14% depreciation of the rupee against the US dollar will lead to an increase in rupee realisation of export earnings.
The ongoing global financial crisis is likely to have only a moderate impact on India’s export growth rate in 2008-09, according to industry and experts.
This is because lower exports of traditional products like handicrafts, textiles and leather will be compensated by higher overseas sales of engineering goods and resource intensive items like metals and petroleum products in 2008-09 to China, countries in West Asia as well as economic blocs like the South East Asian nations. Moreover, the 14 per cent depreciation of the rupee against the US dollar will also lead to an increase in rupee realisation of export earnings.
The current credit crisis in the United States and the European Union has led to a liquidity crunch, as a result of which industries will not be able to expand as planned. This is likely to lead to lesser employment generation, job cuts as well as stagnation in salaries. This would result in low demand for handicrafts, some segments of textiles, leather products and footwear. In addition, exporters from competing countries like China are able to provide goods at a much cheaper rate to the foreign clients based in these countries.
Consequently, India may find it difficult to achieve the $200-billion export target set for 2008-09, for which exports from the country will need to grow by at least 25 per cent over $160 billion recorded in 2007-08.
However, in spite of the financial turmoil in the US and the EU, international orders for engineering goods produced by India have not gone down. But Indian engineering exporters are asking for more secure modes of payment for their clients abroad. “Earlier, we used to provide a credit of 90 to 120 days for our clients. But now we have asked them to transact with us through secure modes like line of credit,” said Rakesh Shah, chairman, Engineering Export Promotion Council.
Engineering goods account for one-fifth of India’s export basket. “In the short term, we do not expect any slowdown in orders, but in the mid-term, that can’t be said,” added Shah. The US and the EU together account for 40 per cent of the exports for this sector. Engineering exports are expected to grow in the range of 20 to 25 per cent in the current financial year, marginally lower than the 27.3 per cent seen in 2007-08.
Textile exports, which comprise around one-tenth of India’s total exports, have seen a mixed impact in terms of demand from the EU and the US. These two regions account for nearly 70 per cent of the exports. While exporters of readymade garments and yarn have not seen any growth in demand as compared to last year, home furnishings and textile made up segments are getting lesser orders.
“Months between September and April see a high demand in the readymade garments segment. Moreover, the rupee has depreciated against the dollar. Just that the financial crisis abroad may lead to foreign clients asking for better deals or marginally cutting down size of orders. I expect textile exports in 2008-09 to remain flat, as compared to last year,” said Sudhir Dhingra, chairman and managing director of Gurgaon-based Orient Craft Ltd.
Handicrafts, another traditional export sector, is also getting hit by a dip in orders.
“We are organising a buyer-seller meet for foreign clients in Delhi this month to secure orders for the spring season of 2009. Till now, we have managed to get bookings for only 30 per cent of the 7,000 square metre of exhibiting space. Handicraft exporters are not expecting any orders from their foreign clients, as demand for handicraft goods abroad is expected to decline,” said Rita Nahata, secretary, Society for Small and Medium Handicrafts Exporters.
Economists expect a moderation of export growth in the coming months. “Indian exports expanded by 35 per cent in the April-August period this year. But this growth rate will moderate and we expect around 19 per cent growth in Indian’s merchandise exports,” said Shubhada Rao, chief economist, Yes Bank.
Another factor that will buttress exports from India is the diversification of its export destinations. A study done by Tushar Poddar, vice president (Asia Economic Research), Goldman Sachs, says that India presently exports two-thirds of its exports to non-US and non-EU members like China, West Asia, Africa as well as to the Asean.
“We argue that even though some moderation in exports growth is inevitable, the downside is limited,” he said in his report.
Poddar also pointed out that India exports more of resource intensive goods like iron ore, metals, and refined petroleum, which are unlikely to see a slowdown.
