Dr. Dhawan urges reintroducing
Dual Exchange Rate System
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Dr. R K Dhawan (2nd from left) addressing meet. With him are from left, Mr. Sunil Agnihotri, Director, FIEO(NR); Mr. Ashok Kapoor; and Mr. Anil Sareen. |
With the rupee going up by almost 15% against US dollar in the last one and a half year, India’s exporters are left with no option other than learning to effectively manage their foreign exchange risks. FIEO’s Northern Region Chairman Dr R. K. Dhawan said this at a workshop on "Foreign Currency Risk Management in Rupee Appreciation Scenario" organized by FIEO on 20th February in New Delhi.
Dr. Dhawan called for setting up a government agency to do hedging on behalf of exporters saying that the majority of the exporters belong to small and medium sectors, who cannot do forward booking, nor do they know what is hedging.
Warning that the export industry was most likely to fall short of its 160 billion dollar FY’08 target by some 15-20 billion dollars, Dr. Dhawan, pushed for reintroduction of dual exchange rate system. "If China can pay its exporters Yuan at fixed rate against their dollar earnings, why can’t India do the same," he said.
Prof Ashok Kapoor, Consultant, Indian Institute of Foreign Trade (IIFT) made a presentation outlining the historical background of exchange rate mechanism and stressed that identification of currency risk by exporters was crucial. After identification, said he, exporters must measure the amount of risk in terms of value and then hedge the risk through various alternatives available in the market like forward contracts and options. Besides, he suggested the exporters to diversify their business into non-dollar markets, like EU, to minimize the risk.
Mr. Anil Sareen, AGM & Head, Regional Treasury Marketing Unit, State Bank of India, in his presentation laid down the importance of covering the risk through various instruments that are available today in the market and explained the participants about some of these instruments in details.
