Exchange rate helps Scots trade mission amid domestic calls for devaluation
By Christine Jardine and Raymond Thibodeaux

SCOTTISH exports to India could be boosted by the fast-rising rupee, with whisky producers and educational institutions among the biggest winners.

India's currency has leapt by 12% over the past year, with £1 sterling now buying just 77.47 rupees, almost 10 fewer than in January 2007.

This is seen as perfect timing for Scottish exporters, whose public sector agency the Scottish Council for Development and Industry (SCDI) is due to visit Mumbai on a trade mission next month. Whisky, education, finance and IT are seen as the priorities as Scotland seeks to build on the £90 million in goods that were bought by the India in 2006.

The SCDI's Niall Stuart said: "With India's annual economic growth running at almost double figures, there are huge opportunities to grow this market.

"In the short term, a stronger rupee can only help, as it makes Scottish goods and services more affordable for Indian businesses and consumers.

"The cost of doing a college or university course at a Scottish institution is effectively 10% cheaper than just over a year ago. The other positive factor is the gradual removal of trade tariffs."

That change has provided a double boost for whisky exporters, who saw an "additional duty" on imported spirits removed in July 2007 following a campaign by the UK government, the EU and World Trade Organisation.

In 2006, whisky exports to India were worth £24m, but analysts expect that figure to have risen when distillers release their figures for 2007.

"A growing economy and fairer access means that the Indian market is one of significant potential for Scotch whisky distillers," explained David Williamson of the Scotch Whisky Association.

"Indian consumers increasingly can afford and want to try Scotch whisky and other premium imported products."

What is good news for Scottish exporters is bad news for many Indian entrepreneurs, however. The strong rupee has led to job cuts across India's $125-billion-a-year export industry, which comprises a fifth of the economy, as more and more Indian exports become too expensive for Western buyers, forcing them look elsewhere for better deals, especially in China, India's biggest competitor and a country often criticised for artificially devaluing its own currency to remain competitive in global markets.

Also affected is India's outsourcing industry, one of the country's fastest-growing sectors. A steady increase in wages - as much as 25% in sectors desperate for skilled professionals - and the rising rupee are starting to limit the influx of Western firms seeking cheap labour for its call centre services and back-office support.

Some industry experts say that as many as four million jobs were lost last year due to the skyrocketing rupee, and that another four million are expected to lose their jobs in the coming months if the government continues to allow the rupee to rise.

"The rupee has to be stopped," said Ganesh Gupta, president of the Federation of Indian Export Organisations, which represents about 14,000 export companies in India.

"I take 50 phone calls a day from exporters complaining that the rupee started appreciating during my tenure as president, as if I had something to do with it," he said.

"I'm an exporter myself and I understand their fear. Once a customer stops buying from India, it's hard to get them to come back."

NIALL Stuart of the SCDI confirmed that British companies were withdrawing call centres from India, but said this was because of problems with things like regional accents rather than the rupee. On the other hand, back-office work remains heavily outsourced to the subcontinent, and he said that there would have to be a sea change in the value of the rupee before the economic benefits would dry up.

Nevertheless, the overheated rupee threatens to slow down one of the world's fastest-growing economies, testing the theory that in a globalised market a strong currency is proof of a country's economic health.

So far, India's Reserve Bank has been watching the rupee from the sidelines. It has been reluctant to step in to devalue the rupee because, analysts say, it could worsen domestic inflation, making it even harder for the majority of India's 1.1 billion people, among the world's poorest, to buy basic necessities such as food and fuel.