Labour-intensive exports may gain as rupee hits 20-month low

  • 20-Dec-2021
  • Labour-intensive exports may gain as rupee hits 20-month low

The rupee weakening to a 20-month low against the dollar NSE -5.81 % has come as a mixed blessing for exporters.

While there is an improvement in realisations as they hasten to bring payments back into the country, some have begun to witness calls from buyers to cut prices for fresh orders. Exports dependent on imported inputs will see limited gains, but exporters in labour-intensive sectors such as textiles and leather could see an improvement in margins, traders say.

The rupee depreciation will support India's merchandise exports target of $400 billion in FY22 amid slowing growth of outbound shipments. "Almost 60% of our goods trade is in dollars. The depreciation will further help in increasing exports, especially of labour-intensive products such as sports goods, textiles and leather, and provide protection to the domestic industry," Federation of Indian Export Organisations director general Ajay Sahai said.

Under pressure after continued selling by foreign investors in equities amid concerns over the Omicron variant of the Covid-19 virus, the rupee weakened to 76.32 to a dollar last week.

"The recent rupee depreciation is leading to a gain for exporters as costs are mostly in rupee and it also enables Indian products to become more globally competitive," said Sanjay K Jain, managing director, TT Limited, adding that the firm with 50% export revenue would benefit from this depreciation.

An official with an export body said some exporters, who had parked dollars overseas, were also rushing to bring back payments fearing intervention by the central bank to support the rupee.

Mixed bag
As per a textile exporter, rupee depreciation will help in the short term but the effect on rising inputs due to inflation and energy costs will offset these gains in the long run. "The benefit of currency depreciation is limited to those exporters who are not hedged or haven't signed contracts in advance," said a Delhi-based agri goods exporter.

Buyers also have begun pushing for price revisions. "Buyers are already inquiring about a 5% cut in prices," said an exporter of light engineering goods.

Moreover, gains from rupee depreciation also might get neutralised as many emerging economy currencies - Turkish lira, Pakistani rupee, Malaysian ringgit, Thai baht and Iran's rial - have depreciated this year.

The Indian rupee depreciated the steepest - around 1.5%- in the last two weeks after the US Federal Reserve favoured faster rollback of quantitative easing and possibly raising interest rates, prompting outflows of overseas investment from emerging economies.

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