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Hardware industry fears quake tremors

NetScribes/Abhijit Basu

The hardware industry fears that the recent Gujarat quake could spell doom for the ailing industry as the finance minister might change his mind on the tax sops promised to them.

"The finance minister has to choose between a national calamity and the future of an entire industry. We fear that the tax sops promised to us might not materialise. If that happens, the entire industry will be plunged into darkness as the future of the Indian hardware industry depends on those decisions," said Vinnie Mehta, Director of the Manufacturers' Association of Information

Technology (MAIT).

"We just hope that he takes into account the long term perspective and supports the industry," he added.

Hardware companies also expect additional taxes on their products. "There could be a hike in excise duty and an additional component beyond the special additional duty (SAD) that we pay as of now. Also, Centre has announced that it will levy a surcharge on high-end white goods. Although details have not been ascertained as yet, upper-level PCs might be included in the same," says Shrikant Joshi, senior vice-president, products and technology, Zenith Computers Ltd.

It is estimated that the Gujarat calamity has cost the government exchequer over Rs 200 billion (initial estimates) and the figure could rise. Industry experts feel that this mounting figure could force the Centre to cut back on tax sops across industries.

Prime Minister Atal Bihari Vajpayee has already hinted at a hard budget this year and withdrawal of tax sops could be one way of making them harder.

MAIT has already cut back its projections on personal computer sales in the country to 1.75 million for 2000-2001 from 2 million as planned earlier.

Also, to boost the hardware industry in the country, MAIT has asked for nil duty on all imported parts and components. This comes before the WTO zero duty deadline of 2003 which implies that all imports will be charged zero per cent import duty.

It has demanded a reduction in excise duty from 16 per cent to 8 per cent and removal of the 4 per cent SAD. MAIT wants the government to allow hardware manufacturers to retain export earnings in foreign currency.

It has also sought simpler import procedures for all IT manufacturing-related imports.

Currently, a marginal duty differential between imported components and finished goods makes manufacturing fairly viable. The duty on the import of parts and components ranges between zero to 5 per cent, whereas the duty on finished goods is 15 per cent. So, manufacturers still have a 10 per cent margin to play with.

Given that import duties for both components and finished goods come down to zero per cent in 2003, it will be cheaper to manufacture in India. "Independent studies have shown us that manufacturing in India is at least 20 per cent cheaper than in any other Asia Pacific country," says MAIT president Vinay Deshpande.

"It will be a make or break scenario this year. We have very little time to encourage foreign investment in the Indian hardware manufacturing market. If the finance minister does not meet our demands, then we will miss the hardware manufacturing bus," says Mehta.

The budget this year is important for the hardware industry too as a number of global hardware majors are now making a beeline to set up their manufacturing bases in the country.

While Compaq, H-P, Acer, Dell, Viewsonic, Samtron, Philips, Samsung, D-Link and Accton, among many others, have their manufacturing bases here, Gateway just received FIPB clearance to set up its Rs 138 million base in the country.

With chip giant Intel also understood to be eyeing the country for its next manufacturing base, the country has a lot to gain if all these biggies show up on the Indian hardware landscape.

As MAIT and the entire hardware industry have their fingers crossed, they all agree that Finance Minister Yashwant Sinha holds the key to their future in the country. With his resources strained due to the quake, rolling back proposed tax reforms seems to be the only way out for the finance minister.

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