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Concerns of an export slowdown grew as the rupee hit an eight-month high on Friday but a host of factors ranging from oil prices to gold import curbs will also contribute to setting the pace for India's merchandise shipments.
The rupee closed at 59.89 to a dollar on Friday, the first time it ended below 60 since July-August 2013. Exports reversed gear in July, growing by double digits till October. The rally was broken in November and exports even fell in February.
As Reserve Bank of India Governor Raghuram Rajan set out to stop the rupee's slide, the currency found some stability from October-November, though it remained above 60. Announcements by the US Federal Reserve on withdrawing monetary stimulus led to some volatility. Year-on-year, though, the rupee continued to depreciate till February.
Exports in April-February 2013-14 rose 4.85 per cent to $282.77 billion from $269.85 billion in the same period of the previous financial year. In February, exports shrunk 3.67 per cent to $25.68 billion from $26.66 billion in the same month last year.
"A volatile exchange rate is never healthy for any sector of the economy. While the fall in the rupee did provide a significant amount of support to exports in the first half of this fiscal, this extreme volatility is going to hurt," said Ajit Ranade, chief economist, Aditya Birla Group.
He added the rupee rally was getting stronger as portfolio investors were finding India most attractive among the BRICS group of emerging economies--Brazil, Russia, India, China and South Africa. Portfolio investments worth $10-12 billion were made in India in the last couple months.
As the rupee settled into the 60-62 range from November, merchandise exports started slowing down. A rising rupee could act as a bigger drag, but export performance will also depend on revival of demand in the world economy, global oil prices, the government's continued curbs on gold imports and their impact on jewellery exports, and the regulatory problems confronting India's drug industry in the developed economies.
"Any further increase in the rupee's value against the dollar and other major hard currencies will dent India's exports, which had somehow managed to sail through troubled global markets in the last six-seven months, partly helped by currency depreciation," said Anupam Shah, chairman, Engineering Export Promotion Council, India.
