India's computer market wakes up to upbeat economy

By siliconindia   |   Wednesday, 10 September 2003, 19:30 IST   |    1 Comments
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BANGALORE: Computer sales in India should exceed 20 per cent annual growth by early next year thanks to the country's upbeat economy, a trade body said on Tuesday. "We are happy that the market is picking up. Even those in the lower strata of middle class and those in smaller towns are buying computers," said Vinnie Mehta, executive director of the Manufacturers Association of Information Technology (MAIT). MAIT, a group of hardware manufacturers, expects 2.7 million personal computers to be sold in India in the fiscal year ending March 2004 -- 30 per cent growth over the existing 9 million computers in India. Last year, 2.3 million computers were sold. India, with a population of more than a billion, has one of the lowest rates of computer use in the world, at just nine units per 1,000 people. Despite a thriving computer industry, the domestic market for computers in India has long been sluggish. The global average is 27 units per 1,000 people, and in the United States it exceeds 500. India's robust economy is behind its improving sales, Mehta said. India expects a bumper harvest of its important crops this year, thanks to vigorous monsoon rains. While agriculture is expected to grow by 5.5 per cent, the overall economy is expected to grow by seven per cent -- maintaining India's position as one of the world's fastest growing economies. "Sales are closely related to how the economy is performing. We have had a wonderful monsoon this year and we are still a monsoon economy. So, it has spurred demand," Mehta said. He added computers remain unaffordable for most Indians because of the high tax burden, with most imported computer parts hit by a 15 per cent customs duty. State taxes then add anywhere from 20 - 32 per cent. He said annual sales growth could exceed 50 per cent if taxes were reduced. Customs duties will be eliminated in two years, according to India's commitments to the World Trade Organization. But Mehta said that if Central and state governments also eliminated the other tax burdens, there could be 20 million computers being used in India by 2006. Local taxes have led to a thriving gray market, with small computer shops evading those taxes and selling assembled units at prices 30 per cent lower than the regular market price. "The rule of thumb is half of the sales we expect will come from the gray market, though I see an increased preference among buyers to go to genuine sellers," Mehta said. In recent years, India emerged as a technology powerhouse, with its software and back office service companies earning $10 billion annually.

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