The rupee fell by 36 paise (0.5 per cent) to close at a two-year low of 66.82 against the American dollar on Monday on firm dollar demand from banks and importers and volatile domestic equities. The Indian currency has depreciated about 7 percent since April.
The depreciation of the rupee would have ambiguous impact on Indian textile industry. Fall in rupee will possibly benefit the Indian textile exporters as China could further devalue its currency to increase competition.
As China dominates in global export market, yuan devaluation more than the rupee will increase competition which will affect the Indian export market, said ICRA. On the other hand, India is the world's second largest cotton exporter and decline in the rupee would give a competitive edge to domestic cotton globally, it added.
Pakistan is one of the biggest competitors in export of cotton yarn to China. Hence, the export competitiveness of the Indian cotton yarn depends on the relative currency movement of the rupee with Pakistan's currency.
Pakistan's currency had remained relatively stable and rupee depreciation seems to have a good impact on Indian cotton yarn market as long as price competitiveness is achieved, ICRA added.