MAIT, the apex body representing the hardware, training and R&D services sectors of the IT industry in the country, today announced the findings of its Industry Performance Review for the first-half of 2002-03.

The Desktop PC market grossed 9.5 lakh units, registering a growth of 18 per cent over the same period in the previous year and a growth of 10 per cent compared to the second-half of 2001-02. FY 2001-02 had been marked with severe recessionary trends in the Indian economy, which had adversely impacted the hardware market.

With the buying sentiment in the market now improving, MAIT has revised its PC sales projections for FY 2002-03 from earlier 15 per cent to 20per cent, PC Sales are expected to cross 2 million units. Fiscal 2001-02 had recorded 1.67 million units.

The pinnacle year for PC sales in India was FY 2000-01, wherein the PC sales touched 1.9 million mark. In the first half of the current fiscal-year, PC sales have outnumbered those in the first half of 2000-01 by 14per cent. With the sales in the second half expected to be higher than the first by 11per cent ; the current year is headed to be the best, so far, for PC sales in India.

The turnaround in PC sales can be attributed, on one hand, to increased consumption by Industry verticals such as telecom, banking and financial services, manufacturing and IT-enabled services. Major e-Governance and digital divide initiatives of the Central and State Governments are also driving IT consumption in the country.

Programs like Bhoomi (computerisation of land records) and Akshaya (provide computer training to the entrepreneurs in remote areas) represent large opportunity for the IT industry. On the other, Domestic IT Industry has focused attention on producing and developing low-cost computing solutions. Further, the trend of increased PC purchase in smaller towns and cities, witnessed last year, continues undiminished.

MAIT's Industry Performance Review(ITOPs) is conducted by the leading market research firm IMRB (Indian Market Research Bureau), is bi-annual and aims to address the hardware sector's efforts to manage the business environment, gauge the market potential and consumer trends. Apart from the half-yearly review, a module has also been introduced to monitor the Industry performance every quarter, alternating with the half-yearly review, using the supply side estimation model. This round of the study for the first-half of FY 2002-03 involved face-to-face interviews with over 14,000 respondents selected randomly from 16 cities in India.

The MAIT-IMRB study was initiated in 1996-97 and leading IT vendors subscribe to it. The study encompasses five broad product segments - computers, networking products, printers, other peripherals and Internet.

The Assembled PCs - the smaller lesser known regional brands and unbranded systems, accounted for 48per cent of the PC sales in H1/2002-03. The proportion of the assembled PC sales grew from 44 per cent in the same period, the previous year. The Indian brands accounted for 22 per cent of the market. The share of the Indian brands in H1/2001-02 was 20 per cent. However, the MNC brands registered a fall in their marketshare from earlier 36 per cent in the first half of 2001-02, to 30 per cent registering a decline 1per cent in absolute sales.

The MAIT-IMRB review reveals that PC sales to the Business segment improved by 24 per cent but to the households it declined by 1 per cent as compared to the sales in the first-half of the last year. The business segment continued to account for 82 per cent of the market. Within businesses, sales to the larger businesses (over 50 employees) grew by 21per cent ; to the medium business segments (between 10 and 50 employees) it grew by 24 per cent . Sales to small enterprises grew an impressive 29 per cent over H1/2001-02 and 51 per cent over H2/2001-02 respectively.

In terms of the Processor configuration, PC sales in H1/ 2002-03 were dominated by Intel P-4, which accounted for 51per cent of the marketshare, followed by P-III accounting for 36 per cent . AMD, Cyrix and other processors accounted for another 10 per cent . Other processors are gradually garnering marketshare, reflecting the need for low-cost computing solutions.

Overall Printer sales, according to MAIT-IMRB estimates, dropped by 3 per cent compared to that in H1/2001-02 - sales of Dot-matrix fell by 8 per cent ; and Inkjet printers by 7 per cent , however, Laser printers recorded an impressive growth of 63 per cent . Sales of Inkjet grew 33 per cent in the Business segment, however, it declined by 42 per cent in the Households. Dot-matrix printers accounted for 38 per cent of the marketshare; Inkjet printers for 50 per cent and Laser printers for 12 per cent . Line Printer recorded a sales of 1,754 units in H1/2002-03, registering a drop of 5 per cent over the same period last year.

One of the most notable findings of the study this year has been the sustained and increased consumption of IT products in smaller towns. 36 per cent of total PC sales was accounted for by Class B and C class cities - a growth of 30 per cent over H1/2001-02 and 56 per cent over H2/2001-02. Likewise, in the First-half of 2002-03, notebooks sales grew by 139 per cent in small towns, whereas, sales to top four cities declined by 13 per cent . Smaller towns accounted for 5 per cent of the total server sales, growing 5 per cent . In Inkjet printers also the same trend was witnessed. Sales to smaller towns accounted for 45 per cent of the total sales, growing 5 per cent , while sales to top four cities dropped by 16 per cent and in the next 4 by 7 per cent . Sales of UPS to smaller towns also witnessed a significant growth of 18 per cent accounting for a third of the total UPS sales.

Since the study is in its eleventh round using identical methodologies in each round, the findings when compared across consecutive six-month and annual periods lend themselves to identifying significant trends in buying and usage pattern:

-- The top four metros accounted for 53 per cent of the total PCs purchased. While the proportion of sales to Top 4 metros remained constant compared to that in H1/2001-02, the sales increased by 19 per cent . PC purchase in the next four metros accounted for 11 per cent of the total PC purchases, indicating a decline of 1per cent over the same period last year. In other smaller towns PC purchases increased by 30 per cent to account for 36per cent of the total PCs purchased.

-- In the Business segment, although the top four Metros accounted for the maximum PC sales, their share declined to 53 per cent from 59 per cent in H1/2001-02 and 61per cent in H2/2001-02. The proportion of sales to smaller towns increased from 33 per cent in H1/2001-02 and 27 per cent in H2/2001-0 to 38 per cent in H1/2002-03.

-- In the Household segment, SEC A continued to dominate the market with 48 per cent marketshare, followed closely by SEC B with 44 per cent , in the first half of 2002-03. While sales to SEC A declined by 23 per cent ; sales to SEC B increased by 56 per cent over first half of fiscal year 2001-02. SEC C accounted for 8 per cent of the households market, representing a gradual percolation of IT to the grassroots level.

-- Larger business segment accounted for 51per cent of the Notebook sales - the proportion increased from 47per cent in H1/2001-02; the share of the smaller businesses dropped marginally from 27per cent to 26 per cent and that of Medium business segment dropped from 26per cent to 23per cent in the first half of 2002-03. Notebook sales remained concentrated in the Top 4 Metros, which accounted for 70 per cent of the total notebook sales. Sales to smaller towns increased significantly, the proportion improving from 9per cent in H1/2001-02 to 23per cent in H1/2002-03.

-- The Server market grew by four per cent in the first half of 2002-03 over the first half of 2001-02. Top four metros accounted for 89 per cent of the total server sales. Consumption of servers in small and medium enterprises grew by 87 per cent and 53 per cent respectively, however, in larger businesses it declined by 44 per cent . Small business accounted for 35 per cent ; Medium businesses for 34per cent and large for 31per cent of the overall marketshare.

-- The Networking market has been one of the fastest growing segments in the industry. In H1/2002-03 the NIC (Network Interface Cards) grew by 51per cent and hubs by 256 per cent , over H1/2001-02. The modem market witnessed a decline of 19 per cent .

-- The UPS market grew by 26 per cent over H1/2001-02. top four cities accounted for 56 per cent of the sales, followed by smaller towns accounting for 33 per cent and next four accounting for another 11per cent . Sales in the Top four cities grew by 65per cent . The Business segment accounted for 66 per cent of the total UPS sales growing 132 per cent over H1/2001-02. The Households accounted for the rest 34 per cent , however, the sales in the households declined by 34per cent .

-- The number of active Internet subscribers (entities) increased to 1.30 million in September 2002, while the figure was 1.29 million in March 2002. The penetration of Internet among businesses was 40 per cent while that in households it was 11 per cent . The business segment now contributes 48 per cent of the total active Internet subscribers and households account for the remaining 52per cent . Dial-up remains the most commonly used means of accessing the Internet among businesses, although the proportion of businesses using dial-up has dropped from 74 per cent in March 2002 to 72 per cent in September 2002. The proportion of access through cable link increased from six per cent to nine per cent during the same period while that of leased lines dropped from 8per cent to 6per cent .

Releasing the findings of the study, S Devarajan, President MAIT said, "Though the entire country witnessed an economic slowdown last year, with economic recovery this year, the IT market is back on track. This will give a big boost to the morale of the IT industry in India, especially those focused on the domestic market. The performance of the industry will be further strengthened by increased IT consumption in the Government. While most Government Departments - Centre and State have earmarked two-three per cent of their annual budgets for IT spends, we are yet to witness that spend happen. The initiatives launched by various State-Governments for e-governance are encouraging, but need to gather momentum."

Commenting on the findings of the study, Vinnie Mehta, Executive Director MAIT said, "While the mood in the industry is upbeat today, it is necessary to achieve global volumes and scales for the Indian IT industry to be internationally competitive in the long term. To ensure that IT reaches the grassroots level in India, there is a pressing need to bring down the prices of IT products. MAIT has a single point agenda for the forthcoming Union Budget - reduction in Excise duty to eight per cent (or six per cent if the Government adopts the Excise duty structure as recommended by the Kelkar Committee) from existing 16 per cent ." He further added, "IT manufacturing in India is faced with several disability factors that adds to almost 16 to 20per cent , a significant proportion, of the manufacturing cost. These can only be overcome by a progressive policy that can help reduce the transaction costs through simplified procedures."

MAIT has recommended that the Government take a wholesome view of the entire situation while formulating the forthcoming Union Budget 2003-04. For the hardware manufacturing industry to remain competitive, the Government needs to adopt the following measures:

1. Excise Duty: The Excise duty on all IT products should be brought down to eight per cent from existing 16 per cent . This is essential to address the issue of Grey market and also to reduce the price of IT products.
2. Rectification of the inverted tariff structure arising out of implications of IT Agreement of the WTO, it is recommended that there be:
(a) NIL customs duty all Capital Goods for IT/ Electronics /Telecom manufacturing.
(b)NIL customs duty on all raw material inputs including dual usage items.

The above can be actualised through Modification of EHTP Scheme in the EXIM Policy. The Electronic Hardware Technology Park (EHTP) scheme is a special scheme for the Hardware Sector similar in concept to the Software Technology Parks. The scheme permits duty free import of Raw materials and Capital goods. Therefore, the Government should suitably modify the scheme such that it becomes attractive for the Hardware manufacturing industry. It is recommended:
(i) Sales of all items, as specified in the list of ITA, manufactured in the EHTP be considered towards fulfillment of exports obligation. Currently, this is limited to items that already attract nil customs duty. This measure will provide the necessary transition period for the industry to scale up to global competition.

3. Simplification of procedure for exports and Imports: In order to bring the turnaround time from the existing average 7-10 days to internationally accepted standards of less than a day, the Government needs to:
(i) Introduce self-declaration based periodic processing model
(ii) No Physical controls
(iii) All conciliation of data/duties to be post clearance.

About the study:

ITOPS is a syndicated end-user based study on the IT hardware market conducted by the eTechnology Group of IMRB. ITOPS has been an annual exercise since 1996-97 and for the last four years the study has been conducted on a bi-annual basis, as well. The study was based on over 14,000 face-to-face interviews with end-users, with data projected to the 'all India urban market'.

The MAIT-IMRB study involves data collection after the 'last mile' that the product travels, i.e. from the premise where the product is finally installed. It is therefore an accurate estimate of 'what' was bought, 'by whom', and for 'what purpose'. Since the MAIT-IMRB study is based entirely on data collected from 'users', it is able to accurately estimate the large unorganised market as well as direct imports. It does not suffer from shortcomings of estimates based on shipment or supply which in addition to under or over-counting, may also reflect biases in perception of vendors and resellers.

With six consecutive years of ITOPS data, the study is now able to closely track emerging segments such as small offices, home users, first time buyers, etc. and identify the role of key drivers for purchase such as the internet. By virtue of tracking the installed base built over the years, and monitoring the extent of upgradations/ replacements taking place in the market, the study has been able to identify emerging business opportunities that promise to expand the market for IT products in India.

IT Industry Performance: Mid-Year Review 2002-03