Consumers may soon have to brace for higher prices! The depreciation of the rupee beyond Rs 90 against the US dollar could force various sectors including consumer electronics, beauty products, and automobile manufacturers to increase their prices. This increase may end up eating into the benefits after the recent GST rate cuts. This potential price rise might neutralise the positive sales momentum these sectors saw after recent tax reductions.Companies dependent on imported components or complete imported products are seeing concerns. Several companies had postponed their price increase plans, despite escalating raw material costs, due to potential government oversight following the GST reductions effective September 22.

Rupee hits new low: Will prices rise?

Manufacturers of smartphones, laptops, televisions and major appliances have indicated plans to hike prices by around 3-7% starting December-January, according to an ET report.The price hikes aim to compensate for increased costs of memory chips, copper and additional components resulting from rupee depreciation. The imported materials constitute between 30-70% of manufacturing expenses across these product categories.“The advantages of reduced GST rates will be nullified by currency devaluation and increasing component costs,” said Avneet Singh Marwah, chief executive at Super Plastronics, which manufactures Kodak, Thomson and Blaupunkt TVs.

Currency push

“Memory chip prices have increased more than six times in the past four months. We anticipate demand might decline again after the brief recovery from the GST reduction,” said Marwah according to the ET report.Also Read | Rs 90 to a dollar: What’s driving the fall and why it matters to you – explainedIndustry leaders noted they had calculated costs expecting the rupee to remain at 85-86 against the dollar, but its sharp fall to Rs 90 necessitates new calculations. Several firms had postponed regular price adjustments since October despite rising material costs, wary of being accused of profiteering after GST implementation.Presently, firms have begun notifying retailers about forthcoming price increases. Havells has indicated a 3% increase in LED TV prices, whilst Super Plastronics plans 7-10% higher prices, and Godrej Appliances will raise prices by 5-7% for air-conditioners and refrigerators from January.They indicated that a single-level change in energy efficiency ratings from January will create additional challenges. “The stricter energy rating requirements and weakening rupee necessitate price adjustments from January. Should the rupee weaken further, additional increases may be needed in the March quarter,” said Kamal Nandi, business head at Godrej Appliances. “The GST reduction benefits will be completely negated, but we have no alternative.“Consumer goods manufacturers have privately informed government officials that they cannot continue to absorb rising costs.The rapidly expanding beauty market in India, with international brands like Shiseido, MAC, Bobbi Brown, Clinique and The Body Shop, faces potential challenges due to rising import costs. Furthermore, the GST on cosmetics remains at 18%, with no provisions to offset currency-related cost increases.Also Read | ‘Not losing sleep’: CEA Nageswaran on rupee touching 90 mark versus US dollar; ‘falling rupee is not affecting…’“A weaker rupee does increase our landed cost since a significant share of beauty products across fragrances, cosmetics and skincare are imported and dollar-denominated,” said Biju Kassim, chief executive at Shoppers Stop Beauty. “For distributors like Global SS Beauty, this creates margin pressure that becomes hard to sustain long-term unless partially offset. We work closely with our global brand partners to optimise costs and hedge currency exposure, but some price correction on high-end imported portfolios may eventually be unavoidable.“The declining value of the rupee poses risks to the recent positive trend in vehicle sales, following price reductions implemented by companies on two-wheelers and cars after GST reduction benefits.Mercedes-Benz India’s managing director Santosh Iyer stated, “We estimate the positive effect of the price drop on demand for luxury vehicles to gradually wean away in the mid- to long-term, as prices of luxury cars will rise from current levels owing to deteriorating forex movement. We are mulling a price correction from January 26.”The competitor Audi India is currently evaluating its position in the market.Audi India’s head Balbir Singh Dhillon commented, “The rupee depreciation impacts the company directly and fully, but as of now, the company has not decided on the price increase or its quantum.”The government’s decision to reduce GST on compact automobiles and two-wheelers from 28-31% to 18% resulted in actual price reductions of 8.5-9.9%. This led to increased sales of 17% and 19% in October and November respectively, following a sluggish first half of the financial year. However, the current currency fluctuations might neutralise this surge in demand.