New Delhi: For nearly two years, hand-tool manufacturer Rajnish Bindra has been supplying wheel spanners and screw drivers to a Russian truck company.
His company, Bharti Tools Corp., located in industrial Faridabad on the outskirts of Delhi, sent some two lakh pieces to an importer in St Petersburg last year. At $1.20 a piece, back in the days when he was getting Rs45 to the dollar, business was good, raking in a neat 7-8% margin, he said.
But this month, Bindra began worrying about payments when his container load of tool kits was still at sea. It takes 40 days to reach the Russian port of call, and by the time it arrived, the rupee had risen against the dollar by 10%, from Rs45 to Rs40.30. With each passing day, Bindra saw his profits shrink.
After paying high interest on loans, steep material costs such as steel and warehouse charges, Bindra said he hardly had any money left over. Sitting in the Federation of Indian Chambers of Commerce and Industry auditorium on Wednesday, the 34-year-old entrepreneur had come to listen to a group of delegates from Iraq speak on investment prospects in that country.
“I have come looking for opportunities. Or else,” he said, “I’ll soon have to look for a regular job.”
Rising exchange rates are hitting small and medium enterprises like Bindra’s, forcing them to assess pricing, inventory and the places they do business. On Wednesday, the rupee rose for the fourth straight day to 40.56. Bloomberg News reported that exports, which account for about a 10th of India’s $854 billion economy, grew in the first quarter at less than half the pace of the same period last year.
Taking the hit: A hockey stick manufacturing shop in Jalandhar. The Rs500 crore sports equipment industry, which relies mostly on exports, has lost an estimated Rs16-20 crore in the last four-five months.
According to a Ficci survey of 304 companies with a turnover of Rs1-15 crore, nearly 75% of small and medium businesses have been affected. Several firms say they face stiff competition from China, which already beats India on export volumes. Most exports are settled in dollars and pounds, leading to losses of between 10% and 12% for transactions in dollars and 8% and 10% in pounds, said R.S. Rana, chairman of the Sports Goods Manufacturers & Exporters Association in Jalandhar. A pound is worth Rs80.
Rana said the sector, which relies mostly on exports, has lost Rs16-20 crore in the last four-five months. In the estimated Rs500 crore sports equipment industry, that is devastating, said Rana. But he added that increasing the prices was not an option—it will take the sports-good makers out of the game. “Buyers will not accept it. Orders will go to China and Pakistan,” he said.
Not just small, for-profit exporters are hurt. Manufacturers that make everything from brass Ganesha statues to handicrafts are loosely organized, some as not-for-profit organizations, and said they were starting to assess materials orders and prices.
Dastkar, a Delhi-based non-profit organization, represents 200 craftspeople and exports special orders around the world. Orders are small—they export less than Rs2 lakh annually—but the fluctuations in exchange rates can make the difference between covering overhead costs or not. The organization marks up goods 10% over cost of production and freight charges to pay administrative expenses and overhead, said finance aid Mahitosh Sasmal. “It used to be no problem,” he said. “Every day the dollar rate was going up. Now, every day it seems to be going down.”
For Udaipur-based Sadhna, which employs 600 female artisans in Rajasthan to make clothes and textiles, losses in funding from US donors, thanks to a weakening dollar, are affecting operations more than exports are squeezing margins. “It’s making it hard to buy materials for manufacturing purposes,” said chief executive Leela Vijayvergia.
Entrepreneurs were short on solutions except to wait. One recent report by Deutsche Bank AG in Singapore forecasts the rupee will weaken to Rs43 a dollar in 12 months.
“If we have to stand in international market, the rupee has to depreciate,” Rana said.