A sharp hike in the value of the rupee, which has climbed 12 per cent against the dollar since the beginning of 2007, is throwing India’s small and medium auto component makers out of gear.
On an average, a stronger rupee has shaved off 10 per cent from the export revenues of many small component makers in this period.
“It is no longer profitable to be in the export business,” insists Z.A. Sultan, managing director, Nishan Overseas Marketing Pvt Ltd, an exporter of automotive parts and spares to the heavy commercial vehicles segment with Rs10 crore in revenues.
“Our profit margins have been completely eroded.” Nishan does not sell in India at all. Its exports are concentrated in Australia, Europe, West Asia and the Far East. Barring Europe, where the company bills in euros, about 80 per cent of its export orders are dollar transactions.
When companies bill in dollars, every time the firm receives its payments and converts the money into rupees, it gets less of the local currency. In January, Indian exporters would have got Rs4,426 for every $100 of billings, while these days they would get only Rs3,943 for the same amount of dollars.
Meanwhile, even as the firms are making less money on their exports, interest rates and inflation at home have remained high. Goods are about 3.02 per cent more expensive now than a year ago as measured by the wholesale price index and interest rates are at a five-year high, raising the cost of doing business and pushing up wage bills.
And for exporters, there is no respite because they haven’t been able to raise their prices. “Our customers have resisted any price increases we have requested from them so far,” Sultan said.
Smaller players who quote higher prices for future businesses risk being priced-out by competitors in countries such as China, whose economy thrives on its exports.
The Chinese yuan is pegged to a fixed price range against the dollar, arresting large fluctuations in the currency. India’s auto component industry had revenues of about $15 billion (Rs59,050 crore) in 2006-07, according to provisional figures from the Automotive Component Manufacturers Association of India. Small- and medium-sized enterprises make up almost 60 per cent of the auto components sector in India.