The cascading impact of the increased fuel costs, in transportation and raw materials, will be felt by the export sector next year and the government may have to fix a relatively lower export target (in growth terms) in the coming fiscal, exporters said. However, experts said the weakening of the rupee value against the dollar would help in offsetting some of the losses incurred by them due to hiked fuel costs. Among those who will be hurt by rising fuel prices will be those sectors like marine exports, where the fuel use is significant, and also those with production facilities situated away from ports and airports as they would see an increase in costs.
R K Dhawan, chairman (northern region), Federation of Indian Export Organisations, said ?the fuel price hike will hurt exports as it increases transportation costs, be it in running a factory, or transporting to the ports and airports. Already the increase in ATF (aviation turbine fuel) has increased air cargo costs of exports. There will be an overall drop in profits by as much as 10%.?
He said it would be difficult for exporters to achieve this year’s ambitious $200 billion target and set a lower growth target for coming fiscal considering the fuel price factor. In the last fiscal, rupee appreciation impacted exports and it had fallen $5 billion short of the $160 billion target. As the exporters have purchased most of the raw materials needed for their inputs for exports this fiscal, the impact would not be much in this fiscal’s exports, Dhawan said. But exporters will feel the full impact of increased fuel and transportation costs next year.
K T Chacko, director, Indian Institute of Foreign Trade and former director general of foreign trade, said: ?The major impact would be felt by sectors like marine exports, where fuel costs are significant. With the catch near the coast diminishing, they are forced to go deep into the sea and this requires more fuel. Increased fuel intake by their vessels in turn impacts their viability and profitability.?
Around 2 million people are employed in the fisheries sector and last fiscal the marine exports were worth $1.87 billion. G Mohan Kumar, chairman, Marine Products Export Development Authority, said the fuel price hike can result in more small fishing communities stopping their activities. Besides, the price hike will also impact processing & aquaculture farms as well as other seafood plants as they use lot of diesel for their operations and also for running generators. ?Most of these plants do not get power from the grid,? he added.
Chacko said exporters in most sectors rely on standby arrangement of power using their own generators, and the increase in fuel price will add to their costs. He said exporters with operations and production facilities in the interiors would also be impacted due to increase in transportation costs. Though the government has announced across-the-board 5% reduction in custom duties on crude and petroleum products, since the exporters get duty drawback benefits on imports, this would not give them any benefit, Chacko said.
Arvind Mahajan, Executive Director, KPMG, said ?The impact of fuel price hike will not be significant on exports as the transportation element is not a major portion of the total costs. In fact, the decline of the rupee value against the dollar could offset the losses due to increased transportation and raw material costs.?
Chacko also said that one has to wait and watch till the situation gets clearer as competitors in other countries are also impacted by the oil price increase globally. ?The competitiveness of the export sector will not be affected that much as already our products are cheaper than those from many other countries,? he said.