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Rediff.com  » Business » Rupee fall unlikely to lift exporters' margins

Rupee fall unlikely to lift exporters' margins

September 11, 2008 12:31 IST

The recent depreciation of the rupee against the US dollar is unlikely to ensure better margins for exporters as buyers in Europe and the US, facing lower demand in their countries, are asking for hefty discounts.

This means exporters will have to share their gains from the depreciation of the rupee with their buyers or risk losing business to their competitors in Pakistan or China.

"The sudden appreciation of the dollar against the Indian rupee has become a cause for concern as buyers have started to ask for discounts from us," said Ganesh Kumar Gupta, president, Federation of Indian Export Organisations, an industry association.

Buyers are negotiating hard in the knowledge that Indian exporters will benefit from a falling rupee and are demanding discounts in the range of 5 per cent, he says.

The rupee, which appreciated rapidly against the US dollar last year and was about to rise above Rs 39 to a dollar, is now seeing a reverse trend. It has fallen sharply in the last six months. On Wednesday crossed the Rs 45-mark for the first time in 21 months. Gupta says exporters in countries like Pakistan are ready to give more discounts to counter the slowdown in export orders.

The US and the European economies, major buyers of Indian products, have been witnessing a downturn, which has resulted in lower import orders from these countries.

Indian man-made fibre industry is also in no mood to celebrate the dollar's appreciation as domestic makers of polyester staple fibre are pricing their product on a par with import prices.

"This has led to an increase in our production cost," said VK Ladia, president of the Indian Spinners Association.

However, Rafiq Ahmed, chairman of the Farida group, which supplies footwear to the likes of Wal-Mart, JC Penney and Timberland, says: "When the dollar was weak, exporters worked on lower margins. But now it is time for us to make money and I do not think an exporter will compromise with his margins at this point."

Neeraj Thakur in New Delhi
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