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Falling Indian Rupee Benefits Exporters

A recent fall in the Indian rupee to a lifetime low of 60.12 to the dollar is a boom for garment exporters. The currency depreciation is good news for knitwear exporters in particular, who have struggled with accumulating losses as fabric prices have risen.

A shift to spot trade is also helping the exporters capitalize on the changes.

A. Shakthivel, president of the Tirupur Exporters Association, says, “As the gap between the dollar and the rupee has widened in recent months, margins have started improving. The textile hub of Tirupur is witnessing about a 5 to 7 percentage point increase in margins. It may be a short-term phenomena, but it has improved our morale.”

He also described a 30% increase in business due to the spot trading. Exporters are expecting a large increase in exports next year, but customers, aware of the improvements in the financial positions of the firms, are starting to demand lower prices.

The falling rupee is causing other problems throughout the economy, particularly by increasing the price of goods imported in dollars, such as oil. Some of the benefits of a cheaper currency could be undone by proportionately higher energy costs.

The drop is caused by investment capital flowing out of the country, as foreign investors have started decreasing their debt holdings, which has prompted a rate freeze by the Reserve Bank of India. The country also runs a considerable trade deficit. Gold imports by the emerging middle class are largely to blame for the recent upset, with oil imports holding steady.

A recent report in the Sri Lankan Financial Times indicated that the weakening rupee is making Indian fabric more attractive in that market. The Sri Lankan rupee has not slipped, making it possible for the country to save money by using Indian fabric.