Falling rupee steals export profit
Pushkar Mukewar, Co-Founder and Co-CEO, Drip Capital, talks about the impact of the falling rupee on exports and why exporters may witness only a marginal shift in revenue.
Imported materials, used to manufacture export commodities, leave a negligible positive impact for exporters
The Indian rupee has been on a downhill for most of the year, falling for six months straight, the longest stretch since 2002. Since 2013, the rupee has lost around 20.8 per cent against the US dollar. A common perception is that devaluation in currency means good times for exporters because they end up selling more as their goods/ services become cheaper in the international market. However, there are several factors at play that mean that exporters see a negligible positive impact of the falling rupee, such as import dependencies damping because of global supply chains, increased profit hedging, etc. For instance, there are trends that show that trade impacts the value of a currency, rather than the other way around. The rupee depreciation rate in June this year was 5.19 per cent, while the export growth was 14.17 per cent. However, when the rupee further fell sharply by 6.56 per cent the subsequent month, the export growth in fact reduced to 9.37 per cent. This is because we import materials like crude, rough diamonds, gold, and precious metals to manufacture our major export commodities. Such factors mean that Indian exporters might see only minimal impact of the rupee’s continued devaluation.
Pushkar Mukewar Co-Founder and Co-CEO Drip Capital