Falling Rupee Bleeding Electronics, PC Makers.

Falling rupee bleeding electronics, PC makers

The depreciation of rupee vis-à-vis the US dollar in the past few months has impacted margins of personal computer, printer and other electronic hardware manufacturers. Companies are unable to manage costs in accordance with the maximum retail price or MRP that is printed from factories outside India.

Companies such as Acer, Lenovo, Canon and Samsung are finding rupee depreciation to be quite high, making imported items expensive. To make matters worse, they are not able to pass on the increased costs to customers owing to stiff competition and tightening demand for goods and services.

“Rupee depreciation is causing havoc to businesses in the technology market due to simple reason _ it is fluctuating on mid-term basis,” president, Manufacturer’s Association of IT Industry (MAIT), Alok Bharadwaj, told Financial Chronicle.

He said there is already pressure of overall inflation and to top it there’s rupee depreciation. “It would lead to price increase of products and we have to pass this on to customers that may affect businesses,” he added.

As maximum number of products are imported, companies are facing the biggest problem there. The MRP is already printed on products and these cannot be sold beyond that MRP, which makes it difficult for companies to get better margin on the products. On other hand, customs department does not clear any product without MRP printed on the boxes.

Customs duty or import taxes are levied on imported goods and these are payable at time of entry at airport or ports. According to the Central Board of Excise and Customs (CBEC), there are different tariffs for different products.

However, as per International Trade Agreements (ITA), duties on IT products are exempted because of General Agreement on Tariffs and Trade (GATT). According to it, the basic duty remains zero per cent and companies pay 10.3 per cent as a counter-veiling duty. Therefore, products like storage devices, DVD players, video cameras, cartridge tapes, digital cameras, laptops and other IT products are levied 10.3 per cent duty on arrival, said Bharadwaj. Incidence of duty also increases with price increases owing to rupee depreciation, he pointed out.

Bharadwaj, who is also a senior vice-president with Canon India, said that management of pricing is a major problem because products are in the customs warehouses for almost two months. Products are therefore on hedge in warehouses, as companies cannot change MRPs, he added.

“The depreciation is quite high and since most of the components are imported, the costs have gone up. We will try to minimise what we need to pass on to customers but at the same time we will not be able to absorb the full cost increase,” managing director, Lenovo India, Amar Babu said.

Most companies do not hedge currency rates and transact on spot rates for importing products into India. On an average, is rupee currently trading at 49 per dollar rupee from 44 per dollar three months back.

Country head – mobile and IT, Samsung India, Ranjit Yadav said that rupee at this stage is volatile and hard to look at. “It does impact the end customers and is something that the companies have to manage their way through.”

Declining to comment on margins and MRP issue with customs, he said, “As of now, we do not have any significant impact and depending on economy we will price our products.”

S Rajendran, chief marketing officer, Acer India said that foreign exchange has created discomfort to the company as products are imported from China, Philippines and Taiwan. That takes around them eight weeks to finally reach India and rupee depreciation impacts the deal.

“At the time of placing order, we have to deal with original design manufacturer at ` 45 per dollar and fluctuation in foreign exchange markets lead to margin loss,” he said. When products are with customs, the rates should be fixed at that point in time, he added.

Source : mydigitalfc.com