India struggles to close PC gap

Taxes don't help

ComputerWire: IT Industry Intelligence

The growth in sales of personal computers in India will outstrip the global average this year, a local market research company predicts, but the growth is still too low to suggest that India is realizing its ambition to become an IT empowered country.

Delhi-based Skoch Consultancy Services said in its lastest market study that the India PC market will grow by between 5% and 7% this year, and by 15% and 20% next year, but in volume terms the market is still less than a quarter of the size and growing less quickly than the market of its chief regional IT competitor, China.

Last year Skoch estimates that Indian PC sales slipped 6.3% by value, and 7% in unit terms to 1.6 million machines worth $1.4bn. The market had been in decline since the third quarter of 2000, and was made worse by the global IT downturn which dampened Indian enthusiasm for careers in IT, and diluted the PC's status as an "aspirational" purchase, Skoch said.

Although vendors in markets outside India would the delighted at the prospect of competing in a market set to return to double-digit growth next year as the global market bumps along averaging just 3.2% growth, in terms of India's larger goals the current growth rate is disappointing. PC penetration in the country is tiny compared with western and some far eastern markets and the gap is widening, Skoch said. Skoch estimates that there were only 7.5 million PCs in use last year in India, which has a population greater than 1 billion.

To stand any chance of catching up with the developed world, India needs to see PC sales jump back to their pre-2000 levels, when the market leapt 50%. One lever that might be brought to bear on this problem could be the reduction of heavy import duties on PCs from overseas. India levies duty of between 40% and 50% of the cost of imported PCs, compared to China which levies just 25%, according to India's National Association of Software and Services Companies (NASSCOM). The trade body has long campaigned that Indian import duty be reduced, arguing that import duties price PCs out of the reach of all but 6.9 million Indian households.

However, even if the government does relent and listen to NASSCOM, there is reason to believe that the impact of PC duty relief may not be immediately dramatic. Less than one third of PCs sold in India are branded by the likes of Dell, IBM and Hewlett-Packard. Instead some 56% of machines are sourced from what Skoch termed a "grey" market, populated by "assemblers" who screw together no-brand machines priced for the local market. Only 16% of machines sold in India are made by bona fides local OEMs.

However, Koch believes that some kind of dramatic pressure on prices is need before India can achieve a "PC revolution." Today, the company notes, an average Indian PC sells for around $900. To reach the wider market, prices will have to fall to as low as $300, Koch said.

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