Rupee devaluation sends IT hardware industry on ICU

Looking at the dwindling plight of the Rs 70,000 crore Indian IT industry, the Manufacturers’ Association of IT (MAIT) has urged Ministry of Finance, Ministry of Commerce & Industry and Ministry of IT & Communications to address the critical challenges faced by the Indian hardware industry currently.

Attributing rupee devaluation and and constrained supply of components as the prime reasons behind the crisis the association said that the crisis is most relevant to all government projects which accounts for more than 50% of the industry’s consumption.

“After Japanese Tsunami and Thailand floods, a bigger tsunami has hit the 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 Forex volatility is an area of grave concern. We are knocking all doors in the governemnt with a strong request to immediately bail out the Indian IT hardware Industry,” said Dr Alok Bharadwaj, president, MAIT and senior VP, Canon.

MAIT members have already met officials from ministries of commerce, finance, and IT Department to apprise them of the situation. “The response from the government is that they want to help, they are sensitive to the situation. Only thing is now concrete shape needs to be given to our proposal quickly,” Bharadwaj said.

For the consumer and the enterprise segment, companies have been forced to pass on the burden, Bharadwaj said, adding that prices of products like desktops and laptops have already gone up by almost 10% in the last 6 months. It was also highlighted that the rupee against the US Dollar has depreciated steadily (24%) over the past 1 year (from 45 in May 2011 to 56+ in May, 2012). During last 3 months, rupee has slipped by over 10%.

When asked about how is the situation affecting the channels, Bharadwaj exclusively told The DQ Week, “Channel partners are not worried about the bottomline, as they do not sell at a large. Right now channel partners should not plan. They should not expect huge growth, but continue with their usual business.”
While Sabyasachi Patra, executive director, MAIT said, “The entire industry is feeling the pinch. Channel partners either for large companies or domestic have to bid for contracts and hence they are also in the same situation. And as channel partners are smaller in size, chances are that they might just get wiped out.”

The association made the following 4 recommendations to the government on the issue. They are:

1.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
2.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
3.To mitigate some of the impact of component price escalation and impact of exchange rate volatility, import of raw materials should be exempted from CVD and SAD for a period of next 4 months
4.Extend the 35% abatement concession to all IT hardware devices particularly laptops, printers, scanners which are given just 20% abatement.

When asked the officials about when is the situation expected to improve, Patra said, “If predictions are to be believed, rupee will touch Rs 62 in the near future, so worse situations are lying ahead. So either u die today or u die tomorrow. In the near time we do not see the situation improving.”

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