Weaker rupee seen as boost for exports, but reality is more complex: FIEO
The domestic currency has depreciated over 4 per cent last year. The rupee closed at 86.22 against the US dollar on Friday, weighed down by a stronger American currency. A weaker rupee significantly raises these input costs, often nullifying the perceived benefits of depreciation
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New Delhi: A weaker rupee is often seen as a boost for Indian exports by making goods more competitive globally, but the reality is more complex, the apex exporters' body FIEO said on Friday. Federation of Indian Export Organisations (FIEO) President Ashwani Kumar also said the recent depreciation of the domestic currency against the US Dollar represents a complex economic scenario with mixed outcomes. "A weaker rupee is not a one-size-fits-all solution to boost exports. A strategic, multi-pronged approach is needed to address the root causes of depreciation while mitigating its adverse effects," he said.
Explaining it further, he said, that if the rupee depreciates by 2 per cent and the currencies of key competitors decline by 3-5 per cent, Indian exporters lose competitiveness in global markets. "This relative disadvantage erodes any potential price advantage Indian goods might gain," Kumar added.
The domestic currency has depreciated over 4 per cent last year. The rupee closed at 86.22 against the US dollar on Friday, weighed down by a stronger American currency. Kumar added that the depreciation also results in a rise in input cost, exchange rate volatility, inflationary pressure, and external debt burden. Many Indian exporters depend on imported raw materials and components.
A weaker rupee significantly raises these input costs, often nullifying the perceived benefits of depreciation. "Fluctuating exchange rates create uncertainty, making it difficult for exporters to price their products competitively and plan for the long term," he said adding that the depreciation inflates the cost of imported goods like oil and commodities, driving up production costs and fuelling domestic inflation and this reduces consumer purchasing power.
He added that a weaker domestic currency increases the cost of servicing foreign currency-denominated external debt, creating additional pressure on businesses and the government. Exports contracted for the second month in a row by about one per cent year-on-year to $38.01 billion due to global uncertainties, while imports rose by about 5 per cent to $59.95 billion.
