Rupee's free fall makes Amma's freebies a drain on state's economy

The Tamil Nadu government's free distribution of laptops and domestic appliances scheme, part of AIADMK's poll manifesto, appears to have run into rough weather this year with rupee depreciation and rising input cost forcing suppliers to increase the prices thereby burdening exchequer to the tune of several hundred crores.

While the laptop schemes for school and college students were aimed as part of the state's human resource development, the free mixer-grinder and fan scheme would help homemakers lessen their burden of domestic chores. Both  populist schemes were launched by Tamil Nadu Chief Minister J Jayalalithaa on September 15, 2011.

Soon after the AIADMK came to power in 2011, the Tamil Nadu government, through its wholly-owned company, Electronics Corporation of Tamil Nadu (ELCOT), floated a tender for the supply of 9,01,000 laptops. The total scheme was expected to cost the state Rs 10,200 crore over a five-year  period.

The minimum price quoted per laptop was Rs 14,900. The government has completed distributing laptops to the students in the first phase. Similarly, the government, through civil supplies corporation, floated another tender to distribute around 3.5 million units of domestic electric food mixer, table top wet grinder and electric table fan during in 2011.

During 2011-2012, the government distributed 2.5 million sets at a cost of Rs 1,361.62 crore and in 2012-2013, about 3.5 million units are under distribution at a cost of Rs 1,556 crore.

The lowest bid was Rs 4,995 per package (of all three appliances), said a senior official from civil supplies department, which is the nodal agency to monitor the schemes.

In addition, the state civil supplies corporation has also proposed to procure more than 50,000 induction stoves this year to be supplied free of cost to  people living in hilly regions as they do not require electric table fans.

Free of cost

Domestic appliances procured are having higher quality standard than those available in the market. Both laptop and domestic appliances are covered under a warranty of two years, during which period the suppliers will undertake warranty maintenance at free of cost.

The problem started when the rupee which is continuing its free fall and hitting record lows everyday has forced the suppliers to re-look at prices that has to be given to the government

This year the government is planning to distribute more than 7 lakh laptops to the students and for which it has floated a global tender. Likewise, the government also floated tender to procure 35 lakh mixers, grinders and fans during 2013-14.

"However, with the sharp depreciation of the Indian currency against the US dollar, computer manufacturing companies are unlikely to supply laptops at rates quoted in the first tender. This time it is expected that the suppliers might demand about Rs 20,000 per unit", a senior official from Elcot said.

“Heavily import-dependent, coupled with the phenomenon of rupee depreciation witnessed by the country, has been adversely affecting the financial viability of the IT hardware industry,” said S Venkatesh, secretary of IT Dealers Association. He said that laptop manufacturers are in a more unstable position as the industry has wafer thin margins and see just about two per cent gross profit.

Echoing similar views, Coimbatore Wet Grinder Association President P Krishnakumar said that prices of all the raw material that are used in mixer and wet grinder went up to 20 per cent compared to previous year. "Due to Rupee depreciation, the price of the copper wire, the core product for mixer-grinder, has increased by Rs 100 per kilogram compared to last year", he added.

He says similar to that of gold the price of copper wires is fixed by London market. In addition, labour cost and transportation cost have also increased by 20per cent due to frequent fuel hike, he said. The state government has allocated Rs 750 crore for the scheme during the current year. Going by the impact of Rupee depreciation, a simple calculation reveals that if the supplier increases Rs 1,000 per package for domestic appliances, the government has to pool additional of minimum Rs 350 crore to buy 35 lakh mixer-grinders and fans. Similarly, increase in price of laptop will also cost the exchequer to the tune of Rs 250 crore. However, government sources said that it would force the mixer-grinder manufacturers to quote last year's price to the products.

 Interestingly, the state government will also spend additional amount for distributing free gold coin of 4 gram for the Thirumangalyam (Mangal Suthra) along with enhanced marriage assistance scheme as the yellow metal prices also soaring.

A senior official from finance department said the collections through taxes and sales through liquor will go up by 30 per cent this year. Therefore, the additional expenditure that emerges through free schemes will be taken care from the revenue collections.