Rupee depreciation: A complex challenge, not a simple export boost – FIEO President

NEW DELHI : The President of FIEO, Mr Ashwani Kumar, stated that the recent depreciation of the Indian Rupee against the US Dollar represents a complex economic scenario with mixed outcomes. While it is often assumed that a weaker Rupee boosts exports by making Indian goods more competitive globally, the reality is far more nuanced, said Mr Kumar.

Mr Kumar highlighted that currency depreciation is relative. If the Indian Rupee depreciates by 2% while the currencies of key competitors decline by 3-5%, Indian exporters lose competitiveness in global markets. This relative disadvantage erodes any potential price advantage Indian goods might gain.

The depreciation also results in:

1. Increased Input Costs: Many Indian exporters depend on imported raw materials and components. A weaker Rupee significantly raises these input costs, often nullifying the perceived benefits of depreciation.

2. Exchange Rate Volatility: Fluctuating exchange rates create uncertainty, making it difficult for exporters to price their products competitively and plan for the long term.

3. Inflationary Pressures: Depreciation inflates the cost of imported goods like oil and commodities, driving up production costs and fueling domestic inflation. This reduces consumer purchasing power and negatively impacts overall economic growth.

4. External Debt Burden: A depreciating Rupee increases the cost of servicing foreign currency-denominated external debt, creating additional pressure on businesses and the government.

FIEO President emphasized that a weaker Rupee is not a one-size-fits-all solution to boost exports. A strategic, multi-pronged approach is needed to address the root causes of depreciation while mitigating its adverse effects. This includes:

* Improving Export Competitiveness: Enhancing production quality, reducing reliance on imports, and fostering innovation.

* Attracting Foreign Investment: Establishing a stable and investor-friendly environment to encourage long-term capital inflows.

* Controlling Inflation: Implementing effective monetary and fiscal measures to stabilize prices.

* Diversifying Export Markets: Reducing over-dependence on a few markets to buffer against global economic shocks.

While a weaker Rupee may offer limited short-term benefits for exporters, it is not a silver bullet for economic growth. Mr Kumar concluded by stressing that Rupee depreciation is driven by a combination of issues requiring a balanced and well-considered approach. Addressing these challenges strategically will be key to ensuring sustainable and inclusive growth for India.