Examine why Indian exporters gain surprisingly little from currency depreciation. High intermediate import duties and domestic component deficits create an input-cost drag that neutralizes foreign-exchange price gains.
Conventional trade theory suggests a weaker domestic currency makes merchandise cheaper abroad and spurs export volumes. However, as HSBC notes, modern Indian high-growth manufacturing (like smartphones, specialized engineering, and pharmaceuticals) relies extensively on imported subcomponents. Because these inputs face steep customs tariffs (effective rates 6%–15%), rupee depreciation simultaneously inflates imported component costs in rupee terms, amplifying effective tariff burdens and compressing manufacturer margins before products can ever clear customs abroad.
| Export Sector | Export Share | Domestic Value Add (DVA) | Import Intensity | Input Tariff | Gross Currency Gain | Imported Cost Drag | Net Operating Margin | Verdict |
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