This is a challenging time for the Indian electronics hardware industry. With the faltering rupee and rising dollar rates, it is fast choking the players in the industry. While we often hear about the government’s initiatives to push local manufacturing by announcing support and other schemes, the scene is just getting more unstable by every passing day.
Alok Bhardwaj, president, MAIT, spoke exclusively with EFYTimes about the tough times and the recommended proposals to sail through this situation without getting much bruised. Excerpts:
What are the challenges faced by Indian hardware industry owing to forex volatility?
This is the worst time that the industry has faced in the last several years. The two major impacts came in the form of Thailand flood, Tsunami in Japan which increased input cost majorly, and the other in the form of rupee devaluation.
India is still not a mature economy, especially when it comes to hardware manufacturing, thereby, making price rise too difficult. In a mature economy, price rise can still be overlooked but that is not the case in India. Hence, the brunt of the situation is taken by the industry only. In the last one year, there was 24 per cent rupee devaluation and last 90 days have just arm twisted the industry further with a 10 per cent devaluation.
How much of electronics hardware is currently imported?
There are broadly three hard facts of the industry. This is the most glaring fact: India is a highly import centric industry when it comes to electronics hardware. Currently, almost 85 per cent electronics is imported that amounts to approximately Rs 70,000 crores. This huge import content means that the industry is highly vulnerable to the dollar price.
What are the other factors impacting the industry?
The second-most important fact is that 50 per cent of Indian hardware is consumed by government. Every economic upheaval is linked to IT. Sadly, the procurement is very government centric. Thirdly, our industry works on wafer-thin margins. Products are rapidly launched in the market and they phase out as rapidly. The last data that was available to us, the industry incurred monthly losses amounting to Rs. 300 crores.
With such statistics, the question of creating surplus is unlikely. This is the reason we don’t see investments in local manufacturing. In fact I fear that small manufacturers who still produce hardware locally may soon shut shop entirely.
What can be done to get this situation under control?
First of all it is important to have an exchange rate variation clause on imports. Basically, Indian customs follow the system of announcing custom exchange rate on any product that is imported. This is done to maximise duty collection. So, the same logic should be used for suppliers, to help them make most of it.
Secondly, I request the government to review existing contracts. I remember that there was a time when hardware industry used to look forward to the government contracts, but today,, they shy away from them, the reason being that it is a losing proposition. If anyone from the industry enters a contract, they are imposed with penalties, without considering their state.
There should be some compensation on the exchange rates. Moreover, it is important to look at ways to defer the recent excise duty increase temporarily to offer some respite to the industry.
Another aspect that needs attention is the abatement percentage. Whenever something is imported in the country, the local company is expected to pay duty on the MRP after the abatement is reduced from it. Sadly, there is a discrepancy in this case- while LED, LCD, MFDs, projectors all have an abatement of 35 per cent, PCs, laptops, cartridges still have it at 20 per cent. This can be easily changed by simply issuing a notification.
Do you think the EHTPs have succeeded? What else needs to be done?
Talking about the manufacturing part of the industry, it has to be seen holistically. Having said this, I don’t mean that the government has done nothing, but this small bit won’t attract investors. While these announcements do give some scope for R&D and investments, it is not enough to attract clusters. For that, first and foremost, we need stability in the government’s policy.
We need assurance that the change of government will not change policies. It is important that all parties reach a common consensus and then the policies are announced. Otherwise, every time the government changes, VAT gets changed, promises gets reversed.
How long do you think that the current situation would continue?
Till the time the rupee devaluation continues, this situation will stay. Moreover, it is important for the government to issue fresh contracts to curb the nail-biting situation. I feel that the government should go to those who have invested in manufacturing and ask them if whatever is happening is right. We just don’t need isolated policies, it should be thought after thoroughly.
