India will have 20 million personal computers by 2005-06, against the 7.5 million now, if the regulatory environment remains conducive for the hardware business, the Manufacturers' Association of Information Technology said in its first long-term prediction for the Indian personal computer market.

"The Indian personal computer market is set to have an installed base of 20 million in the next three years, but a lot depends on the regulatory environment," Vinnie Mehta, executive director of MAIT, said.

According to MAIT, the target will fall short by about 6.4 million, reaching 13.6 million in 2006, if the excise duty continues to be 16 per cent.

"This is the impact that excise duty alone will have on the Indian personal computer market. The growth of the market is heavily dependent on the price factor," Mehta said. If the excise duty was reduced to 8 per cent, the number of personal computers in use would be 16.3 million in 2006, he added.

Mait pointed out that reducing the excise duty from 16 per cent to 8 per cent would bring down the price points by at least 8-10 per cent.

"This will increase market growth by 30-35 per cent from the current 20 per cent, but more significantly, it will help shift business from the grey market to the organised sector," Mehta said.

According to Mait, the Indian personal computer market is worth Rs 6,000 crore (Rs 60 billion) at present, with over 50 per cent in the grey market.

"While the large presence of the grey market has always been of concern, in the past few months, it has assumed alarming proportions. Its share

increased to about 63 per cent in the October-December quarter of 2003 from 50 per cent in the first quarter," said Mehta.

The Mait report points out that as a result of the current market situation, personal computer manufacturers in India, including multinational companies, have started having doubts about investing in India.

"The situation could get more acute in the future when India becomes a zero-tariff country for all IT products under its commitment to the World Trade Organisation. Both the Centre and the state governments need to address the issues of high incidence of local taxation," Mait said.

India's personal computer market, which saw a downturn in the past few years, has started improve, mainly aided by massive investments by telecom companies.

In the financial year 2002-03, about 2 million personal computers were sold in India, taking the computer penetration to 9 per 1,000 people.