Always Under Construction
feed
by GD Jasuja  January 7, 2011 3:43 am

Editorial : November 2010

Increase Productivity and Learn Risk Management to Counter/Neutralize the Impact of Rising Rupee

GD Jasuja - EditorTextile & Clothing is an important sector in India’s export basket. This sector has negligible use of imported inputs and is an employer of a large number of people in India. Rupee appreciation in the past has resulted in loss in export growth both in textile as well as in the readymade garment (RMG) sector. Clothing sector is highly labour intensive. An investment of Rs.100 Million generates 500 direct and 200 indirect jobs. Around 5.8 million people are engaged in apparel industry. Any slowdown in the export growth will adversely affect the employment generation. In fact, in many sub categories, job losses are already reported. It is estimated that for every percentage point of appreciation, profitability of exports in the textile sector is hit by 1.2%.

RBI has clearly indicated that it is going to intervene to contain the rise in rupee to avoid it’s negative impact on exporters. As India’s exports are at stake, government of India also needs to gear up to take appropriate steps to neutralize the effect of rupee appreciation, mainly in the form of providing several incentives to exporters and enhancing some of the existing ones. It is widely feared that profits will tank for the textile industry if the rupee goes below 44 against the US dollar. The rupee’s rise will certainly trim down profit margins and hit export competitiveness. Firms should, therefore, handle their foreign exchange with due care. As India is gradually getting integrated with the world economy, currency volatility will become a normal affair. Similarly, it is important for the firms – that are already enjoying several incentives for quite sometime – to enhance their productivity with the help of such incentives. Higher productivity leads to lower cost of production, and thus it can play a key role in neutralizing the loss that may occur due to currency appreciation. Within the industry also, we can see that the effect of rupee appreciation varies among firms. More productive firms can absorb the loss in a better way. Furthermore, firms need to learn sophisticated methods of risk management to maintain a favourable foreign currency hedge in view of the volatile currency market which has already become the order of the day.
Chinese are very much under pressure to appreciate their currency. The appreciation of the yuan, together with rising raw material and labor costs, has already squeezed profit margins in China’s textile industry. The yuan rose 21 percent against the U.S. dollar from 2005 to 2008. It is feared that if the yuan actually appreciates 5 percent from the current level against the U.S. dollar, then over half of China’s home textile companies will go bankrupt.
To cope with yuan appreciation, Chinese textile companies have already started vigorously promoting industry upgradation and technological innovation to achieve value addition. They have also started making structural adjustment to focus on the huge domestic market.
We got to do the same to be in the business of exports.

Textile & Clothing is an important sector in India’s export basket. This sector has negligible use of imported inputs and is an employer of a large number of people in India. Rupee appreciation in the past has resulted in loss in export growth both in textile as well as in the readymade garment (RMG) sector. Clothing sector is highly labour intensive. An investment of Rs.100 Million generates 500 direct and 200 indirect jobs. Around 5.8 million people are engaged in apparel industry. Any slowdown in the export growth will adversely affect the employment generation. In fact, in many sub categories, job losses are already reported. It is estimated that for every percentage point of appreciation, profitability of exports in the textile sector is hit by 1.2%.
RBI has clearly indicated that it is going to intervene to contain the rise in rupee to avoid it’s negative impact on exporters. As India’s exports are at stake, government of India also needs to gear up to take appropriate steps to neutralize the effect of rupee appreciation, mainly in the form of providing several incentives to exporters and enhancing some of the existing ones. It is widely feared that profits will tank for the textile industry if the rupee goes below 44 against the US dollar. The rupee’s rise will certainly trim down profit margins and hit export competitiveness. Firms should, therefore, handle their foreign exchange with due care. As India is gradually getting integrated with the world economy, currency volatility will become a normal affair. Similarly, it is important for the firms – that are already enjoying several incentives for quite sometime – to enhance their productivity with the help of such incentives. Higher productivity leads to lower cost of production, and thus it can play a key role in neutralizing the loss that may occur due to currency appreciation. Within the industry also, we can see that the effect of rupee appreciation varies among firms. More productive firms can absorb the loss in a better way. Furthermore, firms need to learn sophisticated methods of risk management to maintain a favourable foreign currency hedge in view of the volatile currency market which has already become the order of the day.
Chinese are very much under pressure to appreciate their currency. The appreciation of the yuan, together with rising raw material and labor costs, has already squeezed profit margins in China’s textile industry. The yuan rose 21 percent against the U.S. dollar from 2005 to 2008. It is feared that if the yuan actually appreciates 5 percent from the current level against the U.S. dollar, then over half of China’s home textile companies will go bankrupt.
To cope with yuan appreciation, Chinese textile companies have already started vigorously promoting industry upgradation and technological innovation to achieve value addition. They have also started making structural adjustment to focus on the huge domestic market.
We got to do the same to be in the business of exports.

GD Jasuja

Comments are closed.

© Welcome To Our India 2019.
Powered by WordPress | Theme by tarimon-notse