Rising rupee pricks small exporters

Anand Khushwaha, a small Delhi-based exporter of imitation jewellry, has been inundated by e-mails from his customers in the United States and Europe. Most carry the same message: since he has raised prices up by 20 per cent, orders have been placed with cheaper exporters in China. Business is down 50 per cent for Friends International, Khushwaha’s firm.

Last year, it had done exports of Rs 25 lakh. “In the first three months of this financial year (April-June 2007-08), we have got orders of just Rs 5 lakh. We will be lucky to do Rs 15 lakh for the whole year,” said he.

Not far from Khushwaha’s office, Prince Malik runs a small outfit exporting home furnishings. At a recent exhibition in Hong Kong, he realised that he was hopelessly out-priced by rivals from other South Asian countries. Last year, he had come back from the same exhibition with orders of over $200,000.

“This year, it hasn’t gone beyond $50,000,” he said, putting the blame on the 15 per cent hike in his prices, thanks to the appreciation of the rupee against the dollar.

Small exporters like Khushwaha and Malik are the first casualty of the rising rupee which has gained over around eight per cent in the last three months and 11.6 per cent in the last one year. Unlike large exporters, they have no financial reserves to fall back on. And as they use locally-produced raw material, they do not benefit from imports becoming cheaper with the rise in the rupee. As a result, these exporters have been left with no option but to raise their prices. The consequences have been disastrous, a number of small exporters told Business Standard.

“If the rupee keeps on strengthening, I see at least 30 to 40 textile units closing down in the next six months in the apparel sector,” said Vijay Agarwal, chairman, Apparel Export Promotion Council. “Most of them will have to close their business if the rupee does not weaken,” added Rita Nahata, secretary, Society for Small and Medium Exporters.

Their numbers, to be sure, are huge. Commerce ministry officials said there were more than 1,00,000 exporters in the country – most of them are small with a turnover of less than Rs 1 crore. Data also suggests that small firms account for almost 70 per cent of the exports in some sectors like leather, sports goods and woollen products.

On its part, the commerce ministry had promised to cushion the losses of exporters by cutting the premium charges by the Export Credit Guarantee

Corporation, enhancing the DEPB and duty drawback rates and making exchange earners foreign currency (EEFC) accounts interest bearing.

Still, the exporters feel there is a tough battle ahead. “A majority of the small exporters do not have an EEFC account and are not eligible for DEPB and drawbacks on the products that they export. Relief will come only when the rupee weakens,” said Kolkata-based exporter Diptosh Bose.

By all accounts, the export target of $160 billion for 2007-08 looks like a daunting task.

Via Business Standard