Import Intensity of Exports
Import Intensity of Exports
Topic: Economy
Section: External Sector
Context: The depreciation in the value of the rupee may be good for the country’s export sectors, but there’s a vulnerable sub-category that’s adversely impacted: labour-intensive export sectors such as gems and jewellery, pharmaceuticals and electronics that are highly dependent on imports of inputs.
How does depreciation impact imports /exports?
Usually, depreciation in the domestic currency is expected to give a boost to exports, as trader’s get more local currency when they convert the export proceeds, but importers, on the other hand, need more local currency to buy the same quantity of imported inputs.
Sectors such as gems & jewellery and electronics that have a high import intensity — the value addition of imported items as a proportion of the value of items that are subsequently exported — are faced with higher input costs and lower demand as they are forced to pass on some of the increase in cost of imports. Since the beginning of the year, the rupee has depreciated by 2.6 per cent to a near all-time low of Rs 76.5 as against the US dollar
What is import intensity?
It can simply be defined as the degree of value addition of an imported item that subsequently gets exported. In the Indian context, gems and jewellery is a typical example of such export product having high import t intensity.
Another way of defining import intensity of exports is to identify those exports which are heavily dependent on imported inputs.
Why rupee depreciation doesn’t help Indian exports?
A strong currency reflects the strength of a nation and will always be good for exports, because India, at the end of the day, is a net importer of goods
Conclusion:
Experts said any benefit to exports from a weaker rupee in high value-addition sectors would also depend on the movement of currencies of nations that India competes with in such sectors. The currencies of most developing countries, including competitors such as Bangladesh, Vietnam and Indonesia have also weakened this year but to a less extent than the rupee. However, a general slowdown in the recovery of global trade due to the Russia-Ukraine conflict is a key concern among exporters.