Representatives of the two industries estimate their loss due to rupee appreciation over the last three months at Rs 150 cr
Appreciation of the Indian rupee against the US dollar and the euro has dealt a big blow to Tamil Nadu’s garment and leather exporters. Representatives of the two industries, which are dominated by small and medium enterprises (SMEs), estimate their loss over the last three months alone at Rs 150 crore.
“Rupee volatility has started eroding our margins and putting pressure on our growth,” said A Sakthivel, president, Tirupur Exporters Association (TEA). Exports from Tirupur — a textile town with over 6,000 units engaged in knitting, dyeing, garment manufacturing, printing, embroidery and calendering (a shrinkage-reducing process) — were estimated at Rs 10,500 crore last year. In the last three months (January-March) this knitwear town secured orders worth around Rs 3,000 crore.
Sakthivel estimated that in the last three months, for every $2 sale, industry lost Rs 8 on account of rupee volatility. “Exporters must have lost Rs 90-100 crore in the last three months,” said Sakthivel.
V Sivakumar, a garment exporter from Tirupur, added that exporters had booked orders when the dollar was worth Rs 48-49, and it has dropped to Rs 44 since.
“Rupee appreciation will easily take away four per cent of our margin. We cannot pass this on to our customers. If we do, they will go to Bangladesh or China,” he said.
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The other major industry suffering the same problem is leather. M Rafeeque Ahmed, chairman and managing director of the Farida Group and president of the All India Skin and Hide Tanners and Merchants Association, said the industry’s major exposure is to the European market, where transactions are denominated in the euro, which had also fallen due to the Greek financial crisis.
“Three to four months back when we signed a contract, the euro was worth Rs 67-68, and it has now come down to Rs 59. We have lost 10 per cent in margins due to this.” Exporters were already operating on low margins (around eight per cent), hoping to make up through high volumes, Ahmed added.
The fact that the leather industry in the state is currently operating at 100 per cent capacity utilisation, compared to 60 per cent a year ago, is no cause for satisfaction for manufacturers in Ambur, one of the largest footwear export hubs in the country.
The state’s leather industry has lost an estimated Rs 50-60 crore due to rupee appreciation in the last three months alone.
Tamil Nadu accounts for 45 per cent of the country’s leather industry, which is estimated at Rs 10,000 crore. The industry is already facing problems due to a 10-15 per cent increase in raw material (leather) prices.
The only immediate solution is “a temporary stimulus package from the government”, exporters said.
Sakthivel, who is the also the president of the Federation of Indian Export Organisations (FIEO), suggested a fixed value of dollar for export purposes. A FIEO team has met Reserve Bank of India (RBI) Governor D Subbarao and stressed that immediate measures are required to protect the export sector from the effects of currency fluctuation.
Sakthivel has suggested an exchange rate of Rs 47.50 to the dollar while booking export orders. “After the fiscal crisis, we are now entering into the currency crisis and RBI should safeguard against it,” he said, noting that every 10 paisa appreciation in the rupee negates a $1 upward movement in international prices of Indian exports.
“India should keep a balanced foreign exchange management policy, which will help exporters in the long term,” industry sources added.
Small and medium industries’ big problem is that they lack treasury expertise, making it difficult for them to put in place systems of currency risk management. An analyst said that they have the option of outsourcing the currency risk management process to professional agencies.