On the back of the rupee's fall, Indian exporters are facing increasing pressure to dole out discounts. Buyers of Indian merchandise are stridently demanding discounts, eyeing a share in the incremental earnings of the exporters that stand to gain from the volatile currency.
But a worrying factor is that the buyers are asking for discounts without placing more orders. This is mainly because of a weak demand scenario in the key markets of Europe and the US. Such a trend may exert pressure on merchandise export earnings that touched a high of $303 billion in 2011-12.
“Exporters are faced with no option but to provide discounts in the case of traditional sectors like apparel, handicrafts and carpets to retain their markets,” said Mr Ajai Sahai, Director-General, Federation of Indian Export Organisations (FIEO).
Most of the inputs in these traditional sectors are domestic oriented and, therefore, the depreciation of rupee would not have impacted their input cost. So, the bargaining power of exporters to that extent would be limited, Mr Sahai said.
The rupee has weakened 8.5 per cent in the current financial year till date. Since January 2011, the rupee has depreciated 22 per cent against the dollar. The rupee has weakened on the back of concern over rising current account deficit, which stood at 4.3 per cent of GDP for 2011-12.
“Buyers are comfortable with depreciation of 2-4 per cent. The moment rupee weakens further, they start seeking discounts and they have been bargaining in the present scenario,” said Mr A..Sakthivel, Chairman, Apparel Export Promotion Council.
Buoyed by the growth in past two years, the Government has set a merchandise export earnings target of $350 billion for the current financial year.
“Those buyers who have a sourcing base in India have been quick in terms of seeking a discount,” said Mr Rakesh Kumar, Executive Director of the Export Promotion Council for Handicrafts. Such buyers with a sourcing base account for about 70 per cent of the client profile. However, the demand for discounts which was traditionally offset by higher order volumes is absent this time, Mr Rakesh Kumar said. “If the situation remains the same it could trigger some concerns,” he added.
In sectors like plastics, gems and jewellery, petroleum products where the inputs are largely sourced from outside, exporters can convince the buyer that there is no room for discount as most of the inputs are imported and that they would suffer added import cost due to depreciation of the rupee.
Mr Sahai said the merchandise exports were likely to achieve the targeted level of $ 350 billion for 2012-13 despite the weakening of the rupee. “The first half may be bad, but we expect the second half of this year to be good for the country's exports”.