The falling rupee is unlikely to lift the spirit of exporters facing problems due to drying of demand in the international markets.
According to experts, in today’s globalised world, exporters can hardly enjoy a depreciating exchange rate due to a rise in the import content of exports. The rupee had been plummeting against some of the key currencies in the last three months. It has fallen from Rs 43-44 a dollar to Rs 53.64-65 a dollar, making imports costlier. Also, as Indian imports are done through dollar transactions, raw materials for a majority of industries became costlier, especially for automobiles, capital goods and information technology hardware.
According to the Federation of Indian Chambers of Commerce and Industry, instead of rejoicing due to a depreciating rupee, exporter are apprehensive of declining exports prices, volumes and a dip in order books. Experts believe while, on the one hand, a falling rupee will arrest the rise in imports, on the other, demand slump in overseas markets would slow down the growth of exports significantly.
“Depreciation might have helped a few segments of exporters to fetch better margin, but it has not helped lift export volumes. The weak rupee on the other hand is hurting manufacturing with increase in prices of inputs and rise in freight cost. This is also blunting the Reserve Bank of India (RBI) strategy to contain inflation. Competitive manufacturing is the key to export growth and thus, RBI should intervene to arrest the high volatility,” said Ramu Deora, president, Federation of Indian Export Organisations.
This can be seen in the steady fall of exports since September. The figure was $23.6 billion, $22.4 billion and $22.3 billion in September, October and November, respectively. Exporters have demanded financing at a concessional rate of not more than seven per cent for small and medium sectors and nine per cent for large trading houses.
Continued weakness in the currency is going to push up the cost of imports of edible oil, fuels and metals, said a study by Crisil.
“The situation is interesting. While imports would see a decline due to depreciation in rupee, exporters are also set to moderate on faltering global demand. So, there won't be much impact on the widening trade deficit,” said Deepali Bhargava, chief India economist, Espirito Santo Securities.
“Indian manufacturers must take advantage of the weakening rupee and downward movement of global economies like China and exploit this opportunity to boost exports and make Indian goods globally more competitive as manufactured goods accounts for over half of India’s total exports,” said D S Rawat, secretary general, Assocham.
| ON COMPOSITION OF IMPORTS Percentage to total imports | ||||
| Commodities | 2007-08 | 2008-09 | 2009-10 | 2010-11 |
| Petroleum crude and other oil products | 31.9 | 30.6 | 30.2 | 30.1 |
| Capital Goods | 20 | 16.2 | 15.5 | 14.2 |
| Gold & Silver | 7.1 | 7.6 | 10.3 | 10.1 |
| Pearls and precious stones | 2.9 | 5.5 | 5.6 | 8.9 |
| Chemical products | 7.5 | 9.8 | 8.2 | 7.8 |
| Electronic Goods | 8.1 | 7.8 | 7.3 | 6.1 |
| Food and related Items | 2.1 | 1.9 | 3.5 | 2.8 |
| Other non-oil items | 17.1 | 17.4 | 16.3 | 15.9 |
| Other Commodities | 3.3 | 3.1 | 3.2 | 4.1 |
| Source: Reserve Bank of India/ CITIBANK | ||||
The fall in rupee is unlikely to give any boost to domestic manufacturing as demand for exports is slowing down with the euro zone crisis as a bulk of India’s exports is to Europe.
“Costly import would affect our export competitiveness because of the high import content in our exports. In addition, demand for India’s exports has also taken a hit. So, this would not boost domestic manufacturing,” said N R Bhanumurthy, professor, National Institute of Public Finance and Policy.
The situation in the exchange rate has also attracted considerable attention of the government, which is already seeing red in several other macroeconomic indicators.
Minister of commerce and industry and textiles, Anand Sharma, recently said the government is watching the currency volatility situation closely and would offer assistance to manufacturers and exporters if need be.
Last week, while releasing the initial export and import growth rates for November, commerce secretary Rahul Khullar said, “There will be decline in imports with the rupee depreciation. It is difficult to be a soothsayer, but yes, the problems need to be looked at. We are going to see some deceleration in imports. From the January onwards the imports would come down, due to exchange rate shifts,” he said.
