Depreciating rupee boon for small mfg exporters

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Priyanka Sahay | 29 May, 2012
While the depreciating rupee is giving sleepless nights to many, it is a huge opportunity for India's small and medium manufacturing exporters as their goods are now cheaper in dollar terms, the Federation of Indian Micro and Small and Medium Enterprises (FISME) says.

"The currency of India's major competitor China is getting stronger by the day which means their goods are becoming costlier in terms of dollars," said V.K. Agarwal, President FISME.

"The currencies of other competing countries such as Vietnam, Thailand and Indonesia have also depreciated but much less than what the Indian rupee has done, thus adding to Indian competitivenes," it added.

According to Jagannadham Thunuguntla, strategist and head of research in brokerage firm SMC Global, while firms importing components are having a tough time, this is a boon for SMEs exporting products.

"The problem lies in import, but small enterprises who are into exporting will benefit almost by 20 to 22 percent due to the rupee depreciation," said Thunuguntla.

He also said that the rupee, which is currently trading at over 55 against the US dollar, will go over 60 in the coming days.

The rupee fell to a record low of 56.40 against dollar last week owing to the high inflation and huge current account and fiscal deficits. The currency however has recovered since then and was trading at 55.60 in the early trade Tuesday.

Economic Advisor in Ministry of Finance Kaushik Basu has also called depreciation "an opportunity" to export more.

FISME feels that Indian manufacturers must exploit this currency-generated price advantage to penetrate new geographies such as the ASEAN group of countries, Africa or Latin America.

Since the 1990s, Indian manufactured goods have been facing intense competition from Chinese goods in domestic as well as in global markets. Indian manufacturers have often pointed out that the key reasons for the dominance of Chinese products were export subsidy and currency manipulations in China.

Over the last 13 months, however, the Indian currency has depreciated by around 27 percent against the US dollar while the Chinese renminbi has appreciated continuously - by 40 percent since 2005 and by 12 percent since June 2010.

At the same time, the currencies of competing economies have depreciated only marginally - the Vietnamese dong by 0.4 percent, the Malaysian ringgit by four percent, the Thai baht by four percent and the Indonesian ruppiah by eight percent.