'RBI's directive is of no use. It won't help the rupee'

The Reserve Bank of India's directive to exporters to convert 50 per cent of the balance in their EEFC (Export Earners Foreign Currency) accounts into rupees has invoked a mixed response.

While a section of the foreign exchange dealers has welcomed the move, exporters have voiced strong objection. Navratna Samdria, President, Federation of Indian Export Organisation, has condemned the RBI's tough step and criticised the 'unreasonable' time limit imposed on the exporters.

"Eight days are too few," exclaims Samdria. RBI made the announcement on August 14 instructing exporters to report the compliance by August 23.

The balance in the EEFC accounts is supposed to be around $2 billion, most of which is kept idle in interest bearing accounts. RBI's directive is expected to bring in $1 billion into the forex market over the next six trading days.

Samdria voices his concern over the Reserve Bank's directive in a tête-à-tête with Kanchana Suggu.

What exactly is the FIEO's objection to the RBI's move?

Our main objection is that the exporters have had these dollars with them for many months. They planned to use this money for other activities. To be told to withdraw all this money within 8 days is not fair. They should at least be given ample time. In any case, this is not the solution to sustain the value of the rupee. The RBI should have adopted some other measure.

What, in your opinion, should the RBI have done?

First of all, the RBI should not interfere with the exporters' activities. It should talk to the finance ministry and curb imports of certain consumables by imposing stiff tariffs or anti-dumping duties. In fact, exports should encouraged further.

Instead of imposing this new directive, the government should think of steps to improve the infrastructure so as to attract more foreign direct investment. Even the labour laws in India need to be relaxed further. The government must move wisely. Hasty decisions should be avoided.

What would have been the ideal deadline?

I think a three-month time limit would have been appropriate. I don't understand the Reserve Bank's problem. The money, in any case, is lying with the Indian banks.

Just five months ago, the exporters were allowed to keep this money and now, suddenly, the RBI has come up with this new rule. What kind of a policy is this? You cannot change policies like that all of a sudden. They should be kept stable for at least a year. All this is very abrupt and unexpected.

How long will this move be able to hold the rupee aloft? Will the currency be able to sustain itself in the long run, too?

No, no. This is definitely not a permanent solution. The effect may last for 20 days or a month maximum. And the rupee too will gain only by a margin of 20 paise (Rs 0.20) -- not more than that. The RBI directive is really of no use.

And how badly would you say are the exporters hit?

I have received several calls from exporters. This measure has had an adverse effect on their business. In the Union Budget, it was announced that Income Tax will be levied. Then it was said that the overdue bill would be charged. So it's been a rather tough time for exporters. And now this. There is just no stability whatsoever in RBI's policy. This will obviously discourage the exporters very much.

But some forex dealers believe that this will definitely ease the pressure on the rupee and reduce its volatility...

Yes. But as I said, that will only be a temporary effect. The forex dealers say this only to please the RBI. No one is benefiting from this exercise.

How much money will start coming in?

Around $1 billion. And all this money has to come in by August 23.

But wouldn't this measure help build RBI's forex reserves?

Yes, but it's still not worth the effort. Ultimately, it is our money. Our balance of payment account has an unfavourable balance. Only reduction in imports can change this. In this quarter, we have brought the exports to 23 per cent. We can even take it to 40 per cent. But for that, we need more encouragement from the government.

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