Relief for exporters in the works. But free floating Rupee is needed. - Gold Backed?

Exporters battling the appreciating rupee can look forward to some immediate help from the government. The Prime Minister’s Office (PMO) will hold a meeting with finance minister P Chidambaram and RBI governor YV Reddy on Tuesday to clear a relief package for exporters. However, the final contours of the package are not yet clear. The commerce ministry has proposed a liberal package, which includes increasing the rates for popular duty reimbursement schemes by 5%, but the finance ministry could be in a less generous mood.

Commerce ministry sources told ET that the export package is expected to be announced soon after the meeting.EURO / YEN / GOLD / INDIA“We do not know whether the finance minister will agree to all our suggestions. The finance ministry might want us to increase the rate for DEPB and drawback schemes by a smaller margin,” an official said.

The package proposed by commerce minister Kamal Nath seeks to increase the drawback and DEPB rates by 5% to neutralise local duties and state levies that are currently not refunded. It also proposes to convert exchange earner's foreign currency accounts to an interest-bearing instrument and to reduce interest rates on packing credits.

The proposal to reduce insurance premium for exporters by 10% has already been carried out. Sources said the PMO, based on suggestions from Mr Reddy and Mr Chidambaram, will take a final call on the relief package for exporters.

With the rupee appreciating by approximately 12% against the dollar since March this year, exporters have been struggling to meet their orders since export realisation has come down substantially. According to Delhi Exporters Association (DEA) president SP Agarwal, most exporters will experience a dip in exports from July as they were completing old orders till now.

Reinforcing Mr Agarwal’s fears, Federation of Indian Export Organisations president Ganesh Kumar Gupta pointed out that lifestyle segment exporters will be hit the most since they were to finalise their contracts for the coming festive season abroad by July and August.

Mr Gupta said textile and apparel exporters have seen a decline of 8-10% in net profit margins, which will force them to cut costs in terms of employment and capacity-building, affecting the sector adversely in the long term. Leather goods, handicrafts and giftware have also been significantly affected.
India’s rupee rose for the sixth day, its best run in five months, on speculation overseas funds will buy more local equities as the nation’s economy grows at a pace second only to China among the world’s largest economies.
Global funds more than doubled purchases of Indian shares to $5.93bn this year to July 3 from a year earlier, according to the stock market regulator.
The benchmark stock index posted a record close for the third straight day on Wednesday and rose yesterday as much as 0.6% before falling.RUPEE / US DOLLAR / GOLD
“The capital flows are significant and sustained,” said Sudarshan Bhatt, chief currency trader at state-owned Corporation Bank Ltd in Mumbai. “That is keeping pressure on the rupee to rise. Any amount of dollar demand is appearing thin as of now and is being absorbed easily.”
The rupee rose to 40.44 against the dollar at the close here, from 40.4475 on Wednesday, the strongest since May 13, 1998, according to data compiled by Bloomberg. The currency may rise to 40.30 by next week, Bhatt said.
Asia’s fourth-biggest economy INDIA has grown at an average of 8.6% in the three years through March 31, compared with an average 6% in the previous three years.
Share sales of local companies may double this year, buoyed by record demand from investors attracted by the fastest pace of economic growth in almost two decades, J P Morgan Chase & Co said last week.
Companies in India raised $12.1bn in share sales so far in 2007, up from $6.34bn a year earlier, according to data compiled by Bloomberg.
The rupee declined earlier yesterday on speculation the central bank will sell the currency to help protect the earnings of exporters.
The rupee has gained 9.5% this year, making Indian goods more expensive abroad compared with those of its competitors. Growth in exports, which account for about 12% of the economy, slowed to 7.4% in the three months through March, from 19.5% a year earlier. ``Speculation increased that the central bank will curb the rupee’s rise because of the levels it has reached,’’ said Puneet Sharma, chief of currency trade at state-owned Allahabad Bank Ltd in Mumbai. ``The rupee may decline a bit further.’’ The Reserve Bank of India has been seeking to limit the rupee’s gain and slow the pace of inflation. The central bank purchased an average $4.8bn of foreign exchange each month from January to April, according to its latest data.
Indian stocks fell yesterday, dragging the Sensitive Index down from a record as some investors judged the benchmark’s rally excessive.
The Bombay Stock Exchange’s Sensex declined 18.35, or 0.1%, to 14,861.89. Eighteen stocks fell while 12 advanced in the index. The S&P/CNX Nifty Index on the National Stock Exchange slid 5.35, or 0.1%, to 4353.95.
Indian exporters Thursday urged the government to take immediate action to tackle the huge losses faced by exporters due to appreciation of rupee against the dollar.

"The textiles and apparels export industry has witnessed a decline of 8 to 10 percent in their net profit margins which would force them to cut down costs in terms of employment and capacity building, affecting the sector adversely in the long term," the Federation of Indian Exporters Organisation (FIEO) said in a statement.

The FIEO representatives had last month met Commerce and Industry Minister Kamal Nath for implementing a fiscal package to cover their losses.
us dollar / euro / yen/ gold trade in rupee for hedge fund public access traded forex free traded rupee by 2009
The impact of the appreciation is worse in the leather and leather products sector. The erosion of net profits expected in the next 6 months is 13.7 percent and the industry is already facing an erosion of 8.8 percent on its net profits margin, according to a recent survey conducted by the Confederation of Indian Industry (CII).

During the last 12 months, the CII study said, the Indian rupee had appreciated by 11 percent leading to concern among the exporting community of reaching the target of $160 billion in exports in the current fiscal.

Indian exporters are also facing difficulty in the international market compared to countries such as China, Thailand, Pakistan, Sri Lanka and Bangladesh, which have lower rates of appreciation of their respective currencies.

The growth of exports slowed down to 18.07 percent in May 2007 from 23.06 percent in April 2007. In value terms, exports during May totalled $11.86 billion, FIEO said quoting official statistics.

Reliance, the nation’s most valuable company and the stock with the biggest capitalisation in the index, fell Rs7.80, or 0.5%, to 1707.90.
ICICI climbed Rs20.05, or 2%, to 1005.40. The lender’s plan to sell a 24% stake in ICICI Financial Services may be approved by India’s Foreign Investment Promotion Board after a key government department cleared the proposal, the Economic Times had reported on Wednesday.
The Sensex’s relative strength index, a moving average based on advances and declines in the previous 14 days, rose above 70 on Wednesday. A reading above 70 indicates to some analysts the benchmark is poised to fall.
“With the insurance division in the finance ministry and the Insurance Regulatory and Development Authority too, backing the proposal, chances of early approval for the proposal appear brighter now,’’ Deutsche Bank said in a note to clients.
Overseas investors bought a net Rs4.1bn ($100.6mn) worth of Indian shares on July 3, according to the latest figures from the Securities & Exchange Board of India’s website.