As the rupee nosedived to a fresh low of 77.47 against the greenback on Monday, exporters expected the weakening domestic currency to aid a broad range of sectors, more so for some of the labour-intensive ones like textiles and garments, agriculture, footwear and handicrafts, where the margins are typically limited — and services sectors like IT.
The depreciation will also partially soften the blow of elevated shipping costs and supply chain disruptions in the wake of the Russia-Ukraine crisis. However, for the benefits to accrue, the rupee needs to stabilise at a depreciated level in the coming weeks and stay at that level for a relatively long period, they told FE.
Of course, a weak currency — coupled with a spike in global crude oil prices — would further inflate the input and logistics costs of companies and further erode their margins. Importantly, the depreciation of the currencies of India’s competitors will determine the extent of gains for India. Nevertheless, the sectors that are not dependent on input imports stand to gain.
The cost of capital goods, mostly imported, will also go up at a time when the government has stepped up focus on capital spending to spur economic growth. India imported machinery worth almost $40 billion and transport equipment, including auto components, of another $13 billion in the first 10 months of this fiscal. Together, these two segments made up as much as 11% of the country’s merchandise imports.
The domestic currency has shed as much as 4% against the dollar this year and 3.8% since Russia’s military operations in Ukraine on February 24.
According to A Sakthivel, president of the apex exporters’ body FIEO, the rupee depreciation will augur well for exporters in general. It will particularly help industries like software and textiles where the reliance on imported raw materials is limited.
However, it will also push up costs of manufacturing firms in sectors (like petroleum and gems and jewellery) that rely on large volumes of imported inputs for domestic value addition and subsequent re-exports.
A senior executive of the engineering exporters’ body EEPC, however, said it was too early to gauge the precise impact of the currency depreciation. Recently, Mahesh Desai, chairman of EEPC India, stressed the need for stability in the local currency.
According to the RBI’s real effective exchange rate (REER) index, based on the export-weighted average of about three dozen currencies, the rupee was “over-valued” by 2.66% in March, compared with from 4.31% in January, thanks to the depreciation.
According to noted textiles expert DK Nair, the depreciation, if sustained, will help exporters, especially in sectors like textiles and garments where the dependence on imported raw materials is minimal.
Merchandise exports breached the record target for FY22 to hit $421.8 billion, while services exports, too, scaled a fresh peak of $254.4 billion. The government is aiming at a meaningful rise in exports this fiscal as well, even on a base that is not conducive, and external headwinds. Against this backdrop, the rupee depreciation augurs well for exporters.