Govt IT tenders to get forex cover

Applies for contracts with delivery period over a year; industry says welcome step but time period covered is too short

The Union government has decided to include an exchange rate variation (ERV) clause in government contracts for procurement of information technology hardware products.

This has been a demand of the domestic industry for a long while. They've welcomed the change, while saying it doesn't go far enough.

The reason is extreme fluctuations in the value of the rupee against the dollar in the recent past. The clause will be applicable for contracts having a substantial import content and with a long delivery period, exceeding a year from the date of signing.

The department of commerce issued a circular to this effect last month, in the wake of a finance ministry memorandum on changes to the manual on policies and procedure for purchase of goods. In all cases with the delivery period in question, it had said, an appropriate foreign exchange variation clause should be formulated and incorporated in the tender enquiry document.
 

The IT hardware manufacturing industry in India has long been demanding this in government tenders for procurement of IT hardware products, such as computers, tablets, laptops and printers.

In the recent past, the government has remained the main bulk buyer of personal computers and laptops. However, this segment is fiercely competitive and the vendors usually operate on very thin margins to clinch such deals as those give them the volume and market share. Since the vendors import the components from global markets before assembling those in India, any depreciation of the rupee escalates their costs and affects their profitability.

The Manufacturers' Association for Information Technology (MAIT) had made several representations to the government, apprising it on how contracts without an ERV clause were resulting in significant cost escalation for the suppliers, making their businesses unviable. "This is a tremendous relief to the industry. We have been struggling to get the ERV clause done because of the rupee devaluation that has put a heavy blow to (us)," said Alok Bharadwaj, executive vice-president of Canon India and past president of MAIT.

However, companies also say including an ERV clause for contracts with a delivery period exceeding one year still does not address the core issue. This is primarily because the delivery period of IT hardware procurement done through the government's directorate-general of supplies & disposals is usually under a year. "This would have made sense in a normal scenario, maybe three years ago. Today, in one month, there has been (a currency) volatility of 10 per cent. We have requested the government that it should take away that 'one year' clause," said Amar Babu, managing director of Lenovo India, who is also president of MAIT.