The depreciation of the rupee is expected to have a mixed impact on India’s textile exports as competition will increase from China following the devaluation of its currency. But the rupee depreciation will improve competitiveness of India’s cotton exports. India is the world’s second largest cotton exporter after the US.
The Indian currency has depreciated by about seven per cent since April. In apparels, export competitiveness depends on the relative currency movement of major exporters such as China, Bangladesh and Vietnam. As yuan has depreciated more than the rupee, and given that China enjoys a dominant position in international export markets, India will see increased pricing competition which will affect the profitability of Indian exporters.
However, given that the rupee has depreciated more than that of other competing countries, and India’s share in overall trade is relatively small, export volumes may not benefit a lot. Besides, in view of the fragmented nature of India’s fabric industry, exporters will have to pass on the benefits of the depreciated rupee.
Export competitiveness of Indian cotton yarn depends on the relative currency movement of the rupee with Pakistan’s currency since Pakistan is the major competitor in export of cotton yarn to China. As Pakistan’s currency has remained relatively stable, the depreciation of the rupee improves the competitiveness of Indian cotton yarn as well.