Duty Cuts To Create Higher Demand

The Central Government has made the right move to create demand for PCs by
reducing excise duty from 16% to 8% on PCs and removing the 4% SAD. This measure
as well as the complete removal of excise from microprocessors and storage
devices including HDDs, FDDs and CD ROMs, is expected to bring down PC prices by
roughly 10%.

These measures are bound to fuel the growth of PC sales during the last two
months of this financial year. However, the positive impact on sales would be
fully realized in 2004-05.

Finance Minister, Jaswant Singh, with these pro-active steps, has not only
brought down duties to realistic levels but also comparable to globally
applicable rates. Kudos to IT Minister, Arun Shourie who has shown keen
responsiveness to industry demands.

The 16% excise duty on motherboards, printers and monitors will remain and
rightly so because some of these products are manufactured indigenously. Waiving
excise on these products would have made manufacturing these within the country
unviable.

However, why the government has not removed excise on CD writers and DVDs is
a mystery. Perhaps this is to balance the CENVAT credit overflow. But we are
certain even these products will be exempted from excise in the coming budget.

Partners were very keen to get excise reduced to zero on memory modules
because large-scale gray operations take place in this product category. But
then there are those who want the 16% excise on memory modules to continue
because this would encourage their indigenous manufacture.

We have been ardent advocates of indigenous hardware manufacturing and hence
support the continuation of 16% excise on memory modules. This should come as an
incentive to those who are already in hardware manufacturing to take up the
manufacturing of memory modules.

The reduction in duties of PCs and selective components is sure to increase
the market share of branded PCs. The price gap between branded PCs and assembled
ones which was narrowing down rapidly, would now be only a couple of hundreds.

This will undoubtedly put assemblers under pressure. They will have to find
ways and means to keep the price differential between their PCs and the branded
ones as large as possible which in the current duty regime is not easily
possible.

Which means the assemblers' will have to fight it out based on their other
strength, namely service. Friendly neighborhood service is what end-users look
for and that is what assemblers will have to provide with greater gusto.

With the PC becoming affordable, volumes would be on the rise providing a
conducive environment for hardware manufacture in the country. After taking the
right measures at demand creation, the next agenda for the Central Government
should be to create a solid infrastructure for manufacturing. For this to
happen, we will have to wait till the general elections get over.

Sylvester Lobo