Top Market News By Trade India research

Rupee devaluation: Will it help exports?

SEBI Registerd Company | Indore Advisory Company

The commerce ministry’s demand for a weak rupee may have its merits as far as promoting exports are concerned, but those benefits are questionable for the country as at least 50 per cent of India’s exports are those that involve raw materials to be imported from other countries. Clearly, the benefit of a strong rupee outweighs the advantages of a weak currency, say economists.

Merchandise exports had contracted for a record 19 consecutive months till May this year, before rising marginally by 1.27 per cent in June. Thereafter, it has again continued to fall over the last two months. While the govt believes the worst has been left behind, trade experts warn against expectations of sudden positive hike with global demand still sluggish. Also, a decline in global commodity prices and sluggishness in the Chinese economy may still slowdown the path to export revival.

Advantages of a devalued rupee

  • It increases country’s competitiveness
  • Allows domestic companies to flourish more as foreign companies lose out while repatriating profit
  • It is an indirect way of bringing down interest rate in the economy Disadvantages of rupee devaluation
  • Pushes up import bill and increases inflation
  • A whole host of goods, starting from basic medicines to luxury items like cars and not to mention oil prices become costlier
  • Makes student loans for overseas studies costlier to service
  • Leads to foreign fund outflow as investors get less return
  • As India is a net importer, a weaker rupee widens current account deficit
  • At least 50 per cent of India’s exports are of finished goods imported from outside. Rupee devaluation makes import costlier and pushes up prices of the finished goods

 

SEBI Registerd Company | Indore Advisory Company

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