Let me draw you backwards by around 2 years when the global economy was infected with the worst recession ever witnessed since the Global Depression of 1930s.
During such times, it was but obvious that the heat of the fallout from the slowdown would have been felt by the exporters in India, largely dependent on the demand from US consumers – be it IT or textile industry.
It was during this time, that most of the exporters realized the consequences of over-dependence on the US market. Gradually, even the best of the managements took a fundamental call to diversify their client and business portfolio across the globe especially the developed markets of Europe.
Well, at that time, who among them could have forecasted that after US, it could well be the turn of European economy to go through the recessionary phase?
Indian exporters managed to close the 2009-10 fiscal with trades worth $176 billion. But, that was the time when the European crisis was still not palpable on the horizon.
According to the NASSCOM estimates, Indian IT services and BPO companies earned around 30% of their total export revenues of $50 billion from Europe. India’s top three IT companies TCS, Infosys and Wipro earn anywhere between 23 to 26% of their total revenues from Europe. Tech Mahindra is worst placed with European exposure to the extent of 59% of its revenues.
Now, the Greek crisis has ballooned into a major European crisis. Even as EU-IMF chipped-in with a $1 trillion rescue plan for the debt-laden economies of Southern Europe, the currency value of euro has depreciated by 5% against the rupee since April.
Europe accounts for almost 26% of the overall Indian exports. Euro which was quoting at around Rs.67 before crisis is way below at Rs.55.92 currently. The sharp depreciation of the euro has concerned exporters as that could ultimately have cash flow impact on the remittances.
Economies such as Greece, Portugal and Spain have already introduced cut in spending and other austerity drives to bring down the high fiscal deficits in line with EU norms and targets. Such spending cuts could lead to postponement or even cancellation of orders for the Indian exporters.
Apparently, some of the apparel exporters have started taking corrective measures to tackle the consequences of fall in demand and fluctuation in currency on account of re-emergence of global risk aversion, by opening stores in the domestic markets and ruling out the effects of currency variations and related hedging problems.
According to ASSOCHAM, Indian exports to Europe could see fall in demand to the tune of close to 10%, in the first quarter of current fiscal. The export products likely to be affected could be in the spaces of engineering, readymade garments, yarn chemicals, oil seeds, electrical goods and leather.
Do you feel India’s export target for the first half of FY10-11 could be met in the eyes of European crisis?