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Slumping Indian Currency Boosts Exports

  • Anjana Pasricha

FILE - An employee sorts pieces of clothing at a garment factory in Tirupur, in the southern Indian state of Tamil Nadu.

FILE - An employee sorts pieces of clothing at a garment factory in Tirupur, in the southern Indian state of Tamil Nadu.

In India, a slumping currency has given a boost to exports ranging from handicrafts to garments to the country’s famed Information Technology industry. But experts warn that the boom may be brief unless the country carries out structural reforms that have hampered the growth of export-based industries for decades.

A sprawling factory in the town of Moradabad, in Uttar Pradesh, has been hiring workers at a frantic pace, growing from 1,600 to 2,400 employees in the past year. Over the same period, the value of India's currency, the rupee, tumbled by about 15 percent against the U.S. dollar.

C.L. Gupta Exports Limited acquired larger orders for the candle stands, vases and other handicrafts it produces in recent months. It is not alone in reaping dividends of the weaker rupee. Other factories in Moradabad, a town long famed for its metal handicrafts, are enjoying an export boom.

Raghav Gupta of C.L. Gupta Exports says the rupee’s slump has meant better prices for buyers. Gupta’s main competitors are Chinese manufacturers.

“We are now able to compete better with China," Gupta explained. " There, the yuan was getting stronger against the dollar, so they have to increase the prices, whereas we don’t have to increase the prices. We had almost like 20 percent growth continuously in last two-three years."

The drop in the rupee - Asia’s most battered currency - has mostly been grim news for an economy whose imports add up to more than its exports. But there is a silver lining. As its goods become more competitive, India exports jumped by about more than 10 percent in July and August. That has raised hopes that exports this year will be substantially higher than the $300 billion mark reached in 2012.

It is not just manufacturers who are smiling. The country’s famed information technology outsourcing sector, which accounts for nearly one third of India’s exports, is also looking ahead to healthier profits. The industry’s runaway growth had slowed in recent years, as Western economies faltered and rising wages made it more expensive compared to other outsourcing destinations.

Ajay Aggarwal is at Infotech Enterprises, a Hyderabad-based engineering outsourcing company.

“Many of the customers have not been giving price increases, so in some ways it has helped the I.T. industry to mitigate the impact of the wage hike. You’ve got this God’s gift called exchange rate. The competitiveness of India definitely improves as an outsourcing destination,” says Aggarwal.

Short-term?

But economists warn that the battered rupee may turn out to be only a short-term benefit in a country that has struggled to increase its exports for decades.

The main impediments: shoddy infrastructure and notorious red tape. As a result, chronic problems such as a shortage of power and roads, and a slow-moving bureaucracy have hampered it from transforming into a manufacturing hub.

Rafique Ahmed, who heads the Federation of Indian Export Organizations, said the government must remove hurdles that hamper entrepreneurs from expanding quickly and seizing advantage of more orders coming their way.

“Lot of clearances, all this make it impossible or difficult for manufacturers to expand very quickly," he explained. "That all has to be removed. More manufacturing incentives have to be given to make it easy for them to increase their capacity. Regulations have to be toned down. Even if we get a big order, today there are not many capacities available for export."

Many manufacturers relate their daily struggle with such problems. Orient Craft makes garments for top Western retailers at 15 factories near the capital, New Delhi. Its commercial director, A.K. Jain, says the plunging rupee is helping them sharpen prices and “stay in the market.” Their order books are overflowing.

But he also voices the frustrations of doing business in India: goods take too long to reach ports due to a poor road network. Ports are often clogged, delaying shipments. These are huge disadvantages in a globally competitive environment where deadlines are tight.

Jain cited one example of the hurdles they face. His company imports silk fabric from China. But he said getting the consignment in time from the South Indian port where they land is invariably a challenge.

“The goods which are coming, raw material coming from Shanghai taking 12 days, 13 days. But in getting the import clearance process, it is taking eight days in Chennai itself. What to talk of transportation? The movement of commercial clearances [is] so dull [slow], so costly,” said Jain.

For the time being, however, exporters are viewing the future with optimism. The government is also promising measures to boost exports, such as more incentives for manufacturers and cheaper interest rates for exporters.

But economists say unless that happens quickly, India is unlikely to witness an export-led boom of the kind that helped several East Asian countries bounce back after their currencies were decimated in 1997.
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