Exporters should hedge their risk in the current situation of volatility in the rupee-dollar exchange rate movement and look for profitability from core business, according to M. Rafeeque Ahmed, President, Federation of Indian Export Organisations.

“ High volatility creates uncertainty and speculation, hitting the economy and business confidence. Depreciating rupee will further widen the Current Account Deficit (CAD),” Ahmed said.

Though volatility may be good in the short term, it would impact the long-term interest of exporters, he cautioned.

India’s CAD worsened to a record low of 6.7 per cent of GDP in the October-December quarter mainly due to import of oil and gold and sluggish exports. 

CAD arises when a country’s total imports of goods, services and transfer’s is greater than exports. CAD puts downward pressure on the rupee, thereby making imports costly and stoking inflation.

Since the beginning of the current financial year, the rupee has depreciated by 7.41 per cent (from 54.36 as on April 1 to 58.39 as on June 11) against the dollar.

In the current situation of sluggish export demand, buyers are asking for discounts or price reduction while sectors such as petroleum, gems and jewellery, electronics, plastic products, with high import intensity, are impacted due to increase in input cost.

Ahmed said exporters should hedge their risk as the rupee-dollar exchange rate movement is volatile and look for profitability from core business. Exchange benefits should only be used as icing on the cake.

In a lecture recently at Hyderabad, Reserve Bank of India Governor D. Subbarao, said the country’s exports will become competitive only by increasing productivity and diversifying export markets and not just through exchange rate.

The FIEO chief said depreciation of the rupee, which closed at a lifetime low of 58.39 to the dollar on Tuesday, will increase both fiscal deficit and Inflation.

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