The 20 per cent fall in rupee over the last few weeks has not only been sudden but also quite sharp, leaving most of the businesses involved in export and import in a state of confusion since no one was prepared to tackle this situation. Exporters have failed to gain because they had already hedged or sold their dollars, and importers are left with a gap, as they never expected such a sharp fall. Overall, it’s been a loss for all in the short term.
Now, let’s consider the impact of this unforeseen event on organised retailers and also on the overall FDI in modern retail. The falling rupee and rising dollar will force retailers to increase the prices of all imported items by at least 15 to 20 per cent. The implications of such an increase are far-reaching, as not only will it impact the current sales but also hinder access to newer customers. The reduced sales and growth will certainly impact the future growth plans for the retailers and brands. It will force these players to start or increase their local sourcing, but as already mentioned, the local souring bases are limited and incapable of offering what these players will need. So, with less flexibility on sourcing and expensive imports, international retailers and brands will rework their India expansion plans and chances are that these will be inclined towards a rather conservative side. Even the Indian brands and retailers have been importing heavily to compete with international players, and these increased costs will make them too wary of importing heavily. Yet, not all imports can be avoided; some items will be imported but will be sold at higher prices, further fuelling the inflation and in turn impacting the overall demand and consumption. It remains to be seen whether we can afford that at this stage, where growth has already come down to low single digit levels.