Galloping inflation hurts exporters
Sudden rise in raw material prices coupled with a slump in demand due to inflationary pressures is causing untold suffering for exporters. Lalatendu Mishra reports.business Updated: Jul 07, 2008 21:20 IST
After hitting consumers and manufacturers alike, inflation has struck a dent in the exports market too. A sudden rise in raw material prices coupled with a slump in demand due to inflationary pressures is causing untold suffering for exporters.
“Since May 2008 prices of polypropylene (PP) have gone up by 40 per cent and raw material prices are rising three times a month causing us problems in pricing our products,” said Nimesh Sayani, chairman of Plastic Export Promotion Council.
“We are unable to schedule our production due to frequent unscheduled raw material price hikes with 50 per cent of our production lines lying idle. We are unable to keep our commitment with clients because of the pricing uncertainty,” he said, adding, “The situation is grave and in my 35 years of business I have never seen such a time.”
According to plastic exporters many minor exporters who have small units have closed down their businesses. There are about 2,500 plastic exporters in India who export products worth $3.2 billion (Rs 13,804 crore) to African and American countries.
Apart from raw material costs, a 15 per cent rise in packaging material costs and a 3 per cent hike in transportation cost is eating into their profit margins.
With the market unable to absorb these rising prices, rates for the finished product suffer.
And it’s not just exporters in the plastic industry. Garment exporters are also facing a similar fate and the appreciation of dollar is yet to provide any solace. Yarn prices have gone up by 15 per cent, prices of chemicals are up by 30 per cent and fuel cost has gone up by 10 per cent, putting pressure on their margins.
“The short term prospect is bleak though India can benefit in the long term. The recession hit markets of the US and Europe are not willing to pay more or buy more. The growth is either nil or just marginal,” said Vijay Agarwal, chairman Creative Garments, an apparel exporter from Mumbai.
The domestic market is also stagnating, as people are not willing to spend on clothes with prices of essential items going up steadily. “Fifty per cent of the garment industry’s capacity is lying vacant. The government must ban cotton exports as yarn prices in India are rising due to this,” said Agarwal.