- Indian merchants would now gain a competitive advantage due to the sharp decline in the rupee.
Indian exporters will benefit from a stronger dollar as their income is in US dollars and expenditure is in rupees, which means they gain when exchanging the USD to INR to pay salaries and rents.
As per the Ministry of Commerce and Industry, the export of readymade garments (RMG) of all textiles contributed 3.80% to the country’s total merchandise export in April-June 2022. India’s RMG exports were worth $1449.3 million in June 2022, against export of $1003.3 million in June 2021, reporting growth of 44.67%.
Overall, Indian merchants will earn more for the same orders as the
What does India export and how do
Apart from textile, engineering goods, petroleum products, gems and jewellery, chemicals were the top five commodities exported from India. These merchants would now gain a competitive advantage due to the sharp decline in the rupee.
Simply put, Indian exporters will benefit from a stronger dollar as their income is in US dollars and expenditure is in rupees, which means they gain when exchanging the USD to INR to pay salaries and rents.
The gap in India’s trade deficit might tighten afterall
India runs a trade deficit – which means that it imports more than it exports. India’s imports exceeded exports by over $87 billion (about ₹6.87 lakh crore) in 2021-22.
The weakening of the rupee makes exports more viable but imports become more expensive in rupees. Non essential imports will be discouraged to prevent a further outflow of dollars from the country. This, in turn, would improve the deficit that India runs. Typically India’s trade deficit is compensated by capital flows but with FPI selling, there is further pressure on the rupee.
India is the world’s second-biggest consumer of gold. In a bid to reduce demand for the yellow metal, India raised its basic import duty on gold to 15% from 10.75% earlier this month.
On top of that, RBI’s latest decision to allow international trade in rupees is expected to reduce the pressure on India’s forex reserves.
Bidding war on the docks?
Indian merchants will have to prepare for a tough bidding war. They will have to compete with exporters of other countries like Philippines and Thailand, whose currencies have declined more than the rupee against the greenback and their exports have been on an upward trend.
Neighbouring country China is the world’s largest exporter. In 2021, China exported an estimated $3.3 trillion in 2021 trillion worth of goods and services, primarily electronic equipment and machinery such as broadcast equipment, computers, integrated circuits, office machine parts, and telephones.
China also had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
As the Chinese currency yuan also dropped and given that the country enjoys a dominant position in international export markets, India would see increased pricing competition.
Neighbouring country China is the world’s largest exporter. In 2021, China exported an estimated $3.3 trillion in 2021 trillion worth of goods and services, primarily electronic equipment and machinery such as broadcast equipment, computers, integrated circuits, office machine parts, and telephones.
China also had a $73-billion trade surplus with India in 2021-22 – that is, Indian imports from China exceeded its exports to China by $73 billion.
As the Chinese currency yuan also dropped and given that the country enjoys a dominant position in international export markets, India would see increased pricing competition.
With a weaker rupee, foreign education could get more expensive
While rupee’s value deprecation is good news for merchants, India’s students who are planning to study abroad might have to restructure your budget.
Students will have to shell out more rupees for every dollar they spend. Simply put, you will have to spend over 21% more in terms of rupee to buy the same number of dollars.
If you budgeted ₹20 lakh for your education abroad, you will now have to increase it to ₹24.2 lakh.
International travel now more expensive
After the lockdown, the travel sentiment has been high among consumers. As the rupee loses value against the US dollar, your plans to travel abroad will burn a deeper hole in your pocket – like everything, paying for your purchases in foreign currency, more so the US dollar, is now more expensive than ever before.