While Budget 2007-08 was largely being perceived as a 'non-event' for the IT hardware sector, the proposal to levy excise duty on maximum retail price of desktops, laptops and peripherals, including monitors, liquid crystal displays, printers and scanners did perturb the sector.

The overall prices of these goods could go up by around 2-3 per cent, but it remains to be seen whether manufacturers can pass these hikes to customers in a highly-competitive market.

However, the government first has to announce the date from which this will be effective. Besides, the abatement percentage has not been declared. Currently, the excise duty is levied on factory price. The abatement percentage is expected to be around 35-40 per cent of the MRP.

This is how the system works. Assuming the price of a computer is Rs 30,000 (MRP). Its factory price, though, will be around Rs 20,000. The Rs 10,000 margin includes octroi, value-added tax and margin on distribution. Earlier, 12 per cent would be levied on Rs 20,000 (i.e Rs 2,400). The figure, if the proposal is implemented, will touch Rs 3,600.

In the case of LCDs and monitors, the figure could be higher since the levy is 16 per cent. Of course, there is the additional 4 per cent duty in lieu of VAT/sales tax and the education cess of 2 per cent besides the 1 per cent cess for secondary and higher education added in this Budget.

Does this bode well for the Indian personal computer market that has crossed the five million shipments mark, recording a 25 per cent year-on-year growth, according to IT research firm, IDC? Manufacturers do not wish to comment on this since the basis of the MRP is not known. Unlike consumer goods, desktops and laptops have no fixed configuration. It's a grey area.

Another thorn in the side of the hardware sector is that computer hardware engineering services will also be subject to service tax. Earlier it was exempted under the head of consulting engineering services.

A few positives in the Budget include the clarification that DVD drivers and DVD writers fall under the "flash memory" category and hence are exempt from excise duty. The average price ranges around Rs 1,600-2,500.

The government has also proposed to raise the excise exemption limit for small scale industry (SSI) from Rs 1 crore to Rs 1.5 crore and this move is expected to benefit the over 50,000 assemblers in India. IDC states that assembled PCs witnessed a growth of over 27 per cent in absolute unit sales in 2006-07 - accounting for 40 per cent of total PC sales.

Growth spell

In a year that witnessed an all-round economic growth, the India client personal computer market witnessed a 25 per cent year-on-year growth in unit shipments (CY 2006 over CY 2005), according to IDC.

IDC states the year 2006 witnessed a three per cent growth in average selling values of desktops, thanks to increased adoption of LCD/TFT monitors and other accessories, by users seeking to future-proof their investments as well as experience enhanced functionality.

Coupled with aggressive marketing by vendors, the notebook PC segment as a whole witnessed a massive growth of 104 per cent year-on-year, touching a landmark of nearly 1 million unit shipments.

The notebook PC market growth was contributed in large measure by the buoyant education segment buying, individual consumer/SOHO purchases and increased traction from the SMB segment.

With higher education institutes such as engineering colleges and management schools aggressively adopting the concept of Wi-Fi campuses and usage of notebook PCs in their learning tools and methodologies, a healthy surge in shipments was seen.

The year will see IT vendors trying out many new approaches and go-to-market strategies for product retailing. Experimentations will also be seen in retail formats, in-store and on-site promotions, product bundling, and alternate payment options.

IT retail outlets of Zenith, HP, HCL Infosystems' Digi-Life stores and multi-brand IT product retail stores like Sahara's 'IT Junction' initiative, Pantaloon Retail's `e-zone', and Big Bazaar are already functional. Other big Indian retail players are expected to quickly follow suit, trying to reposition their offerings to customers by segmentation and a competitive approach.

Fab update

The government expects to attract an investment of around $6-10 billion (approximately Rs 24,000-44,000 crore) by luring two-three fabrication units with at an investment of $2-3 billion each by 2010 now that it has notified (given formal consent to) the semiconductor policy it had announced on February 22 this year.

SemIndia has already got government approval for its $3 billion Fab City. Hindustan Semiconductor Manufacturing Corporation has announced a $4 billion investment plan to set up a Fab City in India in partnership with German technology major Infineon Technologies. However, it is yet to get the government nod. Intel's plans in India, however, remain elusive even as it heralded its presence in Asia by setting up the fab manufacturing plant in China.

India earlier lost out to Israel too, ostensibly since it did not have a semiconductor policy in place. As for its current plans in India, Intel maintains: "Once the comprehensive policy document is circulated, we will evaluate and respond."