Exim Bank Study Reveals How Exchange Rate Changes Affect India’s Export Growth

A recent study by Exim Bank reveals an interesting and surprising fact: when the Indian Rupee strengthens by 1% against other currencies (measured by the Real Effective Exchange Rate or REER), India’s real exports increase by about 1.07% in the long run. This finding is different from what many people expect because usually, when a country’s currency becomes weaker, its exports tend to rise since its goods become cheaper for foreign buyers. But in India’s case, a weaker rupee does not always mean better export growth.

Why Doesn’t a Weaker Rupee Always Help Exports?

The reason behind this is India’s manufacturing sector relies heavily on imported raw materials and inputs. The study shows that in the financial year 2023 (FY23), about 33.4% of the raw materials used by Indian manufacturers were imported. At the same time, only about 6.5% of their production was directly meant for export.

Moreover, over half (56.2%) of India’s merchandise exports come from industries where the import of raw materials is even higher than the average 33.4%. When the rupee loses value, the cost of importing these raw materials goes up. This means manufacturers have to pay more to get the inputs they need, which increases their overall production costs.

Because of these higher costs, exporters find it harder to keep their prices competitive in global markets. So, contrary to popular belief, a stronger rupee can actually help Indian exporters by lowering the cost of imported materials, making Indian goods more competitive internationally.

The Role of Global Demand and Exchange Rate Volatility

The study also shows that India’s exports are very sensitive to changes in global demand. A 1% increase in the real GDP of the world can lead to a 4.15% increase in India’s real exports over the long term. This means when the world economy grows, India’s exports benefit significantly.

Interestingly, the study found that some level of exchange rate volatility (or fluctuation) can actually support export growth. A 1% rise in exchange rate volatility is linked with a 0.20% increase in exports. This suggests that Indian exporters are resilient and can adjust prices to manage risks in a changing currency environment.

Sector-wise Impact of Currency Changes

Different industries react differently to changes in the exchange rate:

• Electronics, Chemicals, and Petroleum Products: These sectors export a lot but also depend heavily on imported raw materials. When the rupee weakens, export values may go up, but import costs rise too, which can cancel out the benefits and even cause bigger trade deficits.
• Gems and Jewellery: Similar to the above sectors, this industry imports many raw materials. So, a weaker rupee often leads to higher import costs and a wider trade deficit.
• Food and Agro-based Products: This sector is less dependent on imports. Here, a weaker rupee can boost exports and improve the trade balance, making it one sector that benefits more clearly from currency depreciation.

About the Study and the Event

The study titled “Impact of Exchange Rate Movements on India’s Exports” was released by Shri M. Nagaraju, Secretary of the Department of Financial Services, Government of India. The launch took place on April 30, 2025, during a seminar organized by Exim Bank and the Asian Development Bank (ADB) in New Delhi.

The seminar was attended by over 100 participants, including government officials, public sector representatives, bankers, financial experts, academicians, think tanks, and NGOs. Representatives from Exim Bank and ADB shared detailed information on business opportunities in ADB-funded projects, ADB procurement and consultant hiring procedures, government-backed Exim Bank’s Lines of Credit program, and other financing options available for businesses.