Intel Corporation's director south Asia, Atul Vijaykar, said ``the duty issue has not yet been finalised and we are still in discussion with the officials of the department of electronics and the ministry of finance. We are confident that these parts will be classified as micro-processors and receive the correct (lower) rate of duty.''

The reported move of the government to treat the two new-generation chips from Intel as populated printed circuit boards (PCBs) and not integrated circuits (ICs) has, however, been criticised by the industry. The DoE had reportedly asked the finance ministry to charge a higher customs duty on the two chips as it had decided to categorise P-II and Celeron as PCBs rather than as ICs. Hence, the two chipswill attract a 22 per cent duty instead of the present 5 per cent applicable to ICs.

This, in turn will lead to mark-up of between 3 to 5 per cent in the prices as the processor costs typically comprise between 30 per cent to 40 per cent of a PC cost, the industry felt. According to the Manufacturers Association of Information Technology (Mait) director Vinnie Mehta, since the domestic IT industry functions on wafer-thin margins of about 3 per cent, it could be badly hit.

With such low percentage of margins, the government decision will make manufacturing unviable. ``The duty differential between parts and components and the finished goods will come down from 8 per cent to about 5 per cent which will further hit the domestic manufacturing industry,'' said Mehta. The entire market is likely to be affected as close to 90 per cent of the PC integrators in India use either P-II, Celeron or Cyrix chips.

It will also give a big boost and give incentives to the gray market which will go against the loftynational objectives of PC penetration, the industry felt. HCL Ltd's general manager marketing Sharad Talwar said the decision will undoubtedly perpetuate the grey market further.

``It goes against the grain of all the good work done by the task force to make the personal computers cheap and increase the penetration levels of personal computers. I see no sense in it, we seem to be going in the reverse gear.