||Govt to push trade in local currencies to boost exports
Government will push for trade in local currencies to help exporters overcome uncertainty owing to high volatility in the US dollar and the euro. This would not only reduce exporters dependence on the greenback but will also reduce conversion costs.
A top government official told Financial Chronicle that the idea is to identify five big trading partner nations for India, apart from the US and the EU, and also shortlist five major Indian banks that have presence in these countries to kickstart trading in local currencies on a pilot basis.
As of now, India’s trade in US dollars accounts for 65 per cent of the total trade, followed by 15 per cent in euros and the remaining 20 per cent in other currencies, including the yen and the pound.
The shift to other currencies will not only limit foreign exchange risks to exporters, but also, provide new avenues for exports. It will be easier to manage foreign exchange transactions at the macro level.
In the past one year, the rupee has depreciated by 24.3 per cent. It stood at 55.3 a dollar on Thursday, compared with 44.5 a dollar on July 19, 2011, while the depreciation vis-à-vis the euro was 8.45 per cent at 68 a euro now, to 62.7 a euro a year ago.
While the high double digit depreciation in rupee could have benefited exporters, their clients in the US and EU insisted to pass on the benefit to them in the form of higher discounts.
Further, the high cost of credit in India and high commodity prices left exporters with very little improvement in the margins to the tune of three to five per cent.
On the other hand, loss to importers, mainly in gems and jewellery sector, was not significant as huge part of it gets re-exported.
“The idea is at a very nascent stage but exporters are keen to shift to trading in other currencies as it will bring down the additional cost of conversion,” the official added.
The potential countries could include Asean (Indonesia, Malaysia, Myanmar, Singapore, Philippines, Thailand, Vietnam, Brunei, Laos and Cambodia), Brazil, South Africa and China.
The concept is not completely new to India. After the US sanctions last year impacted oil imports from Iran due to payment issues, the two countries agreed on a payment mechanism wherein India will import 45 per cent of its crude requirements from Iran in rupee as against dollar.
Source : wrd.mydigitalfc.com