Exports aren't rising, India Inc is hurting more
Given how India’s exports have been falling—FY13 saw a drop of 1.2% over the previous year, despite the rupee having depreciated 14%—it is evident translating the gains from a weaker currency isn’t easy; in a weak demand environment, buyers pretty much demand deep discounts, and the pace of exports depends on global growth. On Tuesday, the IMF once again lowered its estimates of 2013 global trade growth—to 3.1% from the 4.5% forecast last October. The bigger problem, as FE’s report on page 1 today highlights, is that despite the decline in the value of the rupee, other countries are taking away the gains. While India’s share of readymade garments was 3% in 2000 and Bangladesh’s just 2.6%, by 2011 Bangladesh’s share was up to 4.8% while India’s was left with just 3.5%. Much of the reason for India’s poor performance has to do with the fact that just 15-20% of its garment production is housed in the organised sector; foreign buyers typically look for large vendors of which there aren’t many in the unorganised space. By contrast, in the yarn sector, where 90% of production takes place in the organised sector, India’s share of global trade is a more robust 25%.
The story is much the same across sectors; India Inc isn’t able to cash in on the benefits of a weaker currency. As a Crisil report points out, while the rupee lost 14% in value in FY13, a clutch of 180 firms, with more than 75% of their revenues coming from exports, posted a meagre 1-2% rise in dollar revenues; for IT services companies, for instance, operating margins remained flat reflecting the muted spends, pressure on billing rates and lower utilisation. This year, too, while the rupee could continue to weaken, not too many exporters, save some IT firms, a few bulk drugs players and some garments producers, are expected to be able to grow dollar revenues meaningfully. While the weaker rupee has not really translated into gains for exporters, it has made imports costlier and could hurt companies that borrowed in dollar loans but left loans unhedged. Corporate India is estimated to have outstanding foreign currency loans of over $200 billion at the end of March 2013, of which just half is believed to be hedged. Should the rupee not reverse its course, the hit to bottom lines could be severe.