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A cross section of exporters from the textile, leather and automobile components sector across Tamil Nadu have started breathing easy as the Indian currency hit a life-low of Rs 58.98 (before closing at Rs. 58.38) against dollar on Tuesday as against level of Rs 53.31 in January 2012.
Meanwhile, buyers have also started asking for a share in benefit, said the industry representatives.
Exporters from the textile hub of Tirupur, who do business based on spot rates, said that their margins are likely to improve by about 5-7% due to the rupee depreciation, though it will only be for short term. They also said that customers (buyers) have already started asking to share the benefit.
A Sakthivel, president, Tirupur Exporters Association said that the recent development will certainly help the industry here, to some extent, since almost 30% of the business is done through spot market. It may be noted, total exports from Tirupur were around Rs 12,500 crore last year. He also said that now customers are asking for price reduction or for a 50% share of the advantage. Buyers are now asking for reduction in prices or discounts.
M Rafeeque Ahmed, Chairman of Council for Leather Exports and President, Federation of Indian Export Organisations (FIEO) also agrees. He represents the industry which exports leather products worth around $5 billion from India.
He said, 30-40% of the exports is done through spot contracts. “This will be short-term benefit, but not long term for which we need a stable currency”.
Ahmed also said the rupee depreciation will also help to improve competitiveness of Made-In-India products and will control import of “unnecessary” imports since they will become costlier and in turn will improve trade deficit.
While there would be an immediate improvement in the viability and realisation of exports in the auto component industry, for which Tamil Nadu is one of the largest base in the country, one has to look at whether this is going to be a sustained depreciation or volatility, said a managing director of a company, which supplies to global and domestic OEMs both in India and abroad.
The strengthening of US dollars has resulted in currency devaluation in various other countries like Brazil, Turkey and Japan, and it is this competitive positions the country has to look at to determine whether the currency devaluation has benefited the industry of not. One also has to look at where Rupee is going to be as against US dollar over a longer period of time.
Besides, a lot of auto component industry is based on commodities and commodity prices are based on international market conditions. This would tend to show in the net impact of the currency depreciation and has to be taken into consideration to get a net picture of the impact, he added.
