Maruti Suzuki and other Indian companies are bracing themselves for a slump in demand after a 13-year high inflation triggered fears of curbs on consumer spending and the central bank raising interest rates, thereby hurting India Inc's expansion plans.
"This (high inflation) is criminal... This is going to put a lot of pressure on everything. An interest rate hike is now imminent, which is a very worrying factor for the auto industry. The situation is getting out of control," warned Ajay Seth, CFO of Maruti Suzuki India.
The annual wholesale price index -- the most watched index in the country to gauge rising prices -- rose to 11.05 per cent in the last 12 months ending June 7. Now, companies fear that in its fight to combat rising prices, the government would raise interest rates, which would, in turn, bring down the 9 per cent economic growth target of the country.
"Interest rates will go up for sure. This means consumers will spend more on essential commodities. As a result, disposable income towards automobiles will go down," said H S Goindi, head, sales and marketing, TVS Motor.
Information Technology, India's second-largest foreign exchange earner, expects to be hit because of rising costs. "With inflation, cost of doing business does go up as there is an increase in input prices," Suresh Senapaty, CFO & director, Wipro, said.
"With the commodity prices at historic high, our internal forecast on inflation was for double digit. The auto industry will indeed be affected. But, I think, the two-wheeler sector would be less affected compared to the four-wheeler segment because the opportunity cost for a two-wheeler will be less than a four-wheeler," he added.
Retailers, who are riding the consumer boom, don't see a drop in consumer spending as the urban buyers' salary is rising faster than inflation. Their concern is hoarding.
"I hope consumers will not start borrowing to hoard commodities for the next three months," R Subramanian, MD, Subhiksha, a food and grocery chain, said. "Though inflation has touched 11 per cent, consumers are seeing 15 to 20 per cent rise in prices in real times," Subramanian added.
Statistics for the last two decades show that corporate profits fall subsequent to rising inflation figures. Alarmed CEOs say they are now making strategies on how to cut costs.
"We are in the process of working out an alternate arrangement to reduce our power cost by switching over to lesser cost fuel such as coal-based power plant and renewable energy sources," said A K Srivastava, managing director of Essar Power. "We are extremely concerned about the steep rise in prices," Srivastava said.
Other companies are relying on raising funds overseas. Sajjan Jindal, Vice Chairman and MD of JSW Steel, said, "The interest rates will harden and could go up by another 1 per cent. We depend mostly on international financing and our projects will not be affected." However, Jindal warned that rising prices would lead to a slowdown in the economy
The cement companies played down the impact of rising inputs costs. A L Kapur, Managing Director, Ambuja Cements, said, "I do not think there will be any impact of higher inflation on the cement demand. There was an acceptance that inflation would reach a double-digit number. However, if this rise continues, things would be different."
