Falling rupee brings no cheers to exporters

GOING DOWN:A unit in Madurai engaged in manufacturing products for exports.

GOING DOWN:A unit in Madurai engaged in manufacturing products for exports.  

Buyers in recession-hit countries seek higher discounts

A falling rupee, which usually translates into higher returns for exporters, has failed to bring any relief to micro, small and medium enterprises in manufacturing sector as buyers in recession-hit Western countries are demanding discounts and reducing their quantum of orders.

The rupee has lost value recently as it has tumbled to an all-time low and breached the Rs. 56-mark against the U.S dollar.

Tamil Nadu Small and Tiny Industries Association (TANSTIA) vice-president K R. Gnanasambandan told The Hindu here on Friday that the countries in the European Union, which has been hit by a massive banking and sovereign-debt crisis, have taken to intensive austerity measures.

Madurai and other southern districts predominantly export turkey towels, textile products and garments to Spain, Greece and Italy, all of which have been hit by the crisis. Orders for handicraft products have completely ground to a halt to exporters in Madurai region as they are considered a luxury product that cannot be afforded in these times.

“While a falling rupee is supposed to be good news to exporters as it brings in more money in terms of rupees for same amount of dollars, it has not been the case this time around.”

Mr. Gnanasambandan urged the Central Government to provide a level playing field for small industries engaged in exports. He pointed out that the industries in China accessed credit at 4 to 5 per cent, Japan 3 per cent, Malaysia and Singapore 4.5 per cent with the U.S. also on the lower side at 4 to 4.5.

However, in India, small industries were provided credit at 14 per cent.

Stable environment

“A stable currency without sudden movement either ways was vital for the export business,” said M. Anbukani, Managing Director of Penguin Apparels here, which operates six 100-per cent export oriented units with an annual turnover of US $ 20 million. The firm supplies garments to markets in the U.S., Canada and the Europe.

Even the high domestic inflation, which was driving up the operating costs, was wiping out any short-term benefits brought by the falling rupee. Further, a falling currency brings benefits only on orders executed in the immediate past.

However, it greatly harms the long-term business prospects as buyers abroad begin to question the economic fundaments of the country, he added.

Shrinking export market

S. Duraisamy, Chief Executive Officer of an exporting firm here, said that rupee depreciation was not adding to profitability as the export market was rapidly shrinking.

“The U.S. market is still down and Euro Zone is in a state of political turmoil. Hence, buyers do not have the confidence in their economy to place orders.”

However, the price of raw materials was seeing a lot of fluctuations. The price of cotton in the New York Futures Market went from 80 cents per pound in 2010 to 200 cents in 2011 to around 67 cents at present. All these factors were eating into the profitability of exporters, said Mr. Duraisamy who has been in the export business for 15 years.

Other trade bodies such as Tamil Nadu Foodgrains Merchants Association have urged the Prime Minister to take immediate steps to protect the trade and industry from the fast-eroding value of the Indian Rupee against the U.S. dollar as it was driving up the import bill.

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