Capital goods imports to zoom

THE RUPEE RISE PART II

When Reliance Energy announced its plans to set up a 3,500-mw gas-based power plant in Uttar Pradesh at a cost of Rs 10,000 crore, the project cost grabbed everyone's attention. Reliance, known to put up world class projects in record time, was pegging it at less than Rs 3 crore per mw.

The bottomline is, Reliance Energy will produce power at the plant at extremely competitive prices. Among other things, company executives attribute it to the strengthening rupee against the dollar.

In the past one year, the dollar has fallen around 8 per cent against the rupee. This has made companies look at importing capital goods rather than ordering the same from local companies.

According to a Ficci analyst, imports of capital goods have increased sharply by 25.7 per cent during April-October 2003-04.

On the other hand, analysts maintain that production of capital goods has grown 10.3 per cent during April-January 2003-04, slightly below 11 per cent during the corresponding period of the previous financial year.

The Ascon Industry Review, carried out by the Confederation of Indian Industries, suggests that two-thirds of capital goods producers in the country recorded a moderate growth of below 10 per cent in sales during April-December 2003 over April-December 2002.

This, mind you, happened before the government cut the Customs duty on project imports of over Rs 5 crore from 25 per cent to 10 per cent in January this year.

On their part, capital goods producers say the fall in the dollar is yet to impact their sales. Senior executives in companies like L&T, ABB and the state-owned Bhel told Business Standard that they have hedged themselves against the fall in the dollar and sales continue to grow at a fast clip.

But companies with large project outlays say the strengthening rupee has opened up new possibilities for them. Jindal Steel & Power Ltd, for instance, is hoping to make substantial savings for its upcoming 1,000-mw power plant at Chattisgarh, for which both Indian and foreign companies have put in bids.

"Imports have definitely become cheaper," says Vikrant Gujral, JSPL vice-chairman and CEO.

"I would not import only if the local price is substantially lower," says RR Vederah, deputy managing director of Ballarpur Industries Ltd, the country's largest paper company.

Even companies which were billing their imports in other currencies have benefited from the dollar's fall. For instance, Indo Rama Synthetics (I) Ltd, which is importing machinery from Germany for its Rs 900-crore project to double its synthetic fibre and polyester capacity, was able to lower prices by opening negotiations with some US-based companies.

"We did look at possibilities in the US. It didn't work out but we got a better price from our German suppliers," the company's CFO, Shailendra Tandon, says.