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Indian Exporters Hit by Surging Rupee

Indian exports, particularly those by small and medium companies, have been hit by the recent surge in the rupee against the dollar. Anjana Pasricha has a report from New Delhi.

The Farida Group, based in the southern city of Chennai, is one of India's biggest footwear exporters. A large part of its production goes to the United States.

But Farida Group's business has taken a beating due to an 11 percent appreciation in the value of the rupee against the dollar this year.

Companies like Farida are paid in dollars by their foreign customers, and those dollars now buy fewer rupees, reducing profit margins that are already quite small.

The group's chairman, Rafeeque Ahmed, says he will not even be able to recover the cost of production from his American customers. As a result, his plans to expand capacity have been put on the back burner.

"Now we are committed to American dollar market, and we can't go back, and we are going to lose, we have to take the loss for the season," said Ahmed. "There is no question of profit, all our expansion plans, we have put it on hold now."

Ahmed's shoe business is not the only one reeling from an Indian currency that is continuing to strengthen. Small and medium exporters of textiles, gems and jewelry, sporting goods and brass also say their profits are being squeezed by the rising rupee. Many of these companies employ fewer than 50 workers and work on very small margins.

The rupee now stands at a near-decade long high against the dollar, something the small exporters had not anticipated when they signed export contracts earlier in the year.

The president of the Federation of Indian Export Organizations, G.P. Gupta, says uncertainty about the currency has made Indian exporters wary of booking new orders.

He says exporters are also worried that they may lose out to competitors in other countries.

"Exporters are not in a position to book further order, because they do not know what will be the future position of the rupee against the dollar," said Gupta. "The situation is worse because the neighboring country currency is not appreciating that much, and whatever India is manufacturing, it is manufactured by neighboring countries like Pakistan, Bangladesh and Sri Lanka. Their prices are more competitive, so that foreign buyers are shifting to other countries."

However, industry analysts say exports in larger sectors, such as software and services, are expected to continue growing, but profit margins there will also be smaller.