Over the last weekend, we have been rejoicing over the tax slab cut on many household items. Smaller television sets (up to 27 inches) are now moved to the 18 percent GST (goods and services tax) bracket from the earlier 28 percent. The joy, however, may be short-lived.
The Indian rupee that fell to its all-time low on July 19, recovered on Monday following the results of the GST council meet before falling again on Wednesday. On Wednesday morning, the rupee opened 3 paise lower against the US dollar at 68.97.
The fluctuation has been largely due to the movement in the American currency that has been strong for the past few months due to the rising interest rates by the Federal Reserve and the uncertainty over the trade disputes not influencing it as much. The US Treasury bond yields are also higher now, further increasing the demand for the greenback.
The Indian rupee, on the other hand, was reported to be the worst-performing currency in Asia after the recent all-time low record. The weakness of the domestic currency against the US dollar will mean costlier imports, which will result in increased expense for domestic manufacturers of cars and televisions who depend on imports for spare parts and other raw materials.
Indian car manufacturers like Maruti Suzuki are still exposed to foreign fluctuations in currency either through their own purchases or that of their vendors for imported parts of engines, transmission, electrical, etc. It also has to pay a royalty to its Japanese parent company Suzuki. In an interview with the Times of India, the senior director of marketing and sales for Maruti Suzuki said that the company will have to evaluate its prices due to the fall in the rupee value.
Many car makers in India only assemble the body parts in India. These parts are made by OEMs (Original Equipment Manufacturers) within India or abroad. Even the OEMs have to import some parts from abroad or raw material needed to make certain parts. The increased costs of the material will then be shifted to the distributor and ultimately to the consumer.
If the Indian rupee continues to underperform, it will cost the domestic consumers. The US dollar is expected to remain strong as the US Federal Reserve is potentially going to increase interest rates again with its country's economy growing on track and this, in turn, could hurt the rupee further.