Can Weak Rupee Boost Exports- FIEO Clarifies

A weaker rupee is often expected to boost Indian exports by making goods more competitive globally. However, the situation is far more complex, according to the Federation of Indian Export Organisations (FIEO).

FIEO President Ashwani Kumar highlighted that the recent depreciation of the rupee against the US dollar has mixed effects on the economy. 

"A weaker rupee is not a one-size-fits-all solution to boost exports. A strategic, multi-pronged approach is needed to address the root causes of depreciation while mitigating its adverse effects," he said.

While a weaker rupee might appear to benefit exporters, it is not always advantageous. For instance, if the rupee depreciates by 2%, but the currencies of key competitors fall by 3-5%, Indian exporters lose their competitive edge.

Weaker Rupee: Challenges

According to Kumar, depreciation also raises input costs, currency rate volatility, inflationary pressures, and the weight of foreign debt. Many exporters rely on imported raw materials and components. A weaker rupee raises input costs, eroding any price advantage in global markets.

"Fluctuating exchange rates create uncertainty, making it difficult for exporters to price their products competitively and plan for the long term," he added.

The depreciation raises the price of imported commodities and oil, which drives up production costs and fuels domestic inflation, which lowers consumer purchasing power.

Recent Trends in Trade

India's exports contracted for the second consecutive month, dropping by 1% year-on-year to USD 38.01 billion due to global uncertainties. Meanwhile, imports rose by 5% to USD 59.95 billion, reflecting a growing trade deficit.

A weaker rupee is not a universal solution for boosting exports. FIEO emphasizes the need for a strategic approach to address depreciation challenges, mitigate adverse effects, and enhance export competitiveness in global markets.