Raw material prices shoot 30-50%: Manufacturing on red alert

Issued at 2021-11-03

Increasing raw material prices are harming manufacturing sectors, including engineering and textiles.

From engineering to textiles, manufacturing units across India are facing the brunt of a steep increase in raw material prices. Coupled with the price increase in fuel — coal and petroleum products — several of them are either making losses, or downsizing operations to be in business. The price increase has even reduced the sheen of the government’s record goods and services tax (GST) collections in October as part of the high tax revenues is attributed to high prices of products.

“Whether it is the textile industry or the dyeing industry, all the raw materials we use, right from buttons used to zip, have become costlier by at least 30%. Most of these items are imported from China. The supplies have not reached the pre-pandemic level and there is a shortage,” Ashok Makkar, Chairman, Punjab Dyers Association, says. He also complains about the increase in the prices of petcoke. “Petcoke is used in boilers and is the critical fuel needed for the dyeing industry. The fuel cost has gone up at least three times in the last six months. The industry is running in losses now. With ever-increasing diesel costs, transportation has also become a costly affair. The consumer will have to pay more during their Diwali purchases,” Makkar adds.

Jitendra P. Vakharia, President, South Gujarat Textile Processors Association, agrees that raw material prices are hurting their business prospects. “Availability and price of coal is the biggest issue. Earlier, coal used to be about 15% of the total cost, today it is more than 45% of our total cost, the highest cost factor. Four to five months back we were getting it for ₹4,500 per tonne, today the cost is around ₹15,000 per tonne. So, it is three times more. We don’t have surplus capital to deal with the situation,” Vakharia says. The price of dye chemicals have also gone up 50%, he adds.

Suresh Kumar Patel, former president of Ahmedabad Engineering Manufacturers Association, also points out high inflation of base metal prices as something very serious. “We represent the foundry and engineering industries that depend heavily on cast iron, aluminium, copper and other metals.

“The prices of all the metals have gone up. Take for instance, the raw material I specifically need, pig iron — which costs ₹50 a kilo today — up from ₹32 a kilo a year ago. We cannot pass on the price increase as the market cannot absorb it,” Patel says. “What should we do if not shut down?,” he asks.

Due to the same reason, industrialists believe that the increase in GST collections has had a lot to do with a sharp increase in raw material prices. “We should be worried,” says K.E. Raghunathan, Convenor of the Consortium of Indian Association ((CIA), as GST collections have risen on the back of a 56% average increase in raw material prices during the last two years. “Huge increase in petrol, diesel, gas prices, etc., results in the escalation of output price in terms of transportation costs which comes under GST,” Raghunathan adds.

The industrialists agree that the government has no control over price escalation in the international markets. However, the government ensures that the raw material prices are under check, even if it means lower taxation.


Source: Fortune India