Rising rupee sinks exports recovery hope

MUMBAI: Indian exporters have been struggling to make the best of the turnaround in the global economy, with the rising rupee taking a toll on the demand for their products. Exports continued to fall, down 11.4% to $12.5 billion in October, according to last week’s official figures.

The number comes at a time when the Obama administration and other global leaders have been calling for China to allow its fixed currency (Yuan) to rise. China is one of the key competitors for Indian exporters, along with Vietnam, Bangladesh and Sri Lanka.

Exporters are, in fact, facing a double whammy, the recent rise in raw material costs adding to their pain. Cotton yarn and fibre prices have risen 10-12% in the recent past while gold prices have touched a new high.

The rupee, at 46.22 to a dollar, has surged 14% from its record low of 52.20 reached in March. Some analysts say it could touch 45 by March ’10. In contrast, Yuan is pegged to the dollar and hence remains unaffected by economic data. An appreciating currency reduces the demand for the products of that country as it becomes more expensive.



India’s exports have been falling month-over-month for more than a year now. Exports between April and October stood at $90.4 billion, down 26.5% over the year-ago period. “Even though 2007 was tough because of a stronger rupee, the order flow then was higher,” said Clothing Manufacturers Association of India president Rahul Mehta. India missed the export target of $11.62 billion in FY09 and may miss the association’s target of even $10 billion this year, if the current trend continues.

India’s share in the $373-billion global clothing industry has dipped to 2.6% from 3.3% a few years back, according to the Apparel Export Promotion Council (AEPC) data. More than two-thirds of the total textile exports goes to the US, Europe and Japan, worst affected by the credit crisis.

Industry veterans, like Bangalore-based Gokaldas Exports chairman Rajendra Hinduja, say the country is facing strong price competition from countries like China, Bangladesh and Vietnam.

The rise in rupee is also hurting exports in gold jewellery, which grew 2.4% during first half of the current fiscal to $4.4 billion.