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Dollarising balance-sheets
December, 06th 2007

Indian exporters, reeling under the onslaught of a steadily rising rupee vis--vis the dollar, are being called upon by some economists to dollarise their balance-sheets that consists in matching their revenue stream in US dollars with an expenditure stream that would also be in the same currency.

Already diamond exporters are cutting diamond with diamond what with there being a substantial import content in their exports.

Thus their whittled-down realisations from exports are substantially compensated by the lower import bill for the stones imported. In a way this is a natural hedge available to importers-cum-exporters.

Salary in dollars?

What these economists want is that the software and IT-enabled industries should contrive to have the advantage of this natural hedge by dollarising their expenses by persuading their employees to agree to a salary that is linked to the dollar-rupee index.

The suggestion on the face of it appears sensible given the fact that salary is by far the largest item of expenditure for them. But there is a difference between diamond and software exporters. While the suppliers to the former take dollar payments willingly, the employees of the latter have to be persuaded.

The million dollar question is: Will they allow themselves to be persuaded. More pertinently, would it be fair to shift the exchange rate risk to the hapless employees? The answer to both the questions is a categorical NO. Employees cannot be made the fall guys for the misfortunes of their employers.

Employee-resistance is bound to be intense given the fact that there is no imminent prospect of savouring the upside risks, as it were, with the rupee set to rise steadily against the dollar. The suggestion, though out-of-the-box , seems to be utopian.

Hedging the exchange rate risks also would become increasingly and forbiddingly expensive. Therefore, for the time being, the exporters have to adopt the other time-tested measures.

Other hedging measures

First, they can try billing in euro and other hard currencies which, in fact, many have already started doing. This stratagem would pay off till such time the rupee outperforms these currencies as well.

Multi-currency billing is another technique that has all the virtues of a diversified portfolio. Its merit lies in the law of average that says not all currencies can move in the same direction.

Shifting the service or production centre closer to the foreign customer has also been found to be useful because it naturally brings about parity between the revenue and expenditure streams.

For example, an employee of an IT company posted in the US on an onsite job assignment cannot complain about his dollar salary. But not all exporters can afford the luxury of relocating their units. A textile company possibly cannot do so given its native cost advantages.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)
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