The Hindu Business Line : Currency volatility: Ignorance daunts small exporters

ALONGSIDE the success stories of the more sophisticated export houses, which have made a 19 per cent jump in exports of Indian merchandise possible this year, there is also the dismal tale of the small scale exporters who live in ignorance and suffer from the diseconomies of scale.

Take, Ramesh, (name changed on request) a Mumbai-based, spices exporter who lost Rs 6-7 lakh in the past three months owing to the fast appreciating rupee. He is just one of the many small exporters of the country who are not well versed and fine-tuned to the fluctuations in the local currency markets and therefore did not realise the necessity of booking a forward contract.

According to the Federation of Indian Exports Organisation, about 60 per cent of the Indian exporting community consists of small and medium enterprises shipping various commodities ranging from handicrafts to chemicals to textiles to pharma products overseas. Several of them like Ramesh have seen their total profit margins being wiped out merely due to the 6 per cent appreciation staged by the domestic currency from its lowest levels in mid-June 2002.

An appreciating domestic currency augurs less rupees for the same payment of dollars for an exporter.

Having burnt his fingers once, Ramesh, who exports goods worth Rs 15 crore annually consisting largely of sesame seeds, turmeric and niger seeds is extra cautious now.

"I have recently hedged my foreign exchange positions for the shipments due in September. This is based on my bank's strong advice to me to hedge my position,'' he says. Ramesh has incurred losses only on one front i.e. of earnings to the company. This is because there is no real competitor to the country in the international market as far as spices are concerned.

Several other commodity exporters are hit on two counts due to an appreciating domestic currency, one of dipping value of receivables and the other of being priced out of the international market vis-à-vis competitors whose currencies may not have appreciated to the same extent against the dollar.

The small and medium-sized exporters, with an annual value of exports below Rs 5 crore, are the ones suffering the most due to reasons such as lack of expertise in the forex markets, thin margins of 4-5 per cent and even unavailability of forwards contracts from banks, according to Mr Ganesh Kumar Gupta, Chairman, Federation of Indian Export Organisations, Western Region and Chairman, Textiles Committee, GOI.

In the case of small exporters, banks often refuse to sell forwards contracts on their behalf if they do not have a good balance sheet or a collateral.

Selling a forward amounts to a credit exposure for a bank, which it will not venture to take unless the exporter has a proven track record.

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