Rising dollar to make import of electronics, pharma products costlier

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The rupee hit an all-time low of nearly 77 a dollar on Monday after Brent crude – the global oil benchmark – surged to settle around $ 130 after touching $ 139 a barrel. The prices of crude at this point of time are the highest level since July 2008 after the US said it was discussing a potential ban on Russian supplies with other countries.

At noon, the rupee was trading at 76.96 a dollar, down 1.03 percent from its previous close. It opened at 76.96 a dollar and touched a record low of 76.97 during the day.

The higher crude price will widen India’s current account deficit, which is the measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports. A higher current account deficit is likely to put further pressure on the domestic currency.

A weak rupee or a strong dollar is favourable to the segments that are exporting like pharmaceutical and IT exports. The IT exports from the State now stand at Rs 1.45 lakh crore and a higher valued dollar will increase it correspondingly.

“The export revenues will increase if the dollar stays at highs. If the trend continues for some time, several companies will show better quarterly revenues. But we see this as a temporary thing that is linked to the Russia-Ukraine conflict,” said Bharani Arol, President of software industry body Hyderabad Software Enterprises Association.

The rise in the revenues, if any, will not have bearing on the Indian payroll structures as they are paid in Indian rupee, he explained.

Several IT companies have a hedge policy to protect revenues from fluctuations. A hedge is an investment that is made with the intention of reducing the risk of adverse price movements in an asset. City-based Cyient, in an investor presentation for the third quarter (December), said due to volatility in major currencies (USD, GBP, EUR, AUD), it follows the policy to hedge up to 80 percent of the net inflows for the rolling 12 months.

Pharmaceutical exports from the State are nearly a third of the country’s exports and the high dollar will bring in more revenues. But the industry is also equally dependent on the imports of active pharmaceutical ingredients and key starting materials. In this case, the money outgo will increase. This will even out the gains possible in the exports in the pharma sector.

Neeraj Saxena, Managing Director and Chief Executive Officer of Auxilo, which offers loans to pursue higher education in several countries, said the cost of education and living expenses will go up. “For a student who would have taken a Rs 40 lakh loan, now will be required to take about Rs 44 lakh, “ he said about the impact citing an example.

The increased loan will mean an increased tenure or increased EMIs. “The loans for higher education in the foreign countries are based on the future earning potential of the students. We have seen many students not taking the last tranche of the loan as they start working at the earliest possibility. Also, the focus generally is on paying back the loan as soon as possible,” said Saxena. The moratorium on such loans is about 2.5 to three years and has some grace period.

“The prices of electronic gadgets, TVs and others will rise for the end customers too if the import costs increase. The impact will be from the next quarter with slow and sluggish production and escalation of input costs will hinder the growth of the sector,” said Raminder Singh Soin, Managing Director, Resolute Electronics, which has assembly units in Hyderabad.

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