Exporters Agree to Lower Prices to Retain Orders.

Indian exporters of a range of goods from apparel to handicraft are having to surrender to their overseas buyers, a part of the additional profits accrued to them in the wake of the 15 per cent depreciation of rupee since August.

The overseas buyers in question are mostly in Europe and the US — markets where consumer confidence is down. The discount being offered by Indian exporters is aimed at retaining their long term customers in these overseas markets facing difficult conditions.

The discounts are being offered even on exports which have already been contracted. The bills of export proceeds are being discounted in such cases.

Rupee has depreciated to 52.67 per dollar from 44.67 on January 3. Consequently, sectors that have benefitted the most include textiles, handicrafts, carpets and engineering goods.

“Buyers in US are asking for discounts as high as 15 per cent on the recently placed and new orders after steep depreciation of rupee. This is eating into our profit margins that we would have made taking advantage of the rupee depreciation. However, we have no choice but to re-align the prices, though it would be in the range of 5-10 per cent as we factor in the import cost that has proportionally gone up,” HKL Magu, VC (northern region), Apparel Export Promotion Council said.

Payments on carpets are being delayed by three-four months than normal. “Hence, our money has got blocked despite we agreeing to part away with some part of our profits,” he added.

Indian exporters usually work on margins ranging from 7-15 per cent, depending on the product and tariff line. However, over 15 per cent depreciation of rupee has given them an extra edge of nearly 10 per cent. Out of this, 5-7 per cent is being shared with the buyers depending upon the demand and availability of similar products from competing countries.

“Rupee depreciation has come as a relief to exporters who were reeling under high inflationary cost of raw material and labour. It has given them a cushion to offer discounts to their long-term buyers who are facing sharp decline in demand in their own markets” said Ajay Sahai, director general of the Federation of Indian Exports Organisation.

Price negotiations have intensified with EU and US buyers, who are now cautiously placing orders barely a month or two in advance as against several months to take advantage of the freefall of the rupee. This would, in turn, help them to liquidate their piled up stocks after nearly 30 per cent decline in demand back home.

Aman Chadha, president of the Engineering Export Promotion Council told Financial Chronicle that order book for engineering products has come down to as low as one month. “Earlier we used to get orders up to six months in advance but with debt crisis looming large on key markets and the overall environment looking depressed, the orders are now placed barley a month or two in advance,” he said.

Engineering exports constitute a major chunk of India’s overall merchandise exports and stood at $40.7 billion between April and November 2011. This is 21 per cent of the cumulative exports of $192.7 billion during the first eight months of the ongoing financial year.

Source : mydigitalfc.com