Highly volatile rupee more a pain than gain

Most exporters are not celebrating the sharp depreciation in the value of the rupee — which fell to a two-year low on Monday — as they say that the gains from higher export realisation in the short-term get out-weighed by the problems associated with a highly volatile currency.

“For a small fraction of exporters who have not hedged their risks and have received payments in dollars at this time for their past shipments, it is a windfall gain. But this, by and large, does not add to the competitiveness of exporters as one is not sure whether this trend will last,” pointed out Ajay Sahai, Director-General, Federation of Indian Exporter Associations. The rupee closed at 66.64 against the dollar on Monday.

The fact that currencies of most other economies in emerging countries, including China, are also getting devalued because of the crash in global stocks, Indian exporters do not stand to gain much due to rupee devaluation. “Emerging economies are the major competitors of Indian products in global markets. With weakening of currencies across the emerging markets, no unique advantage accrues to India,” said Anupam Shah, Chairman, Engineering Exports Promotion Council.

Moreover, the fall in the value of the rupee is happening too fast for exporters to plan ahead with certainty, pointed out Rafeeque Ahmed, a Chennai-based exporter of leather products.

“We don’t like volatility. It increases our hedging costs and makes pricing difficult,” Ahmed said.

A weaker rupee also increases costs of imports. “There are a lot of imported inputs that go into our exports. Our cost of production rises as rupee falls,” Ahmed said.

Indian exporters have been facing a tough time in a sluggish global market for more than a year. While in 2014-15, exports fell 1.23 per cent to $310 billion, the fall has been much sharper at 15 per cent in the first four months of the current fiscal to $90 billion.


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