Rupee depreciation because of Middle East events may not help exports, warns EEPC India

Rupee depreciation that may result from events in the Middle East may not help engineering exports, EEPC India has warned.

Due to the global slowdown, shipments to the Middle East too were contracting. “The disruptions can cause further setback,” sources say.

In the wake of the adverse geo-political situation in the Middle East, Indian rupee may witness some volatility but depreciation of the home currency does not always help exporters.

In fact, a contrarian trend was witnessed for several months in engineering exports during the current financial year, an analysis by the trade body has shown.

Decline in engineering exports

Engineering exports aggregated $51.07 billion during April-November 2019-20, against $52.15 billion during the same period last fiscal, thereby registering an over 2 per cent decline

The analysis shows that till November, although the rupee saw depreciation, there was no significant jump in exports. Rather, a declining trend was witnessed.

Specifically, the rupee depreciated in April, May, June, July and August. Ideally, this should have helped engineering exports grow. But, the reverse happened, EEPC sources said, adding that exports contracted during all these months.

The fall in shipments during August was quite severe, by close to 9 per cent, even as the rupee depreciated by 2.30 per cent, the trade body said.

“The currency play can make a difference along with several other factors, but it is not the only factor in securing our competitive advantage. Thus, if the rupee depreciation results from the troubled geo-political situation in the Middle East, it may not be of advantage; rather the trade disruption can be much more severe for shipments to the region,” Ravi Sehgal, Chairman, EEPC India, said.

According to him, currency advantage can occur if a persistent trend is maintained over a long period of time. And this combines with several other factors, such as the cost of raw materials and capital, as well as the transaction cost.