Time for India Inc to engage in soul-searching: Experts

India has become a high cost economy which has made companies here less competitive vis-a-vis their overseas counterparts

While Japanese manufacturers are rejoicing at the yen's 12.6 per cent fall against the dollar this year, Indian companies are losing sleep over the rupee's 8.2 per cent decline. The contradiction could stem from the rising cost of doing business in India, something that is making Indian companies less competitive than global counterparts.

"It's time for Indian corporates to engage in soul-searching on why they are not able to export even at this low level of the rupee, and are looking for anti-dumping duties," says Paras K Chowdhary, an independent director on the CEAT board and the tyre maker's former managing director.

"The depreciation of the rupee shows the lack of competitiveness of Indian companies in foreign markets. In the long term, the currency would stabilise at a level in which equilibrium between imports and exports can be maintained," he adds.

India has become a high-cost economy - companies here have to pay high power, land and employee costs, along with high interest rates. Companies say the country's high current account deficit (due to the high import growth, which is being blamed for the rupee's depreciation) is just a symptom; the actual cause lies in the fact that the cost of doing business in India has risen. High gold imports reflect the lack of competitiveness of Indian companies to create wealth. This has pushed investors seeking better returns to safer bets such as gold.

"If India did not have a strong, globally competitive information technology industry, the rupee would have touched 100 against the dollar," said the top executive of a large company, on condition of anonymity. Companies such as Reliance Industries, which is globally competitive in its refining and petrochemical businesses, are benefiting from the rupee's decline, as they earn revenue in dollars.

"Companies in the power and manufacturing sectors, which have ordered capital goods, would be affected," says Parag Parikh, chief financial officer of Gammon Infrastructure Projects, clarifying his company had no foreign currency exposure.

Most infrastructure companies have domestic debt; the impact on companies with foreign debt would depend on their hedging strength.

For companies such as Tata Power, these are tough times. "The cost of importing coal, as well as the payback of external commercial borrowings would impact power companies," says Anil Sardana, the company's managing director.

The concern is no one expects respite any time soon. "Such depreciation in the rupee has been accentuated by fears of a liquidity crunch due to the impending reduction of quantitative easing (QE) in the US this year and the subsequent withdrawal of QE expected in 2014," says Prabal Banerjee, president (international finance), Essar Services, part the Ruias-promoted Essar Group. "We believe the direct impact of such liquidity fears has already been discounted, but the long-term fallout of such depreciation is yet to impact us."