Tuesday, 22 November 2011
Free Government Scheme Endangers Channel
The free notebook scheme of the Tamil Nadu government is a dangerous precedent that could have a devastating effect on IT channels. As is well known by now, the current TN government plans to dole out 6.8 million notebooks over the next five years to students ranging from those in class 8 to those pursuing post-graduation. For the first year of the scheme alone the government’s electronics purchasing arm (Elcot) has already awarded the tender to Lenovo for the supply of over 9 lakh notebooks at Rs 13,970 per unit. The specs of the notebook: either an Intel Pentium 6200 or 2.1 GHz AMD processor with dual core, 2 GB RAM, 320 GB HDD, DVD rewriter and 14” screen with 3-year support. A similar configuration with a 3-year extended warranty would cost Rs 22,000 in the open market today. Total annual PC sales in TN are estimated at around 240,000 notebooks and 300,000 desktops, with the consumer PC component being close to 45 percent. The free notebook scheme will wipe out a very large chunk of this consumer market. Resellers selling to home users and education could see a massive dent in their sales as 60-70 percent of a reseller’s business is from PC sales. Although the TN government and Elcot have taken some precautions against pilferage, the crooked will still find ways to divert the notebooks to the gray market; for example, they may lure poor students into selling their notebooks. And students from affluent families may trade their free notebooks for a higher-end version. Such actions will crash the market prices of PCs not just in TN but also in other states. It’s a known fact that the free-TV scheme floated by the previous TN government saw thousands of TVs land in small-city markets not just in TN but also in neighboring states such as Kerala and Karnataka. With most states going to the polls over the next three years, you could trust parties in other states as well to promise such freebies to please the voters. This could affect IT channels across the country. The IT channel provides employment to significant numbers of people. This would be jeopardized if channel companies go out of business which is the most likely outcome of the TN scheme. Already many partners are quitting the business because margins are falling in the IT market; they are turning to other businesses and professions that give higher ROI. It is time leading IT channel associations across the country deliberate on the matter and prepare a plan to let the TN government know how such schemes will endanger the health of an entire industry and all its stake holders.