Field visit: some positive
momentum on exports
„Can sharp depreciation in INR revive exports?
Following the announcement of measures yesterday by the new RBI Governor,
Raghuram Rajan, to boost capital flows, we have seen some stability in the rupee.
While the focus of the RBI and the Government has so far been on the capital
account, they know that longer-term stability of the rupee will only be driven by a
lower Current Account Deficit (CAD). In this regard, we visited some garment and
textile exporters and have come away with a sense that exports will see a pick-up
over the next few months.
Better prospects for export industries?
Textile (including garment) exports, at $27bn, are India’s third-largest export item
and account for 9% of the country’s total exports. We visited a few textile and
garment exporters and indications were that exports were picking up. Three
factors are leading to better prospects in the industry:
1. Revival of US demand: There is a definite pick up in demand from the US,
following improved economic activity there. The US is the largest export
destination for Indian textile and garment exports, accounting for around 18%
of total exports (see Chart 8). While EU demand is still sluggish, it is no
longer deteriorating.
2. Rupee depreciation has helped competitiveness: Margins have picked up
for exporters with the sharp rupee depreciation. The exporters believe that
they will gradually see margins back to normal levels, but also should see
some volume growth, as they have become more competitive compared to
countries like China and Bangladesh that are big players in the trade. Chart 6
shows that the Indian rupee has depreciated 22.5% vs. China and 23.5% vs.
Bangladesh.
3. Accidents and more stringent safety measures in Bangladesh:
Bangladesh had a fire in a garment factory last year, followed by the collapse
of a building this year. This could lead to greater safety standards and
increase their cost of production. While this is a small point, it is helping on
the margin.
A lower CAD would help the currency
Export growth in India has fallen sharply from over 20% in 2011 to negative or low
single digits in the past year. A revival in exports accompanied by a compression
in imports (especially in gold) could help the trade deficit reduce to the $10-12 bn
per month level over the next few months. This is essential for the stabilization of
the rupee, since the capital flow environment will get tougher as US interest rates
rise and the Fed tapering reduces risk appetite.
��
momentum on exports
„Can sharp depreciation in INR revive exports?
Following the announcement of measures yesterday by the new RBI Governor,
Raghuram Rajan, to boost capital flows, we have seen some stability in the rupee.
While the focus of the RBI and the Government has so far been on the capital
account, they know that longer-term stability of the rupee will only be driven by a
lower Current Account Deficit (CAD). In this regard, we visited some garment and
textile exporters and have come away with a sense that exports will see a pick-up
over the next few months.
Better prospects for export industries?
Textile (including garment) exports, at $27bn, are India’s third-largest export item
and account for 9% of the country’s total exports. We visited a few textile and
garment exporters and indications were that exports were picking up. Three
factors are leading to better prospects in the industry:
1. Revival of US demand: There is a definite pick up in demand from the US,
following improved economic activity there. The US is the largest export
destination for Indian textile and garment exports, accounting for around 18%
of total exports (see Chart 8). While EU demand is still sluggish, it is no
longer deteriorating.
2. Rupee depreciation has helped competitiveness: Margins have picked up
for exporters with the sharp rupee depreciation. The exporters believe that
they will gradually see margins back to normal levels, but also should see
some volume growth, as they have become more competitive compared to
countries like China and Bangladesh that are big players in the trade. Chart 6
shows that the Indian rupee has depreciated 22.5% vs. China and 23.5% vs.
Bangladesh.
3. Accidents and more stringent safety measures in Bangladesh:
Bangladesh had a fire in a garment factory last year, followed by the collapse
of a building this year. This could lead to greater safety standards and
increase their cost of production. While this is a small point, it is helping on
the margin.
A lower CAD would help the currency
Export growth in India has fallen sharply from over 20% in 2011 to negative or low
single digits in the past year. A revival in exports accompanied by a compression
in imports (especially in gold) could help the trade deficit reduce to the $10-12 bn
per month level over the next few months. This is essential for the stabilization of
the rupee, since the capital flow environment will get tougher as US interest rates
rise and the Fed tapering reduces risk appetite.
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