The rupee has depreciated by six per cent in the first half of the current calendar year to trade currently at 75.58 compared to 71.38 against the dollar on January 1 this year. In fact, the rupee slid to the level of 76.21 against the dollar on June 16, but recovered later on intervention from the Reserve Bank of India (RBI).
Unfortunately, the increasing number of coronavirus (Covid-19) cases impacted the Indian economy due to the closure of factories and curbs on businesses operations. As a result, the rupee is forecast to slip to even 80 against the dollar by the end of the current calendar year. For many products like textiles, India is operating with very thin margin of 2-3 per cent and hence, 6 per cent rupee depreciation makes a big difference for these sectors.
“The three-month range of USD/INR is 75.50-77.50 and six month range is 74-80,” said IFA Global in its latest report.
This means, the rupee has further room to depreciate by another six per cent in the second half of the current calendar year.
The Agricultural and Processed Food Product Export Development Authority (Apeda) reported India’s total export of farm produce, allied and processed food exports at $35.1 billion for FY20 as compared to $38.5 billion in the previous year. India’s agriculture exports hit a record of $42.8 billion in FY14. Apeda-registered products comprise around 50 per cent of India’s overall agricultural exports.
“For basmati rice exports, we get benefit of rupee depreciation for the goods in pipeline and receivables for exported goods,” said Gurnam Arora, Joint managing director, Kohinoor Foods Ltd, the producer of Kohinoor brand basmati rice.
Ujjwal Lahoti, chairman, Lahoti Overseas, a Mumbai-based manufacturer and exporter of kidswear, believes that rupee depreciation would certainly help improve India’s competitiveness in the world market and increase textile exports.
There is another issue which may have to be seen in context of rupee deprecation.
India has been the world leader in commodities like basmati rice, guargum and buffalo meat. The country faces tough competition with other nations in the export of cotton, soybean, sugar non-basmati rice, textiles and gems and jewellery, for which rupee depreciation makes a big difference.
In gems and jewellery, for example, about 95 per cent of the value of ornaments comes from raw materials imported into India. Hence, the value addition component of a mere 5 per cent proves to be a real differentiator.
“Rupee depreciation definitely helps. But, we need to see this in the context of the currency movement of the country we are competing in the export markets. For example, if we see Brazil as our competitor, its currency, the ‘real’, has depreciated more than the ‘rupee’. Also, the Turkish lira, UK’s pound and Indonesia’s rupiah have depreciated sharply. In that case, the gain of depreciating rupee gets nullified. But, yes, India would be able to make some shipments with depreciated rupee. This would not have been possible had the Indian currency remained firm,” said Ajay Sahai, Director General, Federation of Indian Export Organisation (FIEO).
“For marine products, Vietnam avails six per cent duty benefit in Europe due to the free trade agreement (FTA) signed between them. So, rupee depreciation to this extent would certainly benefit India for marine exports to the European Union,” said Sahai.