Rupee nightmares

Written by Kirtika Suneja | Updated: Jun 16 2013, 09:27am hrs
While traditional sectors like readymade garments, handicrafts and carpets have been able to gain from the rupee's decline, sectors with a high import intensity like gems and jewellery, electronics, plastics and high-end engineering products have remained untouched, with some even suffering losses.

For instance, exporters of electronics products are taking a hit because of the rupee's depreciation as 70-80% of electronics are imported in the country and then re-exported after value addition.

There is no big advantage because of the rupee's depreciation as imports are becoming more expensive. We pay 35-40 paise more while importing. Imports are more than exports, which makes it a disadvantageous situation for us, notes Suresh Madan, director, Delhi-based Ahuja Radios, exporters of electronics sound equipment with a group revenue of R700 crore.

Others in the business say that with the rupee depreciating, buyers want discounts of at least 5%, which brings down margins.

Buyers are watching the rupee depreciate and want a share of the benefit. They expect something to be reduced and we can't avoid that. Besides, it also helps because products become cheaper and hence more competitive. This gives us more competitive edge and the depreciation has helped us a little, explains M Rafeeque Ahmed, chairman, Farida Group of Companies, and Federation of Indian Export Organisations (FIEO) president. Farida Group is the largest manufacturer and leading exporter of leather shoes in the country, based in Chennai. Interestingly, the company's market share has increased 2-3% since the rupee started depreciating in the past few months.

For companies like Mumbai-based garment exporter Sarju International, which is 50% hedged with forward covers, there is nothing to celebrate in the rupees downslide. In this case, the share of imports in the exporters basket is 30%. And with another 50% hedged, open exports are only 20%, which is the only benefit the company can get. However, the company expects better business coming in, and already managing director Amit N Goyal claims his firm is getting double the enquiries in the past few days.

We are in the apparel business where the import content is less. The rupee sliding is beneficial in the short run, but buyers have already asked us to reduce prices by 2-3%. It has also made India more competitive than neighbours like Sri Lanka, Pakistan and Bangladesh, adds Goyal.

Similarly, it is business as usual for Vishwanath, joint managing director of Nath Brothers Exim International, a Noida-based firm exporting garments. Garment exporters are not making big money because it is the January-March shipments that is peak time for Indian exports. We are giving discounts between 2-6% to our buyers, says Vishwanath.

The plunge in the rupee is not translating into gains for all exporters as other currencies are also depreciating and the global situation is such that demand contraction is not allowing exporters to reap these benefits, feels Ajay Sahai, director general and CEO, FIEO. In fact, foreign direct investment inflows have also taken a hit due to the volatile rupee as investors are waiting for the currency to stabilise. Exporters cannot take a call because they don't know when the dollar will stabilise. Most of them have been hit. Besides, in the Indian context, there has been no relationship between export growth and rupee depreciation. Had the global situation been better, it would have been conducive for exporters and they would have benefitted, adds Sahai.

Also, problems of bad infrastructure, high freight rates and power cuts, which increase production costs, are hurting exporters. Not only do they have to absorb these disadvantages, they also have to shell out attractive prices similar to China.