FIEO says Rupee Fall
does not Help Exporters, Other Factors like Competitive Devaluation Compensate
Gain
The
President of FIEO, Mr Ashwani Kumar, stated that the recent depreciation of the
Indian Rupee against the US Dollar represents a complex economic scenario with
mixed outcomes. While it is often assumed that a weaker Rupee boosts exports by
making Indian goods more competitive globally, the reality is far more nuanced,
said Mr Kumar.
Mr
Kumar highlighted that currency depreciation is relative. If the Indian Rupee
depreciates by 2% while the currencies of key competitors decline by 3-5%,
Indian exporters lose competitiveness in global markets. This relative
disadvantage erodes any potential price advantage Indian goods might gain.
The
depreciation also results in:
1.
Increased Input Costs: 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.
2.
Exchange Rate Volatility: Fluctuating exchange rates create uncertainty, making
it difficult for exporters to price their products competitively and plan for
the long term.
3.
Inflationary Pressures: Depreciation inflates the cost of imported goods like
oil and commodities, driving up production costs and fueling
domestic inflation. This reduces consumer purchasing power and negatively
impacts overall economic growth.
4.
External Debt Burden: A depreciating Rupee increases the cost of servicing
foreign currency-denominated external debt, creating additional pressure on
businesses and the government.
FIEO
President emphasized that 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. This
includes:
·
Improving
Export Competitiveness: Enhancing production quality, reducing reliance on
imports, and fostering innovation.
·
Attracting
Foreign Investment: Establishing a stable and investor-friendly environment to
encourage long-term capital inflows.
·
Controlling
Inflation: Implementing effective monetary and fiscal measures to stabilize
prices.
·
Diversifying
Export Markets: Reducing over-dependence on a few markets to buffer against
global economic shocks.
While
a weaker Rupee may offer limited short-term benefits for exporters, it is not a
silver bullet for economic growth. Mr Kumar concluded by stressing that Rupee
depreciation is driven by a combination of issues requiring a balanced and
well-considered approach. Addressing these challenges strategically will be key
to ensuring sustainable and inclusive growth for India.