Local hardware players seek 'conducive environment'

The zero duty regime from 2005, under the Information Technology agreement (ITA), will boost global trade by enabling access to global markets. However, local hardware manufacturing players will have to face increased competition due to the removal of protections.

The industry is, therefore, looking towards the government for the provision of a conducive environment in terms of simpler procedures and reduction of taxes, besides greater penetration of information technology, to be on par with global players.

The ITA has been endorsed by 63 members to bring down the duties on products to zero, for improving productivity and efficiency, besides the creation of global markets.

While the developed country members brought in the zero duty regime from 2000, the developing country countries will do so from 2005.

The Indian software industry has been recording an annual growth rate of over 50 per cent. The Indian hardware industry, however, has been under pressure from global competitors and therefore, has to ensure that it prepares itself for the zero duty regime from 2005.

Only 25 per cent of India's IT hardware needs are met by domestic manufacturers and the share is expected to fall further to 20 per cent in the future, as India moves to a zero-duty regime for IT product imports in line with the Information Technology Agreement of the World Trade Organisation.

Speaking at the India e-Hardware Summit 2004, R C Sachdeva, senior director, ministry of information technology, government of India, said: "With the zero duty regime setting in from 2005, the IT industry is looking for an overall conducive environment to be on par with other countries. Simpler procedures, reduced excise and octroi duties, and removal of infrastructure bottlenecks in areas like cargo clearance are required."

"For the development of the domestic IT industry, India has to treat IT as infrastructure. The government, therefore, needs to restructure the tax rules and increase penetration of IT through e-panchayats and reduced costs of personal computers, besides providing 100 per cent depreciation for computers used in the corporate sector," Ajai Chowdhry, chairman and chief executive officer, HCL Infosystems Ltd, said. The depreciation, at present, is 60 per cent.

"India should focus on developing the domestic market potential and iron out inhibiting factors like poor operational efficiencies and low plant utilisation, besides focusing on setting up hardware manufacturing units in logistically optimum locations," Sunil Shenoy, director, Ernst & Young, Bangalore, said.

According to a recent Manufactures Association of Information Technology (Mait) and Ernst & Young research report, the Indian electronics hardware sector is expected to touch $62 billion by 2010. India's electronic hardware industry is, however, currently, concentrated primarily only around Delhi, Mumbai, Pune and Bangalore.

"Lack of locally available raw materials and inadequate infrastructure are impediments to further growth in development of electronic hardware industry," Shenoy said.

"Indian hardware manufacturing units should also look at increasing their business by tying up with other domestic or international companies so that while one company may focus on manufacturing the products, the other can focus on marketing the products abroad," he added.

K V Achalapathi, head of the department of commerce, Osmania University, said that the ITA is solely a tariff-cutting mechanism and the government should now focus on trade facilitation rather than providing further concessions in IT.