Source: Handbook of Statistics on Indian Economy, RBI

The average exchange rate is the mean value of a currency’s exchange rate over the year. It reflects the general trend of currency performance over time.

The year-end exchange rate is the official exchange rate on the last working day of the calendar or financial year, typically December 31 (calendar year) or March 31 (fiscal year in India). It is often used for closing balance sheets, tax calculations, and government reporting.

IS EXCHANGE RATE FLUCTUATIONS TRULY A CAUSE OF CONCERN?

When a currency gains or loses its value against the current it is being traded it is known as appreciation (depreciation). Our currency has depreciated against $ from a long time back. Depreciation makes our products reasonable in the global market,  but since the foreign exchange market is a perfectly competitive market, it is market driven hence the Exchange Rate fluctuates daily. Even small fluctuations can significantly impact costs and revenues in international trade. It impacts exporters significantly. While large scale exporters have ample support, knowledge, and resources they hedge the price fluctuations easily. It’s the small exporters who face losses from these fluctuations. 

Small Exporters, Big Risks: How AUD Fluctuations Impact Indian MSMEs

Small Indian exporters (MSME) are vital for India’s economic growth. They form a large part of the manufacturing sector and contribute significantly to the GDP and job creation in the country. MSMEs are a significant source of employment, generating over 120 million jobs across various sectors in India, particularly in rural and semi-Urban areas. Through resilience, innovation, and adaptability, MSMEs have consistently driven the nation’s growth. 

When currency swings and export pressure arise, these MSMEs felt to be on the edge. Exporters price their commodity in $. When the rupee appreciates (gains value), exporters receive fewer rupees per dollar, reducing their revenue and profit. This directly cut their earnings turning them on the loss side. Similarly, when currency depreciates the import becomes expensive. The exporters who depend on the imported raw material or capital goods for the production of goods and services make losses. Also Large exporters often use financial instruments (like forward contracts or options) to hedge currency risk which is not available to all the small exporters. They lack awareness about these hedging financial instruments. 

PATHWAY TO RESOLUTION

The ECGC Ltd. (Export Credit Guarantee Corporation of India Ltd.) wholly owned by the Government of India, was set up in 1957 with the objective of promoting exports from the country by providing credit risk insurance and related services for exports. Over the years it has designed different export credit risk insurance products to suit the requirements of Indian exporters. ECGC is essentially an export promotion organisation, seeking to improve the competitiveness of the Indian exports by providing them with credit insurance covers.  It provides a range of insurance covers to Indian exporters against the risk of non-realization of export proceeds due to commercial or political risks, different types of credit insurance covers to banks and other financial institutions to enable them to extend credit facilities to exporters and Export Factoring facility for MSME sector which is a package of financial products consisting of working capital financing, credit risk protection, maintenance of sales ledger and collection of export receivables from the buyer located in overseas country. For small businesses this reduces financial stress. 

RBI also backs exporters FOREX RISK MITIGATION SCHEMES. Foreign exchange interventions, both spot and forward, effectively counter capital flows volatility, with symmetric effects of purchases and sales. A spot rate is the current market price at which a stock, bond, commodity, or currency can be purchased or sold. A forward rate or forward price is a price set in advance between a buyer and a seller for execution on a future date. Banks and various trade bodies also provides training in hedging tools to mitigate loses.