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

Date: 20-12-2021
Subject: Labour-intensive exports may gain as rupee hits 20-month low
The rupee weakening to a 20-month low against the dollar 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 ..

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.

Costlier imports

A weaker currency makes US dollar-denominated imports such as raw materials including sulphur, ammonia and potash more expensive. In the pharma sector, large firms that are net exporters, tend to benefit from currency depreciation but small and mid-sized companies that rely on imported bulk drugs from China might get impacted adversely.

This assumes significance as exports from micro, small and medium enterprises fell 7.64% on-year in fiscal 2021 to $143.99 billion.

Traders say import-intensive products such as petroleum, fertiliser, chemicals and, gems and jewellery might witness limited benefit.

India's trade deficit hit a record high of $22.91 billion in November when petroleum, gold, silver and mineral imports drove up the overall inbound shipments by 56.5% to $52.9 billion, while exports hit a nine-month low at $30.04 billion. The trade deficit more than doubled from $10.19 billion in November 2020.


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