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December 10, 2007

Rupee Rise Begins to Hit Manufacturing

Business Today has an article on how millions of jobs in the manufacturing industry "could vanish" due to the rupee's seemingly inexorable rise.
The weakening dollar has now started taking its toll on manufacturing in India. The worst hit are export-intensive sectors like textiles, leather, handicrafts and engineering. Faced with contracting margins, companies in these industries are now resorting to drastic measures, like retrenchment drives, to stay competitive. And the estimated job losses run into several millions. According to the Federation of Indian Export Organisations (FIEO), the apex export body, almost 8 million jobs are likely to be lost this financial year. And it reckons that the problem will get worse if the rupee continues to appreciate rapidly.

...Exporters, then, are struggling to cope with the onslaught of the rising rupee. If the rupee continues to appreciate, then it could force many small exporters to fold up operations or slash production, resulting in more job losses. Economists point out that at the root of the problem is not the appreciating rupee alone but the pace at which the currency has gained against the dollar. Says Subir Gokarn, Chief Economist, Standard & Poor’s, Asia Pacific: “If you see between 2002 to 2007, the rupee gained about 10 per cent. An average of 2 per cent a year was manageable for exporters, who offset the losses through improved productivity and export growth remained buoyant. But this time, the sharp spike in the rupee value has really hurt exporters.”

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.