The Manufacturers' Association of Information Technology (MAIT) has urged Government to address challenges faced by the hardware industry due to existing foreign exchange volatility.
The association has made four recommendations to the Government, including implementation of exchange rate variation (ERV).
MAIT said ERV clause that is mentioned in the ‘Manual on Policies and Procedures for purchase of goods' released by the Department of Expenditure would ensure that payments are made keeping in mind the prevailing foreign exchange rates.
It would help vendors apply exchange rate accordingly. This should be applicable for long-term and short-term contracts, it demanded.
Lesser margins
As hardware are shipped with maximum retail price printed on them from facilities where they come from, fluctuation in forex leads the companies to generate lesser margins because they have to pay as per current exchange value during delivery.
It has urged three Ministries – Finance, Commerce and Industry, and IT and Communications — to implement ERV so that purchase organisation should quote appropriate exchange rate on the date of tender release.
MAIT has also requested that for tenders that have been awarded and is in implementation stage, should be given an option to vendors to ask for inclusion of this clause on ERV.
Ricoh, HCL Info hike prices
This comes even as some of the hardware manufacturers, including Ricoh and HCL Infosystems, announced increase in price of products for consumers.
The rupee against the dollar has depreciated steadily over the past one year (from Rs 45 in May 2011 to Rs 56 plus in May 2012).
During the last three months, rupee has slipped by over 10 per cent and experts expect this volatility may continue in near future.
MAIT said this is a bigger issue than Japanese Tsunami and Thailand floods that also led companies to increase prices because of shortage in hardware supply.
Therefore, to begin with, MAIT said that all Directorate-General of Supplies and Disposals rate contracts should be revised with that clause.
This should then be followed for other tenders and State Government nodal agency contracts.
Raw materials
And to ease impact of component price escalation such as hard disk and impact of exchange rate volatility, import of raw materials should be exempted from countervailing duty and special additional duty for a period of next four months.
This would help domestic manufacturing which has been hit harder by these supply chain disruption than the international companies with larger procurement in current situation, said the association.
Abatement concession
It asked the Government to extend the 35 per cent abatement concession to all IT hardware devices such as laptops, printers and scanners which are given 20 per cent abatement. This can be done at the earliest through a notification of Central Board of Excise and Customs as was recently done to rationalise flat panel monitors and multifunctional devices, it said.
“A bigger tsunami has hit Rs 70,000-crore Indian IT hardware industry in the form of rupee devaluation. The forex volatility is an area of concern and we are knocking all doors in the Government with a request to immediately bail out the industry,” Dr Alok Bharadwaj, President, MAIT said.
He said losses are accumulating, causing cash flow challenges and blocking investments. Almost 85 per cent of the entire industry has import content and more than 50 per cent of the industry's consumption is Government contracts centric, he said.
“It is impossible to honour such contracts with 10 per cent devaluation in just 90 days,” Dr Bharadwaj said.