The slowdown in software exports has a beneficial side-effect. Karnataka, the home of India's top software exporters, is making an attempt to beyond software. Karnataka Chief Minister SM Krishna is now all set to woo computer hardware manufacturers to start operations from the state.
Krishna has announced a series of hardware-attractive policies. A hardware park near the upcoming international airport in the state capital of Bangalore is on the anvil. The hardware park would be a 'special economic zone'. This implies that the companies setting up their manufacturing operations in this zone can expect a host of concessions. Besides, duty free imports of components are allowed in to such economic zones with the government insisting that bulk of the products manufactured there to be exported. But is this zone going to provide the same facility or allow free play in the domestic market too? We have to wait and watch.
Karnataka has also decided to withdraw the luxury tax levied on PC sales. It is a matter of surprise that such a tax has actually been levied on PCs, the symbol of the IT industry in an IT-savvy state such as Karnataka. There is no doubt that price-wise a PC is beyond the purchasing power of a vast majority of Indians. Yet it cannot be termed a luxury item by any stretch of imagination. It's good that an anomaly has been removed. Similarly, the Karnataka government has withdrawn the 4 percent sales tax levied on software products, with retrospective effect from April 1, 2001. Imposed during this year's budget, the tax has been withdrawn earlier itself. But the state has used the occasion of the inauguration of the 4th edition of Bangalore IT.com to reiterate this point.
Perhaps the slow down in the software sector is making our administrators to give some attention to the hardware sector. Somehow the glamorous software sector had overshadowed the computer hardware industry. A vibrant domestic hardware industry is a key requirement for building up our IT sector. A strong domestic market, for both hardware and software, should cushion the adverse impacts from key foreign markets for our emerging IT companies.
But is providing good infrastructure with 'hardware parks' alone enough to stimulate this sector? Action is required on many more fronts. Countries such as Malaysia, Thailand, Singapore, and Taiwan have attracted huge PC assembly plants in the last two decades. Their domestic markets are not big as India's. However, this disadvantage has been offset by their locational advantages to service big markets around flexible labor policies, quality infrastructure and availability of skilled workers, and congenial business environment.
India too may have to provide these basic facilities if we have to emerge as an attractive destination for the world's leading hardware companies. Our domestic market size of 2 million PC units is sizeable, but fragmented due to the presence of too many players. Half of it is accounted for by the locally assembled PCs with imported components.
If the government is able to stimulate the demand for hardware products through right policies and incentives, the market may respond positively. Economies of scale will come into play and hardware companies will certainly look for setting up local operations. This is the experience in the automobile industry. The explosive growth in sales has attracted world's leading auto makers such as Ford, GM, Toyota, Hyundai and of course Suzuki through a partnership with the government to set up shop here. The state governments wooed with them a host of incentives. This can happen with computer hardware too.