Rupee effect: Exporters keep their fingers crossed

Indian exporters are not opening the bubbly yet despite a rapid depreciation of the rupee, which fell to a 17-month low of Rs 44.17 against the US dollar on Tuesday before rising to close at Rs 43.85.

Exporters said they had not anticipated such a rapid depreciation of the rupee and had effectively been caught on the wrong foot once again as the currency has moved in the opposite direction over the past few months.

Since January this year, the rupee has depreciated by 10 per cent. However, a key downside of the weaker rupee is that it would further bloat the overall import bill, particularly for crude oil and capital goods.

Ideally, a weaker rupee would lead to higher export earnings. However, exporters had hedged themselves against a stronger rupee. "This pace of the rupee depreciation was not expected. The move will only benefit exporters who had not hedged their dollar earnings. As per my assessment, more than 60 per cent of exporters had hedged the rupee against the dollar in the range of 41 to 42," said Ajay Sahai, director general, Federation of Indian Export Organisations.

A large exporter like Sudheer Dhingra, the chairman and managing director, Orient Craft, is not upbeat about the rupee depreciation. "We had hedged at Rs 38 to Rs 42 to a dollar. As a result, we will not realise the benefits of the current exchange rate," he told Business Standard.

Rakesh Shah, chairman, Engineering Export Promotion Council, said: "The government and the central bank had advised exporters to adjust to the rupee rise. As a result, exporters went in for hedging. But no one hedged at the level of the exchange rate that is seen today. What one needs is a stable exchange rate to be able to negotiate export orders with foreign clients as well as take less risky hedging positions."

Leather exporters said a weaker rupee could benefit the sector, which employs 5 million people and has nearly 80 per cent of its companies classified as small and medium enterprises.

"As much as 67 per cent of our exports are to Europe and the value of the euro against the rupee has been showing a decreasing trend. Leather exporters with earnings in dollars may be benefited by the recent depreciation over the next six months," said Mukhtarul Amin, chairman, Council for Leather Exports.

Economists agree with the view that the recent rate of depreciation is unexpected. "We expected the rupee to reach 42 against the dollar by December," said Shubhada Rao, chief economist, Yes Bank.

The bank estimates that if crude oil prices hover between $122 and $125 a barrel, India's oil import bill will stand at $125 billion in the current year. "We also have to watch out for fertiliser imports. We expect the capital account balance at $66 billion. Moreover, overall accretion to reserves could be at $30 billion," Rao added.

Global rating agency Moody's said rupee is expected to hover around 43 for the rest of this quarter and recover to around 42.50 in the December quarter. Exporters feel that even with the depreciating trend in the rupee against the dollar, the export growth of sectors is likely to remain moderate.

According to Shah, exports from the engineering goods sector, which accounts for more than 20 per cent of the Indian export basket, increased by 23 to 24 per cent in the April-June quarter. "But this was because of an increase in raw material prices. The real growth in the sector would not be more than 5-6 per cent."

According to D K Nair, secretary general, Confederation of Indian Textile Industry, the future of the sector will be bleak this financial year. "Though the dollar has risen substantially, a growth in all other inputs such as fibre, power and interest rates have gone up. The rise in minimum support price of raw cotton for the coming season will make the situation worse," he said.