SIMPLE SET: A weak rupee will be a boon for Indian exporters
- Indian traders would now gain a competitive advantage from the sharp drop in the rupee.
Indian exporters will benefit from a stronger dollar because their income is in US dollars and expenditure is in rupees meaning they make a profit when they exchange the USD for INR to pay salaries and rent.
The rupee has been weakening against the US dollar since the beginning of the year, reaching a low in its lifetime this week. While the octogenarian currency has discouraged many Indian students preparing to fly abroad, the Indian textile industry may be lining up larger piles of clothing to ship abroad.
According to the Ministry of Trade and Industry, the
ready-made export Garments (RMG) of all textiles contributed 3.80% to the country’s total goods exports in April-June 2022. India’s RMG exports were worth $1449.3 million in June 2022, compared to an export of $1,003. 3 million in June 2021, growing 44.67%.
In general, Indian traders will earn more for the same orders as the
What does India export and how?
Apart from textiles, technical goods, petroleum products, gemstones and jewelry, chemicals were the top five goods exported from India. These traders would now gain a competitive advantage from the sharp drop in the rupee.
Simply put, Indian exporters will benefit from a stronger dollar because their income is in US dollars and expenditure is in rupees, meaning they make a profit when they exchange the USD for INR to pay salaries and rent.
India’s trade deficit gap could narrowIndia has a trade deficit, which means it imports more than it exports. India’s imports surpassed exports by more than $87 billion (about ₹6.87 lakh crore) in 2021-22.
The weakening of the rupee makes exports more viable, but imports become more expensive in rupees. Non-essential imports will be discouraged to prevent a further outflow of dollars from the country. This, in turn, would improve India’s deficit. India’s trade deficit is generally offset by capital flows, but with the sale of FPIs, the rupee is under further pressure.
India is the world’s second largest consumer of gold. In an effort to reduce demand for the yellow metal, India raised its basic import duties on gold from 10.75% to 15% earlier this month.
In addition, RBI’s latest decision to allow international trade in rupees is expected to ease pressure on India’s forex reserves.
Bidding on the docks?
Indian merchants will have to prepare for a fierce bidding war. They will have to compete with exporters from other countries such as the Philippines and Thailand, whose currencies have fallen more than the rupee against the dollar and their exports are on the rise.
Neighboring China is the world’s
biggest exporter. In 2021, China
exported an estimated $3.3 trillion in goods and services by 2021, mainly electronic equipment and machinery such as broadcasting equipment, computers, integrated circuits, office machine parts and telephones.
China also had a $73 billion trade surplus with India in 2021-22 – that is, Indian imports from China surpassed its exports to China by $73 billion.
Like the Chinese currency yuan too
dropped and given that the country occupies a dominant position in the international export markets, India would see greater price competition.
Neighboring China is the world’s
biggest exporter. In 2021, China
exported an estimated $3.3 trillion in goods and services by 2021, mainly electronic equipment and machinery such as broadcasting equipment, computers, integrated circuits, office machine parts and telephones.
China also had a $73 billion trade surplus with India in 2021-22 – that is, Indian imports from China surpassed its exports to China by $73 billion.
Like the Chinese currency yuan too
dropped and given that the country occupies a dominant position in the international export markets, India would see greater price competition.
A weaker rupee could make foreign education more expensive
While the depreciation of the rupee is good news for traders, Indian students planning to study abroad may need to restructure their budget.
Students will have to pay more rupees for every dollar they spend. Simply put, you will have to spend more than 21% more in terms of rupees to buy the same number of dollars.
If you budgeted ₹20 lakh for your education abroad, you should now increase it to ₹24.2 lakh.
International travel now more expensive
After the lockdown, travel sentiment among consumers was high. As the rupee loses in value against the US dollar, your plans to travel abroad will burn a deeper hole in your pocket – like everything else, paying for your purchases in foreign currency, more so the US dollar, is now more expensive than ever before.
