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October 6, 1998


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The New Intel (R)  Pentium (R) II Xeon (TM) Processor
The New Intel (R)  Pentium (R) II Xeon (TM) Processor

0+0 = 1: Foreign PC brands are miffed at zero-duty policy for importing parts but not the whole computer. Multinational computer hardware companies, especially PC makers, are angry at the government's decision to allow import of parts at zero duty while continuing to levy duties on import of finished products.

Email this story to a friend. The policy, they charge, favours the domestic manufacturing industry at the expense of the global brands.

Ravi Marwah, chairperson of the American Business Council's information technology committee and country chief of IBM, even shot off a letter on the issue to the Prime Minister's Office.

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In it, he said 'An across-the-board widening of differential in favour of locally assembled products is not simply warranted and serves no policy purpose.'

He pointed out that the Prime Minister's Task Force for Information Technology is seeking to lower the tariff on imported components and sub-systems to zero with immediate effect while leaving the duty on imported branded computers untouched till the 2003.

Dr Seshagiri, the convenor of the task force, wrote in his reply to Marwah that internationally value-added manufacture is given a higher status than zero value-addition-based imports.

The task force cannot become a party to any policy which will relegate India to a "pure importer status'' even though value-addition through local manufacture can take place only in the long run.

Som Mittal, chief of Compaq India, has been quoted as saying "It is not a case of MNCs versus domestic companies. It is a question of bringing down the price of computers to increase penetration. For this, it is imperative that we do not wait till 2003 to reduce the duty on computer imports.''

Also, it is wrong to say that MNCs are not interested in manufacturing because no other company has invested as much as Digital in manufacturing, in this country, Mittal claimed.

The government should bring down the duty on imported computers in a gradual manner and not wait until 2003, he demanded.

On the other hand, domestic hardware companies are unhappy that the World Trade Organisation's Information Technology Agreement, better known as the ITA, has been brought forward.

Ironically, while MNCs are accusing the task force of protectionism, a section of the domestic manufacturers feels the panel has accorded "preferential treatment'' to the foreign companies by advancing the zero-duty regime.

It gives smaller domestic companies lesser time to prepare themselves to face competition and reach economies of scale in manufacturing, they argue.

Zenith Computers Managing Director Raj Saraf has been quoted as saying that "We hope that the Soft-Bonded IT Unit (S-BIT) scheme is accepted and implemented in its present form, as it would give us an opportunity to become internationally competitive.''

Ram Agarwal, president of the Manufacturers' Association for Information Technology, said the issue is on investing in India. "MAIT, being a neutral body, has a vested interest in the industry's growth. As a result, we have taken a balanced view on the issue.''

MAIT approached the task force on the basis of four fundamental points:

  • bring down the price of computers in the Indian market and that will eventually help eat into the grey market;
  • make the local industry internationally competitive;
  • help avoid revenue loss to the government and
  • increase employment opportunities.

"For Indian companies to be internationally competitive, a high degree of flexibility in operations is required,'' Agarwal said.

The domestic industry requires at least two years to prepare to face the zero-duty regime and to settle down in the S-BIT environment, according to him.

Moreover, S-BIT is open to everybody. The idea is to get MNCs to invest in manufacturing in India, he said. Agarwal, who is also group president of Wipro Peripherals Systems Division said: "In fact, companies such as Epson and Acer have said that subject to S-BIT implementation they are keen on setting up a manufacturing base in India.''

"You can't have the pie and eat it too,'' a senior HCL Infosystems official has said. If MNCs want to enjoy the benefits of zero-duty on components, they should invest in manufacturing facilities in India like most of them did in China, he said.

Out of the 217 items listed in the WTO ITA Ministerial Declaration of December 13, 1996, 94 items that were earlier proposed for zero duty by January 1, 2000, have now been advanced to January 1, 1999.

Further, items proposed for zero duty by January 1, 2003, 2004 and 2005 have been advanced to January 1, 2002.

This, according to the task force, will help in greater PC penetration in the country due to price elasticity. Necessary cushions to protect the hardware industry were recommended subsequently in the form of zero duty on capital goods two years earlier and zero duty on raw material/inputs one year ahead.

The bonded zone concept helps take care of the problem of dual-purpose items.

It will help the hardware industry increase its scale of operations, thereby bringing down the price to internationally competitive levels, according to the task force.

- Compiled from the Indian media

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