‘Exact impact can be understood in times to come’

The rupee stands at an all-time low against the US dollar. This depreciation should make Indian commodities/products relatively cheaper for importers and as a result, the volume of exports will rise. However, its exact impact can be understood in times to come. At the same time, the cost of imports will rise. It can lead to an adverse balance of trade initially. But with the passage of time, the volume of sales will only improve the balance of trade. The companies heavily relying on imports will have to bear the brunt of the devaluation and may opt for bulk purchasing if they have to import from their foreign client, or else they will have to make-do with a new Indian client within Indian liaisons. In the domestic market, the cost of the products distributed by a company will increase due to higher import costs, thus causing a rise in the prices of products offered for domestic sale.

Impact of the depreciating rupee on the Indian pharma industry

Pros:

1. Benefit of currency conversion on inward payments
2. In order to remain better placed in international markets, exporters have an option of passing on the value addition benefits to the customers.
3. It will allow domestic API manufacturers to have a competitive advantage.
4. The growth of pharma exports will help the Indian economy arrest the fall of the rupee through reduction in CAD.

Cons:

1. It will negatively impact the Indian currency rates as some pharma products will have to be imported.
2. The volatility in currency rates can result in losses for exporters who import API and re-export after value addition.
3. The transportation charges for goods from factory to port and vice versa will increase as a volatile currency will result in rise in petroleum prices in India.
4. The cost incurred on paying salaries of overseas employees will escalate.
5. The import of APIs, intermediates and special packaging materials will further aid in the volatility of the Indian currency.

Steps to cope with the depreciation of rupee

A pharma company heavily relying on exports or operating in the domestic market should take the following steps to minimise the impact of the depreciation:

1. Manufacturing companies which import raw materials must consider Indian API manufacturers because they will not be affected by the currency devaluation.
2. A company can resort to bulk purchasing of raw materials to guard against process costs, reorder costs, import duties and freights.
3. Companies which are into exports must have a rich inflow of the currency against which the rupee is devalued (in this case the US dollar and euro). Since L/C negotiations take time, immediate telegraphic transfer or advance payments should be resorted to.
4. Companies should avoid making payments in dollar during the depreciation period or wait till the situation improves.
5. It is highly imperative for companies operating in the domestic market to work on economies of scale and devise new methods for cost cutting so that the increased API cost can be well balanced.

– Dheeraj Aggarwal, Chief Financial Officer, Venus Remedies