Weak rupee fails to benefit exporters

Indian exporters are under pressure from overseas clients to reduce prices of their products as the rupee has posted an annual depreciation of about 30 per cent against the dollar till mid March this year.

Exporters said that their foreign clients monitor movement of exchange rates and have asked for reduction in prices of goods meant for overseas sale. The depreciation of the Indian currency against the greenback increases earnings of exporters and foreign clients want to take advantage of this.

As a result, most exporters are not able to reap benefits from the weakening rupee. On an average, about 75 per cent of India’s exports are denominated in dollar. Indian exports have dipped for four months in running ending January 2009, as global demand for goods declined, forcing the commerce ministry to revise the export target for 2008-09 from $200 billion to $175 billion. Reduction of prices by exporters will add to the contraction in exports.

“If I was selling a pair of jeans at $5.75 to my foreign clients, now I am selling it at $5.25,” said Rahul Mehta, managing director of Mumbai-based apparel exporting firm Creative Group.

In this backdrop, exporters are also negotiating with their clients. “We were asked to reduce prices by 5 per cent. But we are negotiating to offer our products at 3 per cent lesser price,” said HK Maggu, managing director of Delhi-based Jyothi Apparels.

According to Mehta, garments exporters are reducing prices not only to retain clients but to gain additional orders. “The business must continue,” he said.

Engineering goods exporters are dealing with a similar situation. “In our sector, prices have been reduced in the range of 15 to 20 per cent due to pressure from clients,” said Aman Chadha, chairman of Engineering Export Promotion Council, which accounts for about a fifth of the country’s exports.

“It is better to reduce prices than loosing an existing customer. Under present circumstances, any order is welcome,” he added.

Leather exporters have the same story to share, in spite of about 60 per cent of the products heading for Europe. “Chinese producers are offering 15 to 20 per cent discounts. Hence, we have been forced to reduce prices of our products in the same range. Even European buyers are asking for discounts,” said Habib Hussein, Council for Leather Exports. “We have suggested exporters to ensure that orders are taken even if it means not recovering the variable cost. Overseas clients are also not in a very good position as demand for goods have come down. In this backdrop, we can’t loose orders,” he added.