Rising rupee may leave 80 lakh out of work this year
The surging rupee and steep interest rates have taken a toll on overall industrial output, writes Saikat Neogi.india Updated: Sep 17, 2007 03:50 IST
Anand Sharma, a Noida-based garment exporter, had to lay off 10 out of 25 people last month as his profit margin declined by over 40 per cent in the last six months, thanks to the appreciating rupee. Similarly, 100 kilometers from Noida in Moradabad, Vikas Sood is planning to temporarily shut down his export-oriented brassware factory that employs 20 people, as he finds exports no longer profitable.
Sharma and Sood, both small exporters with a yearly turnover of much less than Rs 1 crore, are victims of the rising rupee, which has appreciated by 11 per cent against the dollar in the last one year. Small firms like theirs account for almost 70 per cent of exports in sectors like garments, leather, brassware, sports goods and woolen products.
The Federation of Indian Export Organisations (FIEO) estimates that there will be a job loss of around 80 lakh this year because of the rising rupee. “We have reached a stage where we have stopped entering into new contracts. Many small exporters of traditional items in price-sensitive segments have already shut down their factories,” says G.P. Gupta, president of FIEO.
In the textile industry alone, which is highly labour intensive and the largest employment provider in the country after agriculture, the appreciating rupee is likely to lead to a loss of around 5.8 lakh potential new jobs in 2007-08 alone. The Confederation of Indian Textile Industry (CITI) estimates there will be a loss of 2.72 lakh jobs in the industry and the rest in the allied sectors. Due to a slowdown of exports in 2006-07, direct employment gains from textile exports reduced by 57,600 and by 65,800 in the allied industries.
DK Nair, secretary general, CITI, says the rise in the rupee and increase in interest rates come at a time when the garment industry has just begun to gain scale and invested over $1.5 billion after the WTO removed quotas for garment exports for Indian manufacturers in 2005. “We had a glorious past, have a glorious future but a miserable present,” Nair quips.
The rupee now stands at a near-decade high of 40.45 against the greenback, from 44.2 when the year began. Rupee appreciation has been the sharpest in three decades in the April-June quarter this year and analysts expect the rupee to gain further. The appreciating rupee has hurt export growth, which has come down to 18.22 per cent during April-July this year as against 27.63 per cent during the same period last year. During this period, the rupee has appreciated by 8.2 per cent.
The rising rupee and steep interest rates have taken a toll on overall industrial output, which slipped to 7.1 per cent in July this year from a high of 13.2 per cent in the same month last year. Analysts feel that since the manufacturing industry contributes one-sixth of the gross domestic product, a decline in this sector indicates the country may not be able to sustain over nine per cent economic growth this fiscal year.