Rupee collapse has India Inc in a fix

Written by Reuters | Mumbai | Updated: Aug 29 2013, 13:54pm hrs
Companies such as Whirlpool of India say they cant plan more than a couple of months out as a fast-falling rupee currency drives up the cost of imports, forcing them to raise prices even as consumer spending crumbles.

The timing is particularly tough for consumer companies that were counting on Indias September-to-December holiday season to spur sales. Consumers, whose spending helped see the country through the global financial crisis in 2008, are closing their wallets, squeezing companies from carmakers to shampoo sellers.

Companies that import finished goods or raw materials are the worst hit as they scramble to hold onto margins while balancing the need to raise prices without deterring buyers.

"We are now planning for a month or three months at best unlike six months or a year earlier," said Shantanu Dasgupta, vice-president for corporate affairs and strategy at Whirlpool of India, the local arm of Whirlpool Corp, the world's largest home appliance maker.

The rupee has tumbled 17% so far this year and hit an all-time low of 66.30 against the dollar on Tuesday, resisting a spate of interventions by the RBI and the government as investor fears about emerging markets deepened in anticipation of reduced US.monetary stimulus.

"A week back in our office we were working at (a rupee exchange rate of) 62 and now it's at 64 and looks like soon it will fall more and hit 67. How can a business operate when the currency is on a free-fall" HS Bhatia, head of the enterprise business at television maker Videocon Industries, said in an August 21 interview.

The currency sell-off has since intensified, compounding difficulties for Videocon. The collapsing rupee pushes up prices of goods, adding to inflation on top of meagre urban salary hikes and an economy growing at its slowest in a decade.

Videocon imports raw materials and is planning to raise prices by 4-5% in the coming days, its second hike in two months.

The currency blow is landing just as consumer companies look toward a boost from their strongest annual sales period, which starts in September with Ganesh Chaturthi, when the god of luck and prosperity is welcomed into Hindu homes, followed by the Diwali festival and then Christmas.

India's total consumption expenditure, which includes private and government spending, grew 3.3% in Jan-March 2013 from 9.3% in the same period a year earlier, according to government estimates. Total consumption expenditure as a share of the country's gross domestic product fell to 65.9% in the fourth quarter of 2012-13 from 72.1% in the first quarter of the same fiscal.