Rupee depreciation to help boost Indian farm, textile and jewellery exports

A depreciating rupee is set to improve India’s competitiveness in the world market and thus help boost exports of agricultural products, textiles and gems and jewellery, experts say.

The rupee has depreciated 6 per cent in the first half of the ongoing calendar year to trade at 75.51 a dollar (as of Tuesday), as against 71.38 on January 1. In fact, the rupee had slid to 76.21 on June 16, but recovered following the Reserve Bank of India’s (RBI’s) intervention.

With the Indian economy projected to contract this year, the rupee may slip to even 80 a dollar, according to experts. For several products like textiles, India is operating at a thin margin of 2-3 per cent, and hence, a 6 per cent depreciation in the rupee makes a big difference. “The three-month range of USD/INR is 75.50-77.50 and the six-month range is 74 – 80,” said IFA Global in its latest report.

This means the rupee has room to depreciate by another 6 per cent in the second half of the current calendar year.

The Agricultural and Processed Food Product Export Development Authority (Apeda) reported India’s exports of agriculture, allied and processed food items to the tune of $35.1 billion in FY20, as against $38.5 billion in the previous year. India’s agriculture exports had hit a record high $42.8 billion in FY14.

Apeda-registered products comprise around 50 per cent of India’s overall agricultural exports. “In basmati rice exports, we benefit from rupee depreciation… It boosts receivables for exported goods and those in the pipeline,” said Gurnam Arora, joint managing director, Kohinoor Foods, the producer of the Kohinoor brand basmati rice.

Ujjwal Lahoti, chairman of Lahoti Overseas, a Mumbai-based manufacturer and exporter of kidswear, believes that the rupee depreciation will help improve India’s competitiveness in the world market and increase export of textiles.

There is another issue, which may have to be seen in the context of rupee deprecation.

In many areas, India has been the world leader, especially in commodities like basmati rice, guar gum and buffalo meat. India faces a tough competition from other countries in the export of cotton, soybean, sugar, non-basmati rice, textiles, and gems and jewellery, for which a depreciating rupee is positive.

For gems and jewellery, around 95 per cent of the value of ornaments comes from raw materials, which are generally imported into India. Hence, the value addition component of a mere 5 per cent of the worth of goods proves a real differentiator.

“Rupee depreciation definitely helps. But we need to see in the context of movement in the currency of the country we are competing with. For example, if we consider Brazil as our competitor, its currency the ‘real’ has depreciated more than the ‘rupee’. Also, Turkish lira, the British pound, and Indonesia’s rupiah have depreciated sharply. In such a scenario, gains from a depreciating rupee get nullified,” said Ajay Sahai, director-general, Federation of Indian Export Organisation (FIEO).

“For marine products, Vietnam avails 6 per cent duty benefit in Europe due to the free trade agreement (FTA) signed between them. So, rupee depreciation to would certainly benefit India in marine exports to the European Union,” added Sahai.

Courtesy: Business Standard

Image Courtesy: Economic Times