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Be ready for rising rupee, says CII

BS Bureau in Mumbai

Even as industry was just beginning to master survival lessons in a competitive market, Omkar Goswami, chief economist of the Confederation of Indian Industry, has asked businessmen to prepare for worse.

In particular, he asked them to abandon their belief in the last line of import protection, rupee depreciation.

Listing some of the things companies would have to do to remain successful, Goswami said they should no longer assume an annual currency depreciation of 6-7 per cent.

"On the contrary, you should assume a 3-4 per cent appreciation because the supply of dollar exceeds demand," he told the CII's 10th Quality Summit in Bangalore.

The rupee was still stable or depreciating because of the Reserve Bank of India's decision to buy dollars, Goswami said.

However, in the absence of market demand, the RBI would not be able to continue purchasing dollars by selling government bonds, he said. The demand for the dollar would not rise fast enough to absorb available supplies unless the country achieved a growth rate of 7-7.5 per cent, which appeared unlikely in the short term, he added.

Goswami, who studied the performance of 627 Indian manufacturing companies over a five-year period (1997-2002), said those firms had posted a compound annual growth rate of 14.3 per cent in net sales during the period, but their operating costs were growing equally fast at 15 per cent.

Margins were declining across most sectors, he said.

Goswami says, "We have reached crunch time." Just in case there are still some managers around who believe their positions are relatively insulated, he adds: "Every area is contestable, whether it is textiles, refrigerators or air-conditioners."

Goswami pointed out that China was planning to compensate for its post-World Trade Organisation losses in agriculture and other sectors by targeting apparel, garments and other textiles.

From 23-24 per cent of the world trade, it was targeting a share of 45-46 per cent by 2008, he said, adding that Indian companies would face extraordinary pressure from Chinese exports everywhere.

Goswami also warned industry against putting any faith in the government. While it was the job of industry associations like the CII to keep shouting about power sector reforms and weak infrastructure, businessmen should proceed on the assumption that nothing would be done, he said.

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