Moreover, the sharper depreciation of the Chinese yuan, Japanese yen, and Mexican peso against the US dollar may prompt buyers to pressure Indian exporters to pass on the gains, besides undermining any long-term competitive advantage from the rupee’s fall, they said.
The rupee hit an all-time low of 85.09 per dollar on Thursday, crossing the 85 mark for the first time. On Friday, the rupee hit a new low of 85.10/$1. Almost 60% of India’s goods trade is in dollars, and the depreciation will help traditional sectors such as textiles and leather.
“The rupee depreciation will help the entire textile chain, and the benefit is usually 50% of the depreciation. The rest of the benefit gets passed on to the buyers,” said Sanjay Jain, managing director of TT Ltd, an exporter of readymade garments.
Temporary Relief
Rakesh Kumar, chief mentor at Export Promotion Council for Handicrafts, said, “We expect a 2-3% growth in exports.”An exporter of engineering goods said a weak rupee is only a temporary relief and not a long-term benefit because iron and steel prices have gone up 60% in the last two months. “We expect a 4-5% rupee depreciation to translate into a 10% growth in exports if the raw material prices don’t increase further,” he said.The gain is limited to sectors that have low dependence on imports. “Wherever there is imported content, our (import) costs would rise and thus neutralise this advantage at the export front,” said Pankaj Chadha, chairman of Engineering Export Promotion Council of India.
India’s goods exports shrunk 4.9% on-year in November to a two-year low of $32.1 billion. “A sharp fluctuation in a short duration helps only the profitability of exporters and not their competitiveness,” said Federation of Indian Export Organisations director general Ajay Sahai. “Exporters, especially those who have open cover and are not hedged, can benefit. However, there is not much benefit in the long term.” According to industry estimates, only 15% of exporters are not hedged.
Other Currencies
Exporters are also cautious that the gains from the rupee’s fall would not be sustained. The rupee has depreciated by 2.2% against the US dollar since the beginning of the year. However, the fall was higher for other currencies such as the Brazilian real (26.8%), Mexican peso (19.6%), yen (11.8%), South Korean won (11.7%), and yuan (2.6%).
“The rupee has experienced less pressure in terms of depreciation except in the last two months,” said Madan Sabnavis, chief economist at Bank of Baroda.
In a note, the bank said a weaker rupee will help exports, especially when the yuan has fallen more than the rupee. Sabnavis said ever since Donald Trump won the US presidential elections, the rupee has been on a downward trend.