Rupee has depreciation 25% vis-a-vis the dollar in the past one year.
Falling currency should ideally help in increasing exports by making them cheaper but this has not happened and, on the contrary, exports are projected to grow slowly. "Exports depend primarily on demand, and not so much on the price. Price will normally give you an advantaged in normal conditions. But in the backdrop of global economic slowdown, depreciating currency wouldn't help Indian exports," said Care Ratings chief economist Madan Sabnavis.
Further, since two-third of products in our export basket have 60%-90% import content; a weak rupee therefore leads to more payment in rupee terms for imports, said Ajay Sahai, director general, Federation of Indian Export Organisations. Sectors like petroleum oil and lubricants (POL) combined with gems and jewellery 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%. Therefore rupee depreciation is costing more rather than benefitting the exporters.
Exports growth will slow down sharply going ahead, aggravated by the high base effect of rapid expansion in early months of 2011-12. This year exports may grow 10-12% at best, Sabnavis said.
Any further aggravation of the sovereign debt crisis in the Euro area is expected to weaken export growth in India as the Eurozone accounts for 15% of country total exports. During the Lehman crisis in 2008-09, despite a depreciated rupee, merchandise and services exports had slipped by 33% and 26%, respectively, due to weakening external demand, Crisil said in its latest research note.
Exports of software services, which account for over 40% of total services exports from India, would be impacted most adversely.
A Jaipur-based SME garments exporter, who wished not to be named, said overseas clients are not taking deliveries after placing orders. The amount of advance money that we get has fallen drastically over the past couple of years due to recession in Europe. So when a export order is not shipped, buyers do not lose much while we suffer losses, he said.
Confederation of Indian Textile Industry (CITI) Secretary General DK Nair said textile industry is gaining from rupee's fall but poor global scenario is taking toll on the demand.
Apparel Export Promotion Council chairman A Sakthivel said the negative fallout of rupee fall is that the buyers are now asking for higher discounts, which is squeezing exporters margins.