Exporters of commodities from India are facing a strange situation now. A strong rupee, which has gained more than 8 per cent this year against the US dollar, has squeezed the margins of exporters to such a level that they have called for immediate intervention of the government in this regard.
The rupee's gain is powered by strong capital inflows into the fast-growing economy. But it has also risen as investors sold dollars for the local unit to tide over a squeeze in the money market intended to trim price pressures in the economy.
Anticipating major losses, exporters have urged the Central government to intervene and find a solution to their problems. Officials said the commerce ministry has also written to Prime Minister Manmohan Singh in this regard.
For Indian exporters, margins will be affected, said a market analyst. Faced with rising inflation, the government banned the export of wheat, pulses and sugar. It later allowed sugar sales.
India's overall exports grew a slower-than-expected 8.8 per cent to $12.58 billion in March from the same month a year ago as a stronger rupee weighed.
The rise in the rupee not only takes the wind out of exports, but also raises fears of cheap imports, trade experts say.
There will be a jump in imports of palm and soy oils due to the gain in the rupee, said a market analyst.
Several sugar firms, selling at below cost at home, could sink deeper into losses due to the hardening rupee, just as leading producer Brazil enters global markets with huge stocks.
Sugar output in India is likely to touch a record 26 million tonnes in the year to September, while consumption stands at 18 million tonnes.
That leaves a huge surplus that has pushed domestic prices down by Rs 400 per 100 kg to Rs 1,315 since September.
A government decision to offer export subsidies to sugar mills had failed to lift overseas sales as the rising rupee had nullified any benefit.
The stronger rupee has also dashed India's hopes of overtaking the US as the largest cotton exporter to China. India's exports to China in the seven months from October 2006 stood at 2.5 million bales (170 kg a bale) against 2.6 million bales sold by the United States.