Rupee fall soul-searching time for India Inc: Experts

While Japanese manufacturers are rejoicing a 12.6% depreciation in the yen against the US dollar this year, Indian companies are losing sleep over rupee coming down by 8.23%.

The answer to this contradictory trend may be in the rising cost of doing business in India which is making Indian companies less competitive against their global counterpart.

"It’s time for Indian corporates to do soul searching on why they are not able to export even at this low level of rupee and are looking for anti dumping duties," says Paras K Chowdhary, former managing director of leading tyre maker Ceat who continues on the company's board as an independent director now.

"The depreciation of rupee shows lack of competitiveness of Indian companies in overseas markets. In the long term, the currency will stabilize at a level where equilibrium between import and export can be maintained," he says.

India has become a high cost economy which has made companies here less competitive vis-a-vis their overseas counterparts. The companies here have to pay high cost for power, land, employees as well as interest rates.

The current account deficit (CAD) due to high import growth which is being blamed for the rupee depreciation is just a symptom, the malaise lies in the fact that cost of doing business in India has grown, corporates said. High gold import, which is being blamed for the current account deficit (CAD) actually reflects the lack of competitiveness of Indian companies to create wealth, pushing investors to safer bets such as gold for better return.

“If India did not have a strong IT industry which is globally competitive then the rupee would have touched even 100 against the dollar,” said the top executive of a large corporate who did not wish to be identified. Even companies such as Reliance Industries which are globally competitive in their refining and petrochemical businesses are benefiting from the depreciation of rupee as they earn revenue in the US dollar.

“Companies in the power and manufacturing sector which have ordered capital goods will be affected,” says Parag Parikh, chief financial officer of Gammon Infrastructure Projects while clarifying that his company has no foreign currency exposure. Most of the infrastructure companies have domestic debt and the impact on companies with foreign debt will be dependent on their hedging strength.

But for companies such as Tata Power it is tough time. “The cost of importing coal as well as the pay back of external commercial borrowing will impact power companies,” says Anil Sardana, managing of the Tata group company.

But no one is expecting an early respite. "Such  depreciation in Rupee has been accentuated by fear of liquidity crunch that may happen due to impending tapering down of quantitative easing (QE) in the US this year and subsequent withdrawal of QE expected in 2014,” says Prabal Banerjee, president-international finance, Essar Services, a part of billionaire Ruia brothers promoted Essar Group.

“We believe that direct impact of such liquidity fear has already been discounted but the long term fallout of such depreciation is yet to impact us,” he says.