Exim Bank’s study indicates that a 1% increase in REER (indicating appreciation of the Indian Rupee) translates into a 1.07% increase in India’s real exports to the world. While conventional wisdom suggests that currency depreciation boosts exports by making goods more competitively priced in global markets, the counterintuitive finding of the study suggests that a weaker rupee may not necessarily deliver the anticipated boost to Indian export growth. This is because of the high import dependence of India's manufacturing, particularly in export-oriented sectors.
The study finds that the import intensity of raw materials used in India’s manufacturing sector was estimated at nearly 33.4% in FY23, while export orientation was lower at only 6.5%. Nearly 56.2% of India's merchandise exports are from industries where the import intensity of raw material is greater than the overall manufacturing average of 33.4%. Rupee depreciation tends to increase the cost of import of inputs in these industries, leading to higher production costs and reduction in export price competitiveness. Thus, a stronger rupee can enhance export competitiveness and improve the trade balance, by lowering the cost of imported inputs.
The study further highlights the strong sensitivity of India’s exports to change in global demand, with a 1% rise in real GDP of the world estimated to boost India’s real exports by 4.15% in the long term. Notably, moderate exchange rate volatility is found to support export performance, with a 1% increase in volatility linked to a 0.20% rise in exports, indicating the sector’s resilience and ability to secure risk-adjusted premium pricing.
The study also indicates that different sectors are affected by currency fluctuations in varying ways. In sectors with both high exports and high import dependence like electronics, chemicals, and petroleum products, a depreciation in nominal exchange rate may generally boost the value of exports. However, high import dependence in these sectors often leads to an increase in import costs, thereby offsetting gains from exports and resulting in larger trade deficits. In gems and jewellery sector as well, trade deficit may widen due to depreciation in nominal exchange rate, due to the high import dependence in the sector. Food and agro-based products is one sector where depreciation could lead to both increase in exports and improvement in the trade balance, plausibly on account of the low import dependence in this sector.
The study titled ‘Impact of Exchange Rate Movements on India’s Exports’ was released by Shri M. Nagaraju, Secretary, Department of Financial Services, Government of India during an event jointly organised by Exim Bank and the Asian Development Bank (ADB), titled “Seminar on Business Opportunities with the Asian Development Bank”, on April 30, 2025, in New Delhi.
The event had speakers from the Government, public sector enterprises, banks, financial institutions, academia, think-tanks and NGOs. The event was attended by more than 100 participants. During the event, representatives from Exim Bank and the ADB provided information on opportunities in ADB-funded projects in diverse sectors, ADB Procurement Procedures, ADB Consultant Recruitment Procedures, opportunities under the GOI-supported Exim Bank’s Lines of Credit programme, and Exim Bank’s financing programmes.