External value of rupee is far stronger than its internal strength despite lower inflation with the resultant mismatch and the continuing trend is hurting exporters whose competitive edge gets directly hit with declining value of dollar against the domestic currency, an ASSOCHAM note has said.
Declining by close to six per cent over the last one year, rupee is now trading at 63.63-70 against 66.93 to a dollar in August, 2016. “So, clearly the external value of rupee has strengthened quite,” the ASSOCHAM Paper said.
On the other hand, despite a falling inflation, now ruling at a five –year low, the rupee has weakened at least in reverse proportion to the Consumer Price Index (CPI) that is inching up all the same. “Yes, inflation is down; but it is still inflation and not disinflation or deceleration in prices. That means rupee is able to purchase less of commodities (to the extent of 1.58 per cent at least), but when it comes to its value measured against dollar, it has gained by about six per cent”, the paper noted.
A stronger rupee has begun to bite exporters, as is evident in the falling pace of growth in shipments. No doubt, exports have been growing for the last nine months ending June , 2017 but as the Reserve Bank of India has also observed that the “export growth weakened in May and June from the April peak as the value of shipments across commodity groups either slowed or declined”.
Exports have shown growth of 4.39 per cent to 23.56 billion dollar in June 2017, as compared to 22.57 billion dollar a year ago. But this growth had peaked to 20 per cent in April this fiscal. This deceleration in growth is visible in the subsequent months.
Moreover, thanks to declining value of dollar, in Rupee terms, during June 2017 exports had shown a negative growth of 0.04 per cent. While the year on year value of dollar has dropped by about six per cent, the greenback was trading at a recent peak of 68.73 in November, 2016 and the decline from this high has been much sharper at 7.42 per cent.
“It clearly translates into erosion in margins between 6-7 per cent only on account of currency appreciation and the trend is likely to continue on the back of robust inflows in the stock market. The inflows of dollar , taking the country’s foreign exchange reserves to record level of 392 billion dollar, are a result of global liquidity flush finding ways into the financial markets of the emerging economies”, said ASSOCHAM Secretary General D S Rawat.