Small packages won’t help: Dr. Dhawan
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The Government should do more for the SME sector and a hedging corporation should be set up which can help the exporters, especially the smaller ones. Dr R. K. Dhawan, Chairman, FIEO (Northern Region) said at a day-long seminar over the impact of rupee appreciation on India’s international trade organised by Centre for International Business and Policy at Birla Institute of Management Technology on October 29 at Noida. Dr. Dhawan also pointed out that in order to meet the challenges and the impact of the rising rupee, |
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Dr R. K. Dhawan adressing the Seminar |
Indian government must provide subsidies to exporters. US and EU are giving subsidies to the tune of USD 300 billion to their own farmers. They want that the developing countries should reduce the subsidies so that they can sell their own products. "Offering small packages to exporters will not give sustainable growth to Indian exports. If timely intervention is not made by the government, exports will suffer badly which will not only deplete our forex reserves but will also lead to large scale unemployment and will have serious implications for the economy." Said Dr. Dhawan.
The other speakers at the seminar were Mr. Shankar Ramanathan, Vice President, Infotech, Mr. Yogesh Bellani, Head, Strategic Business Units (Food), Kohinoor Foods Limited and Dr. S K Jain, Professor, Delhi School of Economics.
Students also reflected their views on the impact of rupee appreciation on various export sectors like textiles, pharmaceutics, IT and gems and jewellery.
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Derivatives - Hedging and Writing Options In the Monetary and Credit Policy announced on October 30, 2007, corporates have been allowed to use instruments in the derivative markets such as hedging and the conditions for the same have been relaxed. Till now, an exporter could sell dollars at a future date with a pre-agreed price. The amount that could be sold would depend on the average performance of the last 3 years. For example, this could be $ 100 million. The hedge earnings could be used at a later date when the next export order is anticipated. No documents were required under the scheme. However, once this limit was used, it could not be used again during the year. This condition has now been relaxed by RBI. Now, if the exporter gets export order of $ 250 million, the receivables can be hedged for a later date and the past performance limit is once again available to the exporter and can be used several times in the same year as long as the underlying documents are available. In the writing option provided by RBI earlier, exporter could ‘buy’ an option (exercising the "call" option) to sell the dollar, it would receive at a future date. While the corporate had the right to sell the dollar, there was no compulsion and a premium had to be paid to the Bank who arranged for the option transaction. With the present dispensation, the corporate has also been the option to ‘sell’ the dollar (exercising the "put" option) to the Bank. Bank will pay a premium income to the exporter/corporate. In case the dollar depreciates very significantly, then in such a case, Bank will understandably not ‘buy’ the dollars but the corporate may sell the same in the open market as per the prevailing market rate. As the name signifies, derivatives are instruments whose value is based on, or derived from, the prices of currencies, interest rates (i.e. bonds), shares and share indices, commodities, etc. Derivative instruments are of two types: Traded on the floor of an exchange, and OTC, or over-the-counter While financial derivatives are marketed in the over-the-counter market in a wide variety of mechanisms, in substance there are only two types of derivatives, these are: Forward, and Options. Forwards create a right and an obligation to exchange cash flows at a predetermined future date(s), on the basis agreed now. Options, on the other hand confer on the buyer of the option contract the right to exchange cash flows at a future date, on the basis agreed now – but it creates no obligation on the buyer to go ahead with the exchange. All the derivatives mechanisms fall in one of the two categories, or a combination thereof. For example, forward contracts on exchange or interest rates, currency and interest rate futures, interest and currency swaps, all are part of the family of forwards. Similarly, caps and collars, range/participating forwards, currency options, etc are part of the options family. |
