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Asia: India Advised To Use Euro To Compete With East Europe

By Susan Tapply

Madras, India; 21 January 1999 (RFE/RL) -- Indian businessmen are being urged to develop practical links with the new euro currency, which has just been introduced in most of the European Union countries, to help India compete successfully against East European manufacturers.

This recommendation comes from India's Associated Chambers of Commerce and Industry, Assocham. In a report, Assocham says Indian manufacturing and exporting enterprises can expect to feel increased competition from East European countries as firms there are gradually drawn into the economic and financial orbit of the EU.

The chamber says Indian companies should themselves also take up the practice of invoicing in euros, saying that those companies continuing to use the U.S. dollar as a method of payment may find that a type of "trade diversion" is taking place. The danger is that EU importers will abandon Indian suppliers in favor of more convenient East European suppliers.

The chamber expresses the view that euro-invoicing does have advantages for both sides. Dietrich Kebschull, director of the Indo-German Export Promotion Project, shares that view. Speaking in Delhi recently he noted that the EU is India's major trading partner, and he said that using the euro will reduce the country's reliance on dollars for external trade purposes. And this, he maintains, will lower transaction costs for Indian companies doing business with the EU.

The more obvious differences will be in pricing and invoicing methods. The euro, for example, will make price comparisons easier. But it also means that India, and indeed all countries trading with the euro countries, will now have to quote uniform prices in all eleven participating euro countries.

Kebschull advised Indian companies to work out their respective market strategies as quickly as possible.

Rafeeque Ahmed, chairman of the Indian Council for Leather Exports, says that some European importers are already asking for quotes in euros. He said that leather exporters would probably start trading in the euro this month. He said that leather exports would be one of the sectors which would benefit from the uniform trading conditions created by the euro.

Reports in the Indian press say that the Indian foreign exchange market witnessed brisk trading of dollars for euros in the first week of the introduction of the new currency. The State Bank of India struck euro/dollar deals worth around $80 to $90 million. Other banks did similar, though smaller, deals. One banker is quoted as saying the basic idea was to convert part of the banks' resources into euros alongside dollars, to meet the demand in euro/dollar trading.

Dealers were quoting on the first day of trading (Jan. 4) about 50.40 Indian rupees for one euro. The dollar was about 42.50 rupees.

The Indian national daily Business Line has carried an article on its editorial page raising the question of Asia possibly establishing its own joint currency, like the euro. It reported that Joseph Yam, Monetary Authority Chief in Hong Kong, has put forward a case in favor of a single Asian currency. The article points out that while there are still major obstacles to an Asian currency unit, there is nothing to be lost in discussing it. It might, says the article, contribute toward giving the region a solid foundation for the new millennium.

(Susan Tapply is a contributor to RFE/RL based in India.)