Importers bear the burden as logistics cost shoots up

This is a fallout of rising fuel prices and falling rupee

Updated - May 30, 2022 01:02 pm IST

Published - May 27, 2022 11:20 pm IST - Bengaluru

In MSMEs, some 67% to 70% of components in automotive, engineering, textile and food processing are imported

In MSMEs, some 67% to 70% of components in automotive, engineering, textile and food processing are imported | Photo Credit: FILE PHOTO

A 40 feet container to be shipped from Shanghai to Bengaluru cost anything between ₹1.5 lakh and ₹2 lakh before the pandemic. With COVID came a huge shortage for containers, and that pushed container prices up to ₹12 lakh, which in turn resulted in about five times increase in the landing prices and selling prices, according to Raju, former president Kassia, also an importer of machinery.

Mr. Raju had committed to importing four containers of sheet metal cutting machines, sheet bending machines, and laser cutter machines for metals for his customers at a price of ₹4 lakh per container, but eventually he had to pay ₹10 lakh for each container.

“I had to deliver the machinery at the committed price to my customers. Container costs went up suddenly, making the import cost higher by five times. I could not charge the customer extra, so I had to forgo my margins and I also put money from my own pocket to honour my commitments,’‘ narrated Raju.

Mr. Raju is among several small importers in Bengaluru who are suffering amidst soaring logistics costs and inflationary pressures, the immediate aftereffects of rising fuel prices and a falling rupee.

Rising imports and falling rupee

India’s imports have only been rising despite its collective push for Atmanirbhar Bharat, Make in India, and Production Linked Incentives (PLI) schemes as imported components still, directly or indirectly, constitute a significant portion of most finished products, equipment, or machines manufactured at home, irrespective of the size of the manufacturer.

The fall in the rupee has hit them hard as the currency has been facing volatility in the last many months, falling from ₹77.77 to a dollar in mid-January to ₹77.72 in mid-May and Friday’s (today) spot price is slightly better at ₹77.65. Since April first week, the rupee has been constantly falling, and it touched even all-time lows multiple times.

D.R. Subramanyam, MD of SLN Technologies, a city-based electronic systems design and manufacturing, focused on defence and aerospace verticals, said 90% of raw materials required by defence electronic firms in the country are met through imports and the import bills now have gone up significantly.

“For instance, at SLN Technologies, we see our import bills going up by 20% and certain items are costing even 50% more. This is purely on account of a falling rupee,’‘ added Subramanyam.

Over 6 lakh micro, small and medium enterprises in Karnataka have to import a range of things, including various auto components, electrical or electronic items, chemicals, machine tools, machinery, industrial dyes, wools, yarn, cables, wires, metals, sheets, paints, etc., if they want to manufacture various products and fulfil their customer requirements. In MSMEs, some 67% to 70% of components in automotive, engineering, textile and food processing are imported.

Issue of stagflation

Prof. Narendar Pani, an economist and Professor and Dean at the National Institute of Advanced Studies at the Indian Institute of Science Campus, Bengaluru, said the country’s share of imports, as a proportion to GDP, has gone up massively.

“As imports go up we should make up with additional exports. But the fact is an increase in imports makes you dependent, the rupee becomes weak as imports have been causing inflation at home,’‘ Prof. Pani said.

“As imports increase at a time when demand is already sluggish, we end up with stagflation (inflation with market stagnation). Prices and costs of imports are increasing while the demand is falling.’‘ To absorb the inflation, the country has to grow more rapidly. Although the overall inflation has been a part of liberalisation, the current sudden increase was due to an increase in oil prices, he added.

Exports less attractive

Commenting on Indian manufacturer’s dependence on imports, Parasuraman T.R., immediate Past President, BCIC and President and Whole-Time Director at Toyota Industries Engine India, said to support the electric vehicle sector, companies imported a wide range of items from batteries, EV motors, electronic control units (the heart of EV vehicles), semiconductors, measuring equipment, special metals, machine tools, highly-specialised technologies etc. If you take the auto sector alone, some 20% to 50% of components are imported and in the case of luxury cars imported components could go up to 90% to 100%.

The government’s recent decision to impose a 15% export duty on a range of finished steel products would make exports less attractive which in turn could bring domestic steel prices down, create buoyancy in the local market and could reduce inflation., he argued.

“The government is expecting a 10% to 15% fall in steel prices. Falling steel prices will be the starting point of a great cycle and will have a cascading effect on the price of all finished products, infrastructure, logistics cost, food prices, cost of living, more money will be in the purse and will reduce inflation,’‘ Mr. Parasuraman added.

Gaurav Manchanda, Founder & Managing Director, The Organic World, a retail chain, said, ”Consumption is directly related to income and affordability. With import inflation and increasing price points, consumers will naturally be drawn to lower price points, value for money offers and bargain deals.’‘

Based on the trends over the last two years, the demand for everyday essentials continues to remain largely consistent, while when it comes to niche items; for example, clean beauty products, exotic fruits and vegetables, vegan protein powders etc the price point begins to hit customers, Mr. Manchanda observed.

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