A sharp 8% depreciation of the rupee against the dollar since the beginning of the fiscal has not helped Indian exporters as much as many had thought. Demands from overseas customers for dollar discounts in the wake of a weakening rupee has led to a realisation among exporters that they say it is ideal for them if the domestic currency trades at 47-48 to a dollar. Since India is an import-oriented export country, too much weakening of the domestic currency does not help them as imported raw materials become costlier while customers of finished products clamour for discounts. Facing pressure from global buyers, exporters have offered discounts to keep their order books healthy.
They take comfort in the fact that they get to realise more in rupee terms even if export prices in dollar are cut.
Experts also say that once orders are booked at discounts, inflow of dollars into the economy is affected, resulting in a widening of trade gap. The scenario is aggravated by the fact that imported raw materials become more expensive with a falling rupee. India’s trade deficit inched up to $185 billion dollar in 2011-12, a 75% jump from the same period a year ago.
Experts call it an unhealthy sign for the trade account deficit, the current account deficit and the balance of payments. Exporters too are not happy with such volatility in exchange rate.
?Two-third of products in our export basket have 60%-90% import content; thus, a weak rupee leads to more payment in rupee terms for imports,? director general of the Federation of Indian Export Organisations Ajay Sahai told FE.
Sectors like petroleum oil and lubricants (POL) combined with gems and jewelery exports account for a third of India’s exports which have an import content of over 90%. Similarly, plastics, electronics, chemicals and drugs and pharmaceuticals account for another one-third of the country’s exports that has an import content of 60-75%.
In 2012 fiscal, POL imports were $156 billion whereas finished products exports were $58 billion. Gems and jewelery imports were of $62 billion and exports were of $46 billion. There is very limited value addition in these sectors when the items are exported.
Sahai said such sharp currency movements do not help exporters as most of them have already booked their orders in advance.
?The excitement of the depreciating rupee against the dollar is short-lived because buyers have started pressurising us to offer maximum discount on exports. So, once you start booking orders at a discount of 10-25%, the amount of dollar that flows into the country also comes down,? Sahai added.
Chairman of Apparel export promotion Council A Sakthivel said: ?To some extent, the fall in rupee is good for exports but more than that, its effect is negative in the long run as buyers would ask for more and more discounts, which affect our profit margins.?
?We will not subscribe to the view that the rupee depreciation would give unexpected gains to exporters. We will like the rupee to hover at around Rs 46-47,? Sahai added.