Exporters of Service May Benefit From Rupee Depreciation

The rupee crashed to a fresh low of 77.47 against the greenback on Monday. The exporters expected the weakening domestic currency would aid a broad range of sectors, especially the labour-intensive ones like agriculture, textiles, garments, handicrafts and footwear, where the margins are usually limited and service sectors like IT.

The rupee depreciation would partially reduce shipping costs and supply chain disruptions due to the Russia-Ukraine crisis. However, the rupee must stabilise at a depreciated level in the coming weeks for the benefits to accrue and stay at that level for a relatively long period.

The depreciation of the currencies of India’s competitors will determine the degree of gains for India. However, the sectors not dependent on input imports would have an advantage. The domestic currency has dropped to 4% against the dollar this year and 3.8% since Russia’s military operations in Ukraine on 24 February. 

According to the president of the apex exporters’ body FIEO, A Sakthivel, the rupee depreciation would be suitable for exporters. It will particularly help industries like textiles and software where the dependence on imported raw materials is limited. However, it would increase the costs of manufacturing firms in sectors like gems and jewellery and petroleum that depend on large volumes of imported inputs for domestic value addition and subsequent re-exports.

As per a noted textile expert, DK Nair, the rupee depreciation would help exporters if sustained, especially in sectors like garments and textiles, where the dependence on imported raw materials is minimal.

The merchandise exports breached the record target for FY22 to hit USD 421.8 billion, while services exports peaked at USD 254.4 billion. The government aims at a significant rise in exports this fiscal also, even on a not conducive base. Against this backdrop, the rupee depreciation would do good for exporters.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in

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