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Friday, Mar 01, 2002

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`Byting' into better times?

FOR a change, computer hardware, rather than software, has been in the forefront for incentives. The Finance Minister has finally conceded the long-standing demands for reduction in import tariffs for computer inputs by the hardware industry. After suffering benign neglect for over three years, the hardware industry will be gearing up to play an active role in complementing the efforts of the high profile software sector.

Retaining the import tariff on finished personal computers (PCs) at 15 per cent is likely to create a healthy environment for domestic manufacturing. This is likely to be facilitated by the import tariff differential of 15 per cent being maintained between finished PCs and inputs (such as ICs, microprocessors, HDDs, FDDs and other storage devices). Players such as HCL Infosystems, Zenith Computers and the hardware arm of Wipro that have already invested sizeable sums in domestic manufacturing are likely to step up plans for further investment in this area.

Second, by maintaining the import tariff differential, the competitive players with sizeable business volumes will be able to compete with the grey market (accounting for 53 per cent of the PC markets) of assembled PCs through price-led cuts. These measures may also help these players build up volumes to enhance IT penetration among the masses.

Finally, faced with the prospect of a zero duty regime to come into effect under the Information Technology Agreement of the WTO by 2003, the industry has got the much-needed breather. This zero duty regime is to be rolled back to 2005. This will also help the PC manufacturers build greater certainty into their investment plans. In a further attempt at making PCs cheaper, the Budget proposals seek to reduce the import tariffs for certain inputs for key computer peripherals in the 35-25 per cent slab to 5 per cent.

Some of the inputs slated to witness this reduction are parts of printers for computers, cable assemblies for computers and peripherals, ink cartridges and ribbon assembly and ribbon gear assembly.

For all the goodies delivered by the Finance Minister, the only expectation not been conceded to is the reduction in the excise duty on all IT products to 8 per cent.

For the industry aiming to spearhead India as a design centre, the Budget is expected to provide the required impetus. It is now up to the industry to deliver on the promise of revenues of $62 billion as spelt out in the recent MAIT- Ernst & Young Report.

Krishnan Thiagarajan

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