In a positive turn of events, experts suggest that the latest depreciation in the Indian rupee could potentially benefit the country’s labour-intensive export sectors. The devaluation is anticipated to drive up outbound shipments of readymade garments, carpets, and handicrafts by 2-10%. Remarkably, handicrafts, characterized by minimal imported content, stand to gain the most from this currency fluctuation, as the benefit could soar as high as 100%.
Industry insiders maintain that if the rupee depreciates by approximately 10% and the import content in the exported products stands at 20%, the net gain for exports could amount to 8%. Negotiating contracts during this period of devaluation may also prove advantageous for exporters who haven’t hedged, potentially resulting in windfall gains. However, it is important to note that inflation often mitigates the benefits conferred by depreciation, caution exporters.
The global economic slowdown has adversely impacted labour-intensive sectors, with production levels dwindling compared to the previous year. The first half of 2023-24 saw a 21.9% year-on-year decline in apparel manufacturing and stagnant growth in the leather industry. Correspondingly, the production of wearing apparel experienced a staggering 34% decline compared to pre-COVID-19 levels, while leather exports dropped by 22%.
These challenges have significantly impacted exports as well. During the April-September period, ready-made garment exports saw a 15.4% decline year-on-year, while handicrafts and leather product exports witnessed declines of 13.5% and 12.6%, respectively. In the gems and jewellery sector, which relies heavily on imports with a content of roughly 90%, the net gain is projected to be around 1%, albeit varying for each company. Consequently, the gems and jewellery segment has suffered one of the largest contractions in exports.
On a brighter note, exporters of engineering goods foresee a 4-5% depreciation of the rupee translating into a striking 10% growth in exports, provided raw material prices remain stable.
As India’s labour-intensive sectors grapple with the challenges posed by the global slowdown, the depreciation of the rupee offers a glimmer of hope for a revival, potentially breathing new life into the country’s exports.
