Rupee Weakness: A Double-Edged Sword – Who Gains and Who Loses?

New Delhi: The weakening of the Indian rupee has once again sparked debate on whether a weaker currency actually boosts India’s export competitiveness. A new report by Systematics Research sheds light on the issue, revealing that the effects vary across sectors and that the benefits of a weak rupee are limited and uneven.

Sectoral Impact:

• Beneficiaries: Food and agriculture-based exports are the primary beneficiaries of a weaker rupee. Since these sectors have low import dependence, a weaker rupee translates directly into higher foreign revenue and improved trade balance.
• Limited Gain: Electronics, chemicals, machinery, and petroleum products gain some advantage in exports from rupee weakness, but the benefit is offset by high import costs, as these sectors rely heavily on imported inputs. Rising input costs can erode margins and even worsen the trade deficit.
• Losers: Labor-intensive sectors such as textiles and leather face negative consequences. Increased costs of imported intermediates, coupled with weaker global demand, reduce pricing power and profitability, making them particularly vulnerable.

Why a Weak Rupee Isn’t a Cure-All:
The report emphasizes that a weak rupee cannot be relied upon as a consistent tool to improve trade balance. Global factors such as slowing growth, rising protectionism, and higher costs of imported inputs can neutralize or even reverse any export advantage from currency depreciation.

Practical Examples:

• Manufacturing: An Indian company producing machinery using imported components may find that while the rupee’s weakness allows slightly cheaper exports, higher costs for imported parts can significantly reduce profit margins.
• Agriculture: Conversely, Indian farmers exporting rice or wheat directly to foreign markets benefit from higher foreign earnings, since they depend less on imported inputs, making the currency depreciation structurally advantageous for them.

Rupee Performance:
The rupee recently fell to a record low of 91.01 per US dollar, weakening by 23 paise in one session. Factors cited by the government in the Rajya Sabha included rising trade deficits and developments related to the India-US trade agreement. Despite some recovery later in the session, the rupee has lost 1% against the dollar over the past five sessions, trading around 91 per USD, reflecting persistent external pressures.

Conclusion:
While certain sectors such as food and agriculture clearly benefit from a weak rupee, export-oriented manufacturing and labor-intensive sectors may face structural disadvantages. Policymakers and businesses should therefore recognize that currency depreciation is not a universal solution, and sector-specific strategies are essential to mitigate risks and maximize gains.