Inflation: Impact on Indian Industry

Increased commodity prices, the Russia-Ukraine conflict, and higher transportation expenses exacerbated inflationary pressures on India Inc. Input costs rose at their quickest rate in five months, while output charge inflation reached a new 12-month high.

The early patterns from the second-quarter results season show that rising inflation and limited pricing power have pressured manufacturing sector profit margins. As oil prices rose, power costs rose, commodity prices soared to multi-year highs, and supply chain disruptions required longer to resolve, expenses rose. The second-round consequences of higher oil prices have also had an impact.

Companies across the board, including diversified FMCG companies Hindustan Lever and Tata Consumer Products, paint maker Asian Paints and Kansai Nerolac, electrical and consumer goods maker Havells and Orient Electric, tyre maker Ceat, steel company JSW Steel, cement producer UltraTech, and vehicle maker Maruti Suzuki, have spoken about how inflation hit profits in the last quarter.

The majority of these firms have also stated that gradual price rises will continue in the third quarter, as they strive to pass on increasing input costs without affecting demand. Cement and paint manufacturers, for example, have already boosted prices in the last few days.

Companies normally don't reveal the exact impact of rising critical input costs on their operations, but the wholesale price index can provide some insight. However, the impact of growing costs is not uniform across industries, as long-term contracts with suppliers protect some companies from price increases.

Plastics manufacturing input costs have increased somewhat. Plastic tubes, acrylic sheets, plastic bags, polypropylene films, and PVC fittings and accessories all saw increases ranging from 20% to 44%.

During the quarter, critical inputs such as ammonia gas, ammonia liquid, and sulphuric acid increased by 44-72 percent, raising the cost of making fertilisers. The price of acetic acid increased by 88 percent in a quarter.

The rising costs of packaging materials consisting of paper and plastics also hurt manufacturers. During the quarter, paper products such as cardboard and bags increased by 32-49 percent. In addition, the surge in pricing of agricultural commodities other than edible oils has hurt processed food businesses.

Conclusion

The primary cost challenge for industry remains, however, as rising import price pressures continue to pass through to input and output costs, which both climbed in April, with the output prices index reaching a 12-month high. Customers have been charged higher prices by businesses, but demand for their products may suffer in the future.

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