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Appreciation of rupee taking toll on textile exports

May '07
The Indian Rupee soared to its highest level in nearly ten years trading at Rupee 40.66 to a dollar as on 26th April 2007. The Rupee has appreciated from trading at a level of Rs.44.19 to the US Dollar on 6th March 2007 to the present level of Rs.40.66 to the US Dollar as on 26th April 2007, recording an increase of around 8% over this period. This increase has had a direct bearing on export realizations contributing to a slowdown in exports.

Rupee vis-à-vis Competing Currencies:
As is well known, India's major competitors in the field of textiles and garments are China, Pakistan, Bangladesh and Indonesia.

Table below gives the movement of various competing currencies against US$ during the period 6th March 2007 - 26th April 2007.

As can be seen, the Indian Rupee has appreciated the maximum of around 8% compared to the other competing currencies during the period from 6th March 2007 to 26th April 2007.

The Chinese Yuan, on the other hand has appreciated by 0.08% during this period, while the Indonesian Rupiah has appreciated by 1.63%. The Bangladeshi Taka has appreciated by 0.49% while during this period, Pakistan Rupee has remained stable.

Worsening Export Performance:
The profit margins in textiles and garments exports are relatively lower than other commodities. The appreciation in the value of the Rupee has thus already started blunting the competitiveness of the Indian textile sector leading to decliningexports in major markets like USA. Consequently the target of US $ 25 billion set for the T&C sector for the year 2007-2008 is unlikely to be achieved.

Along with a severe pressure on prices, high interest costs, growing cost of inputs on account of rising inflation, high transaction costs on account of poor infrastructure, the appreciating rupee is not only making exports from India highly uncompetitive in world markets but has also resulted in exporting firms, losing money heavily, instead of making it.

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