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March 23, 1999


Excising times: PC prices have gone up! But don't be surprised, that's just Mr Sinha's Budget kicking into life. Priya Ganapati

This week PC maker Zenith Computers hiked its prices by 2 to 3 per cent. Agreed, that does not sound much, but then PC prices of existing models are expected to fall, not go up!

Email this story to a friend. Besides, Zenith is really popular with entry-level, first-time buyers.

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If competing brands are not actually adding to their tags, neither are they going to reduce the cost of existing models. The price cut was very much expected with the advent of Intel's Pentium III processor. Now this failure to reduce prices in the PC business is as good as a hike.

The culprit for all this out of season price hike is the Union Budget of Finance Minister Yashwant Sinha. To be precise, the increase in excise duties on PCs from 13 to 16 per cent. The import duty on motherboards has also shot up from 22 to 25 per cent.

Zenith Computers Senior Vice-President (Marketing) Bipin Ahuja explains "There are two factors that govern change in prices. One is that price increases if the duties, go up. But this can be balanced by a fall in the price of components. Price of motherboard and memory modules has gone up slightly but if CPU prices come down this hike will be offset. Because of the increase in excise duties we have had to increase our prices."

The only good news here for Zenith is that PC manufacturers from multinationals, large Indian companies to the humble brandless assembler, will all be affected.

Though MODVAT (modified value added tax) credit structure has been increased from 95 to 100 per cent, industry analysts feel that this is not sufficient to help balance the increase in excise duty resulting in companies being forced to hike prices.

Zenith sold its PCs at rock bottom prices. Naturally, their thin margins could not absorb any hike and the shelf price went up.

Other big players in the PC business, however, are digging their heels in. It is another matter that they are sure to be dragged in any case and will not escape being bruised.

HCL Infosystems, the largest of them all, has more to lose than some market. It has its numero uno position to worry about too.

They categorically told Rediff that there would not be any increase in prices of HCL PCs.

Sharad Talwar, general manager, marketing, HCL Infosystems, assures "We are not increasing prices. We will try and absorb it and instead aim for an increase in volumes that may offset the loss due to the excise hike."

Talwar is confident that this strategy will help HCL retain market share and grow at a faster rate than the industry average of 35 per cent.

Hewlett Packard India Limited has decided to play it safe and is waiting out the storm.

"We are currently holding on to our prices and actively evaluating the situation to decide whether we should go in for a hike. It is a competitive environment and costs are a reality. Perhaps in April we will go for a hike but no decision has been taken on that yet," Subin Joseph, market development manager, HP, told Rediff.

Joseph laments the lack of support from the government to the hardware sector. "We were expecting a lot of accelerators from the government. But the Budget increased duties instead and catalysts like the IT taskforce report was not implemented fully. More than hike in excise duties it is the surprising lack of support for IT from the government that is doing the damage."

Indian major Wipro Infotech too has decided to not go for a price hike at the moment. Girish Paranjpe, vice-president, finance, told Rediff over the phone from Bangalore that "Wipro, as of now, does not plan to raise prices. What happens is that over a period, most companies absorb prices. But the increase in excise duties would really affect us in the sense that it would not let us cut prices which we normally would have done."

Yet, most industry veterans believe that this marginal hike in prices will not slow down the growth rate of the PC segment.

Ahuja points out "I don't think a change of 2-3 per cent in the price will affect consumers much. For example, on a PC priced at Rs 50,000, a hike of 2 per cent will push the price up by Rs 1,000, which is not much. I don't think consumers will put off their decision to buy a PC for such small increase in rates."

He has supporters across the industry. Talwar and Paranjpe agree that consumer decisions are unlikely to be swayed by a small price hike of 3 per cent.

"Today when people go in for computers it is a strategic decision for them. IT decisions are not based on just prices. I don't think people want to wait for one year for the next Budget for any change in prices. They don't put off buying a colour TV or a washing machine because it has become a bit more expensive," Talwar claims.

However, what the ordinary consumer may not realise is that prices could have actually fallen. This will only tell, silently, on the competitiveness of the entire industry.

There is a minority in the industry that agrees with Joseph. He stresses the market will not grow at the pace that it was expected to this year. He also point out that inventory is going to cut into margins, at least on those transactions that had been committed on before the Budget announcement.

The Manufacturers Association for Information Technology, the country's largest hardware industry grouping, seconds such an assessment.

Ram Agarwal, president, MAIT reveals, "There is definitely going to be a slowdown though it will be marginal. The increase in prices will retard growth to a small extent."

Agarwal, however, refused to put a number to the extent of the damage to the hardware industry.

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