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Rupee may weaken to 67.5 vs dollar but would not help exports: Study

"Barring the recent past, an appreciating rupee has been accompanied with robust export growth, while weaker exchange rates have not necessarily translated into an export push," said Ind-Ra.

Photo: Reuters Photo: Reuters

Exports of the county might not necessarily follow the movement in exchange rates as there are other determinants too. A report by India Ratings and Research (Ind-Ra) says, "Barring the recent past, an appreciating rupee has been accompanied with robust export growth, while weaker exchange rates have not necessarily translated into an export push."

India exports mainly to US, Europe and Middle East, where US and Europe account for 31.7 per cent of the total export. While, US and Europe are experiencing deflation and struggling to revive their economies, Middle East was affected due to collapse in oil prices. With global growth outlook subdued, recovery in Indian exports seems to delay.
 
India Ratings believes that "Export performance is likely to stay weak in FY17 as globally economies face headwinds to their growth prospects. While the rupee can act as an enabler for export revival, it is unlikely to be a primary driver. The ratings agency expects the rupee to weaken and trade at an average of 67.5/dollar".

India Ratings plotted exchange rates and export growth of India and other emerging markets including Brazil, South Africa, Mexico and  Russia  and Asian emerging markets such as Indonesia, Turkey and Thailand for a period from 2002 to 2007 and 2010 to 2015.The movement between 2007 and 2009 has not been considered on account of global financial crisis).

Other findings of the report are as below:

The report found that the period between 2001 and 2007 did not show a correlation between exports and currency movement across EMs. "With the exchange rate broadly around its fair price, India continued to achieve robust export growth; while for a country like Mexico-significant and persistent weak currency did not benefit the trade dynamic" says the report.

For the other period that is post 2009, most countries witnessed weaker exchange rates barring India and Thailand. As per the export growth data, from the peak of around 30 per cent of median export growth in 2010, nearly all countries witnessed a slow down pressure and saw their export growth dipping to negative in 2015.(The movement between 2007 and 2009 was not considered due to global financial crisis).

Private consumption expenditure of US and Europe (India's major export countries) emerged as strong determinants of India's export performance. The report says, "Over the past one and half decade, Indian exports have show n a high degree of correlation with consumption expenditures of both US and European nations (67 per cent and 61 per cent respectively). Since 2014, this relation appears to have weakened."

In FY15, out of India's total exports of $310 billion, exports to the top ten trading partners comprised 49 per cent, with the largest demand from US and UAE. Sri Lanka and Bangladesh replaced European countries like Belgium and France along with Indonesia in top ten trading partners.

While the demand from trading partners is contracting, India has managed to hold its share in exports. Baring UAE, none of the nations has shown major reduction in demand of Indian products.

India's top five export items include petroleum crude and products, gems and jewelry, textiles and allied, chemicals and allied and agriculture and allied. As per the report, top ten components contribute 90.5 per cent of the total exports in FY15 compared to 81.5 per cent in FY 11.