The industry, which is bearing the brunt of a strong rupee while facing the prospect of an interest rate hike, has sought immediate action from the Reserve Bank of India (RBI) to stabilise the currency.
The Confederation of Indian Industry (CII) has said the central bank must intervene to address the situation as the recovery in exports is still nascent and any more appreciation in the currency will hurt Indian exporters.
Currency movements are being driven by capital flows, which tend to be volatile and has resulted from low interest rates being maintained by most central banks. “If the RBI tightens monetary policy, there is a risk of a further surge in these flows, which will be attracted to higher yields,” CII said.
The rupee, which was pegged at 44.62 to a US dollar on Wednesday, has risen sharply from Rs 50 per dollar about a year ago. This differential erodes the rupee earnings of exporters.
“The most critical problem at the moment is high inflation and that is far larger for RBI than anything else,” said D.K. Joshi, director and principal economist, Crisil.
Joshi said the revival in the export market would also depend on the economic recovery in several developed markets.