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2012-06-08

FISME: Strategic thrust needed to exploit rupee depreciation

While welcoming the measures announced in the annual supplement to India's foreign trade policy, the Federation of Indian Micro and Small and Medium Enterprises (FISME), India's leading MSME organisation, has, however, pointed out that these measures ar

While welcoming the measures announced in the annual supplement to India's foreign trade policy, the Federation of Indian Micro and Small and Medium Enterprises (FISME), India's leading MSME organisation, has, however, pointed out that these measures are at best tactical and they have to be supplemented with a strategic thrust for sectors especially MSME to take advantage of the rupee depreciation which is here to stay in the short and medium term.

The government on Tuesday had announced extension of interest subsidy scheme by one year till March 31, 2013. The scheme was launched last year for labour intensive sectors such as SMEs, handlooms, handicrafts and carpets, providing two per cent interest subvention.

According to FISME, the depreciation of the rupee - over 27% fall during the last 13 months, is an opportunity that should not be allowed to go waste. It does not often happen that fall in the Indian currency is the highest among our competitors. The Vietnam Dong has depreciated only by 0.4%, Malaysian Ringgit by 4%, Thai Baht by 4% and the Indonesian Ruppiah by 8% during the same time period.

FISME feels that Indian manufacturers must exploit this currency-generated price advantage to penetrate new geographies such as the ASEAN group of countries, Africa or Latin America. FISME has called upon the government to liberally support various market penetration initiatives.

According to FISME's analysis, the currency markets have already factored in the burden of large fiscal deficits (of both Central and State governments), high current account deficit and persistent high inflation. As a result, the current level of the Indian Rupee is likely to be the "new normal" which will persist in the near to mid-term.

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