Drop in global demand to counter gains from falling rupee: exporters

A 6.9% depreciation of the rupiah against the greenback since January will “certainly help” exporters, but a potential slowdown in demand in key markets – mainly the United States and the EU – due to fears recession turned out to be a major concern for them. The rupee recovered 8 paise to settle at 79.91 on Friday, after nearly hitting the psychological mark of 80 to the dollar on Thursday.

Exporters FE spoke to also pointed out that the currencies of some of India’s competitors have also weakened against the dollar, blunting India’s advantage. For example, the South Korean won has depreciated 10.3% against the greenback since January, while the Bangladeshi taka has weakened 8.3% and the Malaysian ringgit 6.4%. The greater fall in the currency of Bangladesh, India’s biggest competitor in the garment sector, in addition to its duty-free access to the US and European markets, will significantly boost its export competitiveness. Of course, the currencies of countries like Indonesia, Singapore and Vietnam depreciated at a slower rate than the rupiah. However, Vietnam, in particular, enjoys a higher cost advantage than India in labor and logistics, and with its attractive incentives, it has already become an important center of export of electronic products, leaving New Delhi far behind.

Additionally, import-sensitive export segments including oil, gems and jewelry and even electronics will face upward pressure on input costs, exporters said.

The flow of orders from the US and EU has already started to slow in some segments, a sign that could increase in the coming months. The two markets alone accounted for 31% of India’s merchandise exports in FY22. In addition, the United States (and Canada) and Europe (including the United Kingdom) accounted for respectively 56.2% and 30.1% of India’s software services exports worth $134 billion in FY21, according to an RBI report released in September 2021. The dollar is still the currency preferred, with a share of 72%.

Ajay Sahai, chief executive of exporters’ umbrella body FIEO, said: “The depreciation needs to be put into perspective. The currencies of many of our competitors have depreciated against the dollar at a faster rate than ours.

“Furthermore, exporters face a triple whammy. First, there appears to be a shift in consumption from goods to services. Second, given the high inflation in all countries, consumer purchasing power (in key markets) has been affected. Third, domestic exporter inventory levels remain high,” Sahai said.

Narendra Goenka, chairman of the Apparel Export Promotion Council, said, “Demand for apparel from the United States is expected to drop by 10-15% as stores sell less there. The depreciation of the rupee will certainly help, but the slowdown in demand should be more pronounced. In addition, buyers offer lower prices for products. Some relief comes from the commodities front, as prices (of cotton, yarn, etc.) have come down recently, albeit to a very limited extent, and are still well above the usual level.

R Uday Bhaskar, Managing Director of the Pharmaceutical Export Promotion Council, said: “The depreciation of the rupiah will provide some relief, but at the same time the pharmaceutical industry imports inputs worth around $6 billion a year. year. So on these imports we have to pay more. Of course, exports are higher – $24.5 billion in FY22.”

In April, the World Trade Organization cut its merchandise trade volume growth forecast for 2022 to 3% from its previous forecast of 4.7%. It also only forecasts growth of 3.4% in 2023. Some fear that this global trade body will cut its forecast further. This will also have an impact on India’s export prospects.

According to an earlier report by Nomura, each 1% depreciation of the REER (the RBI’s real effective exchange rate index, based on the export-weighted average of dozens of currencies) only increases export growth by 0 .9 percentage points in the same quarter, while every 1% growth in global GDP leads to an increase in export growth of 2.7 percentage points with a one-quarter lag. This means that global growth or lack thereof can potentially impact export opportunities for India rather than the movement of its own currency.

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