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Rupee hits exports, jobs

Niladri Bhattacharya  |  Kolkata 

The rupee has appreciated against the dollar more than six months and now it was hurting engineering sector exporters based in the eastern region.
A recently issued report suggests that the heat is not only being felt by exporters but also by employees of export sector enterprises, the reason being loss of incentives, lower wages and retrenchment.
According to a study by the Engineering Export Promotion Council here, around 3,500 workers lost their jobs due to rupee appreciation between April and October this year. A quick survey of 40 EEPC member firms during the period indicated that every Rs 1 crore of loss due to rupee appreciation in 13 most employment intensive segments of engineering exports led to employment loss for around 59 workers, including direct and indirect employees. In highly mechanized firms, the figure was lower at around 20 workers.
The council conducted the survey in sectors such as automobiles, auto components, bearings and roller bearings, hand tools, machine tools, castings and fabrications, forgings, other metal products like cast iron weights, valves, etc, aluminum extruded products, vehicles parts, machinery and mechanical appliances, diesel engines and generating sets. In all, 40 companies from the above sectors reported loss of Rs 64 crore during April-October 2007 and this led to loss of employment for 3788 workers, both direct and indirect.
This worked out to loss of jobs for 58 workers in the engineering sector for every Rs 1 crore loss of business. EEPC had around 12,500 members.
The report indicated that rupee appreciation impacted employment in the form of lower wages, retrenchment, lay offs, idle man-days and seasonal unemployment loss, but the figure varied in scale depending on the specific type of business.
Around 55 per cent of EEPC members were small scale units, while 35 per cent were medium scale companies and the balance 10 per cent large exporters.
On a conservative estimate, the rupee appreciation led to job losses of 30 workers per month on average in the SSI sector, said EEPC sources. Around 200 workers lost jobs in medium scale units and around 400 workers in large scale units. In all, 12,500 EEPC members hit the rupee appreciation by about 10 percent shed approximately 16 lakh workers, signifying high elasticity of employment in engineering exporting units with respect to rupee appreciation.
"Engineering exports accounts for 8 per cent of total employment that is generated on account of all exports activities and employment linked to the sector has grown on an average of nearly 21 per cent per annum during the period between 2002-03 to 2006-07," said Rakesh Shah, chairman of EEPC. The survey revealed that most exporters were operating at 60 per cent of capacity.
Most exporters stated that at the current exchange rate, they faced a further reduction in capacity utilization by 25 per cent.
"For exporters for whom the US accounts for 50 percent or more of their total exports, the impact of exchange rate appreciation has been the highest", said Shah. US dollar denominated exports accounted for 80 per cent of total exports.
"Impact of rupee appreciation against the US dollar has a much wider ramification and is not confined only to the US market," Shah added. He said some exporters were trying to get fresh orders in the EU market, but warned it would take time to get such orders. In the intervening period, export sales were likely to drop sharply.

First Published: Thu, November 29 2007. 00:00 IST