Whalesbook
Global Headaches Trump Rupee Weakness
India's export sector is grappling with a mix of global problems that are proving far more powerful than currency movements. While the Indian rupee has weakened significantly, its potential boost for exporters is being erased by sharp increases in operational expenses and supply chain gridlock, largely driven by volatile geopolitical conditions.
The Indian rupee has depreciated about 9.55% over the last 12 months, reaching a record low near 99.82 against the US dollar in March 2026. Normally, this would make Indian goods cheaper for foreign buyers, offering a competitive edge. However, current global issues are creating a different reality. Disruptions from Middle Eastern conflicts have hit key shipping routes, including the Strait of Hormuz. This has led to significant increases in shipping costs and transit times, forcing many carriers to reroute vessels around the Cape of Good Hope. These detours add 15-20 days to voyages and can raise logistics expenses by up to 30%.
Meanwhile, industries are facing severe shortages of essential inputs. Gas supply disruptions mean manufacturing operations, especially steel furnaces, are running at critically low capacities, sometimes as low as 20-25%. Scarcity is also widespread for steel scrap, packaging materials, and petroleum derivatives, further limiting production. These rising energy and raw material costs are eating into any potential gains from the weaker currency.
Trade Outlook Faces Pressure
The Nifty India Manufacturing Index, an indicator for the sector, shows this strain, trading down 0.99% on March 24, 2026. The index constituents had a P/E ratio of 25.59 on that date, with the cumulative market capitalization of BSE's manufacturing index standing at ₹92,89,185.93 crore.
The severity of current supply chain issues surpasses typical market volatility. Global trade growth is projected to slow significantly in 2026, with the WTO forecasting just 0.5% expansion, down from 2.4% in 2025. This outlook cites tariff uncertainty and weakening business confidence. This differs from India's own export performance, which saw total merchandise and services exports reach $790.86 billion in April-February 2025-26, a 5.79% increase. However, this growth is increasingly challenged by high operational costs.
Historically, rupee depreciation has aided Indian exports. But the current scenario combines unprecedented input cost inflation with geopolitical risks, a strong mix not seen in previous cycles. While analysts like Goldman Sachs project robust GDP growth for India in 2026, industry bodies like the Federation of Indian Export Organisations caution that geopolitical tensions, trade fragmentation, and high freight costs present major challenges.
Government Support Cut Squeezes Margins
Adding to the difficulties, government support for exporters has been reduced. The RoDTEP scheme, which helps offset export costs, saw its benefits cut by 50% effective February 23, 2026. This policy shift diminishes exporters' ability to absorb escalating costs and maintain price competitiveness on the global stage.
While the RoDTEP scheme has been extended until March 31, 2026, the reduced benefit rates present a significant hurdle for exporters already dealing with rising expenses and global uncertainties.
Mixed Outlook Hinges on Stability
Despite immediate challenges, optimism for engineering exports to surpass $120 billion in FY26 remains, driven by market diversification and potential trade deals, including an interim agreement with the US. However, this outlook depends heavily on the stabilization of global geopolitical conditions and easing supply chain pressures.
Analysts project continued economic growth for India, but the export sector's performance will hinge on its ability to navigate these complex and costly operational challenges. India's significant reliance on imported energy and raw materials exacerbates these cost pressures, leaving the sector highly exposed to global price swings and disruptions.