Fears of a further appreciation of rupee have set the alarm bells ringing with a recent internal government survey revealing alarming statistics on India’s eroding export competitiveness.
A survey by the Directorate General of Foreign Trade (DFGT) reveals that labour intensive industries such as textiles, handicraft and food and farm products have been badly hit by a persistently rising rupee.
Export realisations have fallen by 12 per cent for chemicals, and between 6 and 6.5 per cent for textiles. Exports are likely to decline by 20 to 25 per cent for processed food and farm products, electronics and electrical items, and steel products.
The rupee has appreciated by 12 per cent in 2007 and is currently trading at under Rs 40 to a dollar. Almost 70 per cent of India’s external trade is invoiced in dollars forcing many to believe that the export target of $160 billion for this year is unlikely to be met.
The US Federal Reserve cut its benchmark rate by 0.75 percentage points on Tuesday, which could further boost the rupee as foreign institutional funds pump in money in emerging markets seeking higher returns.
A commerce ministry note said textiles, electronics, handicraft, machinery, bi-cycle, chemicals, processed foods, automobile components and medical instruments constitute around 50 per cent of India’s total exports. “Export prices of products in these 11 sectors have become costlier by 10 to 12 per cent on average vis-à-vis competing countries due to rupee appreciation,” the note said.