New Delhi, Jan 13 (PTI) Depreciation of the rupee against the US dollar is providing limited benefits to domestic exporters due to the high import content in shipments and uncertainties in the global market, according to experts.

While a weaker rupee typically boosts export competitiveness by making Indian goods cheaper in global markets, certain factors are limiting potential gains.

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They said many exporters rely heavily on imported raw materials, and the increased cost of imports due to the falling rupee offsets much of the advantage.

"As a result, despite the rupee's decline, exporters are finding it difficult to capitalise on the currency movement," international trade expert Biswajit Dhar said.

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The domestic currency has depreciated over 4 per cent since the level of 83.19 on January 1 last year.

The rupee logged its steepest single-day fall in nearly two years and ended the session 58 paise down at its historic low of 86.62 (provisional) against the US dollar on Monday, weighed down by a stronger American currency and surging crude oil prices.

Sharing similar views, Sanjay Budhia, Chairman of the CII National Committee on EXIM, said while a depreciating rupee against the US dollar is often perceived as a boon for exporters, a closer examination reveals that the benefits are relatively modest and is largely offset by various cost factors.

"The depreciation of the rupee leads to an increase in the cost of raw materials, components, and other inputs that are denominated in dollars. This rise in input costs erodes the competitive advantage gained from the weaker rupee," Budhia said.

Furthermore, expenses such as shipping, insurance, and marketing are also dollar-denominated, thereby negating the benefits of a depreciated rupee, he added.

"Also we have to factor in that the currency of other competitive countries such as Chinese Yuan, Japanese Yen, and Mexican Peso against the US dollar have depreciated more in the same period vs Indian rupee," Budhia, who is also MD of PATTON Group, said.

Most exporters take forward cover to hedge their exposure against the currency fluctuation. Hence such exporters are at a much disadvantageous position in case of rupee depreciation, since their input cost will go up while the realisation will remain the same.

Ludhiana-based engineering sector exporter S C Ralhan said the fall may be helping small exporters but medium and big exporters do not get much benefit out of this decline as they import lot of raw material for their manufacturing.

"Buyers also start demanding discounts. So in a way, the fall disturbs the market," Ralhan said, adding that fall in rupee will not benefit much for exports because of high import content in India's major shipments like pharmaceuticals, and gems and jewellery.

One of the experts stated that lower or higher rupee does not bother, "what is bothering is volatility. There should be stability; if there is volatility no one will know how to handle the uncertainty".

According to them, the declining Indian rupee would make imports of items from crude oil to electronic goods, overseas education, and foreign travel costlier while raising fears of high inflation.

The primary and immediate impact of a depreciating rupee is on the importers who will have to shell out more for the same quantity and price.

India is 85 per cent dependent on foreign oil to meet its needs for fuels, such as petrol, diesel, and jet fuel.

The basket of Indian imports includes crude oil, coal, plastic material, chemicals, electronic goods, vegetable oil, fertiliser, machinery, gold, pearls, precious and semi-precious stones, and iron and steel.

Here is how a depreciating rupee is likely to impact spending:

Imports: Importers need to purchase US dollars to pay for imported items and with the decline in the rupee's value, importing will become costlier. This will not only affect oil prices but may also increase the cost of some cars and electronic appliances.

Foreign education: The weakening rupee against US dollar could make foreign education more expensive. Students now need to pay more rupees for every dollar charged by foreign institutions as fees.

Remittances: However, non-resident Indians (NRIs) who send money back home will end up sending more in the rupee value.

After recording double-digit growth in October, India's exports in November contracted by 4.85 per cent year-on-year to USD 32.11 billion.

Cumulatively, during April-November this fiscal year, exports increased 2.17 per cent to USD 284.31 billion and imports 8.35 per cent to USD 486.73 billion.

Trade deficit, the difference between imports and exports, during April-November widened to USD 202.42 billion from USD 170.98 billion during April-November 2023.

Crude oil imports during the first eight months rose 7.15 per cent to USD 123.26 billion. PTI RR

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