 "Yuan devaluation may hurt consumer electronics, IT")
The Chinese devaluation of the yuan earlier this month has seen the rupee depreciate to a two-year low against the dollar. While China’s move is intended to make its exports competitive, it has exposed domestic electronics and information technology companies to wild fluctuations of the rupee. This, say companies, poses a bigger threat to them than imports from China.
Rahul Agarwal, managing director, Lenovo India, says, “For us the rupee-dollar movement matters more than the yuan depreciation. The rupee has been depreciating and from an exports point of view it is good. However, a large part of our components are imported, so a falling rupee will mean cost of products going up. Moreover, for supplies all contracts are done in dollars. So the rupee-dollar movement is key."
Electronic and infotech products are second on India’s import bill after oil. According to industry estimates, almost 70 per cent of electronic and infotech goods are imported into India. These could be either finished or semi-finished products or components. The nations from where the goods make their way into the country include China, Taiwan, South Korea and Thailand.
Rahul Agarwal, managing director, Lenovo India, says, “For us the rupee-dollar movement matters more than the yuan depreciation. The rupee has been depreciating and from an exports point of view it is good. However, a large part of our components are imported, so a falling rupee will mean cost of products going up. Moreover, for supplies all contracts are done in dollars. So the rupee-dollar movement is key."
Electronic and infotech products are second on India’s import bill after oil. According to industry estimates, almost 70 per cent of electronic and infotech goods are imported into India. These could be either finished or semi-finished products or components. The nations from where the goods make their way into the country include China, Taiwan, South Korea and Thailand.
SN Rai, co-founder and director, Lava International, says, “The peculiarity of India is that we are a large consumption market for electronic and infotech products. But we do not have a domestic component base that can feed local manufacturing. The dependence on China grows as a result. While smaller goods such as tablets and mobiles are simply imported completely from China because the logistics cost is low, durables and larger electronic players import components and assemble locally."
On an average, the import level is 50-75 per cent in white and brown goods. A Rs 1 depreciation, say executives from consumer durables and electronics companies, has a 1.5 per cent impact on prices. The trend is no different for mobile phones, tablets and laptops, where the import level could be as high as 85-90 per cent, according to industry estimates.
“At the start of the calendar year, most of us were working at Rs 63-63.5 a dollar. It slid to about Rs 64-65 a dollar when the yuan began depreciating and is now hovering at Rs 66 to a dollar. At this rate, the rupee could come down further. A 1.5-2 per cent increase in prices can be expected if the depreciation continues," says CM Singh, chief operating officer, Videocon Industries.
What is a cause for concern is that the rupee’s depreciation has come as the festive season kicks in. Regional fests such as Onam have arrived and the season will gather steam with Ganesh Chaturthi, Navratri, Dussehra and Diwali.
“A clearer picture will emerge in the coming weeks. If the depreciation sustains, an impact is imminent. If not, companies will hold price lines, since the festive period is significant," says Shantanu Dasgupta, vice-president, corporate affairs and strategy, Asia South, Whirlpool.
A third of the sales of consumer durables and electronics companies happen in the festive season. While sales of mobile phones, tablets and laptops are spread out throughout the year, the festive season does see manufacturers of these products wooing consumers with offers. A price hike then hardly bodes well for players.
“We feel the festive season will be a good one, since consumers who postponed purchases earlier will make a beeline for the market," says Kamal Nandi, business head and executive vice-president, Godrej Appliances. He believes the full impact of the rupee depreciation can be gauged only over time and an immediate price hike may not be on the cards.
But most believe the pain is not over yet. “While the yuan depreciation was expected since the Chinese economy had been slowing, the rupee’s reaction has come as a surprise. There could be more pain for importers," says an executive with a consumer durables company.
Jaideep Mehta, managing director, IDC South Asia, believes the price of mobile devices could go up three per cent, though Rai says it could be sharper. “If the Reserve Bank of India does not intervene to control the rupee’s fall, I suspect it could get worse for importers," Rai adds