T C A Srinivasa-Raghavan: Why our hardware is going soft?

OKONOMOS

Globally India is nowhere in the IT hardware business. But the domestic market is very large and needs more, not less, competition.

About a month ago, before taking a break out of sheer frustration, this column had grumbled that lazy Indian economists were obsessed with macroeconomics and poverty, and that not enough of them were paying enough attention to firm and industry level analysis. Like ayurveda, therefore, another traditional Indian specialisation was being lost.

Some people protested that this was not the case. So just to be doubly sure, I did some trawling and discovered that the management institutes "" the IIMs and the ISB, to start with "" do pay attention to microeconomic analysis. But: not enough of them do so and not enough attention is paid.

That said, while everyone has been going on and on about how absolutely gorgeous the Indian software industry is, two post-graduate students Gaurav Sharma and Priyanka Anand and their professor, Anindya Sen at IIM-C decided to find out what was afoot on the hardware side of things. The data is there and it is well-marshalled.

Their main conclusion is that "large players have begun to catch-up with the unorganised market," which could soon be extinguished because "the Indian customer who is still sceptical about technological products is developing an inclination towards branded products."

The critical issue this throws up, naturally, is what about Indian brands which fall between the MNC brands and the grey market ones. So, say the authors, "this tussle has witnessed a drop in the market shares of Indian brands which need to find ways to counter competition before it is too late. Ideally they need to decide whom they want to compete with "" the cash rich MNCs or the assemblers with low price offerings."

The answer, say the authors, may well lie in accepting that regardless of the charms of laptops and digital diaries, "when it comes to buying a computer a large chunk of the customer base is in the middle class and corporate sector. These segments still rely heavily on desktop PCs."

There are lots of little nuggets of information and insights in the paper. For example, it turns out that the duty rates in China and India are very similar and the reason why everyone complains that things are better in China is that in India it takes a month for the customs fellows to do their jobs.

The authors do not say whether this is because of corruption or because the customs department is simply too short-staffed to meet the new demands placed on them by 9 per cent growth. But that is something the finance minister can easily find out.

Another problem, it seems, is India's cavalier approach to environmental issues. To quote, "With environmental concerns mainly ignored or casually overlooked by Indian corporates, MNCs desist from setting up manufacturing bases here since there is no compliance with ISO 14000 standards..."

The key message here, for macroeconomists and the government alike, is that it is not enough to get your policies right; you have to make sure that they are implemented properly as well. The distressing truth, however, is that India's government agencies are far too corrupt, lazy and incompetent to be able to do that.

The paper is not without its weaknesses, though. The most glaring one is the absence of an attempt to view the industry from the perspective of microeconomic theory. Several segments of the IT hardware industry are excellent examples of what near-perfect competition can achieve in terms of expanding supply, lowering prices and consumer welfare.

The authors should have focused on this aspect also, if only to demonstrate that if the unorganised sector disappears and if the Indian brands throw in the towel before the MNCs, it is competition that will suffer. Sadly, scale does not provide an answer to collusion.

Indian Hardware Industry "" Structure, Problems and Prospects http://www.iimcal.ac.in/res/upd/WPS%20598.pdf