Prefixed rates, renegotiating by clients have prevented them from taking advantage of the currency's slide against the dollar.
With the value of the rupee against the dollar at an all-time low, exports should be blooming, right?
Wrong. Exports are lagging despite the slide of the rupee, as clients have toughened rate negotiations.
Raja Jaichand, owner of a mid-sized garment exporting firm in the city, who sources all his raw materials from domestic markets, is sceptical about the depleting rupee bringing about good times.
“There is no reason to be over-optimistic. Clients have started negotiating harder now. The picture is not as rosy as it seems from outside,” he says.
Rathin Shah, project manager at ValueNotes, a research & consulting company, concurs. Exports registered a year on year growth of 11.6% in July to reach a figure of $25.8 billion. Exports stood at $25.37 billion in January 2012 when the rupee was at 50.01 a dollar. However, when it depreciated to 56.04 on May 31, exports were $25.06 billion.
Analysts say depreciation of the rupee does not necessarily lead to huge gains for Indian exporters, since exports cannot be a currency-led phenomenon.
“Exports is more than just exporting from one country to another. Economic condition of developed economy plays a crucial role. Having said that, I also feel that India does not have the capacity to meet all its export requirements,” says Upasna Bhardwaj, economist at ING Vysya bank.
Also, more often than not, exporters usually take cover in the form of hedging. A futuristic cover helps exporters avoid losses by placing their booking at a pre-decided rate. Hence, this shields them from heavy losses they will incur from the fall in rupee against the dollar and other currencies.
Heetesh Veera, tax partner, Ernst & Young, believes that since exporters also import certain raw materials, the profits they make on exports is neutralised with the fluctuation of the rupee. India’s top exports—engineering goods, textiles, gems & jewellery and machinery—are import dependent. Hence profitability of exporters gets eroded in the process.
Hence, improvement in exports should not be directly linked to rupee depreciation, as there are several other factors involved. But Shah believes that it is going to take a while before the US and the European economies are back on track.
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