Short-term joy for exporters, long-term pain for importers

The falling rupee is good news for exporters in the short run as they get more for every dollar earned despite some hedging by large businesses. However, the high volatility in the currency is affecting business decision making, say exporters. “The situation is so volatile that exporters have not been able to finalise their future orders,” says Ajay Sahai, Director-General of the Federation of Indian Export Organisations (FIEO).

Some exporters also complain about buyers asking for discounts every time the rupee falls. “Importers have been asking for discounts. Volatility coupled with speculation will impact business sentiment,” says Apparel Export Promotion Council Chairman A. Sakthivel.

Small exporters reap the maximum benefits when the rupee falls. However, they are the ones who are hit hardest when the currency rises.

Speaking to reporters earlier this week, Commerce Secretary S.R. Rao said: “Most contracts for exports and imports take place over a three-six month period. The fluctuating rupee is not good (for) business.”

Exporters agree but don’t seem to mind as long as the general direction of the rupee movement is southwards.

The rupee has made imports dearer and is adding to the strain in the current account.

Although the rise in prices of imported inputs is more than compensated by gains made in exporting the final product, the country’s trade account takes a hit every time the rupee depreciates as the rising cost of crude imports widens the deficit.

“Every Re 1 depreciation increases the crude cost by Rs 400 crore per month and by Rs 5,000 crore annually,” says P.K. Goyal, Director (Finance), Indian Oil.