The Hindu Business Line : Industry divided on price drop

PERSONAL Computers (PCs) could well see a slump in prices. But no one is sure by how much PC prices would go down. This follows the Government's announcement of full excise exemption on PCs, down from 8 per cent.

Players such as Wipro conservatively pegged the resultant reduction in computer prices between one and two per cent while others such as Zenith estimated a drop of over eight per cent.

This was due to lack of a specific clarification from the Government on the fate of Countervailing Duty (CVD) on components used for manufacturing of computers. Mr Anil Jain, general manager of Wipro Personal Computing Business said, "The reduction in excise duty would help reduce prices of PCs (manufactured in India) by at least 1.5 per cent.

This is not linear with reduction of excise duty as countervailing duty on components continues and excise duty on monitors continues at 16 per cent.

"PCS Industries too gave an opinion on the same lines. Mr B N Agarwal, Director, PCS Industries said, "There is ambiguity in the budget whether the exemption is for all components.

Analysis

The goodies for the computer hardware sector announced in the Budget carry forward the measures announced in the "Mini Budget" earlier this year. Exempting computers from excise duty will have a two-fold implication:

Branded personal computers are set to become cheaper by about 2-3 per cent. Industry captains, however, feel that the price drop of PCs may be lower this time compared to the 6-9 per c-ent drop anticipated after the Mini Budget. Domestic PC manufacturers such as HCL Infosystems, Zenith Computers and Wipro's hardware division will find PC manufacturing more attractive. At the same time, multinational players such as Hewlett Packard, Dell and Samsung also stand to gain from this development. PC penetration levels that have been languishing will get a boost from these moves.

Personal computers from the organised sector (both domestic manufacturers and MNC players) will enhance its market share from the grey/assembled computer market. According to the MAIT Industry Performance Review for 2003-04, the assembled PC market, which commanded a 57 per cent market share in the first half of 2003-04, had declined to 50 per cent in the second-half.

This trend will gather greater momentum, with both domestic and MNC players increasing their market share at a much faster pace, than in the past. PC sales are projected to cross 3.8 million in 2004-05, up from 3.03 million in the previous years.

Krishnan Thiagarajan