Mixed impact likely to be seen on Indian textile exports with decline in rupee value

India is the world’s second largest cotton exporter after the US, the recent depreciation of the rupee may to improve the export competitiveness of Indian domestic cotton. But according to investment information and credit rating agency, ICRA the rupee depreciation is expected to have a mixed impact on India’s textile exports as competition will increase from China following devaluation of its currency. Since April, Indian currency has depreciated about 7 percent.

In apparels, the export competitiveness will depend on the relative currency movement of the major exporters such as China, Bangladesh and Vietnam.

ICRA said that as China’s Yuan has depreciated more than the rupee and given that China enjoys dominant position in international export markets, India will see increased pricing competition which will affect the profitability of Indian exporters.

However, it added, given that the rupee has depreciated more than that of other competing countries, and India’s share in overall trade is relatively small, the export volumes may not be impacted severely.
Besides, it said, in view of the fragmented nature of India’s fabric industry, exporters will require to pass on the benefits of depreciated rupee.

Further it said the export competitiveness of the Indian cotton yarn depends on the relative currency movement of the rupee with Pakistan’s currency since Pakistan is the major competitor in export of cotton yarn to China. As Pakistan’s currency had remained relatively stable, the depreciation of the rupee improves the competitiveness of Indian cotton yarn as well, it added.

Nevertheless, as China is the largest market for both cotton and cotton yarn exports from India, the higher devaluation of China’s Yuan will require Indian exporters to offer lower USD prices for these products to maintain competitive prices in Yuan terms.

However given that Rupee has depreciated more than that of other competing countries, and India’s share in overall trade is relatively small, ICRA expects the export volumes may not be impacted severely. Fabric exports, on the other hand are geographically well diversified as against other segments in textile exports. In 2014-15, India witnessed growth in its overall textiles export by 12.2 percent to USD 16.8 billion.