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20 July 2018
 |
Rupee
(The Total Investment & Insurance Solutions)
A weak currency is good for exports. In
India’s case, the script is not so straightforward. While the rupee is Asia’s
worst-performing major currency this year, a demand-killing trade war threatens
Indian exports that have already been hurt by policy disruptions over the past
two years. History shows the currency’s moves have hardly impacted shipments.
If anything, a slide in the rupee has ended up inflating the nation’s import
bill.
“The situation for export prospects is weak
given the kind of trade war happening in the world,” said N.R. Bhanumurthy, an
economist at Delhi-based National Institute for Public Finance and Policy and a
co-author of a 2013 paper on whether rupee’s weakness matters to Indian
manufacturing exports.
Unlike China, Taiwan and South Korea, India
isn’t part of big supply chains globally. Trade tensions between the U.S. and
China have prompted export-reliant countries like Vietnam to guard against
Chinese products flooding their local markets. India’s goods exports contribute
only about 12 percent of gross domestic product and government officials have
blamed its poor showing on the rupee’s strength.
The currency slumped to an all-time low of
69.0925 per dollar last month as prices of crude oil — the nation’s top import
— climbed and foreign funds exited stocks and bonds amid an aversion to riskier
assets. The rupee touched 69 on Thursday and is down over 7 percent this year.
The rupee continues to be overvalued on a
real effective exchange rate despite the slide, and there was no question about
being nervous about the depreciation, said Rajiv Kumar, vice chairman of
think-tank NITI Aayog. Modi’s chief economic adviser, Arvind Subramanian, also
welcomed the rupee’s decline, adding that it was a natural adjustment that was
taking place.
Along with rising oil prices and Indians’
love for electronic goods made abroad, an adverse terms of trade position could
widen the country’s current-account deficit.
“The rupee’s weakness against the dollar
along with rising oil prices has increased India’s import bill,” said Rohan
Chinchwadkar, an assistant professor of finance at the Indian Institute of
Management at Tiruchirappalli in southern India. “Despite the depreciation,
export growth continues to be weak because of rising protectionism, sluggishly
recovering global growth and disruption of domestic supply chains.”The Total Investment & Insurance
Solutions
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