The new year began on a good note with newspapers reporting an 8.4 per cent GDP growth in the second quarter of 2003-04, and the first day of the year has some more cheer -- exports during November grew 13.74 per cent over those in the same period last year.

And since textile exports in this period have actually fared poorly, this means that the usual pre-Christmas surge in demand is not the main reason for the November growth, although we will have to wait for the detailed sectoral figures to come out in order to come to a firm conclusion.

The moral of the story then is that the impact of the appreciating rupee may not be as serious as originally envisaged.

Interestingly, Business Standard's analysis of the impact of the rising rupee suggests precisely this limited impact.

After talking to industry leaders in different segments, the analysis showed that the impact on the software sector would be negligible despite the fact that about 85 to 90 per cent of the sector's billings are in dollars.

The reason is simple -- the industry has begun hedging its currency earnings, and several top companies have contracts where the value of the dollar is pre-fixed.

In other commodity sectors, like steel for instance, the sharp upturn in global prices (around 20 per cent over the past six months) is more than sufficient to cushion the rupee appreciation impact.

For gems and jewellery, the impact is naturally negligible since imports have also become significantly cheaper in rupee terms.

The biggest impact was in the textiles sector and this is what the latest export numbers corroborate.

According to textile exporters, every one per cent appreciation in the value of the rupee leads to a 1.2 per cent decline in profitability.

So, over the year just gone by, profitability on textile exports has probably gone down by around 6 percentage points.

This is clearly a problem area, and the Ministry of Commerce is believed to be discussing possible solutions with the finance ministry.

Of course, with the government also in the midst of working out solutions that would encourage banks to lower interest rates on old loans to the textiles sector, and already running a scheme to offer low-interest loans for modernisation, the impact on the sector's bottomline may be contained to a great extent.

With commodity prices still on the upswing, and the demand for steel from China still growing, it's possible that the year's 12 per cent export growth target may still be met -- export growth between April and November was 8.8 per cent over the same period last year, but it must be recognised that April-November 2002 exports were themselves quite high and represented an 18 per cent growth over those in April-November 2001.

Even more interesting, the trade deficit for the April to November 2003 period is more than double that in the same period last year, and the reason for this is that imports, especially non-oil ones, continue to rise at a faster rate -- these rose by 26 per cent over last year's figures for the same period.