To give a push to personal computer (PC) penetration in the country, the Manufacturers’ Association for Information Technology (MAIT) has sought tax breaks and a conducive environment.
While releasing a report titled ‘Indian Market Place – IT the unrealized potential’, jointly prepared with KPMG, Amar Babu, President of MAIT and Managing Director of Lenovo India, shares his views with Business Line on the milestones the industry has passed and the challenges as well as potential ahead. Excerpts from the interview:
How have the desktops, notebooks and tablets fared in the country? Tell us about the potential you see in these segments.
Our report estimates that the sale of desktops and notebooks is expected to grow from 11 million in FY2013 to 15 million in FY2018 at a Compounded Annual Growth Rate (CAGR) of 6 per cent. The tablet segment has exhibited exponential growth and is likely to beat desktop and notebook sales by 2015. The segment is likely to grow from 1.9 million to 51 million by the end of FY2018 at a CAGR of 73 per cent.
What is the significance of PCs to the country’s economic growth?
PC penetration has a significant socio-economic impact on a country and its people. PCs have the ability to expand economic opportunities, improve workforce productivity, support innovation, reduce business costs, increase trade and foreign investment. For developing countries, PCs can reduce the rural-urban divide by impacting priority sectors such as education, agriculture, banking, healthcare and increasing the effectiveness of delivery of government to citizen services.
India has experienced significant growth in PC sales in the past few years. However, the penetration is still very low in comparison to some of the other comparable emerging economies. Households equipped with PCs are just 10 per cent in India versus more than 45 per cent of countries such as Brazil, Malaysia, Russia, Saudi Arabia, Turkey and 35 per cent in China. Governments across the world realise the social and economic benefits of PCs, and thus have launched numerous initiatives to enhance awareness regarding PCs, increase relevance of ICT and facilitate purchases.
What are the hurdles in the path of achieving high IT penetration in India?
Lack of high speed Internet connectivity at an affordable cost is a big hurdle to low penetration. Anyone who buys any devices, be it PC, mobile or tablet needs to connect the device to Internet. So, even if the cost of PC may be going down, the average monthly cost for broadband access in India is still very high.
High total cost of ownership of PCs and broadband solutions, of which PC cost constitutes 46 per cent, seems to be a significant barrier to adoption. Low digital literacy, lack of infrastructure such as availability of power and broadband, and lack of simple user interface are some of the other key impediments to achieving higher rural PC penetration.
It should also be noted that the majority of PC demand is currently limited to the top 200-300 towns with existing distribution network of PC vendors sufficiently reaching out to the main demand centres.
How is the PC penetration scenario in the Micro, Small and Medium Enterprises segment?
A majority of the employees are deployed in operations, thus limiting PC utility to very few. Various surveys highlight high cost of IT hardware as the other key barrier to IT adoption in MSMEs. For large enterprises, IT hardware demand is expected to be primarily driven by replacement. Manufacturing, Government, media & communications and banking sectors would continue to be the key verticals in terms of IT spend. However, with the current economic downturn, companies have reduced their IT spends resulting in longer replacement cycles for PCs.
How can the Government, which procures IT hardware big time, contribute towards this?
Government procurement of IT hardware for Central and State Government employees would largely be replacement-driven demand. E-governance initiatives, modernisation programmes and schemes such as free or subsidised distribution of IT hardware would drive new demand.
Besides procurement, how else can the Government give a push to PC penetration in the country?
According to the recommendations of MAIT-KPMG, the Government should consider reducing Excise Duty rate on hardware from 12 per cent to 6 per cent and increase abatement from MRP from 20 per cent to 35 per cent to align the duty structure with mobile phones and entail reduction of duty on hardware (estimated impact of 4 to 6 per cent). There should also be alignment of CVD rate on the components with other inputs such as microprocessors, and hard disk drives, where CVD rate is 6 per cent. We have also recommended exempting 4 per cent additional duty of customs applicable on all imported components that are used for manufacturing desktops, laptops, etc. We are also looking at Income Tax exemption to individuals for PC purchase. There should be schemes to promote purchase of PCs amongst specific segments such as students and households with income of less than Rs 5 lakh.
Has the advent of smartphones, especially those that work on Windows OS, affected the PC landscape in the country? How do you see it panning out in future?
Smartphones are growing at a healthy pace but it would not be correct to say that they are eating into the PC market as these devices are for a different purpose, though there is a perceived notion that PCs can be replaced with these devices. However, it is tablets that have eaten into the PC market. According to the annual MAIT Industry Performance Review, it is tablets that are cannibalising the PC market and registering a growth of 424 per cent in the second consecutive year.
Has the advent of Aakash tablet made a difference in the PC marketplace in rural areas?
Only after adequate proliferation of Aakash tablet in the marketplace can we look at this as making an impact on the PC market. It’s a bit too early to assess the impact.