The Indian economy, just like every other economy, engages in foreign trade, which exposes the nation to currency fluctuations and can significantly impact the economy. Hence, given how much trade goes on between the US and India, the fall in the value of the US dollar has a big impact on Indian exports. Recall that the US dollar is used a lot in foreign trade because it is the world’s reserve currency. As a result, a drop in its value can greatly impact many countries, including India.
In the last couple of years, the US dollar became a little less valuable when compared to other thriving currencies like the Indian rupee. For example, insightsonindia reports that the value of the US dollar against the rupee fell by about 11% between 2017 and 2021. Also, in 2022 rupee was devalued by 10% against USD. This drop in the value of the rupee has good and bad effects on India’s exports. Read on as we explore these core effects in detail in this article.
The depreciation of the US dollar can also stimulate export volume growth for Indian exporters. When the dollar drops in value, it will be easier for Indian exporters to compete internationally. One metric that exporters can get information on the depreciation trend is the DXY chart. The DXY chart is a tool that tracks the value of the US dollar to a group of other major currencies. That way, export-oriented companies will make better decisions regarding exchange rates and goods exported.
According to statistics compiled by India’s Ministry of Commerce and Industry, export volumes have increased. India’s exports increased by 30 percent in the most recent quarter compared to the previous year’s period. In 2021, India exported goods worth $679.68 billion, which increased by 37.18% from 2020. In April 2023, they exported goods estimated at 65.02 billion, a 2% positive growth. The weakening US currency has helped drive this expansion by making Indian goods more competitive in global markets.
Indian exports become more competitively priced against items priced in currencies with better values as the US dollar weakens. Hence, exporters will gain a larger share of global markets and generate more money from their exports.
The value of the Indian rupee dropped by almost 4% against the USD over the past year, as shown by the Reserve Bank of India (RBI) report. Conversely, this depreciation is excellent news for exporters because it lowers the price of their products on the global market. Indian textile producers, for instance, can lower their prices, stimulating domestic consumption and boosting exports.
Indian exporters stand to gain from a weaker US currency but should also prepare for potential difficulties. One such difficulty is the rising price of imported raw materials or components. Increased production costs for Indian exporters who use imported materials may result from a weaker US dollar.
The benefit to Indian exporters may also be diminished if the currencies of other competitor countries similarly weaken against the US dollar. The global marketplace is volatile, and the US dollar relies on how other currencies perform relative to it.
A weaker US currency can positively and negatively affect Indian exporters. Indian exporters may gain market share and improve export revenue due to the weaker dollar. Attractive prices and good currency rates also contribute to expanding export volumes. But difficulties like rising import prices and fluctuating currencies need careful consideration.
Indian exporters may successfully manage these dynamics and take advantage of the changing global trade landscape by keeping a close eye on the chart trends and being updated about currency swings.
