MAIT recommends inclusion of Exchange Rate Variation clause to protect industry from falling rupee
In the wake of rapid depreciation of the Indian rupee over the past couple of months, Manufacturers’ Association for Information Technology (MAIT), the apex body actively representing ICT Manufacturing, Training, IT, Design, R&D and associated services sector, expressed deepest concern over difficulties faced by the industry, as well as consumers and appealed to the government to include ERV clause for the purchase of goods.
Emphasizing on the implementation of ERV, J V Ramamurthy, President, MAIT said, “We strongly recommend the government to implement Exchange Rate Variation (ERV) clause, as mentioned in the Manual of Policies and Procedures for the purchase of goods. ERV should be incorporated for all govern- ment contracts under the circumstances, including DGS&D, NIC contracts as it provides a win-win solution for both the parties in these circumstances.”
ERV implementation would bring in necessary relief to many small and large system integrators and vendors supplying to the government. The business of IT hardware industry, which includes necessary products like computers, tablets, laptop, printers, is predominantly import dependent and amongst the badly affected due to the abrupt fall of Indian Rupee. This has led to an unexpected rise in the import cost of these products, which results in financial instability of companies and it would be now difficult to adhere the pricing of already committed contracts, which also include government deals.
Stressing on the magnitude of this crisis, Amar Babu, VP, MAIT said, “Since May 2013, we have been observing the substantial price increase to the extent of about 10 percent. Losses are accumulating, causing cash flow challenges and blocking investments.”
In the ERV clause, the tenderer’s have to indicate import content and the currencies used for calculating the value of import content in their total quoted price, which will be in Indian Rupees. The tenderer’s may be asked to indicate the Base Exchange Rate for each such foreign currency used for converting the FE content into Indian rupee and the extent of foreign exchange rate variation risk they are willing to bear.