The Hindu : National : No thanking 'PC Uncle'

Online edition of India's National Newspaper
Monday, Jul 19, 2004

National

National

No thanking 'PC Uncle'

By Anand Parthasarathy

BANGALORE, JULY 18. Lay Indians hoping to buy their first personal computer, and enthused by the reported slashing of excise duties in the Union Budget may be better off deferring purchases till there is some clarity about what — if any — are the new fiscal incentives to lower prices. Many leaders of the Information Technology (IT) business, whose immediate reaction was almost euphoric, are now backtracking: Even announced price cuts are being hastily withdrawn as the "fine print" of the budget is sinking.

While slashing the excise duty on computers from eight per cent to zilch, the Government did not — as logic would demand — simultaneously remove the 16 per cent the Counter Vailing Duty (CVD) paid on imported components. This is a key factor: Eighty per cent of a PC's parts continue to be imported and while indigenous manufacturers would still have to pay CVD on the imported sub-assemblies, fully assembled systems would now effectively be at least 8 per cent cheaper because of the zero excise duty. Customs duty on imported systems and sub-assemblies, is currently 10 per cent ; but is due to become zero next year under India's WTO obligations.

In recent days, some leading international brands announced price cuts: On Thursday, HP announced price cuts across its imported notebook PC line by 3 to 6 per cent; but not on PCs which it assembles in India. Dell, which imports everything it sells in India — desktop systems, as well as portables — announced a 6 per cent cut across the board. The Singapore-based eSys said on Saturday that it would import Celeron-based PCs running Linux and sell them in India at just under Rs. 14,000 — about 10 per cent cheaper than a similar system, before the excise cut. Taiwan-based Acer is said to be waiting for more clarity on the tax front before reacting.

Local PC makers hit

Indigenous manufacturers are less happy and feel the budget has made their business unviable compared to the cost of importing a ready-to-use system. Zenith Computers has revised its upbeat 10 per cent price drop prediction with a more realistic 2 per cent. Another Indian manufacturer, PCS, announced a 4 per cent price cut — then withdrew it the same day, Thursday. And in a move that what may sound bizarre and customer-unfriendly to ordinary Indians, the desi industry led by its association, MAIT, is now telling the Government: If you can't remove the CVD on imported sub-assemblies, then please restore the 8 per cent excise duty!

While various sections of the industry can be expected this week to lobby the Finance Ministry for a "level playing field," the "aam janatha" may be excused for feeling that every player in this week-long drama — PC maker, importer and even the Government — has conveniently forgotten the other important stakeholder: the customer; as well as the pious pronouncements made by all Central governments about stimulating PC penetration and breaking the "Digital Divide."

The PC today is only one part of a combo of devices that the home aspires for: You need a printer at the minimum; an Internet connection; possibly a Web camera and a mike-loudspeaker set, so you can use the cheap Internet link to talk to your kids abroad even while you can see them on the screen. Peripherals still attract 16 per cent excise duty in India — and a few States where they are not locally manufactured, slap an additional entry tax at their borders. The hike in service tax from 8 to 10 per cent will also reflect in higher telephone and Internet access service bills. There is also a hidden extra: PC repair and maintenance contracts will now attract the 10 per cent service tax.

The home and the home-office are the two sectors which saw fastest growth in the PC arena last year — chalking up rates of 60 and 71 per cent. And according to MAIT's annual survey just released, over 30 lakh desktop PCs were sold here in 2003-4, a healthy 32 per cent growth rate after a couple of lean years. But in absolute numbers this is still shows a woefully low level of PC penetration.

Better wait and watch

The entry level PC with a reasonable home configuration cost Rs. 13,000 — 15,000, just before the budget; and thanks to intense competition in the inkjet market, printers are sold in India starting at Rs. 3,500 — many below their equivalent dollar prices. Unless the Government resolves the anomalies in the budget proposals, that "lakshman rekha" for so many prospective Indian families, saving to buy their first PC — Rs. 10,000 — is likely to remain unbreached.

And till the Government comes up with some truly radical fiscal measures and slashes taxes as well duties, across the full spectrum of home computing hardware, software and services, it will be premature for any kid to say "Thanks PC Uncle, for my first PC." The smart thing for prospective buyers, to do right now is probably "wait and watch."

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