The weakening Indian Rupees which has depreciated about 7.3 percent on a year-to-date basis against the dollar, is posing bigger challenge for the Indian exports than the recent global trade war, feels Indian exporters.
“Global trade will come down due to the trade war but India will not be as strongly impacted by global trade war as other South Asian and Latin American countries. A bigger problem will be on the currency front. For me depreciating rupee is going to be a bigger challenge,” Ganesh Kumar Gupta, President Federation of Indian Export Organisations told.
In last few months, weakening rupee has been a matter of great concern for the Indian policymakers. Rupee has depreciated about 7.3 percent on a year-to-date (YTD) basis against the dollar, making it the weakest currency in Asia.
According to Investment bank CLSA, the weakness is despite the Reserve Bank using about $25 billion in reserves over the last three months to smoothen the volatility in the rupee.
“We are seeing huge volatility in the currency. There is a trend in all emerging economies including India, money is flowing back to the US. What is going to be its impact on the economy, we need to be very careful with. And given that there is huge trade deficit, it will put further pressure on the exports," Gupta said.
According to him, another challenge will be what will happen to the huge inventories which are being created being dumped.
"Somewhere they will find their way out so all countries have to be ready with the so-called dumping of the goods which is very much probable with China to start with. With China we have to be conscious of that fact,” Gupta warned.
And experts expect pressure on the Indian unit to continue. “With the rupee becoming a political issue, possibility of the Centre undertaking some form of non-resident deposit scheme/dollar bond issuance cannot be ruled out ahead of the general elections, capping the rupee’s downside. Fundamentally, the direction of the rupee may be weak in the near term," CLSA said.