Strong rupee may shave off USD 30 bn in Indian exports

By now, it's well known that India's software industry has been hit by the rising rupee and the problem will only rise if the currency maintains its upward climb against the dollar. But what was probably not known is that IT would be the biggest loser while other sectors, which have been crying foul due to cheaper greenbacks, might see a smaller dent, thanks to lower dependence on imported raw material and clients.

A study commissioned by commerce ministry has revealed that even if exports grow 20 percent this year, the appreciation of the currency from Rs 44 to a dollar to Rs 40.50 is expected to result in a Rs 53,000 crore or USD 13 billion loss. After IT, the rupee appreciation will have the biggest impact on the profitability of meat, spices and textiles exporters followed by leather and gems and jewellery. Pharma, plantations and construction sector are expected to have a moderate impact, while engineering goods and chemicals may not be affected much.

The study said rupee appreciation has rendered 11,000 people employed in textiles and garment firms jobless during March-June this year, while another 1,900 were unemployed in the leather sector. But overall, exports are going to result in net addition of jobs, though there would be sectors with lower exports which see lower employment numbers. And, if the currency continues to rise against the dollar - which accounts for 70 percent of the export invoices - the unemployment problem will accentuate. What's more, surveys conducted for the study have revealed that there has been considerable loss of business across sectors with those that depend more on imports for their raw material needs, hit the most. So, it's the gems exporters in Mumbai and Surat, who import nearly 75 percent of their raw materials, who are expected to be hurt most, followed by silk (over 70 percent dependence on imported raw material) and machine tools and electronics (around 45 percent each). With costs rising, it's only natural that profitability would be hit. While the biggest dent has been to the IT sector - as is evident from the first quarter results of Infosys, Wipro and Satyam - the report has predicted that profitability could fall by as much as 250 percent while textile companies would be hit by up to 150 percent, leather (75-80 percent) and gems and jewellery (60-70 percent).

Sources said the impact would have been lowered a little thanks to a package of measures including higher duty remission, cheaper export insurance and subsidised loans that was announced by the government earlier this month.

Source: The Economic Times