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Currency crash: Weakening rupee may not help India's export by much

With India being a net importing nation, with a trade deficit of $156.8 billion last year, a weaker rupee has significant repercussion

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The sector has continued raising the issue of the refund mechanism for taxes paid under GST being difficult
Subhayan Chakraborty New Delhi
Last Updated : Jun 29 2018 | 12:52 AM IST
The weakening rupee might not help our export by much, as currencies of competing nations are depreciating at the same or faster pace. A weaker currency makes export cheaper. Starting the year at 63.8 to the dollar, the rupee has slid over the past six months to the near-69 to the dollar on Thursday. However, it is the same trend with Bangladesh, Indonesia, Vietnam and, most important, China.

“All major currencies of emerging economies are depreciating, with some down at a faster rate. Had it been an exclusively Indian phenomenon, it could have helped our export much more than people expect now,” said Ajay Sahai, director-general of the Federation of Indian Export Organisations. 

India's export rise in May was a six-month high of 20.2 per cent, up from 5.7 per cent in April. Total export in 2017-18 was $302.8 billion, marginally above the government’s target of $300 billion. In 2016-17, these were $275.8 billion.


On the other hand, import was a record high of $459 billion and the current trend is expected to bloat that bill further. A weaker rupee has historically made import, foreign travel and education more expensive. With India being a net importing nation, with a trade deficit of $156.8 billion last year, a weaker rupee has significant repercussion. Based on the data for April-May, first two months of this financial year, the current account deficit could widen to $15-16 billion in the ongoing quarter, from $14 billion in the same period a year before, thinks ratings agency ICRA.

“With industry continuing to face a currency crunch as a result of the goods and services tax, higher import costs will deal a blow to Indian manufacturers and exporters which rely on import,” Sahai added. Sectors more sensitive to price changes such as engineering products, readymade goods and automobiles will also find it hard to deal with the sudden volatility.


An analysis by Bloomberg Economics earlier this year had shown that the historical link between export and exchange rates was the highest in India in the decade through 2017, followed by China, Malaysia and Japan.

However in services trade, a sector where India enjoys significant trade competitiveness, there are set to be gains. "The surge in services export in absolute terms during April, partly benefiting from a weaker rupee, supported the healthy year-on-year rise in the services surplus,\" said Aditi Nayar, principal economist at ICRA. 
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