The government’s four per cent Cenvat cut will result in a marginal price cut from some PC hardware vendors, but the price cut is more to do with boosting negative consumer sentiment and other factors rather than the direct benefit of the duty cut.
For instance, Mumbai-based Zenith Computers will announce a price cut in the range of 1-1.5 per cent in the next 15 days. However, Chairman and Managing Director Raj Saraf says, "The four per cent cut might not make any transforming impact for the hardware industry. There are a lot of factors that need to be taken into consideration.”
India’s largest domestic PC manufacturer, HCL Infosystems will also announce a 2-4 per cent cut on the costs of computers. “This is primarily due to the price variation because of the software. This 2-4 per cent cut will be for products that come pre-loaded with Microsoft,” added George Paul, executive vice president (Marketing), HCL Infosystem.
Research and advisory firm Gartner, too, is not impressed with the government's move. Personal computer shipment (desktops and laptops) for the fourth quarter will be down by 8-10 per cent, it predicts, on the back of negative consumer sentiment.
“There will be individual firms which will announce a rate cut. The biggest challenge, however, is not price but the sentiment. Slowdown has impacted consumer demand which was further hit by the recent terrorist attacks in Mumbai. Besides, resellers and vendors have a huge inventory build-up. They will focus on moving this out than new products,” explains Diptarup Chakraborti, principal research analyst, Gartner.
IDC India Country Head Kapil Dev Singh, concurs that "individuals and businesses as consumers and industry as manufacturers welcome any price cut in tough times even though a four per cent cut in cenvat is unlikely to swing buying decision in a big way in the current cautious buying scenario".
The response is no different from hardware body MAIT. “It’s a positive move by the government in these situation. But there are several issues that need to be considered. In the last six months, the rupee-dollar movement has gone haywire. This made many of the firms to raise prices. Besides the inventory build-up due to few sales is also a concern,” explains Vinnie Mehta, executive director, Manufacturer’s Association of Information Technology (MAIT).
Currently, personal computers attract 12 per cent Cenvat, whereas the rate on input components varies from 0-14 per cent. Mehta also feels that the recent Mumbai terrorist attack and the rain in Chennai has impacted the sales of PCs. Both these markets "command close to 50 per cent of PC sales in India".
MAIT, in an announcement, urged that along with the drop in excise duty for IT hardware, it is essential that the government rationalises the duty on software which currently attracts 12 per cent service tax, failing which there would be Cenvat overflow in case of local computer manufacturing.
