Rising rupee does not spare domestic manufacturers

New Delhi, Oct. 2 Not only has the strengthening of the rupee vis-À-vis the greenback been denting export margins, but it is now beginning to hit those manufacturing for the domestic market.

Among those affected are manufacturers whose products are substitutable by imports, which have turned cheaper as the rupee hardens. The trend is evident in a bevy of sectors such as chemicals, textiles, standardised auto components and tyres, where imports have been on the rise.

Domestic suppliers to export firms are also taking a hit as exports falter. Further compounding the woes of the domestic manufacturing sector is the fact that India is fast turning into a high-cost economy, with spiralling real estate prices, increasing interest rates and high cost of infrastructural overheads such as power and freight costs, all of which translate into whittling down of margins.

Margin squeeze

Mr Ashish Bharat Ram, Managing Director, SRF Ltd, said, “The rupee appreciation is adversely impacting those domestic manufacturers where the product is substitutable by imports.” He explains that even in cases where raw material is imported, margins are being squeezed. “Imports of raw material from China, for instance, are of special concern as the yuan has not been revalued, and this puts pressure on margins even further.”

Jubilant Organosys’ Executive Director (Finance), Mr R. Sankaraiah said, “The impact of the rupee appreciation is also on those industries that are importing commodities as raw material at par with international competition.”

The rising rupee has, on the flip side, rendered imports into India more competitive. Sona Koyo Chairman and Managing Director, Mr Surinder Kapur, said, “An impact would be felt by those who make standardised auto components where import substitution is possible.”

In the case of textile products, during the 12-months to March 2007, imports from Pakistan jumped 66 per cent while cotton yarn and fabric imports from Pakistan were up 74 per cent and from Sri Lanka 65 per cent, according to latest DGCI&S data. The auto components sector is seeing similar trends.

Impact meter

The Marketing Director of JK Tyres, Mr A.S. Mehta, said, “When domestic players share the same platform as overseas players, the impact is serious. While imported goods prices are down, manufacturers who use local raw material have no advantage in production cost. Chinese tyre imports have always been a concern. Partial withdrawal of subsidy by the Chinese to their manufacturers had reduced the price gap, but rupee appreciation has once again made it an issue.”

Firms supplying to exporters are also taking a hit as exports wobble. Mr Mukund Choudhary, Managing Director of Spentex Industries, said, “Most of our domestic yarn sales go into deemed exports. Since exports of readymade garments have been hit, naturally it affects our domestic sales.”

A number of leather manufacturers in smaller centres such as Agra and Kanpur, who supply to exporters, are also witnessing a dent in sales.