Deepak Kapoor of Rompak International exports ethnic furniture to South Africa, Mauritius, Thailand and Myanmar. As he sources all his raw materials from the domestic market, the recent fall of the rupee to a record low — of 58.98 on June 11 — should earn him a windfall. But Kapoor is cautious.
Despite being confident that his clients won't insist on renegotiating terms on earlier consignments after the rupee's unprecedented depreciation earlier in the week, he hears disturbing stories of foreign buyers threatening to severe relations if Indian exporters fail to give a waiver.
Anup Pujari, director general of foreign trade (DGFT), calls it a myth that the depreciation of the rupee necessarily results in massive gains for Indian exporters. For two reasons: one, India's top five exports -- petroleum products, gems and jewellery, organic chemicals, vehicles and machinery -- are so much import-dependent that the currency fluctuation in favour of exporters gets neutralised. In other words, exporters spend more in importing raw materials, which in turn erodes their profitability.
Two, as buyers are aware of the currency fluctuation, renegotiation is becoming a trend now. "The moment the rupee falls sharply against the dollar foreign buyers try to renegotiate their earlier deals. As most exporters give in to the pressure and split the benefits, the advantages of a weak rupee disappear," says Pujari.
Two exporters who ET Magazine spoke to say such renegotiation is becoming more a norm now than it used to be. "We are encountering more such negotiations in recent times. Buyers tend to negotiate even after an advance payment is made. The instances of such negotiations are, however, fewer when transactions take place through a letter of credit in which the bank is also a party," says one exporter who did not want to be named.
Big Boys Cash in
Merchandise exports constitute an important component in India's gross domestic product (GDP). In fact, the percentage share of merchandise exports in India's GDP rose from 13.9% in 2009-10 to 17.7% in 2011-12, according to data available with the commerce ministry. Also, trade statistics from the World Trade Organisation (WTO) show that India's share in total global merchandise exports rose marginally from 1.48% in 2010 to 1.6% in 2012.
It's, however, unlikely that the current depreciation of the rupee will trigger a further improvement in those statistics. KT Chacko, former director of Indian Institute of Foreign Trade, explains: "We are not in a seller's market. Buyers of Indian goods have an upper hand. If our exporters fail to match their expectations, they will move to other geographies."
Large exporters, however, do make some gainswhenever the rupee witnesses a sharp fall. Here's how: they keep the proceeds of exports in permissible overseas accounts if they anticipate a sharp fall in the rupee in coming months. These exporters maximise profits by bringing that money back at the opportune time. "But only large export houses which have deep pockets can afford to adopt that strategy. The small exporters will need the money for day-to-day running of the business," Chacko adds.
Some buyers now insist that transaction agreements be made in rupee terms so as to hedge against a further slide of the Indian currency, one exporter says. In that case, if rupee falls further, the foreign buyer tends to gain. After all, the currency uncertainty between the order and the delivery gets negated.
Source:-economictimes.indiatimes.com
No comments:
Post a Comment