Dear Friend, Got a newsletter from Texprocil, pasting below the content which might be useful for you and other fellow members.

The appreciation of the Indian rupee in recent months has been a matter of grave concern for Indian exporters of textiles, as the competitive edge is getting severely eroded, finding it difficult to compete with countries such as Bangladesh, China, Pakistan whose currency movements have been less volatile and in fact are more favourable thereby giving them an edge over similar goods produced in India.

Driven by improved domestic demand, infrastructural spending, life style changes and higher disposable income, the Indian economy has been growing at around 9% for the last few years. The strong GDP growth in the years to come has resulted in India becoming an attractive destination for foreign investors. On the other hand, the US economy has been slowing down and is currently facing crisis due to sub-prime lending. The prospects for lower economic growth have resulted in the US dollar depreciating while the stronger economic outlook has led to strengthening of rupee against US dollar. As the trend is believed to be long term in nature, the strong rupee is expected to stay.
Realizing the adverse impact of an appreciating currency on Indian textile exports, the government has announced various measures in recent times to support the growth of this largest employment providing industrial sector in India. The government is still in the process of identifying other measures, which will help the Indian textile sector to grow and benefit from the post-quota opportunities.

While the government is continuing its efforts, Indian exporters can also take various measures at the plant and firm level to mitigate the impact of a strong rupee and translate their comparative advantages such as availability of relatively low-cost and skilled workforce, design expertise and raw materials base into competitive advantages. Some of the measures are:

Mrs.

Free Member, Joined :10/04/2005
No of Topics Posted : 16
Reply/Comments : 54

Adopt active and Systemic hedging:
It is critical for the exporter to protect the exchange rate based on which his export pricing has been worked out. Most of the exporters have not been exposed to unidirectional movement of the rupee. In order to protect earnings from currency movements, an active and systemic hedging strategy should be adopted.

Negotiate higher prices:
Recent reports indicate that some exporters have succeeded in convincing buyers regarding the adverse impact rising rupee. The buyers have raised the prices between 3% and 4% without affecting their profitability. The exporters should develop the flexibility to go back to the suppliers and importers and share their concern about the currency movement and negotiate higher prices.

Execute Export contract in Euro/Rupee Terms :
With rising value of rupee against US Dollar, Indian exporters should endeavor to execute export contracts in other foreign currencies than the dollar such as Euro which has been relatively stable. They may even negotiate contracts in rupee currency. The billing in rupee terms will protect their margins by passing on the currency fluctuation risks to buyers

Need to Control Costs
it is imperative for Textile manufacturers to focus on flushing out the inefficiencies in the production system and bringing down the cost of production. In this connection special efforts should be made to reduce cost of power by adopting energy efficient equipments and conducting regular energy audits and enhancing labor productivity.

Exploit untapped Markets:
With the unstoppable appreciation in rupee and slowdown in the US economy, the competition in the USA market will intensify further leading to wafer thin margins for the suppliers from India. Huge untapped potential exists in emerging markets of Canada, Latin America, Australia, Japan and South Africa. Efforts also need to be redoubled at enhancing exports to South East Asia, Middle East and erstwhile CIS countries.

Mrs.

Free Member, Joined :10/04/2005
No of Topics Posted : 16
Reply/Comments : 54