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Grey Area of Rising Rupee- Unemployment

The US dollar – rupee exchange rate is the current hot topic for discussions amongst economists. The 15 per cent (almost) appreciation of rupee over the last year has given way to many issues and arguments regarding its effect on the Indian economy and its different sectors and also its effect on the labour and job market. All the major currencies across the world have witnessed a rise in their value vis-à-vis the US dollar. The Canadian dollar appreciated by 23%, euro by 14.7% and the pound rose by 10.4%.

Appreciation of Indian rupee (which appreciated by almost 9% between January and June this year) is being cited as the result of the increasing capital inflows and the RBI’s effort to intervene in the increasing inflation rates. But the contradiction is that the stronger rupee is having

a gloomy effect on various sectors especially the labour intensive industries like leather and handicrafts based in the tier-II cities of India. The appreciation of rupee has badly hit India’s exports (mostly to the US), and as a result many organisations export units have already shut down or reduced their staff considerably. We shall now discuss the effect of the same on different Indian industry sectors:

TEXTILE & APPAREL industry
Indian textile industry – which held a competitive position in the apparel and textile export to US-has been adversely affected by the appreciation in the value of rupee. The industry is witnessing a decline in the domestic textile and apparel export to US in the first half of year 2007. Although the total imports BY the US witnessed an overall increase by 5.70% over the last year, exports by Indian textile and apparel saw a decline by 0.21 %. The industry which was already facing sluggish apparel sales in the US has been hit by the strengthening position of rupee against the US dollar. The worst affected is the labour force of the industry. Approximately 10 lakh workers are feared to loose their jobs due to the current scenario of the rising value of rupee. Also, as many as 80 lakh workers are expected to be indirectly affected by the prevalent situation. The fear of loosing their jobs is gripping the entire industry, right from the organisation owners and the small scale workers. Many small scale units in tier – II cities have already faced the brunt and have shut increasing the unemployment in the sector.

IT industry
India has emerged as the most preferred and low cost destination for outsourcing the IT products and services. India has the advantage of providing services at low-cost because of the availability of the engineers and the developers. The last year has seen the Indian rupee strengthening against the dollar, the average salary in the IT industry has risen considerably and, the East European and other Asian countries like Japan are also giving tough competition to the Indian IT industry. The short term impact of all these situations can already be seen in the industry with the diminishing profits of the industry. Also, the appreciation of rupee has led to decreasing number of projects and assignments. In recent years, the Indian I industry has grown at a very fast rate. Even if the sector maintains the growth rate, the profit margins of Indian players will only get lesser because the appreciation of rupee is eating away the purchasing power of dollar. The lesser profits would also affect the investment in training and development of professionals, the infrastructure and the common practices of the industry requiring heavy investment. The worst effected will be the small players in the industry as rising costs and salaries and decreasing profits will be difficult for them to manage. All these factors can have adverse effects on the labour force of the IT industry.

LEATHER industry
The same is the case with the Indian leather and handicrafts industries. Kanpur and the adjoining areas is the hub of India’s leather trade and US exports account for nearly half of the region’s leather trade revenues. The rise in the value of rupee has eroded almost all the profit margins of the exporters made from US shipments. Most of the companies have stopped taking fresh orders and decreased the number of employees as well as the number of shifts of the remaining employees. Wilting under the financial debts, many units have already have shut their business and with no new assignments coming their way, the remaining functional units are also almost out of business. The Brassware export business in UP and the handicrafts industry are also loosing their business to countries like Sri Lanka, Pakistan, Bangladesh and even China, which are providing lower costs than India to the importers in US. The large agricultural and industrial base of India is being badly affected by the rupee appreciation. The extent and the long-term effects of the damage are yet to be seen. If the rise in the value of the rupee continuous, it will erode our competitiveness against countries like Bangladesh or China.

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Grey Area of Rising Rupee- Unemployment