While much can be said about the perils of a falling rupee, the decline in value has been beneficial to exporters of textile, leather and automobile components. Their business is likely to grow by 30 per cent
The rupee is on a free fall. It is a blessing for some companies and a bane for those under foreign debt. It also benefits the NRIs, who have started repatriating huge cash as it multiplies in India. It is another issue that the rupee’s fall makes overall lifestyle expensive. Even soap prices have been increasing. It affects the family budget and industry input cost. According to the Centre for Monitoring Indian Economy, the power industry alone saw increase of over 10 per cent (from 15 per cent to 26 per cent) last year in its fuel bills, owing to the rupee slide.
The lower price of the rupee against the dollar helps some companies spruce up their profits. The biggest gainers are the information technology, pharmaceutical, auto and fast-moving consumer goods companies. The companies which are to make large profits in rupee terms include ITC, Infosys, Wipro, TCS, Tech Mahindra, Dr Reddy’s lab, Cipla, Sun Pharma, Tata Motors, Mahindra & Mahindra, Bajaj Auto and, to some extent, the public-sector BHEl. The companies are likely to gain as their earnings in dollar terms are more than their expenses.
Infosys, Wipro and TCS are likely to be huge gainers. Their administrative expenses are mostly done in India. Whatever they earn abroad through project work or selling services earn them largely huge margins in dollar terms. It is estimated that TCS would be the biggest gainer with over Rs 5,700 crore as additional profit. Infosys is expected to have a gain of Rs 3,600 crore and Wipro, Rs 2,700 crore. The National Institute of Public Finance and Planning has in a study of 1,298 companies found that many companies made a killing because of the falling rupee.
There are many more firms which would see a larger outgo in rupee terms. These have large external commercial borrowings. Their debt servicing cost increases and profits are likely to get depressed. New external commercial borrowings for Indian companies may be more expensive as the lending agencies are likely to increase interest rates. They might take the plea of an economy that is almost having negative international credit agency ratings.
In rupee terms, the eight big companies are estimated to have ECB of approximately about Rs 5.6 lakh crore. Among them, Reliance ADAG has ECB of Rs 1.13 lakh crore, Vedanta Group has Rs 99,600 crore, Essar group Rs 98,400 crore, Adani Rs 81,100 crore, GMR Rs 40,8000 crore, leko Rs 39,000 crore and GVK Rs 25,000 crore. The list includes scores others. It does not include their debt servicing cost. It only means India has to prepare for huge dollar outgo and companies would have to shell out huge amount in terms of rupee.
This is likely to cut into their profits and ultimately that would result in less payment of taxes to the Government. This might add to the Government’s fiscal deficit. The impact goes beyond to smaller dealers. The plummeting rupee has cast a lengthening shadow across India’s tech and appliances hubs such as Delhi’s Nehru Place and lamington Road in Mumbai, with footfall down by a fifth as prices of imported electronic items have shot up 15 per cent over the past month alone.
It is not good news for gold dealers as well. Not only has gold become more expensive in dollar terms, the additional 10 per cent duty is casting a spell on their operations. The gold ornament makers — the artisans — are losing their jobs as many traders prefer to import finished ornaments.
The impact of rupee depreciation on the FMCG sector will be due to higher cost of imported raw materials. The companies were already facing cost pressures. The rupee depreciation has added to their woes. They will have to revise prices. Hindustan Uniliver and Procter & Gamble have already taken steps in this direction.
Pulses and oil, which account for a large part of India’s imports, will also be affected. Crude palm oil prices set the pace for prices of other edible oils. It is imported in large quantities and any rise in its price will add to the inflationary pressure.The garment and spice exporters are happy. India is a major exporter of spices and the recent weakening of the rupee has reportedly boosted overseas demand of certain spices like pepper, which registered 33 per cent growth in quantity and 115 per cent growth in value during the past one year as rupee slid.
The rupee depreciation has turned beneficial to exporters of textile, leather and automobile components. The business is likely to grow by 30 per cent. Some exporters say that the depreciation has improved their competitiveness. There has been much interest in the recent spurt in guar gum and guar seed prices. Part of this has been because of higher export demand. It may be noted that India exports almost 90 per cent of the guar gum produced in the country. The depreciating rupee has made this additive attractive to international buyers.