Rupee rise: Imported components cheaper

The rise of the rupee against the dollar has come as a boon for companies with import-intensive operations.

These companies, which book their imports in dollars, are reporting substantial savings on their imports bills as the rise of the rupee comes on top of a cut in the peak rate of customs duty from 25 per cent to 20 per cent in January this year.

Over three-fourths of India's total import bill is dollar-denominated. And the 8 per cent slide of the dollar against the rupee in the last one year has to a large extent compensated for any rise in international prices.

India's oil import bill for 2003-04 is expected to be marginally higher than the previous year's level of Rs 85,042 crore (Rs 850.42 billion) even though oil imports are expected to grow by around 9-9.5 per cent in volume terms.

According to oil industry experts, the hardening of the rupee against the dollar will mean that the oil import bill will rise just 4 per cent in rupee terms against 25.7 per cent in 2002-03, despite the fact that crude prices touched new highs in 2003-04.

The appreciation of rupee has also helped companies like L&T. According to L&T chief financial officer Y M Deosthalee, nearly 70 per cent of the projects the company is currently executing have a high import intensity.

"Nearly a year back we decided to undertake some hedging mechanisms which would save us from the adverse impact of a rising rupee. All exports are done in denominations other than the dollar and imports are through the dollar," Deosthalee said.

The impact has also been felt in the grey market for computer hardware, which accounts for about 60 per cent of the total market. In the grey market, a personal computer which costs around $400 uses about 60 per cent of imported components.

Thus, for every rupee fall in the dollar's price, the price of the PC comes down by about Rs 240. In the last one year, grey market operators are known to have benefited by over Rs 700 on every PC.

"If the gain is very sharp or if it continues longer, it will impact the organised PC makers," said Vinnie Mehta, executive director, Manufacturer's Association for Information Technology.

Automobile companies like DaimlerChrysler India and SkodaAuto, which import components, too admitted that the softening of the dollar has helped them pare their prices.

However, companies that have localised heavily in the last few years have not gained much from the dollar's fall.

Two of the biggest consumer durables manufacturers in the country, LG and Samsung, claimed that nearly 90 per cent of the components for their products are now made in India. So, the appreciation of the rupee has not really translated into any major gains.

"Our imports are restricted to LCD panels, which anyway are not big in volumes, and some integrated circuits. The improvement in margins is very minuscule," said CM Singh, head (CTV division), LG Electronics India Ltd.

The big gainers (beneficiaries of the falling dollar)