Trade and industry, especially small and medium enterprises in the manufacturing sector, are reeling arguably like never before under the impact of fuel prices.
Yet, not many are complaining even as a war of words between Ministers of the BJP-led government at the Centre and the TRS government in Telangana on taxes being levied on petrol and diesel touched a crescendo immediately after Prime Minister Narendra Modi urged the non-BJP ruled States to consider slashing VAT on the fuels.
Several factors are at play behind their rather muted response, primarily a rebound in demand for products and services from the pandemic-induced lows and a pass-through of the hikes to a large extent, say representatives of a cross section of industries. The end-consumer in the process, however, is the most severely hit either in terms of paying more or is forced to limit his purchases. The economic impact of COVID-19 on families coupled with the increase in fuel price has meant that the poor and the salaried have less money to spare for non-essential items.
The purchasing power of customers has been impacted, Telangana State Federation of Chambers of Commerce and Trade president Ammanabolu Prakash says, pointing out that increase in fuel price could not have come at a wrong time as small and medium shopkeepers were emerging from the COVID impact.
The national oil companies resumed, after a four and a half month hiatus, daily revision of petrol and diesel prices from March 23 and by April 7 — the last revision — the two fuel had turned dearer by ₹11 a litre.
The impact of the fuel price varies depending on the size of the enterprise and the sector to which they belong. Anil Reddy Vennam, who has a medium-sized unit into packaging, with 125 employees, on the outskirts of Hyderabad, says profit margins have shrunk and many units are not in a position to incur higher expenditure on salaries, something necessitated on account of the cascading effect of fuel prices.
“The hike in annual remuneration is usually in percentage terms and this year, it is unlikely that the employees will be content with an increase in the same band. They will cite petrol, LPG, bus fare hike, overall price increase, living standards [to demand more],” says Mr.Vennam, who is also the vice-president of South of All India Plastic Manufacturers Association.
Letting go employees is not advisable, particularly when there is a shortage of labour, he says, adding the conveyance component in the salaries of sales and marketing personnel has shot up. The need of the hour is for the State and Central governments to reduce their share of levies, even for a short period, and refrain from resorting to political war on an issue that concerns the common man.
Many of the large manufacturing units by virtue of the nature of their products and services are able to withstand the fuel price hike. A pass-through of hike in raw materials and fuel prices is there in the contract with customers, explains Pennar Industries vice-president (Corporate Strategy and Planning) K.M. Sunil, adding an uptick in demand is also behind customers not complaining.
“Fuel price increase would mean both inbound and outbound costs are going to increase; there is a bit of multiplier effect there,” a senior executive in the paper industry, who did wish to be identified, says, pointing out that when the demand is strong a certain degree pass-through of the increase can happen but would have a cascading impact.
For the IT industry, one of the strong points for Hyderabad, the impact of fuel price will become apparent only with the return of employees to office or, in other words, when the companies would require to arrange transportation for them. Hyderabad Software Enterprises Association COO R. Srinivas Rao says a clear picture will emerge when a substantial number of employees, who are working from home, especially of large IT firms, return and the vehicle contract re-negotiation comes up.
