Rising rupee squeezing textiles, leather exports
A hardening rupee may have foisted India into the elite league of trillion-dollar economies, but the countries’ exporting community is not happy, as they seek out newer destinations to hedge their receipts and protect margins.
The rising rupee, which has appreciated by 11 per cent during the last 12 months, has raised doubts on achieving the $160 billion export target set for 2007-08.
Experts believe the appreciating rupee could hit the textile and leather sectors the hardest. Brokerage firm AnandRathi in a report on the impact on the textile sector said the recent rupee appreciation had taken a toll on the existing thin margins of textile players.
“Companies with high net exports will be the worst sufferers. Higher interest rates will hurt the bottom line aggressively as textiles is a working capital-intensive sector,” it said.
A Confederation of Indian Industry (CII) survey echoed this opinion. It said textiles and apparel export companies had witnessed a decline in total revenue, operating income and net profit margin to the tune of 7.9 per cent, 8.9 per cent and 7.9 per cent, respectively. It cautioned that there could be an erosion of net profit margins to the extent of 10.4 per cent during the next six months only on account of the appreciation of the rupee.
In the leather goods sector, the CII expected an erosion of net profits by 13.7 per cent in the next six months.
Mecklai Financial Chief Executive Officer Jamal Mecklai expected the overall trend of a strengthening rupee to continue for some time and felt export margins might get squeezed. “The overall trend of a strengthening rupee might continue. While export earnings in dollar terms might not be affected, the margins could be squeezed,” Mecklai said.
Latest official data showed that export growth slowed down to 18.07 per cent in May 2007 from 23.06 per cent in April. Exports during May totalled $11.86 billion. Imports rose by 26.36 per cent to $18.07 billion and left a trade deficit of $6.21 billion. Non-oil imports grew by 41.58 per cent.
Last month, the government had announced a series of measures that included quicker refund of certain taxes, reduction of the interest rate of exporters’ credit and offered interest on foreign currency earnings to cushion the adverse impact of the appreciating rupee.
Government officials felt that the strengthening rupee was impacting new orders and resulted in employment loss.
Exporters have pointed out that a strong rupee was hurting the profitability of exporters and eroded their competitiveness and were losing orders to competitors such as China, Thailand, Pakistan, Sri Lanka, Bangladesh, Vietnam and Indonesia.