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India Copes With Surging Rupee Versus Dollar


The rise of the Indian currency's value against the dollar in the past year is affecting many businesses in India. From New Delhi, Anjana Pasricha reports on how some industries are coping.

For years, the U.S. dollar was seen as a mighty currency that any Indian would happily accept and store away, confident that it would gain steadily against the local rupee. The dollar was the benchmark used to draw up business contracts or negotiate salaries with foreign firms.

But a whopping 13 percent surge of the Indian currency versus the dollar in the past year has changed that. From tourism to information technology, industries are coping with the plunging dollar in different ways.

For example, the country's heritage tourist sites have decided to say "no" to dollar payments, and accept only rupees for admission.

India's tourism minister says this is being done partly because it is more practical, but says it also saves money because the dollar is weak.

This means that tourists visiting the famed Taj Mahal monument now fork out the rupee equivalent of nearly $20, rather than the $15 they paid previously.

The information technology sector depends heavily on U.S. customers for its $30 billion software exports. IT companies are also devising ways to deal with the dollar's decline.

Economist P.K. Chaudhuri from credit rating agency ICRA explains how.

"They are trying to renegotiate the rate at which they contracted earlier, so when the new contracts are being entered into they are trying to assume [a] certain rate of appreciation of rupee," Chaudhuri said. "They are trying to negotiate in Euro or other European currency, like pound sterling, so that at least risk is diversified."

Contracts are mostly drawn up in dollar terms, which means local industry gets fewer rupees for the products or services they sell to American customers if the dollar declines.

The IT industry is also trying to reduce its dependence on the U.S. market by trying to attract clients from elsewhere, such as Europe.

Leather and apparel exporters also complain they are steadily losing business to neighboring countries, where the local currency is not gaining as quickly versus the dollar.

The rupee's strong appreciation follows a flood of overseas funds into an economy that is growing at more than eight percent a year.

Currency traders say they expect the rupee will continue to gain versus the dollar, though not as dramatically as in the past year.