A sliding rupee coupled with a never-ending economic slowdown is only bad news. The rupee has depreciated by more than 10 per cent in the last one month and crossed the psychological level of 60/USD in June-end — meaning it will knock up prices of most imported goods like crude oil which in-turn will prompt oils companies to hike fuel prices. Increased fuel prices will fan inflation leading to an increase in prices of everything from vegetables to automobiles. Your capacity to purchase foreign currency goes down, which has an adverse impact on foreign travel and education.
For 24-year-old Bhavana Sukhole, pursuing a master’s degree abroad after completing MCA, was a dream come true. Being the only daughter, her parents didn’t mind bearing her living expenses as she could only manage a study scholarship for the two-year programme.
Bhavana, who shares her room with three friends, incurs an expenditure upwards $500 every month for food, accommodation and travel, which in August, 2011 worked out to be around `22,500. Thanks to the rupee slide, her parents now shell out more than Rs 30,000 every month.
“We will find it difficult if rupee goes down further,” says her father, a retired PSU employee.
Not only foreign stay, education and travel have become dearer, but spending in the native land has also taken a beating. And how?
According to market research firm Crisil, oil companies are paying more for crude today than two years ago when the crude prices were at a record high of close to $130 per barrel, as the rupee then was trading at 42-44 to the dollar. Since then, it has lost over 44 per cent, blunting the near 30 per cent fall in crude prices.
“If the rupee remains at current levels, the monthly diesel price hike will have to continue throughout 2013-14,” says Mukesh Agarwal, President, Crisil Research.
Higher fuel prices imply increase in transportation charges. It means, day-to-day travel costs will shoot up and so will prices of transported goods such as vegetables, household goods, which has crude oil as an input.
Rising fuel costs has already dented demand for automobiles, especially small cars, as fuel alone accounts for nearly 25-30 per cent of the ownership cost of a small car in the year of purchase. Auto companies are starting to show signs of distress. Car sales are down to 1,39,632 units in June as against 1.53,450 units in June last year.
The apex body for automobile sector Society of Indian Automobile Manufacturers (SIAM) is now contemplating to sensitize the government for a ‘much needed’ stimulus package that would mean a reduction of excise duty to improve their margins.
Even automobile makers, who import components, are feeling the pinch. “We are closely monitoring the developments. If the rupee continues to remain at current level for long, we may be forced to pass on cost pressure to consumers for specific models to protect margins,” says Eberhard Kern, CEO & MD, Mercedes-Benz India.
Other sectors, which are under seige due to the falling rupee include airlines, consumer durables, FMCG products and so on. “Airlines with a high proportion of revenues accruing from domestic operations will also be hurt as 70 per cent of their operating costs are incurred in dollars and their ability to pass on any cost increase is limited, given the sobering impact of price increases on demand,” says Mukesh.
The rupee slide has put pressure on consumer durable companies too. Wasting no time, air conditioner maker Daikin has decided to increase prices of its products by up to 3-5 per cent from next month to offset input cost pressures due to rupee depreciation. “Although we have been trying to offset the pressure created by the depreciating rupee by holding back prices of our product range, the continual pressure created by the current economic conditions has forced us to take the step,” says Kanwal Jeet Jawa, MD, Daikin Air-conditioning India Pvt Ltd.
The increase in price will be between 3 per cent and 5 per cent across all products ranged between `28,200 and `86,600.
Incidentally, peers like LG India, Blue Star, Voltas and Haier India have already hiked prices.
While consumer durables major LG Electronics India increased prices of its entire range of home appliances by up to 5 per cent due to weakening rupee in mid June, Blue Star increased its room air conditioner prices with effect from July 1 by 2.5-7.5 per cent.
“Due to continuous rupee slide, it has become imperative for us to consider the price hike in India. Though we have been absorbing the increase in cost but it will become difficult to avoid this change in the market prices,” Y V Verma, Director (Home Appliances), LG Electronics India, said adding that the impact of the price hike would be seen in all LG home products.
Consumer electronics majors like Sony India and Samsung are closely monitoring the dollar-rupee volatility. Even mobile phones, television sets, cameras and laptops will be dearer with the sharp depreciation in the value of the rupee. “Input costs are likely to grow because of jump in the prices of raw materials and will also be passed on to the consumers by the companies, leading to an increase in core inflation,” says Mukesh.
According to a recent Assocham survey, the foreign tourist outflow significantly declined to the extent of 15-20 per cent due to the falling rupee. “In the wake of the record rupee depreciation, Indian tourists are not just cutting their vacation days, but are opting for holidays within the country rather than going abroad,” it says.
A desperate government is now looking at different ways and means to stop the rupee roll further. It has announced a raft of measures from approving construction of nine new airports, a few hundred kilometers of highways, import duty hike on gold to distress foreign exchange outgoes. Prime Minister Manmohan Singh is meeting the captains of the India Inc on July 29 to discuss ways to reboot the economy. But the measures seem if not too little but certainly too late.
- The Sunday Standard