After plunging to a life-time low of 74.48 against the US dollar, the rupee is gradually recovering. However, year to date, the Indian currency is still down by around 10% against the greenback.

Being a net-importer, the steep fall in the rupee was hardly good news for India, simply because it would intensify the pressure on the country’s finances and worsen the current account deficit.

But it was thought that there was a silver lining, given that it would come as a shot in the arm for the country’s languishing exports.

However, going by ICICI Securities Ltd’s analysis, out of the top 15 export-related industries, only five would benefit from the rupee’s weakness. The sectors include jewellery, automobiles, pharmaceuticals, cereals, and iron and steel, which account for 29% of the country’s total exports.

For these products, India’s market share in its biggest export markets is high. Secondly, the rupee has depreciated more sharply compared to its competitors, ICICI Securities said in a report dated 16 November.

Exports of the remaining 10 industries may see minimal or no gains from the rupee depreciation. This is because India’s market share is low in some of these sectors, and/or currencies of competing nations have seen sharper depreciation, added the brokerage firm.

For instance, in apparel and clothing, while India’s export market share is fairly high, a steeper fall in currencies of competing countries such as Turkey, Sri Lanka and Pakistan would limit gains to Indian exports.

Similarly, in the services industries, the rupee depreciation may not boost exports significantly because India’s competitiveness is already very high. Hence, the price elasticity of demand is low.

“In terms of profitability, we estimate that 1% depreciation in the rupee improves margin by 25 basis points and earnings by 2 percentage points," said Anagha Deodhar, an economist at ICICI Securities, and the author of the report. A basis point is one-hundredth of a percentage point.

Information technology (IT) services is the biggest contributor to India’s total services exports, with a 40% share.

As pointed out earlier in this column, gains from a weaker rupee are typically passed on to clients by IT companies, and gains, if any, are only in the short term.

Meanwhile, CARE Ratings Ltd did a regression analysis to test whether a depreciation in the exchange rate (rupee against the US dollar) aids higher export growth.

Its research showed that the exchange rate is an insignificant variable in determining India’s export growth. “Even lags of exchange rate movement do not show any relationship with India’s export growth. On the other hand, world economic growth has a strong and significant relationship with India’s export growth," CARE Ratings said in a report dated 21 November.

While India’s exports bounced back in October after contracting in the previous month, economists say a favourable base effect has aided this. The improvement is unlikely to sustain at least in the near term, they added.

In short, those who hope that Indian exports may gain from the rupee’s pain may end up being disappointed.

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