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Falling rupee hits the small industry

Updated: Jul 03, 2013 05:07:03pm
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New Delhi, Jul 3 (KNN)  Pressure on rupee has surfaced again as the USD has crossed the Rs 60 mark raising fresh worries for the industries particularly the MSMEs.
Over and above, the rupee depreciation worries also stem from the crude oil rising again.

In order to compensate for the higher import costs, oil marketing companies have raised the petrol prices in the past few days, also the hike in the diesel prices have put additional burden on the small industries.

“In rupee terms also, the crude oil price staged a rally to close in on Rs 6000/bbl mark, increasing to Rs 5992.69 /bbl on 02.07.2013 as compared to Rs 5937.48 /bbl on 1.07.2013. This was due to price increase in dollar terms and also because of rupee depreciation.  Rupee-dollar exchange rate on 02.07.2013 was Rs 59.41/USD against Rs 59.15/ on previous trading day of 01.07.2013,” said an official notification.

With acute power shortage in most of the states, industrial units in the region have become dependent on diesel-based power generators. The dependency on generators itself is hitting the industry.

Despite the low demands, manufacturers are bound to increase the final price of their products due to higher raw material costs. Especially the ones who use imported raw materials or the ones who import finished goods have increased the prices.

Even the prices of the common electronic goods like television, computer, mobile phones, and home appliances have gone up.

It has even left a bad impact on the small industries as a fall in the rupee results in importers having to pay more in local currency for the same number of dollars along with costlier products in the domestic market.

Since India is a net importer country, the weak currency and local inflation are co-related. A 10 per cent fall in the currency pushes up consumer prices by one percentage point over three to four months. 

The depreciating rupee will further add to inflation.  Since India is structurally an import intensive country, the domestic costs will rise on account of rupee depreciation, which will in turn lead to increased inflation.

The rupee depreciation will particularly hit the industrial sector and put higher pressure on their costs as items like oil, imported coal, metals, minerals and imported industrial intermediate products are getting affected.

Overseas suppliers are also demanding to lower prices for goods that have already been shipped or asking for more time to make payments, as they have to pay more rupees for goods priced in dollars.

Also, in some cases, importers have not made the payments, leaving the goods at the ports.

Importers of packaged food say they are worse off because they can’t increase the prices they charge their customers to compensate for the rise in their import costs.

According to Indian rules, packaged food should have tags showing final prices in rupees before it is shipped. This is because the customs duty is calculated on the final price.

Also, tourism which is an important part of the small industry, has witnessed a significant decline.

Tourists outflow from the country has fallen by 20 per cent owing to the falling value of rupee to a record low of 60.76 against the dollar, according to a survey conducted by ASSOCHAM.
 
“The falling rupee is definitely resulting in a slowdown in foreign trips by Indians, mainly the middle-class. The outbound tourist outflow registered a significant drop of 15-20 per cent due to weak rupee," the industry body said. 
 
The rupee today fell by 37 paise to again slip below the 60 mark to 60.03 and has fallen 9.0 per cent against the U S dollar since the start of May.

This is the first time since June 27 that the domestic currency has fallen below the 60 level. Rupee had touched an all-time low of 60.76 against the dollar on June 26.

The sharp increase in the rupee’s volatility in the past two years has also made it difficult for traders to manage their currency exposure.

India’s central bank has been urging companies to hedge their overseas exposure to protect themselves from currency volatility. But it says most imports are not hedged against currency risks.

Experts say small traders also need to pay more attention to their currency exposure. (KNN)
 

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