Rupee depreciation a major bugbear for India companies: FM

The depreciation of the rupee in the past few months, which should otherwise benefit exports, has affected the performance of Indian companies, Finance Minister P Chidambaram said in a written reply to a Lok Sabha question.

"However, rupee depreciation is one of the factors affecting the performance of Indian companies. The other factors are slowdown in global and domestic demand," Chidambaram said.

He, however, said that the government and RBI have taken a number of steps to facilitate capital inflows and boost exports in order to augment supply of foreign exchange to stem the decline in the exchange rate of the rupee.

Rupee depreciation has in the past many months impacted corporate profits, particularly that of companies using imported raw materials. This is because in a low demand situation, companies lack the pricing power to pass their costs on to customers. This has also harmed overall economic growth and contributed to inflationary pressure.

Though, exports should normally rise with a decline in the value of the rupee, this did not happen in the previous financial year, despite the rupee losing value against the dollar. This was because Indian shipments faced declining demand in the US and Europe. The situation has not changed in this financial year.

The rupee, which touched a record low of Rs 57.32 against the US dollar on June 22, is currently trading at Rs 55 levels. Chidambaram said the decline in the value of the rupee was mainly on account of supply-demand imbalance in the domestic forex market and this is expected to contribute to inflationary pressures.

The rupee has depreciated by around nine per cent in value in the first quarter of 2012-13, putting the operating margins of companies in most sectors under pressure.

"The government has taken a number of fiscal and administrative measures to check inflation, which resulted in moderation of inflation to around 7-7.5 per cent in the recent months," he said.

Comments (+)