Rupee devaluation - Good News or Bad News?

This month rupee has depreciated fast, touching 52.7 to $. Last four months $ has appreciated by 20 %. What this means to us? In a normal course this would have been good news. Even otherwise also this should be good news in the long run.

PCB industry is competing against Chinese imports. Domestic industry share is less than 30 % in Indian demand of PCBs. Rupee devaluation will increase the imports cost and to that extent price difference between imports and domestic sale price will reduce. Although PCB manufacturing has 70% of raw materials as imports but there will not be impact in domestic value addition and this will give India some competitive advantage.

This should have reflected in the trend of buying from India than importing. However market information indicates reverse. There is huge diversion of orders from domestic suppliers to imports. This is mainly because, of late Chinese suppliers of PCBs have become aggressive in Indian market. They have less orders from US and European buyers and they are looking for alternative markets to fill up their capacities. Current offers in the market indicate dumping. This is the reason we are not seeing the positive impact of Rupee Depreciation. However it will only help more than damaging us.

So what we need to do to expand our market share? Firstly we must deploy resources to increase the scale of operation. Entire component industry viability is on economy of scale. These days the cost of additional capacities is less than Rs. 2000 per M2 and we should take advantage of this.

Secondly, there is huge scope on improving value addition. Today we have plants with manpower to turnover ratio of 30 L per employee to 10 L per employee in similar product range and capacities, and both are surviving.

This is just one indicator but there are many aspects of operations which need relook. In fact the whole business model must be reworked by simulation with various variations to arrive at optimum results. Indian entrepreneurship is well recognised and we need to take this challenge to become second competitive source to China.

All the best!

Mukund Shah
President
IPCA