With the import components of major exports becoming costlier and significant goods and service tax (GST) refunds yet to be released, Indian exporters claim the benefits of a weaker rupee are eluding them.
The rupee has reduced by 15 per cent since the start of the year. Continuously falling for the past six months — the longest such stretch since 2002 — the currency ended at 74.28 to the US dollar on Wednesday. A weaker currency generally denotes better prospects for exports as goods become competitive vis-a-vis competing nations.
“But contrary to popular perception, this depreciation has not benefited exports to the extent that the public expects, since a lot of exporters have already hedged their risk while exporters taking credit in foreign currency are being asked to surrender the equal differential in cash owing to exchange rate fluctuation,” Federation of Indian Exports Organizations (FIEO) President Ganesh Kumar Gupta said on Wednesday.
Exporters are also yet to receive Integrated GST refunds worth Rs 80-100 billion. On the other hand, states continue to refuse input tax credit, which have piled up to 150 billion, he added. Getting states to pay up their share of the levy has also remain difficult. States such as Andhra Pradesh, Uttar Pradesh, Bihar and Chhattisgarh have said they are out of funds to pay exporters, he added.
This continues to disproportionately hit small, medium and micro traders, who are still overlooked by banks while providing trade credit, Gupta added. On the other hand, competing economies are not far behind. “Despite India remaining the worst performing currency in the Asia-Pacific region, many other currencies such as Argentinian peso, Brazilian real, Russian ruble, South African rand and especially the Turkish lira, have depreciated at much faster pace giving increasing competition to India in specific sectors such as agriculture, metal and textiles,” Ajay Sahai, director general at FIEO, said.
Buyers from Africa, Middle East, Latin America, Asia are generally asking for discounts adversely affecting exports and exporters generally suffer due to currency volatility, he added.
However, India may clock export growth of 20 per cent in rupee terms in 2018-19, according to FIEO.
The government has tried to stop the slide, by making it easier for foreign investors to buy rupee bonds by Indian companies and raising tariffs on imported goods to stem the flow of money out of the country. On the latter issue, regular inter-ministerial meetings are being held. India’s exports managed to cross the $300-billion target for the first time in two years in 2017-18. In the April-August period of the current financial year, exports have risen by 16.13 per cent to $136.09 billion, up from $117.19 billion in the same period of the last fiscal year.
However, there were no signs of built-up stress reducing in certain labour-intensive sectors such as apparels. Export of readymade garments continued to contract in August, going down by 3.35 per cent. Industry experts pointed out that the sector has seen a downturn since October, 2017. Another major export earning sector, gems and jewellery, saw shipments rise by 23.95 per cent, lower than the 24.62 per cent growth rate in July. The sector had returned to the growth charts in June after months of contraction.