China, whose software exports will likely not threaten India for at least another few years, is already seen to be much ahead of India in hardware. This market reality prompted India's hardware manufacturers' industry group, the Manufacturers' Association for Information Technology (Mait), to study the state of the IT industry in the two countries.

India did not fare well in the study, for several reasons. According to the Information Technology Agreement-I of the World Trade Organization, India will roll back duties on imported IT products starting in 2003. This development, combined with the imminent influx of Chinese IT products, could kill an already-anemic hardware industry in India, Mait said.

Not everyone buys this argument, though. "This thing about [India] not being able to meet the Chinese threat is only a myth,'' said Vinay Deshpande, chairman of Mait. Manish Agrawal, director of marketing at hardware manufacturer Vintron Informatics, concurred. "I do not see any Chinese threat in core IT products such as the PC," he said. But Agrawal said Chinese imports could hurt in the area of consumables and peripherals such as keyboards and mice.

According to Mait, "The Indian government needs to pick up a lesson or two from the Chinese success story and put its act together, or else India will soon be nowhere on the global IT map.'' Where China has gone all out to woo hardware manufacturing, India has not. "Given that [India's] hardware base is constantly being eroded, its ability to maintain its competence in information technology is in question," Mait warned.

As for the elimination of import duties, Deshpande said, "India is competitive in local manufacturing. IT products made here have proven to be of the same, if not better, quality and cost less to manufacture than in many other locations. If Indian manufacturers say they will be unable to manufacture in India because of [zero-duty imports], they are giving up the market here."

Mait dismissed as untrue rumors that India's Ministry of Information Technology has proposed postponing the zero-duty regime to 2005 to protect its home markets.

India's central problem in IT hardware is its difficulty in getting manufacturing facilities up and running. The country's notoriously slow bureaucracy and outdated rules and regulations make no allowance, for example, for some PCs becoming obsolete in six months. "The [slow] speed at which business can be done [in India] is what may hamper operations," Deshpande said.

Nonetheless, India is looking to boost its hardware manufacturing by luring an overseas investor that, it is hoped, will build a $500 million manufacturing plant there. So far there have been no takers, however. Such an investment would likely have a domino effect, drawing other manufacturers to the country, as happened when Texas Instruments Inc. became the first major overseas company to open a software center in India in 1985. Almost every big player followed.

A number of reports suggest that while no single major player has expressed interest in the hardware facilities investment, nearly 17 joint-venture proposals in computer hardware have been ignored for more than a year, because no policies exist to shepherd them to completion. These 17 proposals resulted from a two-year investment push by organizations in India, and include expansions and upgrades of existing manufacturing plants. Since the government has not acted on these proposals, and with a zero-duties policy only two years away, it is unlikely that joint-venture partners from overseas will still express any interest in India.

Separate studies carried out by two global IT companies point out that while the quality of the products made in their Indian plants was as good if not better than those manufactured in their other plants worldwide, the cost of production was vastly cheaper. At the same time, the studies pointed out that the speed of doing business in India was much slower than elsewhere, pretty much negating any cost benefits of working in the subcontinent.

The government has done virtually nothing to boost India's hardware industry, while it has taken great pains to promote software exports. What was expected to be an epoch-making meeting of India's National Advisory Committee on Information Technology earlier this month has been rescheduled for August. Still, the hardware industry has made a nominal gain: For the first time, Mait has been invited to attend the event.

Hardware manufacturers hope that recommendations made by a National Task Force for Information Technology (for both software and hardware) in late 1998 will be addressed at the August meeting. That study group acted on all 108 recommendations made to improve the software industry, but not one of the 84 suggestions made to strengthen the hardware industry.

Further, a special-interest group on hardware, formed to find ways to make the country a global player, concluded that India must follow the example of China and Malaysia and aggressively market itself as a manufacturing destination. This group noted that India's $3 billion hardware industry is actually worth just $1 billion; the remaining $2 billion consists of imported and resold components. Unsurprisingly, the group characterized this $1 billion as a nearly negligible figure.

Likewise, the IT ministry's market estimates have also been completely off course. The special-interest group valued the hardware industry (including consumer electronics, computer hardware and telecom equipment) at $8.63 billion, well below the government's projected $13.67 billion for the year.

In addition to insufficient manufacturing infrastructure and resources, and offshore competition, lack of demand has also hampered the hardware sector. Duties and regional and national taxes inflate product prices by as much as 40 percent, making them less affordable and thus reducing demand. "Demand would be stimulated a lot more but for these taxes," Deshpande said. "I think the government has realized it cannot afford to ignore hardware. It has seized on the need to support the hardware industry."

Other reasons for India's poor hardware showing include a PC-centric view of information technology, which eliminates possibilities for manufacturing other types of products. Also, there is little encouragement for local design or innovation. "It is the need of the hour that our government come forward with generous grants for research and development for proactively developing new products," the Mait report said.

Government aid seems unlikely in the short term, though. Observers in India point to the fate of the Simputer, a sub-$200 handheld computer developed specifically for India's domestic market and designed to sell at affordable pricing levels by researchers at the Indian Institute of Science, Bangalore, aided by a team including Deshpande himself. The product was announced in April, but even the Ministry of Information Technology has yet to show any interest in it.

Ironically, the same ministry has signed an agreement with the Massachusetts Institute of Technology to set up Media Lab Asia, which is expected to roll out innovative products that meet the socioeconomic needs of countries such as India. The government announced an initial capital investment of $12 million and has promised to put in another $200 million.

If the government spent a hundredth of this amount in promoting the Simputer, sources said, India's hardware design could have gotten a needed boost toward long-term success.

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