Poised for Growth

The time is always right to do what is right. Last week, Jaswant Singh and
the Ministry of Finance proved this axiom. The reduction in excise duty and the
removal of the Special Additional Duty (SAD) were measures long overdue, and I’m
sure the entire industry is cheering to see the government finally taking note
of its pleas.

We had always maintained that Indian IT as a whole could match international
standards only when the hardware industry was accorded the same treatment as
that meted out to the software industry.

Promoting one sector without the other is, at best, taking a very
shortsighted view of the situation. One must congratulate the government on
taking the initiative and giving the industry a chance to prove its potential.

"The industry–indeed the country–today is on a high. The mood is more upbeat than it has been for years, and the best thing is, this time everybody feels we can stay on top" Ajai Chowdhry

The cut in excise duty from 16% to 8% and across the board removal of the 4%
SAD will have a positive impact on the pricing of PCs. A combination of the two
will lead to a reduction in price of about 7% to 10% in PCs. The industry can
see a further drop in prices if all aspects of proposed hardware policy are
implemented.

Having said this, we need to keep in mind that the price point of a product
is a critical factor in our country. The reduction in PC prices will definitely
go a long way in making them more affordable to the Sec B and C towns.

The more we make technology affordable and accessible to the common man, the
higher degree of PC penetration we can look forward to in India.

In fiscal 2002-03, India recorded sales of 2.3 million PC units. According to
the MAIT-IMRB study released just before the government announcements of duty
cuts, the PC sales were slated to touch the 3 million unit mark in fiscal
2003-04. In my opinion, we will see this figure easily surpassed. It will not be
too optimistic to say that that we may cross the 5 million landmark by the next
fiscal. Given the right impetus, India has the undoubted potential to become a
global manufacturing hub.

In addition, the price reduction by the organized sector will help combat the
grey market. Until now, the only area where the grey market scored over the
branded PCs was that of price.

Now with that advantage having shifted, there is no reason why the consumer
would not prefer a branded product, especially since it comes with the assurance
of quality and long-term customer service. Further, the increase in sales of the
organized sector will also result in a revenue gain for the government, of which
it had been deprived because of the grey market.

The other positive step that the government has taken is the reduction in
customs duty on mobile phones from 10% to 5%. This will go a long way in making
mobiles more accessible and improving connectivity in the country.

We are hopeful that the other key recommendation of the industry, i.e. an
increase in the rate of depreciation from 60% to 100% for computer hardware,
will also be given due consideration by the Union Government.

The outcome of this will be to enable the consumer to move up the value chain
of technology without spending too much. The corporates, who need to stay in
touch with the latest technological developments, will be encouraged to upgrade
more frequently and donate old computers for social requirements like literacy.

The industry–indeed the country–today is on a high. The mood is more
upbeat than it has been for years, and the best thing is, this time everybody
feels we can stay on top. Speaking as somebody who has carried the cause of the
hardware industry close to his heart, I am confident that the positive measures
announced by the government will give India the much-needed impetus to compete
globally. I believe we can be international players–and play to win.

Ajai Chowdhry

The author is chairman & CEO of HCL Infosystems