UPS: A Clamor for Order

Notwithstanding the critical role played by the UPS in enhancing service

levels and increasing productivity, the segment continues to be a "nobody’s

child". What with the government playing ball amongst its various wings and

the segment itself not being able to lobby its case successfully, the UPS

segment is highly fragmented and most of the trading takes place in the

unorganized sector. Ashok Mazumdar, executive director, Power Electronics

Manufacturers and Traders Association (PE-MAT), a recently formed organization,

estimates that as much as 75—80% of the total UPSs sold in the country takes

place in the gray market as against around 60% for other IT products. The

market, according to MAIT, is estimated to be Rs 500 crore and growing at 20%.

These estimates, according to MAIT, are only for UPSs sold to players in the IT

industry and not to other industries. However, despite its potential, the

segment has not been able to take off due to a lack of organized representation.

Many voices

There was some attempt by UPS manufacturers about three years ago to come

under one umbrella as the Association of UPS Manufacturers. However, for all

practical purposes, the association is defunct with most players not happy with

the association. The newly-formed PE-MAT expects to don a role similar to "Nasscom

in the software industry" and "MAIT in the hardware industry" in

the words of Mazumdar. Justifying the need for a separate association when there

is MAIT which has a higher visibility, Mazumdar says PE-MAT will focus on the

UPS segment alone as against MAIT, which has a spectrum of issues to address.

However, PE-MAT’s membership today is only 30 and not many UPS manufacturers

or traders have heard about the association.

MAIT has also taken up the issue of the UPS segment only this year and some

allege that MAIT has never really given the issue an ear. Says Vinnie Mehta,

director, MAIT, "Whenever our members raise any issue we take it up

provided it has industry-wide ramification. But we cannot address isolated

problems of individual companies. Recently, several of our members from the UPS

segment like Tata-Liebert, TVSE and APC raised some issues and we are now taking

them up." MAIT has recently formed a special workgroup on UPS and made a

special pre-budget presentation about the cause of the segment.

Customs and excise woes

Among the many issues facing the segment, the most pressing is that of being

classified as an electrical product under HSN 8543.89 attracting the highest

rate of customs and excise duties. This is despite the fact that the World

Customs Organization classifies the UPS under HSN 8504. India is the only

country to classify UPSs under HSN 8543. Even today the UPS manufacturers and

the government are still not clear about its status. While the ministry of

information technology did pass a circular certifying the product as being under

8504, the CEGAT passed an order classifying it under 8543. The UPS manufacturers

filed a case in the Supreme Court against the order and is now clearing its

excise and customs duty under HSN 8504 against a bank guarantee. However, if the

court verdict goes against them, the UPS manufacturers and traders will end up

paying as much as Rs 15—20 crore as customs duty and an additional Rs 10 crore

as excise duty. Says Mehta, "We have made a special presentation regarding

the issues of the UPS industry and are optimistic that it will be categorized as

an electronic equipment. Although the duty differential now between 8543 and

8504 stands at around 13%, the fear is that if the court verdict goes against

the industry a lot of small UPS players will close down." Pressing its

demand further, PE-MAT has asked for the product to be categorized as part of

the computer system under 8471.

Another issue related to the categorization is whether batteries form an

integral part of the UPS. The players in the segment are pressing for the issue

to be clarified and sorted out, and it expects to save a lot of procedural

delays. Often UPSs are sold without batteries just as computers are sold without

monitors. Explains Mehta, "Batteries for UPSs should be treated like

monitors for computers. For all functional purposes monitors are treated as part

of the computer system. However, monitors are also treated as finished products

in their own right. Therefore, it provides flexibility to the customer and the

manufacturer." However, there is a section of the segment, which wants the

battery to be sold as an integral part of the UPS. This issue being made clear

is all the more critical for the UPS manufacturers and traders since the cost of

the battery in the UPS sometimes exceeds the cost of other UPSs.

Sales tax disparity

At the state level too the industry is not without woes. While some states

like Karnataka and Tamil Nadu have given the segment the benefit of being

treated as an IT product and hence levy sales tax around 4%, most states

continue to levy taxes around 16%. Says Sameer Mathur, director, Datex, "If

a UPS worth Rs 5,000 is bought, the customer ends up paying 30% of the cost as

taxes, which is indeed high, particularly for a product which is integral to the

computer industry." Unfortunately, the initiative of some states to lower

sales tax has only served to fuel the gray market in the neighboring states.

Most of the industry’s troubles originate in the lack of standards for the

product. UPSs today are sophisticated products with a lot of software

requirement. But the general tendency is to categorize the product as a power

equipment in line with inverters. According to PK Jain, CEO, Next Generation

Power System, "While inverters are crude products with little technical

innovations and can be manufactured locally, UPSs require considerable R&D

and are capable of performing sophisticated functions like remotely monitoring

systems uptime."

The confusion in the product categorization is also largely attributed to the

lack of standards as the government does not have any guideline to differentiate

an inverter from an UPS. The IT ministry was apparently in the process of

developing guidelines for UPSs but the progress seems to be stalled. There is

fervent effort from the industry to revive the government’s initiative on this

front. Lack of standards has inadvertently fueled the gray market as customers

are taken for a ride on promises of cheap products without any quality

guidelines. Adds Mathur, "The industry refuses to come on a common platform

and devise standards by a neutral body like the Electronic Regional Testing

Laboratory (ERTL) or IIT. In the absence of standards it is the customer who is

the loser since many of the local products are superior to better-known names.

Customers can get not only better products but also cost-effective rates if

standards are formulated."

The challenge before the UPS manufacturers and traders now is to fight for

the cause as a unit. The highly-fragmented segment is dominated by small players

catering to regional markets. Usually in any industry it’s the bigger players

which play a role in consolidating the industry by setting standards and

rallying for them. There are only a handful of national players in the UPS

segment like APC, Tata-Liebert, Numeric and TVSE. But most of them are players

at the high end of the market where the volumes are low and margins high. The

scope of the segment lies in developing the lower end of the market. It is for

the big UPS players to take the initiative in organizing the segment and

developing the market.

Balaka Baruah Aggrawal



Cyber News Service, New Delhi