Mandatory conversion needs to be removed

Apparel exporters want a reversal of the mandatory conversion of the dollars to rupees asserting that this is contributing to the strengthening of the rupee.

This conversion of the export proceeds from dollars to rupees is contributing to the appreciation of the rupee that has been evident lately, Joint Apparel Association Forum (JAAF) spokesman Yohan Lawrence told the Business Times.

He noted that the industry has been making a series of representations to the Central Bank to lift the mandatory conversion requirement on exporters as they are forced to convert their dollars to rupees and this is adding undue pressure on the rupee.

The impact of this will be evident in about 8-9 months when there could be a drop in exports due to the fact that exports will become increasingly uncompetitive. The last meeting with the Central Bank was held about five weeks back, he said.

Advocata CEO and economist Dananath Fernando speaking with the Business Times noted that while he is against the idea of a mandatory conversion and needs to be removed, it could be one of the contributory factors to the appreciation of the rupee. Other reasons for the appreciation of the rupee are the increased remittances flow and the tourism earnings, he said.

Commenting on the rupee strengthening, he pointed out that under the circumstances due to increased taxes the spending pattern of consumers has dropped even on essentials as a result of which the demand for dollars has dropped but the supply continues to rise.

He noted that however, this strengthening of the rupee is not attributed to a well performing economy.

On the contrary this is a market function and it’s a cycle that continues to take place but that does not mean there should be a depreciation of the currency just to satisfy exports.

Mr. Fernando however, noted that the mandatory conversion is unfair and needs to be removed because people should have the freedom to retain the currencies in which they make their earnings.