The rupee’s drop to a fresh low of 69 against the dollar in intra-day trade on Thursday will provide limited relief to exporters, thanks to a fall in the currencies of emerging market peers, an escalation of a global trade war, the absence of credible domestic reforms to cut huge logistics costs and high import intensity in some key segments like petroleum and gems and jewellery.
Exporters from sectors ranging from the labour-intensive garments to engineering goods said a sustained depreciation in the rupee could help India sustain a near-double-digit growth in 2018-19, as in the last fiscal. However, persistent volatility in the movement of the domestic currency, unless managed, could make it difficult for exporters while firming up contracts, they felt.
Ravi Sehgal, who exports a lot of engineering goods and is also the chairman of the Engineering Export Promotion Council (EEPC), said the rupee’s slide will help the engineering goods segment — which accounted for a fourth of total merchandise exports last fiscal — achieve 13-14% growth in 2018-19, higher than the rise in overall goods exports. He said the weakening of the rupee helps exporters the most in the short term. “Over the medium term, overseas buyers also tend to renegotiate supply contracts, citing the weakening of the rupee,” he said. Nevertheless, the weak rupee will help exporters beat a rise in other costs.
Gautam Nair, managing director of one of the country’s biggest garment exporters, Matrix Clothing, said: “While the depreciation in recent months should help us, it has also made yarn exports from India more lucrative. So we have to buy yarn at a higher price as well. Nevertheless, the depreciation helps unless there is no sharp volatility.”
FIEO director general Ajay Sahai said the falling rupee will help exports of services more than those of goods. This is because overall merchandise exports also have an average import intensity of as much as 60%, with limited value addition in many segments. For instance, the gems and jewellery segment has an import intensity of 95%, while petroleum products and some electronic goods have as high as 80%.
Dhiren Sheth, a large cotton exporter and the president of the Cotton Association of India, said cotton exports may exceed 70 lakh bales in the 2017-18 marketing year through September, against around 60 lakh bales in the previous year, aided partly by the weak rupee.
However, in the medium term, various other factors, including the benchmark crop prices, will be critical in driving exports, he indicated.
According to the real effective exchange rate (REER) index of the Reserve Bank of India, despite the recent depreciation, the rupee was still over-valued by close to 18% in May, although it was over 21% a year earlier. Exporters called for a carefully considered strategy and a more pragmatic approach to ensure the fair value of the rupee in overall interest of exports and employment generation.
The rupee’s fall came at a time for Indian exporters when some developed markets, especially the US, are turning more protectionist. In the absence of any reform to make the transportation and logistics costs — which account for roughly 15-16% of consignment value — the rupee’s fall alone is unlikely to help exports substantially, said exporters..