Rebounding demand helps trade, industry faces rising fuel prices

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Trade and industry, especially small and medium-sized manufacturing companies, are arguably shaken as never before under the impact of fuel prices.

Yet few are complaining even as a war of words between ministers of the BJP-led government in the Center and the TRS government in Telangana over taxes levied on petrol and diesel reached a crescendo immediately after Prime Minister Narendra Modi has urged non-BJPs to order states to consider reducing VAT on fuels.

Several factors are at play behind their rather subdued response, primarily a rebound in demand for products and services from pandemic-induced lows and a pass-through of the rises to a large extent, according to representatives of a representative sample of industries. The end consumer in the process, however, is the hardest hit, either in terms of paying more or being forced to limit their purchases. The economic impact of COVID-19 on families, coupled with rising fuel prices, has meant that the poor and working people have less money to save for non-essential items.

Purchasing power of customers has been impacted, Telangana State Federation of Chambers of Commerce Chairman Ammanabolu Prakash said, stressing that the fuel price increase could not come at the wrong time as small and medium traders were coming out of the impact of COVID.

National oil companies resumed, after a four-and-a-half-month hiatus, the daily review of gasoline and diesel prices from March 23 and on April 7 – the latest review – the two fuels had become more expensive by ₹11 per litre.

The impact of the price of fuel varies according to the size of the company and the sector to which it belongs. Anil Reddy Vennam, who owns a medium-sized packing unit, with 125 employees, on the outskirts of Hyderabad, says profit margins have shrunk and many units are unable to incur higher salary expenses , which is necessitated by the cascading effect of fuel prices.

“The increase in annual remuneration is generally made in percentage and this year, it is unlikely that employees will be satisfied with an increase in the same bracket. They will cite petrol, LPG, bus fare hike, overall price increase, standard of living [to demand more]says Mr. Vennam, who is also vice-president of the South of All India Plastic Manufacturers Association.

It is not advisable to lay off employees, especially when there is a shortage of manpower, he says, adding that the transport component in the salaries of sales and marketing staff has increased in arrow. The need of the hour is for states and central governments to reduce their share of levies, even for a short time, and to refrain from resorting to political warfare over an issue that concerns the common man.

Many large manufacturing units, by the nature of their products and services, are able to withstand rising fuel prices. A pass-through of rising raw material and fuel prices is present in the contract with customers, says Pennar Industries Vice President (Strategy and Corporate Planning) KM Sunil, adding that a slight increase in demand is also the source of customers who do not complain.

“Rising fuel prices would mean that inbound and outbound costs will increase; there’s a bit of a multiplier effect there,” says a senior paper industry executive, who wished to be identified, noting that when demand is strong, some degree of pass-through of the increase may occur , but would have a cascading impact effect.

For the IT industry, one of Hyderabad’s strengths, the impact of fuel prices will only be felt when employees return to the office or, in other words, when businesses need help. organize their transport. Hyderabad Software Enterprises Association COO R. Srinivas Rao says a clear picture will emerge when a significant number of employees, who are working from home, especially large IT companies, return and the renegotiation of the vehicle contract arrives.

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