Rupee depreciation forces Indian firms to adopt Yuan payments, boost local sourcing

Kolkata: Many Indian companies are seeking to mitigate the impact of the rupee's slide against the dollar by shifting part of their payments for purchases from China to the yuan and increasing local sourcing to reduce reliance on imported goods.

Electronics makers PG Electroplast and Super Plastronics have started settling select imports in the yuan to secure better pricing from suppliers in China, which remains the largest source of components for India's electronics industry, while Godrej Appliances is evaluating similar arrangements.

Bolstering import substitution efforts, department store chain Lifestyle has reduced the share of imports by 10 percentage points over the past two-three months to about 5% to cushion price pressures at the store level. Footwear firm Woodland has also pared its import component to comparable levels.


The efforts come at a time when input costs have surged amid the rupee's steep depreciation against the US currency, according to industry executives.

"The rupee depreciation is badly impacting us. We tried some imports in the Chinese yuan, with some banks now ready to undertake remittances in the Chinese currency. However, long-term benefit needs to be evaluated," said Vikas Gupta, managing director (operations) at PG Electroplast, a leading contract manufacturer of air conditioners and televisions. The company produces for several large brands including Daikin, Blue Star, Carrier, Haier and Lloyd.

Lifestyle chief executive Devarajan Iyer said the retailer has "aggressively" slashed imports across categories to cushion the impact of the rupee's depreciation. "Footwear is now entirely sourced locally, as are leather products. In apparel, imports have been reduced from about 15% to just 5%, with the balance shifted to domestic sourcing," he said.

The rupee has weakened about 3% against the dollar since the beginning of the US-Israel war against Iran on February 28, and about 4-5% over the past four-five months, hitting a record low breaching the 95-mark for the first time against the US currency in intraday trading in late March. It has also depreciated against the Chinese yuan, albeit by a milder 2% during this period, reflecting the latter's relative stability.

Super Plastronics has undertaken select imports from China in the yuan, as it is favourable for Chinese suppliers, though adoption will depend on currency stability, said the television maker's chief executive Avneet Singh Marwah.