With the rupee hovering well above 81 against the dollar on Friday, import-dependent companies are apprehensive of a further escalation in prices and margin erosion amid fears of a continuous increase in inflation.
Sectors such as power, steel, automotive, chemicals, fertiliser, electronics and gadgets, edible oil and raw cotton, which are sensitive to forex fluctuation, are predicted to pass on the increase to end customers, fuelling imported inflation. The rupee hit a low of 81.23 on September 23 against the dollar, a 0.54% fall compared to the previous close of 80.79.
Dipti Deshpande, principal economist, Crisil Research, said, “Manufacturers have been facing a higher pressure from imported inflation. Our analysis suggests that in recent months, import price inflation has accounted for about 60% of the wholesale price inflation, compared to 28% in the pre-pandemic period.”
The slight easing in commodity and crude oil prices, and the continuous check on internal cost inflation may soften the blow of a weak rupee up to a limited extent, said the experts.
K Krishna Moorthy, CEO & president, India Electronics & Semiconductor Association, said, “The rupee depreciation impact is much higher on electronic products made in India since components and electromechanical parts constitute 40-45% of the input cost for products like TV and phones. These companies will probably ride the imminent festive season with marginal adjustments and then look at price revisions by late October. This may not be the case for other products like medical electronics or industrial electronics systems.”
The import of auto components last year stood at an all-time high of $18.3 billion. Vehicle makers, except for luxury brands, do not import directly but they are dependent on their parts suppliers. Electronic components, such as semiconductors, which are not made in India, remain in high demand.
Sachchidanand Shukla, chief economist, Mahindra Group, said, “Cost of imported inputs like metals will rise for the companies while consumers will end up paying more for electronic items such as mobile phones, cars and appliances. Foreign education and travel will also become more expensive.”
India is the biggest importer of vegetable oil in the world and the biggest importer of palm oil in Asia. There has already been an increase of ?3 due to the fall in rupee this year compared to the last financial year and oil importers are expecting a further increase in prices just as India enters the festive season period.
“India imported 30 million tonne of edible oil worth about ?1.5 trillion last year at ?77-78 per dollar. With the exchange hitting 81, the rupee fall will definitely hit the domestic prices of edible oil. Companies will look at increasing the prices,” BV Mehta, executive director, Solvent Extractors’ Association of India.
Steel maker JSW Steel on Friday said it will increase the local currency component in its borrowing mix for its capital expenditure plans for the current year.