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How much Could European Crisis Hit Indian Exports?

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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?

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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?

  1. […] Europe and Japan are in crisis. And now it seems the crisis is rubbing off on their brands as well. In the recent Interbrand best global top 100 brands, there was not a single non-US brand in the top 10. Some of them do make an entry in the top 20 but it is hard to imagine that not a single brand from these geographies was in the top 10. […]

  2. […] The Indian Benchmark Indices made a short-term low on May 25, 2010 – at the levels of Sensex 16022 and Nifty 4807. This slump was led by the breakdown of markets from the highs of Sensex 17970, during the first week of April. As most of us know, this bout of correction was triggered by the Greece-led European crisis. […]

  3. free islamic sms says

    Can’t specify in words

  4. Guha Rajan says

    This looks to be the danger of having a strong currency, the world has become flat. It does not matter where a commodity is produced in this world, it need to be most competitively priced. The developing economies still have week currency, hence though export will get hit to certain extent, but I believe it should not have great impact to Indian or Chinese or developing economies.

    Have writen about my thoughts on my blog

    http://indian-amps.blogspot.com/2010/05/we-are-not-greece-or-us.html
    http://indian-amps.blogspot.com/2009/03/global-economy-crisis.html

    1. Viral says

      Hello Guha Rajan,

      You’re right in telling that Indian exports may not be as hit as has been made out to be. India’s exposure to European markets is limited and even more strapped in exposure to nations (such as Greece, Portugal, Spain and Italy) hit by the debt-crisis.

  5. Altaf Rahman says

    One positive outcome of this Euro crisis is any Indian planning holidays in Europe (specially to the effected countries like Greece, Portuga etc) will be spending less.
    Also imports from Euro zone will become attractive for indian importers.

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