Rising raw material prices still major concerns for exporters

01 Nov '10

6 min read

What is perhaps even more important is the improvement seen in the proportion of exporters expecting an improvement in their order book position in the coming six months. The figure for this indicator has moved up from 58 per cent in the last survey to about 67 per cent in the present survey. This near 10 percentage point increase is an important indicator and shows that there could be an improvement in overall export volumes in the months ahead.

The following are the highlights of the FICCI Survey on Exports:

The improvement in the market conditions is leading exporters to become more aggressive in their sale strategies. Companies are:

• Preparing plans for aggressive marketing by promoting products through advertisements in electronic media.
• Looking out for appointing new distributors as well as strengthening ties and maintaining good relations with existing distributors.
• Building stock points in their destination markets for smoother 'stock and sell' arrangements near to their customers.

Rising raw material prices is the most important factor affecting exporters with nearly 4 out of 5 exporters saying that rising cost of inputs and raw material is hurting them badly. A case in point is the textile industry where cotton prices have been increasing at fairly regular intervals and are causing a lot of anxiety amongst textile and apparel exporters.

Although volatility in the value of the Rupee vis-à-vis the US$ has reduced since the time of our last survey, yet, in recent days we have seen that the Rupee has again appreciated against the US$ and to that extent it is leading to erosion of margins for the Indian exporters.

While exporters struggle to manage the high and rising input costs, at times resorting to increase in prices, the adverse movement in the value of the Rupee blunts the effectiveness of these efforts leaving the exporters in the same position from where they started – one of compressed margins and profitability.

Although the Chinese Yuan has gained almost 3 percent vis-à-vis the US$ in recent months this will have no impact on Indian exports as the price advantage in favor of Chinese products is of a much greater magnitude. For a more meaningful impact, the Chinese Yuan should appreciate by a significant amount according to an overwhelming majority of survey respondents.

It is seen that many local players in the target markets are also cutting their costs and thereby intensifying competition for exporters from other countries including India. Exporters are trying hard to economize their costs and are taking steps like:

• Commissioning energy audit to rationalize energy consumption.
• Signing long term contract with transporters to save on fuel cost escalation.
• Looking for alternative raw material sources offering better prices.

Exporters fear that going ahead interest rates can become a major stumbling block especially since the 'base rate' mechanism has taken away the flexibility to negotiate with banks for concessional interest rates.

Although, the move over to the base rate system has not affected exporters much there is an apprehension that with the interest rate cycle moving upwards, tightening of interest rates would happen in the next few months. And as this happens, exporters will have to take steps to manage this additional cost.

Federation of Indian Chambers of Commerce and Industry (FICCI)

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