Rupee depreciation unlikely to boost Indian exports

Since the beginning of the year, the rupee has depreciated by 4.18 percent against the US dollar, but it has had a little upside for India as exports seem unlikely to benefit, amid global supply chain constraints and fall in currency values of competitors, even as imports are set to become costlier.

The depreciation in the value of the rupee, as per experts was most likely to add to India’s burgeoning import bill but may not have the traditionally expected impact of making exports more competitive as high commodity prices and global supply chain issues are impacting global trade.

“Global supply chains are facing headwinds due to problems in China. All this is adding to pressures on the cost side, so I don’t think we can expect an impact on exports because of the currency depreciation that is going on. Lockdowns in China aimed at containing the Covid spread have slowed operations at key ports and affected global supply chains.”

Biswajit Dhar, trade expert, and professor at Jawaharlal Nehru University

“ There is an acute shortage of containers and the supply chain is completely stretched. International buyers often included expected price reductions in line with currency depreciation in contracts. Inflation was also putting upward pressure on the cost of inputs, he noted.

Sumit Goyal, President, Patton International

As there was a secular strengthening of the dollar against most currencies, the depreciation of the rupee would not offer an advantage to most exporters relative to competitor countries.

“It is not only the rupee that has depreciated, almost every currency including the pound and the euro have depreciated against the dollar. Most of our competing export nations are in South Asia or Southeast Asia and their currencies have also depreciated. This may mean that exports do not become more competitive as a result of currency depreciation.

Sunil Kumar Sinha, principal economist at India Ratings

On the other hand, the rupee depreciation will significantly impact the imports, with India’s import requirements growing rapidly — including increased demand for imported coal despite high international prices as thermal power plants are facing low coal inventories.

India’s merchandise trade deficit has hit an all-time high of $192.4 billion in FY22 on the back of record high imports worth $610.2 billion and exports worth $417.8 billion. 

High growth in exports and imports has continued in this fiscal, with inbound shipments growing about 31 percent year-on-year in April, boosted by high prices of commodities such as crude oil and coal.

Experts noted that the rupee was unlikely to see further depreciation against the dollar for a sustained period in the first half of this fiscal. 

“As far as the rupee is concerned, we believe that with foreign exchange reserves still being large, it’s unlikely to be a situation of disorderly depreciation. So, we now feel that for the rest of this half would be Rs 75-79 (against the dollar),” said Aditi Nayar, chief economist at Icra, adding that she expected that the rupee might fall below its recent low but was unlikely to remain there for a long period.

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