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.

Cargo Talk - - Guest Column - (The views ex­pressed are solely of the au­thor. The pub­li­ca­tion may or may not sub­scribe to the same.)

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

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