Weaker Rupee Erodes GST Rate Cut Gains On Appliances, Electronics

A weaker rupee has eaten into the benefit of lower taxes for consumers looking to buy appliances and electronic goods this festival season.

Makers of refrigerators to televisions increased prices as they now pay more for imported electronic components with the Indian currency falling to new lows every day. Godrej Appliances Ltd., Dixon Technologies Ltd., a contract manufacturer, and Blue Star Ltd. hiked prices by 2-7 percent at the start of the month.

Goods and services tax rate on consumer durables was cut from 28 percent to 18 percent in July. Manufacturers followed that by reducing prices by up to 10 percent.

But the rupee woes continued to add pressure on costs. The local unit fell to a fresh low of 72.91 against the dollar today. It has depreciated more than 12 percent for the year—the worst performance among Asian peers—amid fears of a wider current account deficit driven by higher oil prices.

A weaker currency threatens to push costs higher for import-driven manufacturers. Godrej Appliances, which increased prices by 2-3 percent, hasn't ruled more such hikes.

The company doesn't intend that at least till the end of the festive season, Kamal Nandi, business head and executive vice president of Godrej Appliances, told BloombergQuint. “But if the rupee continues to remain at current levels or falls further, then we will have to initiate another round of price increase.”

The rupee is expected to end the year at 70 per dollar, according to the median estimate of analysts surveyed by Bloomberg. Some of the lenders, including DBS Bank Ltd., have lowered the estimate to as low as 75 a dollar, Bloomberg reported.

Dixon Technologies, which contract manufacturers products like TV panels, increased prices by 4-7 percent due to rupee depreciation, Atul Lall, managing director, said.

Blue Star increased prices of all products except room air-conditioners, which will go up by 5 percent on Oct. 1, B Thiagarajan, joint managing director, said. He ruled out more hikes since the company has adequately hedged its dollar exposure.