMs close, to end the day at 1$,&13.,&. The 3,-share @7F @ifty declined by &.," per cent to close at ",3#'.3,. The .ndian markets initially caught the cold ith reports of global markets eakening - starting ith =hinaMs benchmark index falling last Tuesday, 6all 7treet reporting its orst eek in four years, after hich came the general decline across Bsian markets. Bfter that the fe!er rose as o!erseas funds continued to sell, and as post-1udget discontent ith respect to the .ndian corporate sector continued to sho , according to brokers. "Then there ere margin calls. Bll in all, there as nothing positi!e through the day and the negati!es kept piling up," said a broker. The 7ensex opened at 1$,&13.,&, only to immediately begin its decline. .t touched a lo of 1$,"&&.&& before making a eak reco!ery.

Bll the indices ended eaker. The 17F Midcap slid by &.9# per cent and the 17F 7mallcap by 3.'& per cent. Bll the sectoral indices ended eaker too, led by the 17F =G /3.31 per cent0 and the 17F Buto /3.1( per cent0. T enty-eight of the ", 7ensex stocks declined. .n all, $,"'" /9,.3 per cent0 of the total number of traded stocks fell on the 17F, hile only $$, ad!anced. The top losers ere 4anbaxy :aboratories /#.3' per cent0, Maruti ?dyog /'.3' per cent0 and )r 4eddyMs /'."3 per cent0. The fall in the .T sector as led by 6ipro /'.$9 per cent0 and .nfosys /&.39 per cent0. T=7 as lo er by ".(" per cent. The other losers ere Tata 7teel /3.1# per cent0, 71. /&.3# per cent0 and :UT /3.3$ per cent0. .=.=. 1ank lost $.9# per cent. 1ut institutional in!estors ha!e hedged themsel!es, said a leading broker. "Futures ha!e traded at discount of $,-", points. Those ho anted to unload their positions in the cash markets started the day selling @ifty futures. "Then, as they sold in the spot markets, they kept co!ering themsel!es in the futures market." 1ecause they sold first, the loss ould not ha!e hit them the discounts ould not ha!e been so large other ise. 1ut the retail in!estors, panicked.
"upee slump

ho ha!e no kno ledge of this,

The !olatility in the stock market extended to the rupee, hich slumped by o!er ", paise against the dollar. The currency opened at &&.""%"3, touched an intra-day lo of &&.#,%#1, before ending the day at &&.'"%'&, do n from FridayMs close of &&.$9%",.

Rupee sheds 6 paise

3ur 5ureau

Mumbai, March $ The rupee eakened by around t o-three paise against the dollar on a eak stock market. The domestic currency opened at around &&.$9%",, settled for long at &&.$#%&&.$( and finally closed at &&.$9%",, against the pre!ious close of &&.$# on Thursday. "6hen the 7ensex dropped by around three hundred points, the rupee slipped to an intra-day lo of &&."$," said a dealer at a pri!ate bank. "+o e!er, to ards the close some foreign banks ere seen selling dollars," he said. )ealers said the rupee is likely to trade in the &&.$3-&&.$9 range. The six-month for ard premia closed at ".," per cent /".$" per cent0 and the oneyear closed at $.9& per cent /$.9( per cent0.

Forex reserves swe!! on strong F%% in"!ows

3ur 5ureau

Mumbai, March $ The countryMs forex reser!es rose 2&.$1$ billion to 219".1$& billion on strong F.. inflo s into the domestic eCuity market for the eek ended February $". Forex reser!es ha!e increased for the se!enth consecuti!e eek ith foreign currency assets increasing by 2&.$1" billion to 21('.1$( billion. The reser!es had climbed by 2".("& billion to 21((.91$ billion during the eek ended February 1'. "The 41. has also been inter!ening in the market by buying dollars," said a dealer at a pri!ate bank. )ealers said the rupee is likely to trade in the range of &&.$3-&&.", next eek. "The euro had also gained considerably against the dollar," he said. The stock markets sa F.. inflo s of around 21 billion during the eek under consideration. Foreign currency assets as expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Gold reser!es remained unchanged at 2'.3$9 billion, hile 7)4s /special dra ing rights0 ere at 2$ million. .ndiaMs reser!e position in the .nternational Monetary Fund decreased by 21 million to 2&'3 million.

R*% steps to steri!ise Re "unds

3ur 5ureau Bd!ertisement Mumbai March $ 6ith rupee funds flooding the system on the back of dollar inflo s, the 41. has significantly altered measures to sterilise them /rupees0.

.t has put a ceiling of 4s ",,,, crore on the free funds parked daily by banks ith it through the re!erse-repo facility. .n a press note issued today, the 41. said daily re!erse repo absorptions ould be limited to a maximum of 4s ",,,, crore each day, comprising 4s $,,,, crore in the first :iCuidity Bd*ustment Facility /:BF0 auction and 4s 1,,,, crore in the second auction. .n case of partial re*ection of bids, allocations ould normally be made proportionately on a pro-rata basis. 1anks parked a total of 4s 1,1(, ($, crore eek earning ' per cent interest. ith 41. this

Free funds not taken up under :BF ill be absorbed by the 41. through an enhanced Market 7tabilisation 7cheme /M770.

?nder the modified M77, the 41., sub*ect to liCuidity conditions, ill announce e!ery Friday the possibility and the Cuantum of M77 issuances for the succeeding eek. For the eek ending March 9, M77 auctions ha!e been scheduled to absorb 4s (,3,, crore. On March ', there ill be an auction of dated security - '.'3 per cent $,,9 - for 4s ',,,, croreP on March #, there ill be T-bill auctions of 4s $,3,, crore. Till date the M77 operated ith an annual ceiling ith that for $,,'-,# being 4s #,,,,, crore. ?nder the M77, 4s 1',&3# crore has been sterilised so far in the current year and the outstandings are put at 4s &3,&3# crore. Bpparently, the cap on M77 seems to ha!e been relaxed, feel analysts.

Rupee "!at against do!!ar

3ur 5ureau

Mumbai, March 1 The rupee as flat against the dollar on Thursday as the supply of the greenback matched demand. The currency opened at &&.$"%$3 and touched an intra-day lo of &&.$9. .t, ho e!er, closed the day at &&.$'%$#, almost the same as 6ednesdayMs &&.$#%$(.

)ealers said the rupee opened strong, tracking the strength of the Iapanese yen against the dollar, appreciating to 11#.9' from 11(.(, on 6ednesday. "There ere F.. inflo s in the market and foreign banks ere seen selling dollars. +o e!er, there as some oil-related importer demand as ell," said a dealer at a pri!ate bank. The gain in the domestic stock market of $$1 points also helped the rupee stay firm. .n for ards, the '-month closed at ".$" per cent /".&&0 and the 1$-month ended at $.9( per cent /".130.

9utting "orex reserves to good use

N.S. Vageesh Bd!ertisement =hennai Feb. $( Getting adeCuate returns on .ndiaMs gro ing mountain of forex reser!es /21(( billion0 offers a challenge for the 4eser!e 1ank of .ndia. The returns ha!e been in the range of $ to " per cent during the past fe years.

Bs custodian of forex reser!es, the 41. has in!ested them predominantly in deposits ith other central banks /nearly 3, per cent0, deposits ith commercial banks /about $3 per cents0 and another $3 per cent in securities /possibly ?7 treasuries0. There has been a gro ing debate, not only in .ndia, but in other Bsian central banks as ell, on the need to put their gro ing stockpile of ?7 dollars /and some bit of other

currencies0, to some good use. The focus is shifting from safety and building a reser!e for a doomsday scenario /like the Bsian currency contagion crisis a decade ago0, to earning something out of it. Going by one of the measures of reser!e adeCuacy, .ndia is sitting comfortable since it has enough co!er to pay one yearMs import bill. Most recently, Mr Ioseph 7tiglitH, economics @obel laureate, suggested that .ndia uses some of its reser!es for infrastructure de!elopment. =hina, hich has a bigger problem of plenty ith 21,,#billion forex reser!es, is setting up an o!erseas in!estment agency to di!ersify in!estments. 4eportedly, the agency may get a mandate to in!est about 2$,, billion. The )eepak <arekh committee seems to ha!e thought of something similar - although the in!estment !ehicle appears to be in the form of holly o ned subsidiaries of .ndia .nfrastructure Finance :td. .t ould seem to be a in- in situation for both the 41. and companies engaged in infrastructure pro*ects. The 41. gets to impro!e its return on funds / ithout ha!ing to in!est in stocks or real estate0 hile the cost for companies ould come do n simultaneously. The modalities of these 1udget proposals remain to be orked out.

Rupee weakens
3ur 5ureau

Mumbai, Feb. $( The rupee eakened by almost se!en paise on 6ednesday due to a bearish stock market. The currency opened at &&."3%"', touched an intra-day lo of &&."# to finally close at &&.$#%$(, against the pre!ious close of &&.$1 on Tuesday. "There ere fears of foreign institutional in!estors pulling out of eCuities. This pushed do n the rupee to &&."# before it traded at &&.$3%$'," said a dealer at a pri!ate bank. )ealers expect the rupee to trade in the range of &&.$,-&&.&, this eek. The six-month for ard premia closed at ".&& per cent /".&1 per cent0 and the one-year closed at ".13 per cent /".11 per cent0.

Rupee trades "!at vs do!!ar

3ur 5ureau

Mumbai, Feb. $# The rupee traded flat against the dollar on Tuesday ahead of the ?nion 1udget. The rupee opened at &&.1(, mo!ed in the range of &&.13-&&.$$ and closed at &&.$1, against the pre!ious close of &&.$,%$,3, on Monday. "There ere some good dollar inflo s in the domestic eCuity markets, hich pushed up the rupee to &&.13 in the early trade sessions," said a dealer at a pri!ate bank. "+o e!er, the 41. bought dollars and pushed do n the rupee to &&.$$," he said. The six-month for ard premia closed at ".&1 per cent /".$& per cent0 and the one-year ended at ".11 per cent /".,1 per cent0.

Rupee

argina!!y higher

3ur 5ureau Mumbai, Feb. $' The rupee gained by around three paise on exporters selling dollars and eakness of the dollar o!erseas. The rupee opened at &&.11, mo!ed in the range of &&.1"-1#, and finally closed at &&.$,, higher than the close of &&.$" on Friday. "The dollar eakened against the yen on geopolitical tensions in!ol!ing the ?7 and .ran," said a dealer at a pri!ate bank. )ealers said the 4eser!e 1ank of .ndia as

also seen buying dollars, through nationalised banks, in the market. "The 41.Ms inter!ention pushed do n the rupee from &&.1"%13 to &&.1#," the dealer said. "The rupee also tracked the irregular mo!ements in the stock markets," he added. The six-month for ard-premia closed at ".$& per cent /".$$ per cent0 and the one-year at ".,1 per cent /".,$ per cent0.

Rupee weakens against do!!ar

3ur 5ureau

Mumbai, Feb.$" The rupee eakened by around t o paise to &&.$" against the dollar on Friday, from the pre!ious close of &&.$3. The currency mo!ed in the range of &&.$#-&&.$9 during the day. )ealers said there ere reports of the 4eser!e 1ank of .ndia inter!ening in the forex market. "<ublic sector banks ere aggressi!ely buying dollars, hich pushed the rupee do n to

&&.$9," said a dealer at a pri!ate bank. Bccording to dealers, some oil companies ere also seen buying dollars as oil prices inched up to 2'1 per barrel. "Geo-political tensions in .ran ha!e prompted the oil companies to build up their oil reser!es," said the dealer. )ealers said the rupee as likely to trade in the range of &&.$$-&&.$3 next eek. The sixmonth for ard-premia closed at ".$$ per cent /".,9 per cent0 and the one-year closed at ".,$ per cent /$.9" per cent0.

+he rupee$ &a b at ho e' tiger overseas

Harish Damodaran

Bd!ertisement

@e )elhi, Feb. $" :amb at home, tiger abroad. That, in a nutshell, is hat a combination of rising inflation and unrelenting forex inflo s has been doing to the rupee.

=onsider this. 7ince 199"-9&, the official holesale price index /6<.0 has risen by 1,9.$ per cent, hich means the price of an a!erage good bought in the country has more than doubled in the last 1" years. Bt the retail le!el or after factoring in ser!ices, prices ould ha!e galloped much moreP but thatMs a separate point. On the other hand, the domestic cost of acCuiring a dollar /indexing the 199"-9& exchange rate at 1,,0 has gone up by only &1 per cent during this period. The price of a pound sterling in rupees has similarly risen by (".3 per cent and that of the Iapanese yen by a Cuarter A much belo the cumulati!e a!erage increase in domestic holesale prices. Thus, at any gi!en orld price, an a!erage manufacturer exporting goods from the country ould ha!e seen a steady erosion in profits relati!e to hat he could ha!e made by selling the same at home. .n standard neo-classical economics, exchange rates seamlessly ad*ust to inflation le!elsL hen domestic prices rise excessi!ely, it becomes cheaper to import and as too much of imports drain out foreign exchange, the result is de!aluation.

,i--erent story

1ut the .ndian story has turned out pretty different. .n the last fe years alone, the rupee has lost hea!ily in purchasing po er at home, as !irtually e!erything around has become costlier. +o e!er, a dollar that cost 4s &(.(, at the end of $,,1-,$ can no be bought for *ust 4s &&.$(. :ike ise, the rupee !alue of the yen has remained almost unchanged, if not marginally fallen. Only the pound has gained some $&.3 per cent o!er these fi!e years, but thatMs still peanuts compared to a bag of cement, a tonne of steel or a piece of real estate in any decent suburb. 6hat is more, foreign currency ould ha!e been still cheaper, had only the 4eser!e 1ank of .ndia /41.0 allo ed textbook neoclassical theory to operate by not inter!ening in the market.
#uge in-lows

.nstead, e!en hile rising inflation may ha!e spilled o!er into ballooning trade and current account deficits, these ha!e more than been offset by huge inflo s on the capital account, leading to re!aluation /and not de!aluation0 pressures on the rupee. Bnd since this harms the countryMs export competiti!eness, the 41. has had to mop up the surplus forex and, in the process, add to domestic money supply. The resultL more inflation and the rupee getting eaker at home, hile continuing to strengthen against the greenback.

Forex reserves rise $4 bi!!ion

3ur 5ureau Bd!ertisement Mumbai Feb. $" The countryMs forex reser!es rose by 2".("& billion to 21((.91$ billion for the eek ended February 1', on strong F.. inflo s into the domestic eCuity market.

Forex reser!es ha!e increased for the sixth consecuti!e eek ith foreign currency assets increasing by 2".("1 billion to 21(1.913 billion. The reser!es rose by 23.,"1 billion to 21(3.,#( billion during the eek ended February 9. "There has been aggressi!e inter!ention by the 4eser!e 1ank of .ndia in the forex market as it ould not like the rupee to appreciate sharply against the dollar," said a dealer at a pri!ate bank. )ealers said the rupee is likely to trade in the range of &&.$$-&&.$3 next eek. The stock markets sa around 21($ million in F.. inflo s during the eek under consideration. Foreign currency assets as expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. The euro and the sterling had strengthened against the dollar during the eek under consideration, hich added to the forex kitty, said the dealer.

Gold reser!es remained unchanged at 2'.3$9 billion, hile 7)4s too ere unchanged at 2$ million. .ndiaMs reser!e position in the .MF increased by 2" million to 2&'' million.

Rupee "a!!s against do!!ar

3ur 5ureau

Mumbai, Feb. $$ The rupee fell against the greenback on Thursday on sustained buying of dollars by public sector banks. The currency opened at &&.19%$, and touched an intra-day lo of &&.$(3,. .t closed the day at &&.$3, against 6ednesdayMs close at &&.1(3,%193,. )ealers said nationalised banks ere buying dollars on behalf of the central bank, hich pulled the rupee do n. There ere strong F.. inflo s in the market, hich ere lapped up by the public sector banks, said market participants. "The 41. no inter!enes at a higher le!el to depreciate an already eak rupee. .t is not clear hether the central bankMs inter!ention is in anticipation of large inflo s or for boosting exports," said a dealer at a pri!ate

bank. .n for ards, the '-month closed at ".,9 per cent /".,"0 and the 1$-month at $.9" per cent /$.9"0.

Rupee unchanged on do!!ar in"!ows

3ur 5ureau

Mumbai, Feb. $1 The rupee eakened slightly against the dollar on the back of importer demand. The domestic currency opened at &&.$1%$$ and closed at &&.1(3,%193,, against TuesdayMs close at &&.1(3,. )ealers said month-end dollar demand from importers caused the rupee to eaken during the day. +o e!er, dollar inflo s matched demand for the rupee to close unchanged. "The rupee is likely to appreciate if the central bank does not mop up dollar inflo s," said a dealer at a pri!ate bank. .n for ards, the six-month closed at ".," per cent /".$( per cent0 and 1$ month ended at $.9" per cent /".,9 per cent0.

Rupee s!ips around 4 paise

3ur 5ureau

Mumbai, Feb. $, The rupee slipped by around four paise against the dollar on Tuesday as public sector banks ere buying dollars on behalf of the 4eser!e 1ank of .ndia. The rupee opened at &&.1&%13 and closed the day at &&.1(3, against MondayMs close at &&.1"%1&. "6hat is surprising is that the 41. inter!ened today hen the rupee as eak and at a higher le!el of &&.1&%13. .n the past fe days, public sector banks ere buying dollars on behalf of the central bank only hen the home currency appreciated to &&.,3," said a dealer at a pri!ate bank. Market participants say the 41. could ha!e inter!ened to eaken the rupee, as they might be expecting large inflo s in the market. Traders also said there could ha!e been higher demand for dollars as Monday as a partial holiday in some parts of the country. .n for ards, the '-month closed at ".$( per cent /"."' per cent0 and the 1$-month at ".,9 per cent /".11 per cent0.

#hipping industry eyes "orex reserves "or ac(uisitions

Amit 8itra

Pitching for The Shipping 5inistry has forwarded the industryMs plea to the Jinance 5inistry as part of its Qbudget wish-listQ! Maritime infrastructure has helped the economy to earn or sa"e gross fore in e cess of Rs L=,=== cr3 Industry Bd!ertisement Mumbai Feb. 19

The shipping industry is eyeing the bulging foreign exchange reser!e of the country to get a slice of it for funding ship acCuisitions. 6ith a proposal being mooted that a scoop of the forex reser!es could be used to de!elop infrastructure in the country, the industry is trying to peddle shipping as part of infrastructure so as to get this benefit. 7ources said the industry has proposed to the 7hipping Ministry that if a slice of forex reser!es ere to be used to de!elop infrastructure pro*ects in the country, shipping should also get a proportionate share in the scheme, as it as part of the infrastructure. The Ministry, in turn, has for arded the industryMs plea to the Finance Ministry as part of its "budget ish-list", the sources said.
Pros H Cons

.ncidentally, .ndia sa a record 23 billion flo into its forex kitty last eek, taking the total reser!es to 21(3 billion. The idea of using a part of the reser!es to finance critical infrastructure pro*ects in the country as mooted some time ago. .n fact, a high-le!el committee had been appointed to look into the merits and demerits of the proposal. The industryMs argument is that maritime infrastructure has facilitated the economy to earn or sa!e gross forex in excess of 4s 1,,,,, crore. ".f shipping ser!ices ere to be outsourced, the nation ould stand to lose this entire contribution," a member of the .ndian @ational 7hipo ners Bssociation /.@7B0 argues.
T%"I report

7ome time ago, a report by The Fnergy and 4esources .nstitute /TF4.0 had re!ealed that the a!erage gross !alue added /G;B0 from the shipping industry per unit of gross tonnage /GT0 per year as 4s $,$11. This implies that on an a!erage, the !alue added by the shipping industry in a gi!en year for an additional unit of GT is 4s $,$11. 1ased on the TF4. report, .@7B has estimated that in the first 3, months of the introduction of tonnage tax, the G;B from the industry on account of addition of 1.'3 million GT resulted in !alue addition of 4s "'3 crore to the .ndian economy. The industry has also pointed out that the share of .ndian ships in the carriage of the countryMs o!erseas trade has been declining o!er the years A from about &, per cent in the late (,s, it is no at about 1".# per cent. Bs on Ianuary 1, $,,', .ndia ranked $,th in the orld maritime nations, ith o!er &, per cent of the fleet being abo!e $, years of age.

Inadequate capacity

.@7B, in its annual re!ie for $,,3-,', has pointed out that inadeCuate capacity of the national fleet to participate in the countryMs trade has been one of the ma*or problems facing .ndia, as ell as other de!eloping countries. Bs a result, .ndia had to depend on foreign ships to a considerable extent, resulting in higher freight payments. .t is early to say hether the shipping industryMs plea ould ha!e a sympathetic echo in the corridors of the Finance Ministry, but the captains of the industry are at the moment not sparing any effort.

Rupee

argina!!y down

3ur 5ureau

Mumbai, Feb. 19 The rupee eakened marginally by about t o paise as the 41. as reported to ha!e bought dollars in the market. The rupee opened strong at &&.,', and as held up at &&.,# for around three hours as the 41. kept inter!ening in the

market and finally closed at &&.1"%1&, against ThursdayMs close of &&.11%1$. "The rupee traded at le!els of &&.,' on strong F.. inflo s into domestic eCuity markets," said a dealer at a pri!ate bank. The rupee is expected to eaken next eek on month-end demand from importers, said the dealer. )ealers said the currency is likely to trade in the range of &&.,3&&.$, this eek. The six-month for ard premia closed at "."' per cent /".#1 per cent0 and the one-year at ".11 per cent /"."' per cent0.

Rupee "ir
3ur 5ureau

against do!!ar

Mumbai, Feb. 13 The rupee as firm against the greenback on Thursday on good dollar inflo s into the market. The currency opened at &&.,9%1, and closed at &&.1,%11 against 6ednesdayMs &&.11%1$. )ealers said the rupee ranged bet een &&.,( and &&.11 during the day. "6hile ne s about the cut in fuel prices as positi!e for the rupee, it as offset by domestic inflation touching '.#" per cent," said a dealer at a pri!ate

bank. Market participants say there could ha!e been 41. inter!ention in the forex market, hich reined in the rupee. Traders expect the domestic currency to be in the range of &&.,3 and &&.$3 in the near term. "=entral bank inter!ention in the forex market and stock mo!ements ill influence the course of the rupee," said a dealer. .n for ards, the six month closed at ".#1 per cent /".'$0 and the 1$ month ended at "."' per cent /.".$'0.

@sing "orex reserves now "or ac(uisitions

Sudhanshu Ranade =hennai Feb. 1& The price tag for the mega acCuisitions by the Tatas and 1irlas in the past ten days as 21( billion. Total cross border acCuisitions throughout $,,' ere only 2# billion. Bbout (, per cent of the 21$.1 billion Tata-=orus deal may be funded by debt, hich ill also play a part in financing the 2' billion +indalco@o!elis acCuisition. Mr >umaramangalam 1irla hinted as much hen he told reporters that "the current debt eCuity ratio of +indalco ill definitely go up." Bd!ertisement
"upee "esources

The big Cuestion is ho much of this debt ill be raised abroad and ho much internallyP either through banks or through on and offshore resources of group companies. To put it in a nutshell, the ans er isL not much.

)eli!ering her keynote address on cross-border acCuisitions, the 41. )eputy Go!ernor, Mrs 7hyamala Gopinath, said that since the cost of acCuisitions as mostly financed by money raised abroad, the dra do n of .ndiaMs forex reser!es on this count as only 2$.# billion in $,,3-,'. To put this in perspecti!e, e!en if only $, per cent of the Tata%1irla deals are financed ith rupee resources, reser!es ill be do n 2".' billion on this count. Bnd the year has only *ust begun. One last thing. Money raised or le!eraged abroad, directly or indirectly, or guarantees gi!en, defer the pressure on reser!es. 1ut deferral is not particularly needed at this time.
#igher returns

The picture may not be so sanguine hen the chickens come home to roostP fi!e, ten or fifteen years from no . Therefore, the 41. should earmark some part of these forex reser!es for on-lending. This ould gi!e the 41. a higher return than hat it is earning no , and also help lo er the cost of acCuisitions. 1ut the trouble ith ob!ious ideas is that if they they ould ha!e already been done. ere doable

Rupee gains by < paise

3ur 5ureau

Mumbai, Feb. 1& The rupee gained by almost eight paise on 6ednesday on good dollar supply in the market. "1anks ha!e been seen selling dollars as they feel the =44 hike ill drain out liCuidity," said a dealer at a pri!ate bank. The home currency opened at &&.$,, to finally end at &&.11%1$ against TuesdayMs close of &&.$,%$1. The rupee also tracked other o!erseas currencies against the dollar like pound and euro. ".t is likely to trade in the range of &&.,3&&.$, this eek," the dealer said. The six-month for ard premia closed at ".'$ per cent /".1$ per cent0 and the oneyear at ".$' per cent /$.9$ per cent0.

Rupee weakens by 5 paise

3ur 5ureau

Mumbai, Feb. 1" The rupee eakened by almost fi!e to six paise on Tuesday on eak domestic eCuity markets. "The market expects a slo do n in foreign inflo s into the eCuities," said a dealer at a pri!ate bank. The home currency opened at &&.1#3,%1(, touched an intraday high of &&.13, to finally end at &&.$,%$1 against MondayMs close of &&.13%1'. "The 41. as not seen in the market," said the dealer. "The rupee is likely to trade in the range of &&.13-&&.$3 this eek," he said. The six-month for ard premia closed at ".1$ per cent /".,$ per cent0 and the one-year at $.9$ per cent /$.(9 per cent0.

Rupee "a!!s against do!!ar

3ur 5ureau

Mumbai, Feb. 1$ The rupee dipped against the dollar on Monday as public sector banks kept buying dollars, reportedly on behalf of the central bank. The domestic currency opened at &&.1" and touched an intra-day high of &&.1,%11. .t then dropped to a lo of &&.1(%19 and finally ended at &&.133,%1'3,, against FridayMs close at &&.1$%1". )ealers said hile there ere F.. inflo s, the central bank inter!ened to cap gains the home currency made during the day. The fall of "&( points at the 17F also dampened sentiment. "Globally, the euro, yen and the pound ha!e fallen against the dollar hile the rupee has remained firm. .n the near term, the 41. may not allo the rupee to break &&," said a dealer at a pri!ate bank. .n for ards, the six month closed at ".,$ per cent /".$1 per cent0 and the 1$ month ended at $.(9 per cent /".11 per cent0.

Forex reserves rise $005

3ur 5ureau

Bd!ertisement

Mumbai Feb. 9 Forex reser!es ha!e risen for the fourth consecuti!e eek to 21(,.,&# billion, for the eek ended February $, on a gro th in foreign currency assets.

The forex kitty sho ed an increase of 2993 million. :ast eek, forex reser!es increased by 29$& million to 2 1#9.,3$ billion. Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Foreign currency assets ha!e increased by 29(1 million to touch 21#$.9'3 billion, according to 41. 6eekly 7tatistical 7upplement. "The 41. has been inter!ening in the market through the eek and that helped our forex reser!es to increase," said a dealer at a pri!ate bank. Gold reser!es rose 21$ million to 2'.3$9 billion, hile 7)4s remained unchanged at 21, million. .ndiaMs reser!e position in the .MF increased by 2$ million to 23&" million.

Rupee ends "!at

3ur 5ureau

Mumbai, Feb. 9 The rupee closed flat for the second day on Friday at around &&.1$%1". =ontinuous inter!ention by the 4eser!e 1ank of .ndia in the market this eek aided the rupee to trade in the range of &&.1,-&&.1$. "The rupee e!en reached the le!els of &&.," and could ha!e breached it, but the 41. as seen in the market buying dollars," said a dealer at a pri!ate bank. This pushed the rupee to a close of &&.1$%1", against ThursdayMs close of &&.1$%1$3,. "The rupee is likely to trade in the range of &&&&.13 in the next eek," said the dealer. The six-month for ard premia closed at ".$1 per cent /".$# per cent0 and the one-year closed at ".,1 per cent /".,$ per cent0.

;o to the root o" currency instabi!ity

#. RA8A0HANDRAN It is foolish to defend currencies without addressing the sources of instability in the real economy, which make asset markets unstable! 'nd hiking interest rates to strengthen currency "alues is as pointless as rolling back rates to rein in a soaring currency, argues ,! R'5'(H'%DR'%!

=urrency stability is a !ital economic ob*ecti!e. Bt the le!el of the money economy, it makes the conduct of Monetary <olicy easy. Monetary planning becomes simple, and interest rates less !olatile. =entral bankers adore currency stability. They hate turmoil in the currency market. 1ut they nai!ely assume that the cause for the turmoil is the WmarketM and not the WcurrencyM itself. 7o, they manage the market. Bt the le!el of the real economy, currency stability has farreaching conseCuences. First, it smoothens production and consumption. .t takes the potholes out of the supply side. .t takes the rinkles out of demand. 7econd, it supports capital in!estments and allocation. =urrency stability gi!es long-distance !ision to risk-takers. .t supports e!en-handed allocation of capital. Third, it makes inflo s of foreign direct in!estment less *erky.
Insta!ility+ not an option

From the abo!e, it ould be reasonable to assert that currency stability is non-negotiable. =urrency instability is not an option. There is no good reason hy an economy should suffer currency instability. .t ould be !ery difficult to defend any policy that promotes currency instability. 1ut is currency stability such a sacred ob*ecti!e that an economy should !olunteer to gi!e its right arm for itO .s it so indispensable that an economy should choose to shoot itself in both legsO 7hould an economy amputate its limbs to make a currency stand erect, ithout a obbleO Macro-finance offers a holly different !ie of currency stability. .ts first argument is that it may be orth the hile to accept the obbles ithout ha!ing to numb the limbs temporarily. .ts second argument is that !ital limbs should not be amputated for the sake of currency stability. Macrofinance is an e!ol!ing area of intense interest. .t is dri!en by three principles. First, prices of financial assets are dri!en by macroeconomic e!ents. 7econd, de!elopments in assets

market ha!e profound effects on the aggregate economy. Third, financial and macroeconomic !olatility ha!e an impact on the aggregate economy. Macro-finance is a po erful tool to analyse the conseCuences of monetary and fiscal policies on in!estments, asset !alues and consumer spending. .ts focus is the interaction bet een the macro-economy and financial markets. .t examines the causes, the effects and the e!ents in bet een. Therefore, it has follo ers in academia, in in!estment banking and, of course, in central banking. Macro-finance can be used to examine the effecti!eness of some of the popular methods that constitute currency management. The 1ritish pound crisis in 7eptember 199$ and the .ndian rupee crisis in Ianuary 199( best sho case the methods. There is a idely held !ie that raising interest rates leads to the strengthening of a currency. .f the pound sinks, raise interest rates. .f the rupee sinks, raise interest rates. There is another idely held !ie that inter!ention by the central bank ill sa!e a sinking currency. .f a domestic currency sinks, sell foreign currencies and buy the domestic currency. 4esearchers ha!e de!eloped inter!ention algorithms that ser!e to reduce !olatility. The algorithms in!ol!e an explicit reser!es policy.
<hen the pound wo!!led

7eptember 1', 199$ as 1ritainMs 1lack 6ednesday. The pound as frantically sold on the currency markets. The then <rime Minister, Mr Iohn Ma*or, and the then =hancellor of FxcheCuer, Mr @orman :amont, tried all day to prop up a falling pound. Mr :amont did exactly hat the na\!e expected him to do. First, he did not pay attention to hy the pound as being sold /see Business 2ine, March $9, $,,'0. 7econd, he thought that raising interest rates ould

sa!e the pound. Third, he sold )eutsche marks to buy the pound. Mr :amont raised interest rates from 1, per cent to 1$ per cent, and then to 13 per cent. +e also authorised the spending of billions in reser!e currencies A the )eutsche mark in particular A to buy up the sterling. Ret nothing happened. 1ritain ithdre from the Furopean Fxchange 4ate Mechanism /F4M0. The =hancellor set the interest rate at 1$ per cent soon after the ithdra al. The one-month Wmarket interest rateM declined on its o n to '.9( per cent on )ecember "1, 199$P yet the pound did not sink any further. The market, as al ays, on.
<hen the rupee wo!!led

On @o!ember $1, 199#, hen )r 1imal Ialan took o!er as the Go!ernor of the 4eser!e 1ank of .ndia /41.0, the rupee dropped to 4s "#.&$ per ?7 dollar. The Fast Bsian crisis and the likelihood of the :ok 7abha being dissol!ed then pushed it to 4s "(.3$. The 41. then spent around 2" billion to stem the fall. The rupee sank to 4s "9 per ?7 dollar. 6hen the rupee fell belo 4s "9, the 41. raised the cash reser!e ratio /=440 to 1, per cent. T o days later, the :ok 7abha as dissol!ed and elections ere announced. The rupee fell further to 4s "9.9, per dollar. The business media described the declines as a free fall triggered by the marketMs self-fulfilling prophesies. The market as blamed. 6hen the markets dro!e do n the rupee to 4s &, per dollar on Ianuary 1&, 199(, the 41. increased both the 1ank 4ate and the =ash 4eser!e 4atio. O!ernight interest rates Hoomed, but the rupee did not. ?7 dollars did not gush into .ndia.
Three assertions

@a\!e assumptions about restoring stability to the pound and the rupee did not ork. Macro-finance has three assertions and a holistic explanation. The assertions come first. First, currencies are an integral part of the asset market. The !alues of currencies cannot be separated from the !alues of assets. Bfter all, money is a medium of exchange first, then a unit of account, and lastly a de!ice for storing !alue. The storing of !alue is not moneyMs principal role. 7econd, the total supply of money assets is a tiny fraction of the total stock of physical and financial assets. Therefore, the instability of asset !alues passes more forcefully, Cuickly and easily into currencies. Thereby, currencies become unstable. 1ut the managed stability of currencies cannot pass as easily, Cuickly and forcefully into other assets that are unstable. Third, it is holly foolish to defend currencies ithout first addressing the sources of instability in the real economy. .nstability in the real economy leads to instability in the asset markets. =urrency instability follo s. .t is merely a manifestation of the effects of deeper causes outside the currency markets.
A holistic e$planation

=urrency !alues do not stiffen hen interest rates are raised. The reason should be ob!ious from the perspecti!e of !aluation of assets and the demand for currencies. First, hen interest rates are raised, free cash-flo s of firms and farms decline. Free cash-flo s from commercial and residential properties decline. =all this the numerator effect. 7econd, hen interest rates are raised, the discount rate or the reCuired rate of return rises. The higher rate is inserted into the denominator in discounted cash flo s /)=F0 analyses. =all this the denominator effect.

Third, hen the numerator shrinks and the denominator expands, the Cuotients from the )=F analyses shrink. Bsset !alues then fall. Bssets become cheaper e!en as money becomes costlier. Fourth, rupee prices of assets in .ndia decline hen rupee interest rates are raised. Foreign in!estors A ho are supposed to be attracted to the higher interest rates in .ndia A ill no reCuire fe er rupees to buy eCuities, bonds and legally permitted physical assets. Fifth, the demand for the rupee declines for a gi!en supply of eCuities, bonds and physical assets. Foreign in!estors, therefore, need to bring in fe er dollars into .ndia to in!est into a gi!en supply of buy eCuities, bonds and physical assets. 6hen the dollarMs relati!e purchasing po er rises, can the rupee strengthenO @o, it ill eaken. Therefore, raising interest rates to defend a falling currency is a colossal error. .t exacerbates the fall. 7imilarly, rolling back interest rates to pull do n a soaring currency is a colossal error. From the perspecti!e of macro-finance, using interest rates to manage currency instability is an inapt game.

Rupee ends "!at

3ur 5ureau

Mumbai, Feb. ( The rupee ended flat and mo!ed during the day in the narro range of &&.1,-&&.1". The currency opened at around &&.1"%1"3,, to close at &&.1$%1$3,, against 6ednesdayMs close of &&.1$. "There as strong demand for dollars from oil companies and the 4eser!e 1ank of .ndia as also seen in the market, buying dollars," said a dealer at a pri!ate bank. The dollar as strong against the yen. "The rupee is likely to trade in the range of &&.(-&&.1' in the coming days,"he said. The six-month for ard premia closed at ".$# per cent /".,9 per cent0 and the one-year at ".,$ per cent /$.9 per cent0.

R*% intervention i pacts rupee

3ur 5ureau

Mumbai, Feb. # The rupee as !irtually unchanged against the dollar for the third day, on reports of central bank inter!ention. )ealers said the domestic currency opened strong at &&.,#3,%,(3, but dipped to close at &&.1$%1$3,, against TuesdayMs close at &&.1,%11. Market participants said that hile there ere dollar inflo s in the forex market, public sector banks ere buying the greenback, reportedly on 41. ad!ice. )ealers said that if the 41. had not inter!ened, the rupee ould ha!e easily broken && and touched &".(,. "The central bank may be inter!ening in the forex market, to shore up liCuidity in the system ahead of the 4s 9,,,,-crore go!ernment securities auction on February 9. 1esides, the 41. may not be in fa!our of a !olatile and appreciating home currency as it may hurt small exporters," said a dealer at a pri!ate bank. .n for ards, the '-month closed at ".,9 per cent /"."0 and the 1$-month ended at $.9 per cent /"0.

Reserves deserve better returns

S. 5ala+rishnan

.t as thought to be a forgotten idea but has sprung to life no . Talk has re!i!ed about using forex reser!es for ne infrastructure pro*ects. First mooted in late $,,&, it as debated and discussed to death /as e, in .ndia, tend to do in these matters0. There as a lot of heat and some light till the hole thing simply disappeared from !ie . The dri!ers of the scheme ere clearly the fiscal deficit constraining go!ernment spending e!en on orth hile pro*ects and the large accretion of reser!es. .f the latter are like idle cash in the bank, it ould make sense to deploy them in !iable pro*ects - so goes the argument. Mr 4aghuram 4a*an, the .ndia-born .MF economist, thinks this is a fallacy. BrenMt the reser!es already in!ested in dollar, euro, sterling, etc. assets, he asksO Bnd if the 41. bought dollars from the market, it must ha!e created eCui!alent rupee liabilities. .n short, he says reser!es are not WunencumberedM or lying WidleM, as proponents of the scheme belie!e. 1ut, then, does the fact of large reser!es make no difference at allO The capacity to in!est in ne pro*ects is surely enhanced in some ay by the le!el of reser!es. Bt the !ery least, reser!es could finance the forex expenditure in!ol!ed, hich, other ise, must be borro ed. There could also be the need to import capital, intermediate or consumer goods if domestic production is short and the excess demand ill pro!oke prices. 4eser!es are, therefore, handy to control inflation, hen, because of an in!estment boom, demand runs ahead of the producti!e capacity of the economy.

.n contrast, in a reser!es-scarce situation, there is al ays the fear of o!er-in!estment and inflation, hich can be dealt ith only ith harsh monetary measures, endangering gro th. .f the go!ernment uses reser!es instead of /say0 issuing bonds to fund pro*ects, does it mean in!estment has increased ithout increasing the fiscal deficitO There is a mistaken belief that this is so. Bctually there is no difference bet een the t o situations. 4ecourse to reser!es means buying them from the 41. ith rupees. Bn expense is an expense, hether in forex or rupees and the deficit impact is the same in both cases. To the extent that reser!es are WeCuityM, i.e. not collateralised by foreign borro ing or in!estment, it is logical to deploy them in domestic in!estments hich yield better returns than the meagre earnings from ?7 treasury bills and bonds. Bnother option is for the go!ernment to lend these funds to public sector banks, hich can then onlend to first class .ndian companies. They ould sa!e on their spreads in offshore financial markets, hich are out of line ith their domestic credit rating. .t ill be a in- in situation for all - the go!ernment and 41., on the one hand and corporates on the other. 7uch is the gap bet een the cost of forex borro ing and yield on forex in!estments.

Rupee stays unchanged

3ur 5ureau

Bd!ertisement

Mumbai Feb. '

)ealers said the rupee initially edged up tracking the strength of the yen. +o e!er, the early gains made by the rupee ere trimmed, as public sector banks began selling dollars, reportedly on behalf of the central bank. "The rupee may soon break && this month and may e!en touch &".(, if the 41. stops inter!ening in the forex market," said a dealer at a pri!ate bank. .n for ards, the ' month closed at ".", per cent /"."#0 and the 1$ month ended unchanged at " per cent.

G3 erging econo ies cautious about capita! account convertibi!ityH

D. 8urali =hennai Feb. 3 6hen does monetary sterilisation become rele!antO Monetary sterilisation makes good sense hen the balances of payment pressures are considered to be temporary, says Mr 4amkishen 7. 4a*an, Bssociate <rofessor in .nternational Fconomics at the 7chool of <ublic <olicy, George Mason ?ni!ersity / .gmu.edu0 in ;irginia, ?7, during a recent interaction ith Business 2ine. "+o e!er, hen these pressures are sustained, the carry costs of this reser!e accumulation can become fairly high, as they ha!e in a number of countries," he adds. Bd!ertisement
Asymmetry

.t

ould appear though that there is an asymmetry in the ay that many Bsian central banks treat exchange rate mo!ements, comments Mr 4a*an. 6hatMs thatO "7pecifically, they ha!e not al ays altered interest rates in response to up ard /buying0 pressure on their currencies, preferring to inter!ene in the foreign exchange market, but they are more illing to hike interest rates in the midst of do n ard /selling0 pressure on their currencies." "Of course, the pressure on the balance of payments and thus the exchange rate can al ays be reduced to some

extent by allo ing interest rates to decline, though this ould compromise the domestic inflationary ob*ecti!e. Thus, a bone fide inflation targeting central bank should appropriately respond by allo ing the currencies to appreciate !is-[-!is ma*or currencies including the ?7 dollar to lessen the pressures on reser!e build-up." The examples he cites are of the policy that the Bustralian and @e Kealand central banks generally adopt. Bny among the Bsian economiesO >orea and Thailand, says Mr 4a*an. " The >orean on appreciated from 1,&, per dollar in Iuly $,,3 to about 9$, on per dollar by early )ecember $,,', hile the Thai baht appreciated !is-[-!is &$ baht per dollar in Iuly $,,3 to almost "3 baht in early )ecember $,,'. 1ut dramatic changes happened in Thailand, not long ago. "On )ecember 19 the 1ank of Thailand attempted to impose =hilean type of controls so as to curb capital inflo s," recounts Mr 4a*an. "6hile the policy as Cuickly re!ersed in the face of massi!e sell-off of the Thai eCuity and currency markets, the action betrayed an un illingness of the 1ank of Thailand to fully commit to its ne monetary frame ork."
Alternative route

6hat can be an alternati!e route to alle!iate the pressure on the currencyO "Fasing any remaining restrictions on capital outflo s and effecti!ely allo ing domestic residents to hold more foreign assets /rather than the central bank ha!ing to do so !ia foreign exchange inter!ention0," postulates Mr 4a*an. "=hina and .ndia ha!e been doing exactly this, albeit gradually. +o e!er, e!en since the Bsian financial crisis,

emerging economies ha!e rightly been cautious about holesale acceptance of complete capital account con!ertibility," comments Mr 4a*an.

Rupee ends "!at

3ur 5ureau

Mumbai, Feb. 3 The rupee ended almost flat on Monday. The home currency opened eak at around &&.1" as oil prices inched up to 23(.1", touched an intra-day high of &&.13, to finally close at &&.1,%11, against FridayMs close at &&.11%1$. "6hen the rupee reached the le!els of &&.,(, the 4eser!e 1ank of .ndia as seen buying dollars in the market," said a dealer at a pri!ate bank. The dollar as strong against the o!erseas currencies, euro and pound. "The rupee is likely to trade in the range of &&-&&.$, in this eek," the dealer said. The

six-month for ard premia closed at "."# per cent /".&$ per cent0 and the one-year at " per cent /".," per cent0.

Rupee ends c!ose to yearHs high

3ur 5ureau

Mumbai, Feb $ The rupee ended on Friday close to a yearMs high on strong F.. inflo s. The currency opened at &&.1,%11 against the dollar, touched an intra-day lo of &&.13 and intra-day high of &&.,(, before finally ending at &&.11%1$, against the pre!ious close of &&.1(%19. "1ecause of the holidays, inflo s ere strong into the market," said a dealer at a pri!ate bank. "The 41. as not seen in the market today but it is likely that it may inter!ene soon to stop the rupee from gaining." )ealers expect the rupee to touch && next eek. The sixmonth for ard premia closed at ".&$ per cent /".3$ per cent0 and the one-year closed at ".," per cent /".,( per cent0.

Forex reserves rise $064

3ur 5ureau Bd!ertisement Mumbai Feb. $ Forex reser!es ha!e risen 2 9$& million to 2 1#9.,3$ billion, for the eek ended Ianuary $', on a gro th in foreign currency assets.

:ast eek, forex reser!es increased by 2 #,$ million to 2 1#(.1$( billion. Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /euro, sterling and yen0 held in reser!es. Foreign currency assets ha!e increased by 291' million to touch 2 1#1.9(& billion, according to 41. 6eekly 7tatistical 7upplement. ".ndia has a large base of forex kitty ith different currencies and the increase in the kitty as basically due to re!aluation of currencies," said Mr <aresh @ayar, =hief )ealer, )e!elopment =redit 1ank. "Furo and sterling had gained against the dollar that eek," he said. Gold as unchanged at 2 '.31# billion and 7)4s increased 2 9 million to 2 1, million. .ndiaMs reser!e position in the .MF decreased by 21 million to 2 3&1 million. )ealers said the rupee is likely to touch && next eek.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, Ian. "1 The rupee gained by almost three paise on 6ednesday on strong dollar selling by exporters. )ealers said the currency opened strong at &&.1" on .ndiaMs rating being upgraded to "in!estment grade" by the international ratings agency, 7tandard U <oorMs. .t touched an intra-day lo of &&.$1 and finally closed at &&.1(%19 against pre!ious close of &&.$,%$1. )ealers said the public sector banks on ad!ice from the 4eser!e 1ank of .ndia ere seen buying dollars in the market. "The market feels the 41. has raised the expectations on another hike in repo and re!erse-repo rayes," said a dealer at a pri!ate bank. The rupee is likely to trade in the range of &&.,3-&&.1, this eek,he added. The six-month for ard premia closed at ".3$ per cent /".(# per cent0 and the oneyear at ".,( per cent /".$$ per cent0.

F!exib!e rates restraint

D. 8urali

ay insti! greater "isca!

Bd!ertisement

=hennai Ian. $9 7hould de!eloping countries ha!e a flexible exchange rate, hich responds freely to market pressuresO This as the Cuestion that Business 2ine posed to Mr 4amkishen 7. 4a*an, Bssociate <rofessor in .nternational Fconomics at the 7chool of <ublic <olicy, George Mason ?ni!ersity /httpL%%mason.gmu.edu0 in ;irginia, ?7, during a

recent interaction. "B priori, there are a number of reasons that underlie a preference for a greater degree of exchange rate flexibility," he says, and lists at least fi!e reasons. "First, the more flexible the exchange rate regime, the keener the incenti!es for agents to undertake appropriate foreign exchange /forex0 risk management techniCues in response to the higher element of exchange rate risk, hile simultaneously reducing the extent of moral haHard hich could lead to Wexcessi!eM unhedged external borro ing /referred to as a Wfixed exchange rate bubbleM0," opines Mr 4a*an. "The introduction of these transaction costs and exchange rate risks may also help moderate the extent of capital inflo s, conseCuently dampening the intensity of boom and bust cycles /this is essentially a moral haHard argument0." The second reason, in support of flexibility in exchange rate is that small and open economies are far more susceptible to large external shocks, such as changes in foreign interest rates, terms of trade, regional contagion effects and the like. "4ecei!ed theory tells us that a greater degree of exchange rate flexibility is called for in the presence of external or domestic real shocks." This is ho L "1y acting as a safety

!al!e, flexible exchange regimes could pro!ide a less costly ad*ustment mechanism by hich relati!e prices can be altered in response to such shocks as opposed to fixed rate regimes." The latter relies on gradual reductions in relati!e costs through deflation and producti!ity increases "is-S-"is trade partners to restore internal balance, points out Mr 4a*an. "+o e!er, this can pro!e to be prolonged and costly, as made apparent by both Brgentina and +ong >ong 7B4 in the late 199,s." Third, many Bsian economies ha!e di!ersified trade structures, being dependent on the ?7, Iapan and intraBsian trade, reminds Mr 4a*an. "Theory suggests that such economies are good candidates to maintain more flexible regimes. Thus, in the case of Fast Bsia, institutionalisation of the pre-crisis dollar pegs /!ia a =urrency 1oard Brrangement or dollarisation0 ould not ha!e helped domestic economic performance in 199'-9# /*ust prior to the crisis0 to the extent that the problem as, at least partly, one of loss of competiti!eness due to fluctuations in the ?7 dollar and yen cross-rate." Fourth reason that the professor offers is that pegging the exchange rate also constrains monetary independence, hich in turn, could handicap the central bank in responding to domestic financial and macroeconomic imbalances. Bnd lastly, the effects of unsound macro-policies become e!ident immediately under flexible rates through currency and price-le!el mo!ements /i.e. depreciation-inflation spiral0. ".n !ie of this, flexible rates may, under certain conditions, instil greater fiscal restraint /relati!e to a fixed regime0 as the costs of macroeconomic policy transgressions ha!e to be paid upfront," notes Mr 4a*an. +e hastens to remind that for small and open economies in Bsia and else here, fluctuations in the exchange rate can and do ha!e significant and direct impacts on the domestic

economy /inflation, exports, gro th0. "=onseCuently, many Bsian inflation targeting central banks do take into account exchange rate mo!ements in their monetary policy frame orks," concludes Mr 4a*an.

Rupee gains against do!!ar

3ur 5ureau

Mumbai, Ian. $9 The rupee gained by almost t o paise against the greenback on dollar selling by exporters. The home currency opened at &&.",%"$, touched an intra-day lo of &&."& to finally close at &&.$,%$1 against ThursdayMs &&.$"%$&. The market is cautious ahead of the =redit <olicy. "Market expects a $3 basis points rise in repo," said a dealer at a pri!ate bank. ".n late trading, some pri!ate and foreign banks ere seen selling dollars," the dealer said. The sixmonth for ard premia closed at ".(# per cent /".9# per cent0 and the one-year closed at ".$$ per cent /"."1 per cent0.

F!exib!e rates restraint

D. 8urali

ay insti! greater "isca!

Bd!ertisement

=hennai Ian. $9 7hould de!eloping countries ha!e a flexible exchange rate, hich responds freely to market pressuresO This as the Cuestion that Business 2ine posed to Mr 4amkishen 7. 4a*an, Bssociate <rofessor in .nternational Fconomics at the 7chool of <ublic <olicy, George Mason ?ni!ersity /httpL%%mason.gmu.edu0 in ;irginia, ?7, during a

recent interaction. "B priori, there are a number of reasons that underlie a preference for a greater degree of exchange rate flexibility," he says, and lists at least fi!e reasons. "First, the more flexible the exchange rate regime, the keener the incenti!es for agents to undertake appropriate foreign exchange /forex0 risk management techniCues in response to the higher element of exchange rate risk, hile simultaneously reducing the extent of moral haHard hich could lead to Wexcessi!eM unhedged external borro ing /referred to as a Wfixed exchange rate bubbleM0," opines Mr 4a*an. "The introduction of these transaction costs and exchange rate risks may also help moderate the extent of capital inflo s, conseCuently dampening the intensity of boom and bust cycles /this is essentially a moral haHard argument0." The second reason, in support of flexibility in exchange rate is that small and open economies are far more susceptible to

large external shocks, such as changes in foreign interest rates, terms of trade, regional contagion effects and the like. "4ecei!ed theory tells us that a greater degree of exchange rate flexibility is called for in the presence of external or domestic real shocks." This is ho L "1y acting as a safety !al!e, flexible exchange regimes could pro!ide a less costly ad*ustment mechanism by hich relati!e prices can be altered in response to such shocks as opposed to fixed rate regimes." The latter relies on gradual reductions in relati!e costs through deflation and producti!ity increases "is-S-"is trade partners to restore internal balance, points out Mr 4a*an. "+o e!er, this can pro!e to be prolonged and costly, as made apparent by both Brgentina and +ong >ong 7B4 in the late 199,s." Third, many Bsian economies ha!e di!ersified trade structures, being dependent on the ?7, Iapan and intraBsian trade, reminds Mr 4a*an. "Theory suggests that such economies are good candidates to maintain more flexible regimes. Thus, in the case of Fast Bsia, institutionalisation of the pre-crisis dollar pegs /!ia a =urrency 1oard Brrangement or dollarisation0 ould not ha!e helped domestic economic performance in 199'-9# /*ust prior to the crisis0 to the extent that the problem as, at least partly, one of loss of competiti!eness due to fluctuations in the ?7 dollar and yen cross-rate." Fourth reason that the professor offers is that pegging the exchange rate also constrains monetary independence, hich in turn, could handicap the central bank in responding to domestic financial and macroeconomic imbalances. Bnd lastly, the effects of unsound macro-policies become e!ident immediately under flexible rates through currency and price-le!el mo!ements /i.e. depreciation-inflation spiral0. ".n !ie of this, flexible rates may, under certain conditions, instil greater fiscal restraint /relati!e to a fixed

regime0 as the costs of macroeconomic policy transgressions ha!e to be paid upfront," notes Mr 4a*an. +e hastens to remind that for small and open economies in Bsia and else here, fluctuations in the exchange rate can and do ha!e significant and direct impacts on the domestic economy /inflation, exports, gro th0. "=onseCuently, many Bsian inflation targeting central banks do take into account exchange rate mo!ements in their monetary policy frame orks," concludes Mr 4a*an.

Rupee gains against do!!ar

3ur 5ureau

Mumbai, Ian. $9 The rupee gained by almost t o paise against the greenback on dollar selling by exporters. The home currency opened at &&.",%"$, touched an intra-day lo of &&."& to finally close at &&.$,%$1 against ThursdayMs &&.$"%$&. The market is cautious ahead of the =redit <olicy. "Market expects a $3 basis points rise in repo," said a dealer at a pri!ate bank. ".n late trading, some pri!ate and foreign banks ere seen selling dollars," the dealer said. The six-

month for ard premia closed at ".(# per cent /".9# per cent0 and the one-year closed at ".$$ per cent /"."1 per cent0.

RupeeHs rise against do!!ar te pers go!d

#argi Shah #lowdown in physical demand hurting demand %omestic signals Rupee has strengthened from Rs ?1!<< to a dollar in 'ugust to Rs ??!0A currently! Increasing hedging acti"ities, demand from e changetraded funds lessen impact of falling Indian offtake! Bd!ertisement Mumbai Ian. $9 =ontrary to the usual pattern, !olatile and rising gold prices in the orld market ha!e had limited impact on domestic prices.

Gold in the country is kno n to closely track international price trends. Bs a thumb rule e!ery 21 change in the price of gold internationally, ill change the price of gold by 4s $, in .ndia after factoring in all the con!ersions. 6hy has the domestic market not been rising in line ith say :ondon or @e Rork pricesO Bmongst other reasons, appreciation of the rupee !is-[-!is the dollar in recent eeks has made the market more consumer-friendly.

(trong show

For instance, from 4s &'.33 to a dollar in Bugust, the rupee rose to 4s &3.9' in 7eptember, 4s &3.,$ in October, and 4s &&.#' in @o!ember, 4s &&."' in )ecember end and is currently trading at 4s &&.$#. 4upee appreciation against the dollar is an impact of a sell off in dollar in the Furopean markets, said a trader at a bank. Bs .ndia is a ma*or net importer of the yello metal, a stronger rupee has tempered the price rise. Gold for immediate deli!ery as Cuoted at 4s 9,"1, per 1, gm /.999 fineness0 on Monday. From a 2'3,%oH early Monday trade, international gold prices /spot0 declined to 2'&$%oH on Monday afternoon in the :ondon market.
Additional -actor

.n the futures market, gold traded bet een 4s 9,1(3 and 4s 9,$'3 on the Multi =ommodity Fxchange for the February contract. .n May last year, hen prices of gold in the international spot markets peaked to 2#", an ounce, corresponding prices in .ndia ere ruling ell abo!e 4s 1,,,,, in the spot market and at 4s 1,,#'" in the futures per 1, gm. Bgainst the dollar, the rupee as then Cuoted bet een 4s &' and 4s &#. .n .ndia, an additional factor is the slo do n in physical demand in the country. Bt higher price le!els, some demand compression is itnessed. B trader at a bank said, imports too ha!e some hat slo ed do n in recent times as importers had stocked up the metal hen prices ere lo bet een 23(, and 2',,%oH. There has

been a definite slo do n in imports due to higher price on anecdotal e!idence. /@o public data a!ailable for gold import0.
,emand

)emand may pick momentum in domestic market if prices dip by 21,-213, said the trader at a bank. Bccording to the latest =FT= data, there has been a marked increase in the net long positions of speculators across all precious metals especially gold. Blthough .ndian demand is a ma*or factor in gold price setting, increasing hedging acti!ities and demand from gold exchange-traded funds in the international markets ha!e lessened the impact of .ndian demand. 7harp !olatile mo!ements in gold prices ere not good for the trade, said Mr Mehul =hoksi, =hairman of Gitan*ali group, explaining that sharp decline ill affect the confidence in the commodity and too higher prices are not sustainable. =omparati!ely !olatility in gold is not shared by sil!er. 7il!er in the international spot markets as Cuoted at 21".$, on Monday e!ening. 7il!er for immediate deli!ery in Mumbai as at 4s 19,(93 /.999 fineness0 a kg. 7il!er in the futures market traded bet een 4s 19,'$( and 4s 19,9$, on Multi =ommodity Fxchange on Monday at 3.&3 p.m.

Forex reserves up $>16

3ur 5ureau

Bd!ertisement

Mumbai Ian. $# The countryMs foreign exchange reser!es ha!e risen 2#,$ million to 21#(.1$( billion, for the eek ended Ianuary 19, on the back of an increase in foreign currency assets. .n the pre!ious eek, the forex reser!es had gone up 2(&1 million to 21##.&$' billion.

Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /such as euro, sterling and yen0 held in reser!es. Foreign currency assets ha!e increased by 2#,1 million to touch 21#1.,'( billion, according to the 41. 6eekly 7tatistical 7upplement. Treasury officials attributed the increase in reser!es to central bank inter!ention in the forex market and re!aluation. ")uring the eek under consideration, there as speculation that 41. as buying dollars to rein in the appreciating rupee as ell as to infuse liCuidity in the system," said the chief forex dealer at a pri!ate bank. 6hile the euro edged up to 21.$9'3 on Ianuary 19 from 21.$9"3 on Ianuary 13, the yen fell to 1$1.$3 from 1$,.&3. Gold and 7)4s ere unchanged at 2'.31# billion and 21 million, respecti!ely. .ndiaMs reser!e position in the .MF increased by 21 million to 23&$ million. Forex dealers said the rupee is likely to be in the range of &&.$,-&&.", next eek. "Bs per the 4eal Fffecti!e Fxchange 4ate, the rupee is o!er!alued by (.( per cent. 7o, the

central bank may continue to inter!ene if the rupee appreciates belo &&.$,," said the treasury official.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, Ian. $3 4upee gained by almost four paise on Thursday tracking the yenMs mo!ement against the dollar. "The rupee strengthened on strong F.. inflo s into the domestic eCuity market," said a dealer at a pri!ate bank. The currency opened at &&.$'%$#, touched an intra-day high of &&.$1%$$ and finally closed at &&.$"%$& against &&.$(%$9 on 6ednesday. "The rupee is expected to trade in the range of &&.13-&&.$3 next eek,MM said the dealer. The six-month for ard premia closed at ".9# per cent /".#9 per cent0 and the one-year closed at "."1 per cent /".$ per cent0.

+he dragonHs tri!!ion

:aturi Nageswara Rao (hinaMs fore reser"es, largely denominated in dollars, recently crossed the trillion-dollar mark, reflecting the

ground reality that most 'sian countries are forced to augment their reser"es as a conseGuence of global imbalances in trade and finance! 5aintaining its present economic policy, can (hina play a part in mitigating these imbalances* =hina, the largest populated nation that has o!er the last t o decades successfully embraced hat it calls a Wsocialistic market economyM, has notched up one more distinction. .ts forex reser!es, mainly in ?7 dollars, recently crossed the one-trillion mark. This formidable figure is much bigger than the combined reser!es of ma*or Bsian economies such as +ong >ong, .ndia, .ndonesia, Malaysia, <akistan, the <hilippines, 7outh >orea, Tai an and Thailand. B higher forex reser!e position does not necessarily indicate greater economic strength or financial stability. .t *ust reflects the ground reality that most Bsian countries are forced to gradually augment their reser!es, as a conseCuence of the global imbalances in trade and finance. =hina is no exception.
%$port/driven growth

=hina has been registering double-digit G)< gro th rates in the recent past due to a host of fa!ourable factors. .ts cheap labour and flexible in!estment policies ha!e been attracting huge Foreign )irect .n!estment consistently. .t is no surprise that &, per cent of F). inflo s going into emerging markets reach =hina. =hina is also a ma*or processing hub for goods manufactured in other Bsian economies. .t earmarks, on a!erage, &3 per cent of its G)< for in!estment. .ts sa!ings rate is extraordinarily high, at 3, per cent of its output le!el. .ts recent entry into the 6orld Trade Organisation has immensely helped its economic progress and its exports, in particular.

The processing and manufacturing industries in =hina, established by foreign entities, generate substantial net export surpluses. +o e!er, the country is not a globally ackno ledged player ith regard to the export of ser!ices based on superior technology and kno ledge.
,ual surpluses

=hinaMs external reser!es doubled in the last $' months. .t has been registering rising surpluses, both on current and capital accounts. The current account surplus has shot up from 21# billion to 21'$ billion o!er $,,1-,3. The corresponding rise in capital account is from 2".&( billion to 2'" billion. These dual surpluses ob!iously aggra!ate =hinaMs trade imbalance problem and cause its external reser!es to rise alarmingly. =hinese policy-makers aim at phased reduction of its dual surpluses through multiple strategies such as stimulating higher domestic consumption, a more flexible exchange rate and interest rate management, besides gradual capital account con!ertibility, essentially to iden the channels of capital outflo s. =hinaMs domestic institutions, unlike its .ndian counterparts, no resort to significant out ard portfolio in!estments due to fa!ourable factors such as possession of large foreign currency funds in the hands of the banks that are recipients of huge foreign capital, the rise in the interest rates in the o!erseas financial markets besides limited domestic in!estment opportunities.
.le$i!le e$change rate policy

1o ing to international pressure A especially from its ma*or trading partner, the ?7 A =hina ga!e up its currency peg and embraced a floating rate policy in Iuly $,,3, by pegging the yuan to a basket of currencies, and thus fell in line ith its Bsian neighbours. =hina has been reluctant to re!alue its

yuan, hich is estimated to ha!e been under!alued against the greenback by $3-&, per cent, fearing the loss of export competiti!eness, a fall in F). inflo s and erosion in the !alue of its dollar reser!es. =onseCuent to the free float regime, the yuan has appreciated only by a minuscule " per cent, much to the discomfort of the ?7.
China and glo!al im!alances

Global imbalances are caused by a host of factors, such as an unimaginati!e and short-sighted exchange rate arrangement in the past, and !ery lo sa!ings and high spending in the ?7, besides its remarkable producti!ity gains. .mbalances occur due to the shifting patterns of trade and in!estment among !arious economic regimes and une!en rates of gro th. BsiaMs higher exports and the ballooning petro-dollars due to oil price hikes accentuate these imbalances. Global imbalances may itness the risk of disorderly correction. =hina generated a trade surplus of 2$,, billion against the ?7 in $,,3. .n the normal course, this should ha!e significantly enhanced the !alue of the yuan. +o e!er, =hina has pre!ented the yuanMs appreciation by buying into the dollar-denominated assets. .ts sterilised inter!ention is not ithout costs. .ts state-o ned banks are reCuired to buy go!ernment bonds at artificially lo interest rates, putting pressure on profitability and exposing them to a high le!el of non-performing assets /@<Bs0.
The !lame game

The ?7 blames =hina for contributing to the problem of global imbalances. .t demands that =hina re!alue its currency, increase its domestic demand and reduce its sa!ings rate, besides implementing much-needed labour reforms, to reduce its labour arbitrage ad!antage. .n the absence of effecti!e pension schemes, =hinese labour is forced to sa!e more.

=hina defends its economic policies by arguing that its trade ith the ?7 has sa!ed Bmerican consumers billions of dollars and millions of *obs. Bbout 9, per cent of ?7 imports from =hina in!ol!e goods that are no longer produced in the ?7. =hina is also buying more farm products and aircraft. The ?7 has a chance to participate in =hinaMs massi!e industrial upgrading, infrastructure building, construction of nuclear po er plants, en!ironmental protection pro*ects, and so on. =hina cites the presence of its huge market and big demand for BmericaMs ad!anced technologies and management expertise. .t argues that it has been boosting domestic demand by further opening its markets to ?7 companies, besides encouraging =hinese firms to in!est in the ?7. .t recently agreed to let the @R7F and @asdaC open offices in =hina, hile 6ashington has agreed to =hinaMs *oining the .nter Bmerican )e!elopment 1ank. =hina defends its exchange rate policy that aims at an adapti!e and eCuilibrium le!el gradually, hile the ?7 argues that there are more risks in going too slo in this regard.
The &(D twin de-icits

The ?7 is the biggest borro er in the orld as its citiHens sa!e !ery little and spend recklessly under the W ealth effectM. The Wkey currencyM status of the greenback is hat is sa!ing the ?7 as forex reser!es from the Bsian economies and the gulf nations constitute an inexpensi!e source of funding. .t is hardly surprising, therefore, that the ?7 has !ery large t in deficitsL its current account deficit at se!en per cent and its trade deficit at fi!e per cent of G)< A the kind of figures not sustainable for any other economy. Ob!iously, the seigniorage ad!antage of the dollar is tremendous. The ?7 is guilty of protectionist trade policies, especially in extending farm subsidies, hile it preaches

prudential fiscal and financial management to other economies.

The solutions

=an =hina be a part of the solution to the problem of global imbalancesO There are remedies, like the one suggested by Iapan for an Bsian Monetary Fund or the creation of a global currency, as proposed by Ioseph 7tiglitH, inner of an economics @obel, or a t o-currency reser!e system in!ol!ing the greenback and the euro. The !ital solution, of course, lies in the drastic reduction of the ?7M t in deficits by radically cutting its )efence budget and imposing higher taxes on its rich people. This ay, the dollarMs supremacy and the ?7 hegemony can be brought under check. =an =hina succeed in its present economic policy and positi!ely contribute to the mitigation of mounting global imbalancesO This is the trillion-dollar Cuestion.

Rupee ends a tad !ower

3ur 5ureau Mumbai, Ian. $& The rupee eakened by around four paise on 6ednesday on dollar demand from oil companies. The home currency opened at &&.$&%$', touched an intra-day high &&.$$ to finally close at &&.$(%$9 against TuesdayMs &&.$"%$&. "The market as also cautious after the 4eser!e 1ank of .ndiaMs inter!ention in the forex market yesterday," said a dealer at a pri!ate bank. )ollar gained marginally against yen and euro. "The rupee is likely to eaken in the next 1, days o ing to the upcoming public holidays, " said the dealer. The six-month for ard

premia closed at ".#9 per cent /".'( per cent0 and the oneyear closed at ".$, per cent /".1' per cent0.

Rupee s!ips against do!!ar

3ur 5ureau

Mumbai, Ian $" The rupee slipped against the greenback on Tuesday on reports of central bank inter!ention in the forex market. The currency opened at &&.$,%$$ and as on a bullish mode, appreciating to &&.133,%1'. 7ustained demand for the greenback then dro!e the rupee to close at &&.$"%$&, lo er than MondayMs close at &&.1(%19 )ealers said the rupee edged up initially, buoyed by dollar selling by foreign banks. "There could ha!e been F.. inflo s," said a dealer at a pri!ate bank. +o e!er, demand for dollars from public sector banks, possibly on behalf of 41., caused the rupee to depreciate. "The central bank could ha!e been trying to rein in the appreciating rupee as ell as infuse liCuidity in the system," said a dealer. .n for ards, the '-month ended at ".'( per cent /".(90 and the 1$-month ended at ".1' per cent /".", per cent0.

G;o "or opti a! way o" "unding overseas buysH

3ur 5ureau RBIMs ad"ice to corporates Bd!ertisement

Mumbai Ian. 19 .ndian companies bidding for o!erseas acCuisition ha!e been told to ork out the most optimal method of funding their acCuisitions.

Bccording to Ms 7hyamala Gopinath, 41. )eputy Go!ernor, funding of these acCuisitions ill ha!e implications for the domestic companiesM balance sheets and external debt profile, depending on the source of funding. The )eputy Go!ernorMs ad!ice assumes significance in the context of se!eral .ndian companies, including Tata, Fssar, ;ideocon and others, going for o!erseas acCuisition. Bddressing a conference on cross-border acCuisition by .ndian companies organised by the 1ombay =hamber of =ommerce and .ndustry here on Friday, Ms Gopinath said in the case of in!estments financed through debt in the books of the domestic entity and against guarantees issued by it, it could in!ol!e a full or partial recourse to the .ndian entity.

.n case there is recourse to the company, it is a direct liability of the company to that extent, she said. 7o far, Ms Gopinath said, .ndian companies, in general, appear to ha!e funded o!erseas acCuisitions in such a ay to reduce the risk on the domestic balance sheet. 4esponding to Cueries from corporates seeking clarifications on guidelines regarding remittance of funds by .ndian companies for specific purposes, such as buying brands and granting loans to step-do n subsidiaries, she said 41. as prepared to look into these issues.
"eporting -ormat

Ms Gopinath said the central bank is orking on a simplified system of reporting of funds remittance to o!erseas by .ndian corporates. 6ith corporates adopting inno!ati!e funding structures for acCuisitions and for other business o!erseas, the 41. feels that the present system needs to be rationalised. Ms Gopinath said that the central bank is orking on re!ising the existing reporting format in consultation ith leading corporates. The first ob*ecti!e of this exercise is to simplify and rationalise the existing format, and to make them e-enabled, she added. =orporates ha!e to report t o types of forex remittances A specific and annual.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, Ian. 19 +ea!y selling of dollars by exporters strengthened the rupee by almost four paise on Friday. )ealers said there could ha!e been 41. inter!ention in the market as nationalised banks ere selling dollars. The currency opened at &&.", and touched an intra day high of &&.$' to finally close at &&.$#, against ThursdayMs close of &&."1. "Bt these le!els, it as likely that exporters ere selling dollars," said a dealer at a pri!ate bank. 4upee also tracked yenMs mo!ement against the dollar, he said. )ealers said the rupee is likely to trade in the range of &&.$,-&&.&, next eek. The six-month for ard premia closed at ".'# per cent /".31 per cent0 and the one-year closed at ".1& per cent /$.9# per cent0.

Forex reserves up $<4.

3ur 5ureau

Bd!ertisement

Mumbai Ian. 19 The foreign exchange reser!es rose by 2 (&1 million to 2 1##.&$' billion for the eek ended Ianuary 1$, because of an increase in foreign currency assets.

The forex kitty had seen a dip of 2 ''' million in the pre!ious eek, hich had closed ith reser!es at 21#'.3(3 billion. Bccording to 4eser!e 1ank of .ndiaMs eekly statistical supplement, foreign currency assets increased by 2 (&3 million to 2 1#,."'# billion for the eek ended Ianuary 1$. Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /such as euro, sterling and yen0 held in reser!es. Treasury officials said foreign exchange supplies to the market during the eek as ell as the re!aluation effect could ha!e contributed to the spurt in the reser!es. The sterling rose to 2 1.9&9,, buoyed by 1ank of FnglandMs hike in interest rates. The dollar, ho e!er, strengthened against the euro, to 2 1.$9,', from 2 1.",,# at the beginning of the eek. The Furopean =entral 1ank decided to keep interest rates untouched during the eek in Cuestion. The eekly statistical supplement said that gold and 7)4s remained unchanged at 2 '.31# billion and 2 1 million,

respecti!ely. The countryMs reser!e position in the .MF fell by 2& million to 23&1 million.

Rupee weakens
3ur 5ureau

Mumbai, Ian. 1( The rupee fell against the dollar on Thursday, tracking the losses made by the yen. The currency opened at &&.1#%19 and touched an intra-day lo of &&."'. .t closed the day at &&."1, against 6ednesdayMs close at &&.19%$,. )ealers said the rupee opened higher, trailing the strength of the euro and the pound. Bccording to currency traders, the central bank may ha!e inter!ened by buying dollars through public sector banks, causing the rupee to slide. The dip of the yen follo ing 1ank of IapanMs decision to keep interest rates unchanged pushed the rupee to depreciate further. The rupee is expected to be in the range of &&.13&&.&3 in the next fe days, he said. .n the for ards market, the '-month premium closed at ".31 per cent /".#3 per cent0 and the 1$-month at $.9# per cent /".1' per cent0.

Rupee gains against greenback

3ur 5ureau

Mumbai, Ian. 1# The rupee gained against the greenback on 6ednesday as corporates sold dollars in the forex market. The currency opened at &&.$(%", and stayed in range. 4eports of a ma*or corporate selling 2$,, million in the market aided the rupeeMs spurt during the day, said a dealer. The currency touched an intra-day high of &&.1( and finally closed at &&.19%$,, against TuesdayMs close at &&.$#%$(. "There ere good dollar inflo s. The rupee could appreciate beyond &&.13, pro!ided the central bank does not inter!ene," said a dealer at a pri!ate bank. .n the for ards market, the six-month closed at ".#3 per cent /".'& per cent0 and the 1$-month ended at ".1' per cent /".1, per cent0.

Rupee c!oses "!at

3ur 5ureau Mumbai, Ian. 1' The rupee almost ended flat against the dollar on Tuesday. The domestic currency opened at &&.$3%$#, but strong dollar buying by public sector banks, on behalf of oil companies, pushed the rupee to &&."&. .t could not sustain at that le!el as there as dollar selling hich strengthened rupee to &&."1, said a dealer at a pri!ate bank. :ater in the day, reports from the international rating agency, MoodyMs .n!estors 7er!ice, maintaining .ndiaMs credit rating stable, eased the pressure on the rupee. The home currency ended at &&.$#%$( against the pre!ious close of &&.$( on Monday. The six-month for ard premia closed at ".'& per cent /"."' per cent0 and the one-year closed at ".1, per cent /$.91 per cent0.

Rupee gains .6 paise

3ur 5ureau

Mumbai, Ian. 1$ The rupee strengthened against the dollar by 1$ paise on Friday follo ing good F.. inflo s into the stock markets, dealer said. The rupee opened at &&.',, touched an intraday lo of &&.'$, to finally close at &&.&", against pre!ious close of &&.33%3' on Thursday. "There as some amount of oil-related buying, hich caused the rupee to touch &&.', le!els," said a dealer at a pri!ate bank. The pound strengthened against the dollar follo ing the rate hike by 1ank of Fngland. )ealers said the rupee is expected to touch &&.", le!els, next eek. The six-month for ard premia closed at ".", per cent /".$( per cent0 and the oneyear closed at $.(9 per cent /$.(" per cent0.

Rupee "a!!s .0 paise

3ur 5ureau

Mumbai, Ian ( The rupee fell by around 19 paise on Monday as the local and Bsian stock markets turned eak. "The dollar also rallied against the euro and the yen on fa!ourable payroll data, impacting the rupee," said a dealer at a pri!ate bank. The rupee opened at &&."&, touched an intra-day high of &&.3,%3" to finally close at &&.&9, against the pre!ious close of &&.",%"1 on Friday. "6hen the rupee touched the &&.&" le!els, nationalised banks ere seen buying dollars, possibly on instructions from the 4eser!e 1ank of .ndia. +o e!er, later in the day, foreign banks also bought dollars," said the dealer. )ealers expect the rupee to touch &&.33 in the eek. .n for ards, the '-month closed at ".#, per cent /".3' per cent0 and the 1$-month ended at ".,& per cent /" per cent0.

Rupee "a!!s 3 paise on $ se!!ing

3ur 5ureau

Mumbai, Ian. 3 The rupee fell by around t o-three paise as there as strong dollar selling. "7elling as triggered by dollarMs eakness against the Iapanese yen and =hinese yuan. =hinese =entral 1ank has hiked the cash-reser!e ratio, hich strengthened yuan against the dollar," said a dealer at a pri!ate bank. The domestic currency opened at &&.$9%"1, touched an intra-day high of &&."&%"3 to finally close at &&.",%"1 against ThursdayMs &&.$#%$(. "The rupee is expected to touch the le!els of &&.1'%1# next eek," the dealer added. .n for ards, the '-month closed at ".3' per cent /".#1 per cent0 and the 1$-month ended at " per cent /".," per cent0.

Forex reserves rise $..16 b

3ur 5ureau Mumbai , Ian. 3 The countryMs foreign exchange reser!es rose 21.,1( billion to touch 21##.$31 billion for the eek ended )ecember $9, $,,' mainly on foreign currency re!aluation. .n the pre!ious eek, forex reser!es had increased by 2#1& million to touch 21#'.$"" billion. The euro gained from 21."1,9 to 21."1(1 in the eek under re!ie hile the dollar as eak against most global

currencies. The rupee too touched a 1,-month high against the dollar that eek. On Friday, the rupee closed at &&."1.
.oreign currency assets

Bs per the 4eser!e 1ank of .ndiaMs eekly statistical supplement, foreign currency assets rose 299' million to touch 21#,.1(# billion. Foreign currency assets expressed in dollars include the effect of appreciation or depreciation in non-?7 currencies /such as euro, sterling and yen0 held in reser!es. .n the eek under consideration, gold increased by 2$" million to touch 2'.31# billion. 7)4s ere unchanged at 21million. .ndiaMs reser!e position in the .MF fell by 21 million to touch 23&' million. @ext eek the rupee may appreciate to &&, as the 41. does not seem to be sho ing any signs of inter!ening in the market, said a treasury head. Foreign exchange inflo s ould continue to be strong as most corporates are likely to post good third Cuarter results and the ad!ance tax collections ha!e been better than expected. The .ndian eCuity market is still buoyant ith intermittent correction, the official said.

Rupee gains
3ur 5ureau

argina!!y

Mumbai, Ian. & The rupee gained by about eight paise to ards the end of trading on Thursday on dollar selling by exporters. The currency had opened lo er at &&.&$ on an o!ernight dollar rally and dollar buying by oil companies, said a forex dealer. +o e!er, due to sustained dollar selling, the rupee gained to close at &&.$#%$( against 6ednesdayMs close of &&."3%"'. "There as some resistance at &&.""%"& le!els on expectations the 4eser!e 1ank of .ndia may inter!ene. 1ut that did not happen and the rupee gained," the dealer said. The dollar rallied a bit against other currencies such euro and pound but as steady against the yen. For ard premia mo!ed up, ith the '-month closing at ".#( per cent /".'$ per cent0 and the 1$-month ending at ".,# per cent /$.9& per cent0.

#tig!itE cautions against capita! account convertibi!ity

3ur 5ureau

Ja"ours using part of fore reser"es for infrastructure de"elopment

P"0.%((0" G0(%P# (TI);ITC at a lecture organised !y The #indu in Chennai on Thursday. / (ha*u Gohn

=hennai , Ian. & @oble laureate <rofessor Ioseph 7tiglitH has cautioned against capital account con!ertibility and allo ing short-term capital into .ndian economy, terming it a force that can "create instability". 4esearch has sho n that capital market liberalisation is fraught ith risk ithout re ards, he said on Thursday at a lecture organised by The Hindu! "7ome people say there ould be no F). ithout capital market liberalisation, hich is ob!iously rong," he said, noting that =hina recei!ed copious foreign in!estment ithout ha!ing capital account con!ertibility. "Rou cannot create *obs ith money that comes in and goes out, but you can create instability ith it," <rof. 7tiglitH said. Obser!ing that for many years .ndia did not allo foreign capital and that pro!ed to ha!e ad!erse effects, <rof. 7tiglitH noted that to "no open completely" ould be a "mistake". 7tressing that the distinction bet een short-term and longterm capital inflo s as "fundamental", he said that hile long-term capital /F).0 ould lead to gro th, short-term capital flo s ould not.

+e ga!e the example of =hile, hich disallo ed short-term capital inflo s into its economy and yet got long-term in!estments and gro th. Bns ering a Cuestion, <rof. 7tiglitH said that he fa!oured using a part of .ndiaMs forex reser!es to fund the foreign exchange component of infrastructure de!elopment. 6hile noting that such a measure as contro!ersial, he said that it "makes sense".
)lo!al reserve currency system

Bns ering another Cuestion, he said that a global reser!e currency system should be created, perhaps taking the initiati!es of the B7FB@ in in!esting their surpluses in each othersM bonds, as the nucleus. Other Bsian countries could *oin in the initiati!e, later the Furopean countries and the ?7 too. Bs !arious countries kept in!esting their foreign exchange reser!es in ?7 bonds, the ?7 as borro ing at a rate of about 2" billion a day. O!er time, this le!el of borro ing ould become unsustainable and conseCuently, the ?7 dollar ould cease to be seen as a "store of !alue". Bs a result, countries ould begin to pull out their money from the ?7 and in!est in other currencies. This in turn could destabilise the ?7 economy too. .t is therefore in the interest of the ?7 too to support an alternati!e global reser!e currency system, he said. .n response to another Cuestion, <rof. 7tiglitH cautioned against "excessi!e fiscal austerity" and ga!e 1raHil as an example of a country that as done in by such a measure.

Rupee "a!!s by around .1 paise

3ur 5ureau Mumbai , Ian. " The rupee fell by around 1, paise on 6ednesday on the back of corporate demand. The currency opened at &&.$,%$3 and touched an intra-day lo of &&.&3%&'. .t, ho e!er, closed at &&."3%"' against TuesdayMs close at &&.$&%$3. )ealers said corporate demand for dollars got the rupee to slip. The currency as also tracking the eakness in the yen, hich fell from 11(.#$ yen to 119.&3 yen against the dollar. "The easing of rupee liCuidity in the system has also aided the dollar," said a dealer at a pri!ate bank. .n for ards, the '-month closed at ".'$ per cent /".130 and the 1$-month at $.9& per cent /$.'90.

Rupee edges up
3ur 5ureau Mumbai , Ian. $ The rupee edged up slightly against the greenback on Tuesday on good dollar inflo s. The currency opened at &&.1"%1& and dropped to close the day at &&.$&%$3, against &&.$# on Friday. )ealers said the currency as tracking the strength of global currencies such as the euro and the pound. +o e!er, dollar-buying by nationalised banks trimmed gains. "The central bank could ha!e been buying dollars through nationalised banks to curb the rupeeMs appreciation and impro!e rupee supplies in the system. 1esides, month end demand for dollars from importers has also subsided," said a dealer at a pri!ate bank. .n for ards, the '-month closed at ".13 per cent /".',0 and the 1$month ended at $.'9 per cent /$.9"0.