The sliding rupee value against the US dollar has dealt negative impact on the Rs 70,000 crore domestic IT hardware industry, which was already bottlenecked by supply related constraints. In a bid to protect the industry, IT hardware body Manufacturers’ Association of Information Technology (MAIT) has sought a price revision with immediate effect.
MAIT president Alok Bharadwaj told media persons that the falling rupee value had led to higher import costs, while component costs rose by 15%, post the flood in Thailand and Tsunami in Japan. Mr Bharadwaj remarked that the industry has lost nearly Rs 300 crore in 1 month itself.
In order to safeguard the industry, MAIT has urged the Ministry of Finance, Ministry of Commerce and Industry and Ministry of IT and Communications to address the critical challenges that are now weighing down on the Indian hardware industry due to the existing foreign exchange volatility.
Disparity in cost
According to the MAIT president, the pricing terms of government contracts, which contributes nearly 50% of the total volume of hardware sales, needs to be subjected to revision in order to consider the new cost. The current pipeline of government orders is valued at Rs 10,000 crore.
Ajai Chowdhry, non-executive chairman at HCL Infosystems said while speaking to reporters that there is a huge waiting time for contracts to materialise and while in the last year rupee has declined by almost 24%, the contract value has remained stagnant and component cost has increased by 10-15%. This situation obviously impacts companies severely, putting a dent on their slim margins of 6-8%.
The domestic electronics industry is known to import nearly 85% of components like hard drive and displays required for manufacturing devices. But with rupee falling steadily from Rs 45-level (per dollar) in May 2011 to Rs 56-level at the end of May 2012, imports have become costlier for them. Therefore, Mr Bharadwaj stressed that the only possible outcome to contain the situation is to contemplate the proposal put forth by MAIT to protect the domestic hardware manufacturing sector.
Priyanka Roy Chowdhury