Labour-intensive exports: Gains likely to be short-lived

Significant import content in several sectors, sharper drop in other currencies to play spoilsport should have come as a shot in the arm for India's labour-intensive exports.

- NARAYANAN V, KRISHNA BAROT MUKESH JAGOTA Chennai, Ahmedabad, New Delhi, December 24

The local currency's decline came at an opportune moment, as some of these sectors like textiles and clothing were on the cusp of a gradual revival after a prolonged slump.

But the reality is much more nuanced: many sectors, including textiles and leather, have significant import content, which somewhat balances out the gains for onward shipments from a weaker local currency. Moreover, since many competing countries, including China, already have an edge over India in terms of economies of scale and costs, with their currencies also falling as much or more than the rupee against the greenback, the gains for India are either tenuous or non-existent in most markets.

K. Venkatachalam, chief adviser at the Tamil Nadu Spinning Mills Association, pointed out that while India exports yarn and readymade garments, it also imports significant amounts of cotton and other raw materials in dollar terms. This offsets the benefits of exports, rendering the revenue situation (export realisation) neutral even amid the latest bout of rupee depreciation.

"If we start exporting finished goods with Indian raw materials alone, it will be beneficial for exporters, but the current situation is not that," he says, adding that a major part of the raw materials used in export of yarns, including contamination-free and extra long-staple cotton, predominantly comes from the US, Brazil and West Africa. According to industry estimates, around 30-40% of the raw materials used in cotton yarn intended for exports from India typically depend on imports.