The $12.6B Indian computer hardware industry has been severely hit by the weakening dollar. The industry is losing approximately $53.9M in a month. In order to combat the situation, the Manufacturers’ Association of IT (MAIT) has requested Ministry of Finance, Ministry of Commerce & Industry and Ministry of IT & Communications to address the critical challenges faced by Indian hardware industry.
MAIT made the following four recommendations to the Government:
a) Implement the Exchange Rate Variation (ERV) clause as mentioned in the ‘Manual on Policies and Procedures for purchase of Goods’ released by the Department of Expenditure, Ministry of Finance. In fact, the purchase organization should quote an appropriate exchange rate on the date of tender release so that the vendors can apply accordingly. This should be applicable for long term and short term contracts.
b) For the tenders that have been awarded and are in implementation stage, give an option to the vendors to ask for inclusion of this clause on ERV. To begin with, all DGS&D rate contracts should be revised with that clause. This should then be followed for other tenders and state Government nodal agency contracts etc.
c) To mitigate some of the impact of component price escalation (e.g. in hard disk) and impact of exchange rate volatility, import of raw materials should be exempted from CVD and SAD for a period of next 4 months (and some period thereafter should the situation persist). This will also help domestic manufacturing which has been hit harder by these supply chain disruption than the international companies with larger procurement clout to ride the current situation.”
d) Extend the 35% abatement concession to all IT hardware devices particularly laptops, printers, scanners which are given just 20% abatement. This can be done immediately through a notification of CBEC as was recently done to rationalize flat panel monitors and Multifunctional devices.
Every country considers the information technology industry as integral to their success, making this industry the fastest growing in the world. World Bank’s reports state that 10% increase in computer and broadband penetration increases GDP by 1.38%. This is particularly relevant to emerging economies like India.
As per the estimates of Ministry of IT & Communications, the demand for IT hardware & Electronics is expected to touch $400B by 2020 in India. In 2011-2012, the IT industry faced enormous losses due to supply line disruptions caused by Japanese Tsunami and Thailand floods which increased the prices of key components. However the biggest impact to the industry is the Rupee devaluation.
Approximately, 50 percent of the IT Hardware contracts in India are signed with the Government. The nature of these contracts is such that they are time bound and locked on prices currently.
Dr Alok Bharadwaj, president, MAIT and senior vice president, Canon articulated, “A bigger tsunami has hit Indian IT Hardware industry in the form of Rupee Devaluation. We are all in red for the last 3 months. Losses are accumulating, causing cash flow challenges and blocking investments. Almost 85% of the entire industry has import content and more than 50% of our industry’s consumption is Govt contracts centric. It is impossible to honor such contracts with 10% devaluation in just 90 days. The Forex volatility is an area of grave concern and we are knocking all doors in the Govt. with a strong request to immediately bail out the Indian IT hardware Industry.”
Government has been sensitive to MAIT''s plight. Ajai Chowdhry Chairman, Department of IT’s Task force that suggests measures to stimulate the growth of IT, ITES and Electronics Hardware manufacturing industry in India and Founder and Chairman, HCL said “This is an unprecedented situation arisen due to the hardening of the dollar. Many critical sectors are getting adversely affected. If not corrected immediately, suppliers will shy away causing delays in the procurement process which might impact all major economic activities including Industrial Production. While the industry wants to go all out and support the government in this time of crisis, it is unable to do so because there is no protection against the volatility of foreign exchange. Government must incorporate exchange rate variation formula in all IT hardware procurement contracts or else industry particularly domestic manufacturing will begin to crumble. He assured that the inclusion of the ERV clause will in no way inhibit the growth of the domestic IT Hardware Industry. Further, once the rupee turns around and appreciates against the USD, the industry will give the benefit back to the government, as it has done in the past”.