Rising raw material, staff cost eroding margins: RBI

Increasing raw material cost and rising salary bill eroded the profitability of India Inc during April-September period of the current financial year, according to an RBI analysis.

The Reserve Bank of India (RBI) study which analyses the performance of the Indian private corporate sector during the first half of the current fiscal, sales growth was robust on the back of pick up in demand.

"However, despite robust revenue growth, companies in aggregate could not generate higher profit margin primarily on account of higher input prices and rise in interest outflow," the RBI study said.

It said even as the sales growth in both manufacturing and the services sector was robust during the period under review, profit growth in both the sectors was comparatively lower during the period.

During the first half of the current fiscal, India Inc's staff cost rose by 17% to Rs 71,133 crore, the RBI study said. The staff cost grew by 7% in the same period of previous fiscal.

"Generally it is observed that staff costs is higher for IT companies compared to manufacturing and services sector companies," it said.

In the April-September period, the expenditure on consumption of raw materials shot up by 27.7% YoY to Rs 4.36 lakh crore.

"Higher input cost, that led to noticeable rise in total expenditure, vis-a-vis relatively lower revenue for companies resulted in a contraction in profit growth at the operating level," the study said.