As the rupee reaches new highs, there is a growing debate over whether RBI should interfere.The rupee registered sharp appreciation against the dollar in the last year touching its highest level in four years which has put the Indian planners in a dilemma. The rupee was at an all time low of 49.05 to the dollar in June 2002; since then there has been a steady rise and the rupee reached the level of 44.50 per dollar in April 2004. RBI's interference in curbing the rupee rally is the issue of debate. Till now RBI had not actively participated in curbing the rupee rally. The appreciating rupee seems likely to hit the earnings of the IT industry. A strong rupee directly affects the revenues and earnings of the leading as well as medium-sized software companies. Every 1% appreciation in the rupee reduces profit before tax for Indian software companies by 2 to 4%. The sustained appreciation of the rupee against the dollar is emerging as a challenge to Indian software earnings. This is because the leading listed software companies have high dollar earnings, in percentage terms, to their total revenue. There is a feeling that year 2004 could be a zero growth year for a number of second-rung software companies. It is hard to make out at this point of time whether the RBI's tolerance of a strong rupee is a short-term move or a long-term strategic shift.

As corporate India is globalizing, a steady and strong rupee indicates that the financial health of the country is good and stable. According to R Thakkar, Vice-President _ Research, Parag Parikh Financial Advisory Services Ltd., "Globalizing companies will have to follow a two-way exchange rate movement. They have to be on their toes with regard to hedging of exchange rates in the short-term and building natural hedges in their business in the long-term." A strong currency gives respect to that country in the international arena. The capability of the Indian corporates to borrow in the global arena will be enhanced.

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