Duty cuts more a bane than boon at present, say resellers

What is good for some is bad for others. It is true in the case of union
government’s recent announcements of reducing the custom duty on IT products
from 15 to 10 percent and re-moving excise duty completely on products such as
processors, hard disc drives, floppy and CD ROM drives. The government also went
ahead to abolish Special Additional Duty (SAD) of four percent.

While all these sops for IT and other industries are termed as election stunt
by some, the campaigners term it as reform-oriented and giving boost to the
economy for further gro-wth. However, IT traders have their own tale of woes as
they have to manage some loss due to this sudden development, while buyers are
demanding change in price with immediate effect.

Although, the industry feels that the duty cut will improve the sales of PCs,
their immed-iate concern is managing the loss. Many resellers in the local IT
market are not ready to im-plement the price change as this will incur a big
loss for them. However, customers are also delaying their buying deci-sion till
they get the new price.

Meanwhile, registered sys-tem integrators are saying the new structure would
give more benefit to the local assemblers who bill only components while
building a PC. While local assemblers are expected to give reduction up to Rs
4,000 on a PC, the system integrators will be able to cutback only Rs 2,500 to
Rs 3,000 as they end-up paying more tax inspite of the CENVAT claiming process,
acc-ording to system integrators.

"We welcome the govern-ment’s move to cut duty on IT products
especially in PC com-ponents which will help the pe-netration of computers.
How-ever, the sudden announce-ment surprised everyone as we are holding huge
inventory and customers are demanding price slash with immediate effect. We are
forced to reduce the prices, ending up in loss," said a leading
sub-distributor and stockist in the local IT market.

Expressing similar view point, another leading retailer who focuses mainly on
end-user business, said, "We have to sell products at least at a 10 percent
loss to make the sales happen. Most of the buyers, both corporate and home
seg-ments, are delaying their purch-ase decisions expecting further duty cut and
sops in the vote-on-account budget, to be pre-sented in the parliament in the
first week of February. Resellers who operate with huge inven-tory are stuck and
helpless."

"I agree that we are facing loss in business due to this new
announcement. However, any government cannot keep in-forming the market about
po-ssible duty cuts, sops and other benefits beforehand. Resellers should
welcome this move as it will increase the business manifold and in business,
pro-fits and losses are part of the game. Moreover, we can req-uest the
distributors and ven-dors for some price adjustment or back-end benefits which
will lessen our burden," said another leading reseller and key partner for
TVSE.

Meanwhile, the direct impor-ters are in for a huge loss as they would not be
able to get any price adjustment from anyone. "Only just before the day of
announcement, we cleared a big consignment from the customs paying all the
dut-ies. Now, we are in a shock as our losses run in to several lakh. Already,
we are not able to earn good margins in business and this will only add up to
our problems," said a leading im-porter who is part of a Middle East-based
business group.

However, the resellers in the local IT market are happy that grey business
will come down due to this duty cut. "Normally, grey business had been a
big threat for all of us as we are not able to offer prices that com-petitively.
Now, the new duty cuts will help to improve sales through proper channel,"
pointed out a reseller operating in Ritchie Street.

Added a leading networking player in the market, "We all should welcome
this move as this will only improve IT busi-ness. We should not cry about the
short-term problems and we should see the long-term benefits. We all are sure
the pre-sent duty cuts will give nece-ssary fillip to the IT industry and its
growth in the country."

"The government should have indicated this and they could have
implemented this new duty cuts from March 1, 2004. Now, all the resellers in the
market are carrying huge stocks and we are in talks with some vendors for price
adjust-ment and back-end support. Already, Samsung has agreed to look into this
matter," said a leading sub-distributor in Ritchie Street.

S Gopikrishna

Chennai