Weak rupee not enough to help out India exports
the situation for export prospects is weak given the kind of trade war happening in the world N.R. Bhanumurthy, Economist at National Institute for Public Finance and Policy
mumbai/new delhi — A weak currency is good for exports. In India’s case, the script is not so straightforward.
While the rupee is Asia’s worstperforming major currency this year, a demand-killing trade war threatens Indian exports that have already been hurt by policy disruptions over the past two years. History shows the currency’s moves have hardly impacted shipments. If anything, a slide in the rupee has ended up inflating the nation’s import bill.
“The situation for export prospects is weak given the kind of trade war happening in the world,” said N.R. Bhanumurthy, economist the National Institute for Public Finance and Policy and a co-author of a 2013 paper on whether rupee’s weakness matters to Indian manufacturing exports.
Unlike China, Taiwan and South Korea, India isn’t part of big supply chains globally. India’s goods exports contribute only about 12 per cent of gross domestic product and government officials have blamed its poor showing on the rupee’s strength. The rupee slumped to a new low of 69.1275 per dollar on Friday.
The rupee’s level will adversely impact manufacturing as domestic prices of imports will go up, said Ajay Sahai, director-general of the Federation of Indian Export Organisations. Since many currencies are depreciating at a faster pace, India may face increasing competition in markets where it’s competing with them, he said.
The rupee continues to be overvalued on a real effective exchange rate despite the slide, and there was no question about being nervous about the depreciation, said Rajiv Kumar, vice chairman of think-tank NITI Aayog. Modi’s chief economic adviser, Arvind Subramanian, also welcomed the rupee’s decline, adding that it was a natural adjustment that was taking place. —