"We are all in red for the last 3 months. Almost 85% of the entire industry has import content and more than 50% of our industry's consumption is Govt. contract centric. It is impossible to honour such contracts with 10% devaluation..we are knocking on all doors in the Govt. with an strong request to immediately bail out the Indian IT hardware industry" said Dr Alok Bhardwaj, President, MAIT and Senior VP, Canon at a press conference in New Delhi.
The industry which was already reeling under a doubling of key component prices in 2011-12 due to supply line disruptions caused by Japanese Tsunami and Thailand floods, was caught unaware by the unprecedented 24% rupee depreciation in the last year. According to industry sources, hardly any companies had hedged their exchange rate risks.
To bail out the industry, the most urgent recommendation by MAIT is to implement the Exchange Rate Variation (ERV) clause as mentioned in the 2006 ' Manual of Policies and procedures for purchase of Goods' released by the Department of Expenditure, Ministry of Finance. The idea is that the purchase organization should quote an appropriate exchange rate on the date of tender release so that vendors can apply accordingly, especially because the prices of government procurement contracts are fixed.
"Government must incorporate exchange rate variation formula in all IT hardware procurements all else industry, particularly domestic manufacturing will begin to crumble", says Ajay Chowdhry Chairman, Department of IT's taskforce and founder and chairman of HCL.
Some of the other recommendations include the revision of all existing DGS&D rate contracts with the ERV clause, exempting import of raw materials from CVD and SAD for a period of four months, extending the 35% abatement concession given to all IT hardware devices like laptops, printers, scanners which are given just 20% abatement.
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