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Vipin V Nair

So far, the IT hardware industry has groaned under the burden of duties that it considered too heavy. Now, the architect who framed an earlier policy has unshackled the industry. The only way is up, for now.

JASWANT Singh's appointment as India's Finance Minister in July 2002 could result in billions of dollars of hardware exports from the country in the future. To get things clearer, just replace the famous butterfly in the Chaos Theory with Singh: Instead of the tornado that results from the flapping of butterfly's wings, you get a booming hardware sector, thanks to a gesture by the Minister.

But the Minister's move was a calculated one, unlike that of the butterfly in the theory. It was Singh who headed the hardware panel in a Task Force on the IT industry set up in 1998. He came up with a `great blueprint' for the growth of the hardware industry, though none of his recommendations was implemented in the ensuing years. And now, as Finance Minister of the country, he is giving shape to what he once suggested.

In his `mini budget' in January this year, he announced a slew of measures that should set the stage for an accelerated growth in the sector in the coming years. Or so the industry hopes. The halving of excise duty on PCs to eight per cent, the removal of four per cent special additional duty (SAD) and the reduction in customs duty will all help the industry.

"Annual sales of 8-10 million PCs in the next four to five years is not unimaginable," says Ajai Chowdhry, Chairman and CEO of HCL Infosystems. "That would mean that all manufacturing should happen here."

He believes that in the next two years, PC sales in the country can easily top five million units thanks to the recent reduction in duties and taxes, which will bring down the prices by 9-10 per cent. That will also narrow down the price difference between a branded machine and an assembled one, thereby encouraging customers to opt for the former.

According to an analyst with IDC India, an IT market research firm, the reduction in local duties would give a fillip to companies, especially multinationals, to augment domestic manufacturing. Till now, they have had to fight a grey market which was always one-up on the organised sector by evading taxes and duties. Customers didn't care much for a brand and the associated value when they bought a computer since the price difference between an assembled and branded PC was significant.

This is evident from the fact that in the first half of the current fiscal, assembled PCs accounted for 57 per cent of the total sales, up from the 48 per cent share they had in the same period last year. Now this trend is expected to reverse.

The growth in the Indian hardware market has already caught the attention of the global market. Many companies have already expanded their production capacity in the country. "I guess India will influence the world market in the coming years," says Sam Rogan, Director of Marketing, Computation Products Group, AMD Japan. The chipmaker believes that the market for PCs in India is currently in the inflection phase. "India is one of the focus regions for AMD and we are giving special attention to this market," says Sanjeev Keskar, AMD's country head.

PC sales in India in the current fiscal is expected to cross three million units, according to estimates by Manufacturer's Association for Information Technology (MAIT). In the first half of the year, it had crossed the 1.25 million mark, growing at 32 per cent year-on-year.

"This is the first time the Government has considered the demands of the hardware sector," says Vinnie Mehta, Executive Director of MAIT. He says that the Government's thought process have undergone a significant change as they now focus more on improved infrastructure rather than revenue. HCL's Chowdhry rues that in the past, the sector lost a lot of time as the Government was looking at fiscal considerations, while overlooking the overall improvements in the country brought about by increased PC penetration.

If the industry and the Government act together and take the momentum forward, India can emerge as a hub for global manufacturing of computing products.

"Once domestic volumes start building, Indian manufacturers would have the ability to look at other markets," says AMD's Rogan. He believes that in future, Indian brands would start selling in other markets, at least in neighbouring countries. "Our market is surely moving towards global scales," says Mehta. He cites a study done by Ernst & Young, on the Indian hardware industry, which projects a $37 billion domestic market and exports of $25 billion by 2010. Major opportunities will come in the areas of innovative new products, contract manufacturing and design services. "It's time we took steps to market ourselves as a hardware destination," he says. Since India has already established itself in the area of research and development, manufacturing is the next logical step for the country.

However, a number of issues are still pending. In order to attract large-scale global investment in the sector, especially when the zero duty regime is round the corner, the Government must ensure faster turnaround at our ports and improve overall logistics to match global standards. The Government should also provide Income Tax exemptions and other concessions to fuel domestic manufacturing, MAIT says. "For the past 10 years the industry has managed to grow on its own without much aid. Now it is up to the Government to ensure that the kick-start it has given the sector goes to full gear," Chowdhry says.

The Chaos Theory has another side: Because of the butterfly flapping its wings, a potential tornado may subside. Surely that's one analogy the industry and the Minister would not like it to happen.

vipin@thehindu.co.in

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