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rupee depreciation: Weak Rupee may perk up slowing garment, handicraft exports


India’s slowing exports could get a fillip with the rupee weakening against the dollar. Exporters of labour-intensive products such as ready-made garments, carpets, leather and handicrafts expect a 2-10% rise in outbound shipments aided by the depreciating rupee.

However, they said sectors with a low dependence on imports would gain while others will lose their benefits to higher oil and commodity prices.

“Rupee depreciation needs to be seen in comparison with our competing currencies. Any depreciation of the rupee will benefit labour-intensive exports except gems and jewellery because they have a huge import component,” said Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO).

The rupee is expected to remain under pressure amid rising crude oil prices stemming from OPEC production cuts.

Besides rising oil prices, elevated interest rates and inflation globally could lead to outflow of capital, putting pressure on the rupee.

Rupee depreciation would benefit exports because majority of the costs are incurred in rupee except where raw material imports are involved. However, a weaker rupee would make imports more expensive.The carpet industry has seen a 40% decline in orders since the Russia-Ukraine conflict.

Weak Re may Perk Up Slowing Garment & Handicraft Exports

The import component in carpets, such as wool, dyes and latex, is 9-10%.

“The industry has begun making carpets of lower value to cater to slowing demand and also online sales have been picking up,” said Sidh Nath Singh, director of Mirzapur-based Carpet Handicrafts Export. While carpets used to cost ₹1,500-9,000 per meter till a few years ago, the average has now reduced to ₹800-900 per meter.

Nishith Gupta, managing director, Sapana Carpet-Mats, said rupee depreciation bumps up exports in the very short term, about three months, and that increase is in line with the depreciation.

“Customers ask us to use recycled polymer, which is 10-15% cheaper than virgin polymer, flexible packaging to reduce freight costs and lighter specifications to keep the selling price constant,” Gupta added.

A weaker currency makes US dollar-denominated imports such as raw materials including sulphur, ammonia and potash more expensive. In the pharma sector, large firms that are net exporters tend to benefit from currency depreciation but small and mid-sized companies that rely on imported bulk drugs from China might get impacted adversely.

Industry estimates that a 1% fall in the rupee’s value increases garment exporters’ profits by 0.25-0.5%, and it may make garment exports more competitive in the medium term as raw material cost falls and the benefits are passed on to customers.

“A weak rupee is only a temporary relief and not a long-term benefit because raw material prices have risen. However, we expect a 4-5% rupee depreciation to translate into a 10% growth in exports if the raw material prices don’t increase further,” said a representative of the engineering goods industry.


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