Declining Rupee: How Risky Situation is this for MSMEs

By Faiz Askari, Founder Editor, SMEStreet

While the Global markets are continuously on a roller coaster ride. The valuation of Indian Rupee as compared to US Dollar is constantly going down in the global landscape. This has become a serious issue with respect to the country’s manufacturing output. However, exporters are also not very happy with this development as their clients have understood the situation and now they are negotiating with them accordingly.

Most of these exporters are MSMEs. The concerns of MSME entrepreneurs are obvious with this development. The currency has now given back almost all the gains it made in 2017. Steep rise in the crude prices, trade war between the two largest economies in the world, hawkish policy of the US Fed and FPI outflows from India, US pressure on countries including India to stop oil imports from Iran, Iran’s naturally negative reaction on India’s so-called support on Chabahar Port Project and so on. So India’s foreign policy seems to have shaken from almost all corners. And all these factors are significantly contributing to the downfall of Rupee.

One good element in the declining rupee game could have come from the increasing FDI. But that also not having any impressive figure. Our banking system is struggling majorly with NPAs like never before. So, where are we heading towards? Can we really look for some solution to this problem of we just have to move with the flow?

But if we look at the figures of FDI inflow in last few years, we have something to share. According to Department of Industrial Policy and Promotion (DIPP), the total FDI investments in India during 2017-18 stood at US$ 44.86 billion, indicating that government's effort to improve ease of doing business and relaxation in FDI norms is yielding results.

Data for 2017-18 indicates that the services sector attracted the highest FDI equity inflow of US$ 6.71 billion, followed by telecommunication – US$ 6.21 billion and computer software and hardware – US$ 6.15 billion. Most recently, the total FDI equity inflows for the month of March 2018 touched US$ 3.31 billion.

During 2017-18, India received the maximum FDI equity inflows from Mauritius (US$ 15.94 billion), followed by Singapore (US$ 12.18 billion), Netherlands (US$ 2.80 billion), USA (US$ 2.10 billion), and Japan (US$ 1.61 billion).

But, can this FDI itself is sufficient for India’s economic growth story?  Coming back to the subject of rupee valuation, a Union Minister recently argued that there was no need for a knee-jerk reaction on the issue of fluctuating rupee valuation. In contrast, some experts feel that the Rupee, if left unattended, may slide further to 70 soon.

Come what may, even if the FDI inflow increases it is difficult to accept the argument that a 'wait and watch' policy can bring good results.