Rupee fall not always leads to export growth; here’s why

By: | Published: September 3, 2018 5:10 PM

Contrary to popular belief that rupee depreciation helps exporters, currency volatility not always brings benefits for the fraternity, EEPC India said Monday.

rupee, dollar, forex market, stock market, modi govt, economy, challenge, रुपया, अर्थव्यवस्था, negative and positive, नुकसानThe rupee strengthened by 23 paise in early trade Monday to 70.77 against the US dollar. (Reuters)

Contrary to popular belief that rupee depreciation helps exporters, currency volatility not always brings benefits for the fraternity, EEPC India said Monday. “Our view has been that it is a stable currency that helps exporters, providing them with predictability of dealing with the buyers. Any fluctuation and volatility on either side does not help,” EEPC India chairman Ravi Sehgal said in a release.

Engineering Export Promotion Council of India (EEPC) said the country’s engineering export growth shrunk to single digit at 9.4 per cent in July, from sharp increases in the previous few months even as the rupee was depreciating against the US dollar during the month. It was a demonstration that a stronger dollar is not the only growth driver and does not always lead to export momentum, EEPC India said in an internal study recently.

“Rupee depreciated more in July (6.56 per cent) as compared to June (5.19 per cent). But did exports grow at a higher rate and was there a currency depreciation advantage? No, exports in July this year expanded at a lesser pace of 9.37 per cent than 14.17 per cent in June. The dollar appreciation, conversely, is also making the raw material for exports expensive,” EEPC officials said.

The rupee strengthened by 23 paise in early trade Monday to 70.77 against the US dollar. EEPC officials said the key lies in improving the domestic efficiency levels so that the cost of production is brought down.

Engineering exports had grown by 18.92 per cent in April, 2018, 14.59 per cent in May, 14.17 per cent in June and 9.37 per cent in July, a release said. EEPC pointed out that the best thing in the interest of exporters is a stable currency. In any case, the present depreciation of rtupee should get a contextual perspective that it is not the Indian currency alone which has lost ground against the US dollar.

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