Hardware Ahoy!

It is a great boon for India that after few years, once
again the Indian government has given emphasis to the  local IT hardware industry. It is nice to receive an interes­ting
budget which promotes local IT manufacturing, encoura­ges the local channel
busi­ness while at the same time increases the price of branded PCs and
laptops.

Probably this is the final support that the channel
fraternity can expect from the Finance Minister, P Chidambaram, also popu­larly
known as PC. It is obviously synonymous to personal computing (PC) and therefore
he has put in all his wit on the channel, as partners are the real promo­ters
to the fastest growing domestic market.

Pitting locals against big brands

After a long time, the local industry will be competitive against imported
computer systems, notebook, servers and other hardware. Earlier the latter were
cheaper vis-à-vis the locally produced machines.

The Finance Minister has levied a 12 percent manufacturing
duty, which is also applicable on imports as well. At the same time, the local
industry can get set off against inputs of compo­nents. This will give the cost
advantage of selling compo­nents, imported in bulk quantities.

Effectively the levy of 12 percent manufacturing duty will
have a marginal increased cost to the local branded industry. This advantage to
the local manufacturing industry will create level playing field against MNC
brands.

Apart from the support to the local industry, the Indian
customer will get the latest features, as imported finished computers are
quarter/half year old specifications. In the IT field every month or quarter, we
get newer features and upgraded products. Further, the price is also likely to
drop from time to time.

In case of bulk import of components, India gets the
advantage of volume busi­ness. Further to this, the made-to-order facility is
more flexible and available to Indian customers rather than the product
specifica­tions decided one or two quarters earlier.

This benefit is directly available through unbranded and
regional branded manu­fac­­turers. With this advan­tage and no increased
cost on account of levy of excise duty (due to the exemption available for small
players), the market share of unbran­ded and regional brands should increase
gradually once again.

Reducing costs

Most of the storage/optical products, which are not being manufactured in
India, will now be available at zero duty. This will reduce the product's cost
to the end-user. The Finance Minister has also reduced the four per­cent
additional duty on all products (CPU and storage/optical), which were availa­ble
at zero import as well as the excise duty. This will also reduce the cost to the
end user. The levy of eight percent duty on packaged software is only concern
area, which might get set off marginally against the above benefits given by
Budget 2006.

Apart from the basic systems, the thrust area would be the
government's support to semiconductors, wafers, flat, LCD screens, etc. these
are the products where manufacturing should be encouraged. This will give India
a huge advantage over China and the rest of the world. The export of IT hard­ware
will also get a boost in the same vein like software was propelled sometime ago.

In this budget, the peak duty has been reduced from 15
percent to 12.5 percent. This will reduce the cost for multimedia speakers and
web-cameras, so far as the IT channel is concerned. Also, though the
introduction of the eight percent duty on software is detrimental for the growth
of packaged software, which is imported, it is anticipated that there could be a
review on the same shortly.

In short, the budget is a win-win situation for the channel
though it makes life a bit difficult for branded and MNC companies. Partners
must take the full advantage of the government's support and upsell products
using better brands and quality com­ponents rather than trying to reduce the
cost of a PC. This will not only give their customers better products, but also
will also increase their credibility and give higher profits.

Suresh Pansari,
MD

Rashi Peripherals