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Business News/ Companies / Computer hardware firms seek govt’s help
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Computer hardware firms seek govt’s help

Computer hardware firms seek govt’s help

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New Delhi: The 70,000 crore Indian computer hardware industry has urged the government to bail it out from the impact of the weakening rupee.

The industry, almost 85% of which depends on imports, is losing around 300 crore a month because of the rupee’s fall against the dollar and other currencies, the Manufacturers’ Association for Information Technology (MAIT) estimated.

The rupee has devalued by 19.48% in the past year and by 10% in the previous 90 days.

The industry, already reeling from sluggish demand, supply chain disruptions because of floods in Thailand and the tsunami in Japan last year, warned that factories will have to be shut in the coming months if the problem is not resolved.

“The industry is bleeding... Every company is in the red for the past 90 days, which is creating a bigger problem of cash flow," said Alok Bhardwaj, senior vice-president of Japanese camera maker Canon Inc.’s India entity.

Bhardwaj, also the president of MAIT, said about half of the industry’s revenue comes from government contracts, which are time-bound and of fixed prices.

The industry has been holding discussions with key officials in the ministries of finance, commerce and information technology to invoke the ERV clause, he said.The finance ministry’s manual on policy and procedures for purchase of goods, 2006, includes this clause, meant to give companies a lever to adjust rates of government contracts in sync with fluctuations in the exchange rate. “This clause was never invoked earlier as there was never a real need to do it," said Sabyasachi Patra, executive director of MAIT. “The public procurement policy should definitely include the ERV clause. Exchange rate is revised by Indian customs every month to collect duties at current rates. The same principle should be exercised for procurement too," he said.

Dhanendra Kumar, a former chairman of the Competition Commission of India, disagrees with the contention. “While the rupee has depreciated presently, it could have appreciated also and the manufacturers could have gained because of lower import cost," he said. “That is why companies hedge against the currency. There cannot be a standard clause. Everybody takes a risk. Depending on the rupee movement, you either gain or lose."

A senior official of the department of electronics and information technology said that the demand pertains to the procuring ministries. “They need to consider (the demand) as per their contracts for procuring," said the official, who did’t want to be identified. Ajai Chowdhry, co-founder and chairman of HCL Infosystems Ltd, said that hedging would increase the cost of the products and make them unattractive in the market.

“The low margins (6-10%) make it difficult for us to absorb the impact," he said. “While the industry has increased the cost of products for consumers by almost 10% in the last 90 days, it is suffering losses on the government side." Several industries such as electronics, petroleum and gems and jewellery that are dependent on imported parts and raw materials are reeling under the impact of the rupee’s steep depreciation.

On Monday, the rupee ended at 55.52 against the dollar.

The government has taken several measures to combat the fall in the rupee, but to little effect. In May, RBI relaxed the interest rate ceiling for banks on foreign currency non-resident (FCNR) deposits with maturities of one-three years to 200 basis points from 125 basis points, now above the Libor or swap rate.

The ceiling rate on export credit in foreign currency was also deregulated. RBI also eased restrictions on the use of foreign currency deposits by allowing banks to use funds from the FCNR deposits as collateral against lending to local residents. Later, RBI asked exporters to sell half their foreign currency immediately in the foreign exchange market.

Asit Ranjan Mishra contributed to this story.

surabhi.a@livemint.com

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Published: 04 Jun 2012, 10:12 PM IST
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