Higher impetus on automation through higher funding of e-governance projects and rationalization and clarity on levy of taxes would bring relief to the industry.
The Indian IT hardware industry has had a steady growth over the last few years. As per Nasscom, the Indian hardware industry had revenues of $12 billion in FY2008, which is expected to be $12.1 billion for FY2009 impacted by the current slowdown.
The hardware industry has been boosted with the penetration of Internet increasing meaning sales in non-metros growing faster than metros.
The number of active Internet entities has increased to 76.1 lakh in September 2008 up 18% over last period. With this the number of Internet users has exceeded 54 million in the country. Internet penetration in the top 22 cities was 44% among businesses and 22% among households.
MAIT indicated that India's personal computer sales (including desktop computers, notebooks and netbooks) grew by mere 1% to 3.71 million (37.1 lakh) units in the six months ended September 2009 on y-o-y basis.
While desktops sales fell by 11% to 2.61 million (26.1 lakh) units, Notebooks and Netbooks taken together recorded impressive 43% spike to 1.1 million (11 lakh) units. MAIT indicated that given the current macro-economic conditions and conservative buying sentiment in the market, PC sales are expected to increase by 7% to 7.3 million (73 lakh) units in FY 2009-10 ending March 2010.
Industry expectations
The industry is recommending continuation of excise duty/CVD rates at 8% on all products as announced in the fiscal incentive package.
Currently service tax is at 10% whereas the excise duty/CVD is at 8%. The Industry is recommending that the service tax rate be aligned with the excise duty/CVD rate.
All IT products and components imported are subject to Special Additional Duty (SAD) of 4%. The whole idea behind levying SAD was to align it with CST being charged on domestic–manufactured products. With CST being phased out, the Industry is recommending phasing out of SAD.
The industry is recommending the rate of abatement be increased to 35% from the current 20%. IT products like notebooks, printers etc. are taxed on MRP and abatement is provided while computing duty to neutralize the effect of local taxes and channel margins.
The Industry is recommending roll out mission mode IT projects in sectors such as education, SMEs, households, e-governance, and telemedicine and for rural India.
Analyst expectations
The IT hardware industry has been marred by duplication of levy of duty with both duty and service tax being levied. Clarity on the levy of taxes would be of relief to the industry.
The government must ensure a seamless CENVAT IT manufacturing value chain. The industry wants that inputs/components at no stage should be at lower excise duty compared to the output/finished products. This would mean that the companies would be able to claim higher CENVAT credit for the inputs.
Companies to watch
HCL Infosystems
Outlook
The economy is expected to grow at 7-8% going forward lower than that of the last few years, which would impact the demand for the computer hardware industry.
However, the government can fill the gap somewhat with higher impetus on automation through higher funding of e-governance projects. Any rationalization and clarity on levy of taxes would bring relief to the industry.
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