The Hindu Business Line : Weakening rupee makes exporters anxious

New Delhi, Oct. 24 The breaching of the psychological barrier of Rs 50 per dollar on Friday with the rupee shedding more than a quarter of its value since the start of the year has unnerved the exporting community as a weak currency fosters inflationary pressures, besides making import-dependent export production dear.

The $9-billion garment export industry has voiced concern over the depreciating rupee with the Apparel Export Promotion Council (AEPC) pleading for a stable exchange rate of the rupee. The Council Chairman, Mr Rakesh Vaid, said that “garment exporters are facing a triple whammy in these tough times as the overseas buyers also know the rupee-dollar exchange rates and thus negotiate orders taking a tough position with hardening of the dollar. With inflation hovering above 11 per cent, input costs for garment exporters are rising fast.

“The slowdown in economies of the European Union and the US following the financial meltdown means there will be fewer orders,” said Mr Vaid.

Reduced spending

Garment exports from India totalled $9.2 billion last year. AEPC estimates that apparel exports could decline by 10 per cent in 2008 following reduced spending by consumers in developed countries. The rupee is at an all-time low and macro-economic managers face a rising outflow of foreign funds and a yawning trade deficit.

“A falling rupee also means that imports will cost more,” said Mr Vaid, adding that the impact of the current financial crisis cannot be estimated at present. India is the fifth largest exporter of readymade garments worldwide.

Meanwhile, the President of Federation of Indian Export Organisations (FIEO), Mr Ganesh Kumar Gupta, while commenting on the mid-term review of the Annual Policy 2008-09 stated that measures such as enhancing remittances to $3 lakh for imports (from the existing limit of $1 lakh) for overseas suppliers and increasing limit for advance remittance for imports both for goods and services to $5 million without bank guarantee/stand by letter of credit are positive/liberal and would help the export sector.

Deficit concerns

He, however, said that the widening merchandise trade deficit (43 per cent expansion in April-August 2008 on a year-on-year basis) was a cause of concern besides the volatility of the rupee which has depreciated sharply by 18.9 per cent against the dollar in the current financial year but could not add much to the competitiveness of our exports as no one can foresee its movement 3-6 months down the line.

Mr Gupta explained that while the inflationary pressure has eased marginally, the impact of the repo cuts and CRR is yet to be reflected in the cost of credit and public sector banks are yet to announce the BPLR rates. Further, the President of FIEO added that the RBI has corroborated his view point that exports will face an uphill task in 2009 in view of a slowdown in the global economy.

While overall growth in 2009 will be about 3 per cent (down from 5 per cent in 2007), our major markets like the US, EU and Japan are likely to grow by 0.1 per cent, 0.2 per cent and 0.5 per cent respectively, thereby impacting exports of garments, textiles, leather, carpets, handicrafts and marine products.

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