My dear fellow exporters,
Rupee depreciation has just been equal to the rate of Consumer Price Index (CPI) – measured inflation, giving absolutely no advantage to the exporters on exchange rate whereas the cost of production and transactions have risen, leaving Indian exports less competitive in the international market.
Indian exporters were also paying real interest rates much higher than the competitive peers like China, Malaysia, Argentina and Mexico.
Our analysis of engineering exports shows that between July 2015 and July 2016 the rupee depreciation is just about the same as the CPI inflation. As the rupee depreciated, the cost of production inched up; but on the other hand, the pricing power of Indian exporters has not been improving in the tough global markets.
Analysing on the currency play and its impact on the exports, it is found that while the pace of decline in the exports has declined, the development has to be seen on a very base year-on-year since the drop in shipments had started some 20 months ago.
Indian rupee was trading around 67 to a dollar in July this year, against 63.38 to a dollar in July 2015, depreciating by less six per cent. The CPI inflation for July, this fiscal was above six per cent. Therefore, in a way, rupee is over-valued in real terms.
While the real interest rate in India is about nine per cent, it is less than five per cent in China and Malaysia, below one per cent in Mexico and minus four per cent in Argentina. In short, rupee depreciation has placed Indian exporters on a disadvantageous position against our competitors.
Yours sincerely,
(Tarvinder Singh Bhasin)