The economic recession has had an impact on the IT industry to a considerable extent. There was a visible decline in the market demand due to liquidity crunch. Also, the recession has affected consumer purchase decisions, so many have postponed all purchasing plans. This has further slowed down the IT market. Another damper was the news of price hike on imported IT products through out the year due to depreciation of rupee against dollar. The shortage of money in the market has caused stock to pile up at the dealers' end which has affected the business drive of channel partners.

Also, according to market estimates, there has been a 25 percent increment in the manufacturing cost of companies in the last six months, owing to rupee depreciation, which is applicable on imported products. The Indian government decided to reduce Central Value Added Tax (CENVAT) from 12 percent to eight percent. After the government's announcement, channel partners predicted that the decision would help them in the sale of TFTs, monitors, notebooks and desktops.

MAIT, the body representing India's IT hardware, training and R&D services sectors, welcomed the announcements by the Union Government. Officials from MAIT clarified that the decision would give a boost to domestic consumption.

Expressing satisfaction on the announcements, Vinnie Mehta, Executive Director, MAIT, said, “We welcome the several proactive measures announced by the government to sustain the growth of the domestic economy. Four percent, across-the-board reduction in CENVAT rate (excise duty/CVD) will help bring down the prices of IT products. With this, desktops and notebooks will attract eight percent excise duty while all other hardware equipment would attract ten percent.”

Benefiting channel
However, the government's decision to reduce CENVAT by four percent offered only a marginal respite to the channel, with software dealers still waiting for the reduced excise duty to be implemented on software. According to a few partners we spoke to, when price hikes had been announced vendors had increased prices of their products but not to the same extent as the market rate, hence vendors were wary of imple­menting the revised CENVAT rates immediately.

Now, weeks after the govern­ment's notification, distributors like Ingram Micro and Redington have still not taken any action. Informing software dealers about the reduced CENVAT on software, Indian Software Dealers Association (ISODA) had earlier circulated a notification among its members that stated, “In case you have orders placed which are not received and billed by distributor you are requested to demand a price reduction of four percent.”

While protesting against big distributors like Redington and Ingram Micro for not imple­menting the reduced CENVAT on software products like Trend Micro, Symantec and Tally, ISODA observed a 'no transaction day' on Dec 22. As a result, 85 mem­bers of the association placed no payments, bills or orders on that day. Hemant Chabria, Secretary, ISODA informed that dealers were protesting the fact that distis are taking advantage of the situation by selling the products at higher rates, even after the govern­ment's announcement

Commenting on the issue, Alok Gupta of New Delhi-based Softmart Solutions shared that members of ISODA only wanted to show that dealers are unhappy with the attitude of distributors and they can protest against them. “Distributors immediately increase the price when there is a hike. But now when the government declares a reduction by four percent, nobody is willing to reduce prices though it has been more that two weeks. There should be a uniform policy,” he said.

While speaking on the issue, an official from Microsoft commented that it is the responsibility of distributors to implement the modified excise duty, and since the company is not a sales entity in India, the authority of distribution and sales is entitled to the distributors.

When inquired with Symantec on the issue raised by the software dealers, Ajay Verma, Director-Channel and Alliances, Veritas Software Solutions informed that the decision of increasing or decreasing the tax as per the government rules is taken at the billing point, and in this case it is the distributors who have to implement the reduced tax benefit. However, when contacted, distributors gave no response on the issue.

CENVAT implementation
According to market sources, among the software vendors, Microsoft has implemented the reduced excise duty on its licenses and Adobe is in the process of reducing its prices. Autodesk has also implemented the reduced excise duty on its products.

In hardware, Samsung and LG have marginally slashed prices of plasma and LCD TVs to pass on the recent four percent excise duty benefit to consu­mers. D-Link has also announced that it is reducing the price of routers, VoIP and SCS components and HCL Infosystems has also cut cost of their computers.

Now that the government has taken the first step, channel partners have to wait and watch to see how effective the move is in promoting sales in the market. Channel partners have been stating that they have faced decline of 25 to 30 percent in sales. Dealers are predicting that with the government's move, they should see some benefits coming their way as the new year begins.

Amrita Tejasvi
(amritat@cybermedia.co.in)

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