The personal computer (PC) industry in India is set to increase the prices after the recent hike in the excise duty and countervailing duty on certain components.
The industry is already reeling under softening demand after the upward revision of prices following the Thailand floods and rupee depreciation.
Though the price increase won’t be as steep as it was last time, most industry players fear this will further affect the demand of personal computers. An industry body Manufacturers’ Association for Information Technology (MAIT) says the extent of increase could be two-three per cent.
The Centre has increased the standard excise duty from 10.3 per cent to 12.4 per cent, including educational cess. Besides, the countervailing duty on key components like microprocessors, DVD writers, CD writers and flash drives has been increased to six per cent from five per cent. PC manufacturers say while the increase in excise duty itself has added to the cost, the rupee, meanwhile, has also depreciated further, which needs to be offset with the price increase.
| SLOWING DEMAND | ||||||
| Period (CY) | ‘10-Q3 | ‘10-Q4 | ‘11-Q1 | ‘11-Q2 | ‘11-Q3 | ‘11-Q4 |
| Shipments (in mn) | 2.79 | 2.49 | 2.55 | 2.44 | 3.1 | 2.39 |
| Q-o-Q Growth (%) | 17.7 | -10.7 | 2.3 | -4.2 | 26.9 | -22.9 |
| Y-o-Y Growth (%) | 27.4 | 26.4 | 13.8 | 9 | 11.1 | -4.1 |
| Source: IDC Quarterly Asia/ Pacific PC Tracker, Q4 CY 2011 | ||||||
“Our members have indicated they will hike the prices of computer and computer peripherals from April. The effective increase could be in the range of two-three per cent. The industry has already seen sales nosedive in the last two months of 2011. In such a scenario, the industry is unable to absorb the additional burden of excise duty," Sabyasachi Patra, executive director of MAIT, told Business Standard.
Added Harish Kohli, MD, Acer India, ”For manufacturers like us, it is the increase in overall duty (excise duty), which will affect us more. It is only a matter of time that the price will go up for everyone and get reflected in the price points that are available in the market.”
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According to the IDC Quarterly PC Trackers, Indian PC market shipments in the Q4 of 2011 (October to December) saw a sequential drop of 22.7 per cent and a year-on-year drop of 3.8 per cent. It was the the lowest PC shipment in the last six quarters which was disrupted by the supply shortage and price inflation of hard disk drives.
In the same quarter, PC manufacturers increased prices in the range of five-10 per cent to offset the short-supply of hard disk drives and the increase in import costs due to the depreciating rupee. Any increase is expected to further soften the demand, say industry players.
“The industry has been hit by various costs. The first was Thailand floods, when the hard disk prices went up. Then, the rupee depreciated sharply. Now there is an increase in excise duty. So, in a way it actually adds to the pressures that the industry is already facing, and we would have to pass this to customers. Because of all these cost increases, the end-user prices have gone up substantially and it is impacting the demand,” said Amar Babu, managing director of Lenovo India.
The industry also fears that any increase in prices will not only affect the demand in the consumer segment, but also in the enterprise segment. It is also expected to impact the refreshment market, since enterprises as well as the consumers might wish to continue to use their old PCs instead of shelling out extra.
“If the consumers have the need, they will buy. Probably they have to shell out a little more money. But for the consumers, PC is not the priority. You might see that they are extending the life of the device for few more months or few more quarters. Enterprises that used to have a three-year of lifecycle, will change it. So, it will not only affect the consumers but also the enterprises,” added Vishal Tripathi, principal research analyst, Gartner India.