Every business that has entered the Indian market has learnt one basic lesson: India is price-sensitive. The market expands only if and when, the price is right.

Telephony is a good example. Mobile charges needed to be reduced by 95 per cent from the original Rs 16.80 a minute rates before penetration increased.

Rs 9,900 Xenitis PC launched!

A price-value equation similar to telecom may finally be coming to pass in the IT hardware industry. Personal computer prices fell quite a bit this fiscal and are set to reduce even more dramatically in 2005-06.

In 2004-05, MAIT (the manufacturers association for information technology) believes that PC sales will comfortably cross the 4-million units mark.

For the first time, branded machines might outnumber unbranded assembled units. According to an IDC survey, the marketshare of assembled units dropped to 49.7 per cent in the first half of 2004-05 (albeit in a market that's growing at nearly 30 per cent).

This year saw Rs 35,000 laptops and Rs 20,000 desktops become freely available. Next year could see sub-Rs 10,000 branded desktops.

HCL [Get Quote], Zenith and Kolkata-based Amar PC have all launched entry-level desktop configurations at below Rs 15,000. If various initiatives work out, there would be several more makes of branded desktops available near the Rs 10,000 price-point by December 2005.

The long-awaited Simputer will also hit the stands soon; priced at Rs 8,000, this would end up competing with PDAs (most of which cost three to four times as much) rather than with laptops or desktops.

One sticking point has always been the price of software -- operating systems and office-applications suite add quite a bit onto the basic hardware costs.

Here too, prices have come down -- mainly because cost-conscious Indian users have opted for the cheapest (preferably free) OS available.

According to estimates by HCL's officers who know the under the Rs 20,000 market well, two-thirds of entry-level PCs are sold bundled with Linux.

Red Hat is one popular flavour but several other breeds of Linux are also cheaply available. Office suites on Linux systems are also available at fractions of the cost of MS Office.

Piracy is also rampant. Microsoft reckons that it holds close to 90 per cent marketshare in India -- if pirated systems are included in the equation. But it also reckons that 80 per cent of Indian software is pirated and it is trying to stem the bleeding.

Steve Ballmer of MS is fond of quoting an IDC estimate that, if India cut its piracy rates by 10 per cent, it could create 50,000 new jobs and increase local industry revenues by over $1.6 billion, thus generating an additional $92 million in tax revenues.

In order to induce such a drop in piracy rates, MS will have to drop its prices to a point where it matches the Red Hat's. India is on the list of countries where MS intends to launch a stripped-down cheap, startup, local language, XP edition.

Unfortunately, the launch has just been pushed back to June from an earlier date of April.

It would be interesting to see where the startup XP edition is ultimately priced. It would have to cost around Rs 800 per OS to be competitive versus Linux options according to an off-the-cuff estimate by HCL's Ajai Chowdhry.

Let us assume that, one way or another, India is flooded with cheap PCs with cheap software in the next 12 months. It seems a reasonable assumption.

Let us also assume that broadband including some forms of wireless Net access take off within the same period. Fixed-line DSL rollouts have already started.

Indian GSM networks will probably likely to upgrade to 3G by early 2006 and 3G can carry 2 Mbps data connections. CDMA service providers are already providing 110 kbps connections.