Gains for PC manufacturers; software feels the heat

Updated: Mar 1 2006, 05:36am hrs
This years Budget proved to be a mixed bag for the tech industry. While a large section of hardware manufacturers is elated with the shot in the arm, software majors are disappointed with duty on packaged software and fear a slower growth in the domestic market. BPO seems happy with the reduction in FBT, but clearly wants more.

The PC industry is clearly split over where the prices are headed. Domestic manufacturers are confident of keeping prices under control, despite the 12% excise on computers. Anomalies of inverted excise tariff structure for the computer manufacturing industry have been addressed, says HCL Infosystems chairman, Ajai Chowdhry.

The imposition of 12% excise duty will establish a seamless CENVAT chain for the computer manufacturing industry and will facilitate local sourcing of components such as monitors, motherboards and keyboards, thus promoting indigenous manufacturing, says Vinnie Mehta, executive director, MAIT, adding PC prices wont move up. Multinational PC makers like Hewlett Packard, however, are not amused. HP Personal Systems group vice-president Ravi Swaminathan says, While laptop prices will go up by 5%, desktops will increase by 3-5%. CENVAT credit is lesser than the duty that comes to us, he explains.

While the prices of DVD and combo drives will have no major impact on the cost of PCs, MP3 and MP4 players are likely to get cheaper, with customs duty going down by 10%.

Disappointment was obvious in the software sector, with 8% duty on packaged software threatening to slow down the growth rate of the booming domestic market. The imposition of 8% excise duty on packaged software may act as a drag on IT penetration, says Infosys CEO Nandan Nilekani.

The Ripple Effect
PC prices of MNC vendors to rise by about 5%. Domestic manufacturers confident of status-quo
Duty on packaged software could slow down the domestic market
Rationalisation of FBT to bring cheers to BPOs
Boost for manufacturing and semiconductor sector
Issues regarding interpretation of Section 10A benefits have also not been addressed in the Budget. We hope that the finance minister will settle them separately and quickly, so that unnecessary tax demands are not raised on the industry, adds Nasscom president, Kiran Karnik.

Rationalisation of FBT on tour and travel to 5% from 20% brought cheers to the BPO sector. But it failed to meet the expectations of the industry.

HCL BPO CEO N Ranjit says,There has been some rationalisation like removal of FBT on superannuation up to a contribution of Rs 1 lakh. We would have been more happy if FBT had been removed as it involves lots of paperwork and complicates management. The increase in education outlay will also help BPO sector in the long run.

The Budget also increased service tax rate from 10% to 12% which may affect IT and BPO companies as services like transportation, catering may become marginally costlier. The PC components industry is clearly upbeat about FMs announcement to make India a semiconductor hub.