Economy

Weak rupee may cheer exporters even as demand tapers

Suresh P. Iyengar Arun S Mumbai/New Delhi | Updated on September 20, 2011

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The sharp fall in value of the rupee against the dollar is set to boost realisations for exporters, especially when most companies are facing contraction in demand due to slowdown in the US and the Euro zone.

The rupee closed at two-year low of 48.05 against dollar on Tuesday.

Despite the recessionary trends, exports from India grew 44 per cent to $24 billion in August, while imports rose 42 per cent to $38 billion, leading to a trade deficit of $14 billion.

However, August exports compared on a sequential basis reflected the slowing demand. Exports surged 82 per cent to $29 billion in July, while imports had grown 52 per cent to $40 billion.

While the Government has set an export target of $300 billion for this fiscal year against $246 billion achieved last year, the cumulative value of exports between April and August stood at $133 billion.

Mr Mehul Choksi, Chairman and Managing Director, Gitanjali Gems, said the appreciation of dollar has come at the right time when the demand for diamond jewellery export peaks with Christmas and New Year around the corner.

However, the rupee depreciation has to continue for some time for the exporters to reap the benefits.

The buoyancy in export of luxury items does not hold good for the manufacturing and allied sectors which have seen export demand tapering of late.

Mr Premal Udani, Chairman, Apparel Export Promotion Council, said the fall of rupee against dollar is a respite when other operational costs had increased substantially.

“The export demand has not been encouraging in last few months due to the recent economic crisis in Europe, while orders from the US have stagnated,” he added.

The Government's proposal to scrap the 14-year-old DEPB (Duty Entitlement Pass Book) scheme in October has also hit exporters.

Mr Vinod K. Ladia, Chairman, Synthetic and Rayon Textiles Exports Promotion Council, said exporters will be benefited more if there is a stability in rupee-dollar movement as fluctuation will lead to instability in trade.

The sudden weakening of rupee in the last 15-20 days may not benefit exports much as they have already hedged their receivables at 45 to 45.50 levels.

“Besides, we are not able to enter into contract for selling our wares as the Government is yet to fix the duty drawback rates after scrapping the DEPB scheme,” he added.

Mr Ramu Deora, President, Federation of Indian Export Organisations, said exporters had not anticipated such rupee depreciation and had booked their sales at a much lower price.

Since most of the exporters also import raw materials, they have been hit by the rising price of such imports, he said. Increase in the value of imports has also in turn pushed up domestic raw material prices, besides soaring inflation and upward movement of interest rates are adversely affecting exporters, he added.

Exporters want the Government to reintroduce the interest subsidy at 3.25 per cent for small and medium exporters as well as employment-intensive sectors and at two per cent for large exporters.

FIEO will convene a meeting of exporters in Delhi on September 28 and will hold a discussion with the Finance Secretary, Mr R.S. Gujral, on the new duty drawback scheme on September 29 in Mumbai.

Exporters of engineering, chemical, pharmaceuticals, marine and textile products are the major beneficiaries with 2,130 items covered under the DEPB scheme. Incorporating these items within the drawback schedule and assigning appropriate duty drawback rates for these items will be a challenge, said an analyst.

Two-wheeler exporters are likely to be hit by the removal of DEPB as their benefits have been reduced to 5.5 per cent from 9 per cent, he added.

The Steel Ministry has recently proposed to hike the export duty on iron ore to 30 per cent from 20 per cent to augment the availability of raw material for the domestic steel industry.

The Finance Ministry is expected to take a final call soon.

Published on September 20, 2011

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