Falling Rupee To Benefit Indian Apparel, Fabric Exporters

Indian apparel exporters are likely to reap benefits of depreciating rupee against the dollar. Rupee has declined more than currencies of competing countries such as China, Vietnam and Bangladesh.

Since Chinese currency – yuan – was first devalued on August 10, rupee has recorded its sharpest depreciation among its competitors including China, Vietnam and Bangladesh. Since August 10, rupee has depreciated by 4.63% to 66.83, while yuan (renminbi) is down 2.51% to 6.37 against the dollar as of Monday. Among other competing countries, Vietnamese dong slumped by 2.96% to 22468 against the dollar on Monday from 21823 dong on August 10.

On the other had, Bangladesh's currency appreciated by a negligible 0.06% to 77.73 on Monday against the dollar from 77.78 on August 10.

“Indian apparel will be more competitive. The quantum of competitiveness, however, would depend upon relative currency movement of the major apparel exporters such as China, Bangladesh and Vietnam,” said Rahul Mehta, President, Clothing Manufacturers’ Association of India (CMAI).
Meanwhile, overseas buyers would immediately start re-negotiating terms of existing contracts.

Currencies movement versus dollar
Currencies	10-Aug	7-Sep	Variations (%)
Indian Rupee	63.87	66.83	(-)4.63
Vietnamese Dong	21823	22468	(-)2.96
Chinese Renminbi (Yuan)	6.21	6.37	(-)2.51
Bangladeshi Taka	77.78	77.73	0.06
Source : Bloomberg, On Aug 10, China devalued its currency first this year

According to industry sources, drafts of new contracts mention renegotiation clause if rupee depreciates beyond 2-3%.

An Icra study also says that the depreciation in rupee would benefit apparel exporters. But it adds that as yuan has also depreciated and given that China enjoys dominant position in international export markets, India would see increased pricing competition which will affect the profitability of Indian exporters. 

“However given that the rupee has depreciated more than that of other competing countries, and India’s share in overall trade is relatively small, we expect the export volumes may not be impacted severely. Fabric exports, on the other hand, are geographically well diversified as against other segments in textile exports. Given the fragmented nature of India’s fabric industry, the Indian exporters will require to pass on the benefits of depreciated rupee by way of lower dollar price,” said the study.

India’s cotton exporters would see improved competitiveness, being the second largest exporter of the natural fibre after the United States.

Nevertheless, as China is the largest market for both cotton and cotton yarn exports from India, the higher devaluation of China’s Yuan will require Indian exporters to offer lower dollar prices for these products to maintain competitive prices in yuan terms.
 
Meanwhile, Cotton Textiles Export Promotion Council (Texprocil) has urged the government to extend benefits for garments exporters to help them compete with players in the countries where India has free trade agreements (FTA).

R K Dalmia, chairman of Texprocil, said that considering the infrastructural disabilities, cascading effect of un-rebated taxes, high cost of inputs and preferential benefits granted to our competitors, the government has to play an important role by continuing the export benefits for some more time.

"The emergence of mega trade agreements being promoted by United States of America and the European Union amongst themselves and among other key trading partners like Korea, Vietnam and Japan also pose challenges to countries like India. It therefore would be best if India takes an integrated approach rather than an ad-hoc approach while negotiating new FTA or re-negotiating old ones," he added.

Source:- business-standard.com