Wednesday, August 21, 2013: Sales of the auto maker, Maruti Suzuki India Ltd., the country’s largest car manufacturer has plunged, falling almost seven per cent in the second quarter from last year. The latest trouble for the auto maker is the devaluation of Indian currency with the rupee slumping nearly three per cent against dollar since last Wednesday and 15 percent since May. “If the rupee remains where it is, it is going to hurt everybody across sectors,” said Ajay Seth, Chief Financial Officer, Maruti Suzuki. “All the fundamentals have become very difficult right now,” he added, The Wall Street Journal reported.
Slower growth prospects and tumbling currency have become a cause of concern for companies in India as well as for some multinationals, who were thinking of investing in India. Moreover, adding to these woes are some other serious concerns such as overburdened infrastructure, acute power shortages, difficulty in obtaining land along with government red-tapism.
During the years from 2004 to 2011, Indian economy was growing at an average of more than eight per cent and hence, the prospects overshadowed the risks involved in doing business in India. Now, the scenario has changed as the gross domestic product (GDP) is growing at about five per cent. This has resulted in high-profile companies such as Posco and Wal-Mart delaying investment plans in India.
There is an increase in the Maruti’s import costs for parts from Japan due to lower value of rupee. In addition to it, there is also an increase in the Indian unit’s royalty payments to the Japanese company. The rupee touched a new low of 64.11 against dollar on Tuesday, but, later recovered slightly.
In the previous month, the consumer electronics firm, Samsung Electronics Co. increased the price of its product by two to three per cent owing to rise in cost of imported parts. But, there are companies, who are garnering profit from the weak rupee. The profits of companies such as Wipro and Tata Consultancy Services Ltd., has increased by nearly 2.5 per cent.
Drop in rupee has increased borrowing costs for consumers and companies with the central bank increasing interest rates for borrowing meant to control inflation.
