When the rupee appreciates against the greenback, exporters make a hue and cry about the resultant loss of their competitiveness in key markets.
But a look at India’s export performance over the last few years would reveal that the country’s shipments are more responsive to the global GDP growth and prices of some commodities that form bulk of its export basket rather
than the rupee’s movements against the dollar.
The global trade growth, though keenly related to world economic growth (which determines the global demand), however, has a less pronounced impact on India’s exports, given that we are still a marginal player in the global trade, with less than 2% share. What matters, also, is how the currencies of some of our competitors fare in relation to rupee against the dollar.
That a softening of the global prices of commodities — like crude oil, farm items, cotton, basic chemicals and copper — can have a deleterious impact on Indian exports is evident in the recent months’ contraction in our shipments.
While it is widely recognised that the a fall in global oil prices could significantly reduce India’s import bill, a less noticed fact is that a softening of oil prices could hit exports, given that petroleum products now form a major chunk (20%) of them.
India’s exports got off to a terrible start in the current fiscal with shipments shrinking 14% in April, contraction for the fifth consecutive month. Significantly, the rupee in these months have depreciated less against the dollar when compared to other major currencies such as euro, pound sterling and yen. Exports of petroleum products had fallen 46.5% in April.