The import of computer software is proving to be a contentious issue offlate, especially when it comes in CDs. This is because from late last year, software imported on CDs alongwith CD-ROM multimedia titles (also contains computer games) started attracting 32 per cent duty. Previously, CD-ROM titles were in the software category and did not attract any duty. Logically it makes sense to charge zero import duty on computer software irrespective of whether it is loaded on a floppy or CD. If this problem remains unresolved it would work against the interests of the user community and also prove detrimental for software exporters.Moreover this problem is slated to reduce the revenues of the software companies in the current fiscal. It is imperative that the customs should charge duty on the cost of the blank CD-ROM but not on the software. The fact that software nowadays can be easily downloaded using Internet gives credence to the arguments cited above.
In the wake of the enormous brain drain in the software industry, the move by the National Association for Software and Services Companies (Nasscom) to float a venture capital corpus by April this year is a welcome measure. The targetted Rs 200 crore fund would be a boon for fresh aspiring entrepreneurs in the country.
Moreover financing software development is the right step to encourage Indian software business to make a dent in the global market. It makes sense to assume that for the scheme to fully succeed, venture capitalists should also be provided with a viable exit route.
The domestic companies like HCL are crying foul over the price wars unleashed by MNCs like Compaq in the hardware industry. It definitely is a new trend to market a Pentium-based machine without a monitor. Moreover domestic hardware manufacturers are facing squeezed margins.
This is because reduced import duties have decreased the differential between components and finished computers in this import sensitive segment. Furthermore growth in in value terms has been scuttled in a price sensitive market.
The only silver lining could be that government spending on the infotech industry is on the rise. India has already signed the WTO (World Trade Organisation) agreement, thereby inching towards a zero duty structure. This makes it all the more imperative for the Indian companies to be globally competitive. Hardware exports at $415 million presents a case for improvement. A way out would be to focus on operations in related segments that would reduce the risks and complement the current hardware business.
Also focus on specific segments like the home market, offer better potential in the future. It is crucial to procure high volumes to sustain oneself in this low margin business. But this should not be done on the back of huge borrowings which might prove detrimental in the future. In the future the domestic players would have to improve their distribution networks. This is essential in the wake of increased competition from the MNCs, increased foray into the lower end of the market could be a ploy.
The question that normally crops up about Indian software is that whether it is merely cheap or it adheres to good quality. Worldwide focus on Y2K has diverted the attention from application software development. Would our programmers be redundant post Y2K? After 2000 assuming that Y2K goes through without any hassles there would be burgeoning business opportunities in developing application software. Redundancy of Y2K programmers later on does not cut much ice because even an Oracle expert would have to be re-trained to keep in touch with changing technology. So the army of Y2K programmers can always be trained in emerging software applications later. More importantly correction of non-critical systems affected by Y2K will spill over to the future which would be tantamount to increased business for Indian software companies. Furthermore Indian software exports would for sometime come to have an inherent cost advantage which would supplement any pressure on margins.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
