Krishnan Thiagarajan

Boost to PC usage Excise duty of 12% on computers Anomaly in duty structure removed Boost for domestic manufacturers

The domestic computer manufacturers are bound to heave a sigh of relief. The 2006-07 Budget has rectified the anomaly that had put them at a disadvantage vis-à-vis direct imports of personal computers or notebooks in last year's Budget.

Last year's budget had exempted computers from excise duty with the intention of boosting the low PC penetration levels.

But unintentionally, it had the adverse impact of domestic manufacturers being forced to absorb the countervailing duty on inputs as the finished PCs attracted zero excise duty.

This anomaly stands rectified in the latest Budget, with the introduction of a 12 per cent excise duty to enable them to avail of full tax credit along the input chain.

Since the Finance Minister, Mr P. Chidambaram, has merely tinkered with the duty structure, the prices of PCs are likely to remain stable. Domestic PC manufacturers such as HCL Infosystems and Zenith Computers may stand to gain as a result of this move.

In the branded marketplace, which represents about 55 per cent of the overall PC desktop market, HCL Info and Zenith enjoy about 15 per cent and 4 per cent market share respectively as of December 31, 2005.

Among the multinational brands, HP and Lenovo (acquired from IBM) enjoy a high market share. Overall, the PC penetration that has been languishing at seven per thousand, about a fourth of China, will get a leg-up with the removal of this anomaly.

The Finance Minister made a passing mention of India's potential for manufacturing in semiconductor and other high technology products.

However, he indicated that a policy will be announced by the Ministry of Information Technology shortly.

Following SemIndia's plans to set up a chip manufacturing facility in Hyderabad, the semiconductor industry has been waiting for policy impetus from the Budget.

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