Govt to shield exporters from euro shock.

New Delhi , May 16: India is preparing a contingency plan to tackle the effects of the financial crisis in the euro zone. The plan may contain reliefs for exporters as well as measures to protect them from the appreciating rupee.

The government has been putting up a brave front, stating that the current financial crisis in Europe will have no impact on India. However, in internal meetings, officials have expressed concern over the stronger economies in the euro zone being weakened because of their underwriting of the fiscal bankruptcy spreading through southern and eastern Europe.

Strong European nations have recently announced a trillion-dollar rescue package to bail out countries such as Greece which are on the verge of bankruptcy. Spain, Portugal, Ireland and Poland have also run up huge unsustainable debts that may need to be underwritten.

The bailout will ensure that banks and companies in the UK, Germany and France that had lent money or advanced goods against future payment to entities in the debt stricken countries do not face defaults and subsequent bankruptcies. UK banks alone have around £200 billions tied up in loans to Greek entities.

The rescue package would involve cutbacks in public spending in even stronger economies such as the UK, Germany and France. This is expected to impact their economic recovery.

The Indian government is keeping a close watch on GDP and job growth figures in the euro zone. Any sign of weakening will be met with the renewal of stimulus measures for exporters, which could include tax breaks and cheaper credit.

The government will try to institutionalise the hedging of currency risk by exporter organisations, besides encouraging the RBI to intervene in the money market to halt any quick appreciation of the rupee.

The rupee has risen 18 per cent in March 2010 against the year-ago month, as measured by the RBI’s six-currency, trade-weighted, real effective exchange rate index. The country’s foreign exchange reserves fell by $3.39 billion to $276.24 billion in the week up to May 7 because of the weakening of the euro.

Source : telegraphindia.com