New Delhi India’s traditional exports such as IT, agricultural products, textiles, tea, leather and engineering goods may gain a competitive edge amid sharp depreciation in rupee. Exporters said they are likely to get better prices for their overseas shipments, especially in the dollar-denominated markets.
However, the rupee depreciation is set to worsen the inflation situation as India is a net importer, with the trade deficit hitting a record high of $192.24 billion in the last fiscal.
High fuel and food inflation has already forced the central bank to sharply hike the benchmark policy rate by 40 basis points.
Agricultural exports are likely to perform well if the rupee weakens further, an official said, adding that exports of rice and wheat would be particularly competitive and help exporters bag more orders. Notably, as per the brokerage report, agricultural exports comprised 11.4% of the total exports in 2021.
Rafiq Ahmed, chairman of Farida Group, one of India’s largest shoe manufacturers and exporters, said while the rupee devaluation could prove to be a short-term gain, “it helps to get a little more money.”
“But most exporters also have an element of import like raw material and transportation cost. It’s an equalizer for us,” he said.
“The depreciation of the rupee will help us compete against other currencies like Bangladesh and China, which are also lower,” Ahmed said.
However, tea exporters said the gains of a weaker rupee could not be seen across the board.
“The devaluation of the rupee will not be a massive gain. We will see gains only in those export destinations that are pegged to dollar as the Indian rupee has depreciated against the US dollar, but has appreciated on a year-on-year basis against the euro and the yen,” said Indian Tea President Anshuman Kanoria said. Exporters Association.
“So we can benefit in Russia but not in the EU and Japan. We will also benefit in the UAE.” Russia is one of India’s top markets for tea and Sri Lanka’s economic crisis has opened up new markets for India’s conservative tea exporters.
Anupam Shah, former chairman of the Engineering Export Promotion Council (EEPC), said a depreciation of the rupee would certainly help boost exports, but the extent of the gains would depend on several factors including global demand, raw material prices, inflation and Ukraine war. .
Madan Sabnavis, Chief Economist, Bank of Baroda was of the view that since India usually imports more than it exports, “so ultimately, India will pay more for our imports in terms of currency depreciation.”
“Also, when the currency depreciates, FPIs are tempted to invest. It will be important to see what RBI does. It will fix a limit of Rs.
Services Export Promotion Council (SEPC) DG Abhay Sinha said a depreciating rupee will make imports costlier, which will increase the cost of production in areas where the requirement of imported material is high.
“The rupee depreciation will hit the import intensive sectors making them costlier. Costly imports and cheap exports in import intensive sectors will reduce the profit margins of Indian exports in certain sectors, especially in some sectors in mercantile exports,” he said.
India’s exports of manufactured goods have grown from 1.4% in 2010 to 1.8% in 2019, showing a vast improvement. But it is much less than its peers. A Morgan Stanley report states that China’s manufacturing export share is 18%, Taiwan’s 2.4%, Korea’s 3.7% and Mexico’s 2.8%.
India’s participation in global supply chains remains low, especially compared to other countries such as East Asian economies.
ravi.dutt@livemint.com