Union Budget 2010 - Reactions from the IT Industry, Part II
IT News Online Staff
2010-02-26
NASSCOM has welcomed the Union Budget Proposals 2010-11 terming it as progressive, long-term and providing the right thrust on social sector development, education, infrastructure, managing fiscal deficit, simplification of policies and convergence towards GST and Direct Tax Code.
Pramod Bhasin, Chairman, NASSCOM:
"We are delighted that the Finance Minister has recognized the key role our industry can play in driving technology led inclusive growth across the country, apart from directly contributing as an employment generator and foreign exchange earner. The announcement of the Technology Advisory Group under Nandan Nilekani, automation of central excise, GST and commercial taxes will enable the vision of citizen centric governance. Our industry will partner with the government to drive inclusive growth within India, while continuing to be the leader around the world in IT and business process solutions."
Som Mittal, President, NASSCOM:
"There are numerous positives for our industry in this budget, particularly on simplification. The removal of anomaly in Section 10AA of the SEZ Act and the Finance Minister's reaffirmation on the importance of SEZs will help the industry to take forward its SEZ plans across the country. The enhanced deduction on R&D investment will propel greater thrust on innovation and IP creation helping India to realize its vision of being the global R&D services hub.
The reduction in personal income tax will greatly benefit the employees in our industry who will help to drive both enhanced savings and consumption within India. At the same time, the clarification on duty applicability for pre-packaged software as well as service tax refunds will provide the much necessary simplification of policies.
While overall the budget is positive, NASSCOM said it disappointed with the increase in MAT, which will be a burden on small and medium businesses who are still struggling with the impact of the global recession.
There was also no move towards announcing parity of incentives between the STPI and the SEZ scheme, which is again necessary for small companies and development of tier 2 and tier 3 cities. In line with NASSCOM's recommendation, the IT Taskforce formed by Department of Technology (DoT) had also strongly recommended that the STPIs be brought at par with the SEZs.
The tax benefits under the STPI Scheme are available till March 31st, 2011 and NASSCOM said it will engage with the Government and through the Ministry of IT to represent for an equitable benefit to the SME sector.
Susir Kumar, MD and Chief Executive Officer, Intelenet Global Services Ltd.:
"Overall, from an economic perspective, I am happy that the Government has specific dates for implementation of direct tax codes, GST. Fiscal deficit retained at 5.5% will help contain inflation. Emphasis on growth to 9% of the GDP is commendable. Infrastructure funding for power and education sectors will have a direct impact on our industry and aid in the growth of the BPO industry. On the downside, I am disappointed that the 10-year tax holiday under Sec 10A and 10B has not been extended further as well as the increase in MAT from 15% to 18%.
Direct tax benefits for income levels below Rs. 8 lakh will benefit many of our employees and others in the BPO industry as they will now have more disposable income, which will boost domestic spending. This will also have an impact on the domestic BPO industry as growth of domestic industry is dependent on domestic consumption of goods and services."
Tiger Ramesh, CEO and MD, Vignani Solutions:
"We welcome the Finance Minister's acknowledgment of LEDs as a highly energy-efficient source of lighting for outdoor, indoor and street lighting and applaud the Government's decision of lowering the Central Excise duty from 8% to 4% , as this will accelerate adoption rates for LEDs by reducing the capital expenditure for the end-users. This encouragement of the LED industry is significant as we expect the market share of LEDs to rise to 15% to 30% of the overall lighting industry by 2014 from a current 2% to 3% market share. We are actually on the threshold of a revolution in the Rs. 10,000 crore Indian lighting industry.
The launch of the National Clean Energy Fund is also as per our expectations as we have always requested Government's support for funding research and the support of innovative projects in clean energy technologies. These two steps can act as important catalysts for energizing the LED market in India as well as stimulating R&D in clean energy technologies in India."
Rajesh Janey, President, Sales, India and SAARC, NetApp:
"This year's budget was mostly a calm budget for the IT industry. The good part is that it reflects strong flavor of social inclusion signaled by the focus on development fund and allocation for the education segment. This is a welcome move and bodes well for uniform social growth. The attention to infrastructure development is a continued note in the budget bouquet, and one that has shown results already."
Anil Chanana, CFO, HCL Technologies:
"The budget has been successful in reigning in the fiscal deficit, while at the same time focusing on inclusive growth. With the enhanced spending on infrastructure, this budget would help stimulate domestic demand for IT products and services. It also increases the disposable income in the hands of the employees, which is beneficial to the IT industry in view of its high human capital intensity."
S. Mahalingam, CFO, TCS:
"Increased thrust in key areas like primary education, health, infrastructure, rural development and financial inclusion would fuel broad-based growth and development. Enhanced focus on SEZs to drive growth and employment and clarity on the tax regime is welcome. This would aid recovery for the IT industry. Social transformation and technology-enabled governance will gain momentum and this is good news for the country."
N. Chandrasekaran, CEO and MD, TCS:
"The Finance Minister has given us a pragmatic forward looking budget that provides clarity to business. We appreciate the clarification on Section 10AA and the Direct Tax Code, implementation date. The changes to the personal income tax are very beneficial to all professionals and are in line with overall simplification theme."
Hanuman Tripathi, CEO and Managing Director, Infrasoft Technologies Ltd.
"This year's budget seems to be very populist and focused on Financial Inclusion. The Central Government has probably forgotten the IT industry completely while preparing this budget, the sole industry that brought India to the international map in the last 10 years.
Tax Holidays:
I had talked about the expectations around extension of tax holiday for technology products and services exports. This budget has not made mention of any of it and this, especially, to SME IT providers is a big disappointment. It is sad to see that the government is satisfied that they have invested in just a handful of large companies who can compete in the International markets and do not want to have a strategy to build ongoing global competitiveness in the IT sector.
Reeling under a strong anti-outsourcing sentiment that is brewing in the U.S., combined with a slower recovery in the Western world, the IT sector was expecting an extension of tax holiday for IT-BPO companies. However, the Finance Minister has made no mention of this, probably signaling the sun-setting of the tax holiday. Additionally, there was no further clarity provided on the movement between STPI and SEZs, about creation of additional technology SEZs nor has it cleared the existing ambiguities in the treatment of tax items.
Direct Commercial Tax:
In terms of direct commercial tax, the Government has helped the corporate world by reducing the surcharge for domestic companies to 7.5%. However, in a manner that seems like giving from one hand and taking from the other, the Government has increased MAT to 18% from last year's 15% rate, in the same breath. What is beneficial is that the current budget proposal enhances the benefits to R&D expense for all sectors. Today, the weighted deduction expense benefit has been enhanced to 200%.
Technology Advisory Panel:
On a very positive note, the government has proposed setting up of a Technology Advisory Panel to look into how e-Governance initiatives can be expedited and newer platforms created for delivery of easier interface between public and government. The outlay for the e-Governance initiatives has also been increased. This bodes well from companies like Infrasoft that plan to focus on this sector.
Financial Inclusion:
Further giving boost to Financial Inclusion initiatives and to grow domestic financial markets, the Government has proposed more licenses for banking to private banking institutions and NBFCs. Higher NREGA outlay, increased corpus for technology and financing funds under NABARD, and doubling of Microfinance Development Equity Fund corpus is a very positive development for the microfinance industry. This will lead to increased momentum in the industry and increased focus for technology enablers like Infrasoft."
Ramesh Loganathan, VP, Products and MD, Progress Software - India:
"On the primary issue of IT company operations, quite disappointing to note that the budget doesn't address the stability and growth concerns of the industry that is still smarting from the global recession. An extension of the STPI scheme for at least another year, and also allowing SEZ benefits to STPI scheme companies, would have helped the companies stabilize their operations and also use internal accruals for expansion and investment in growth and further job creation.
While this may not necessarily affect the macro industry numbers, given that most large players have now begun to use the SEZ scheme, it is surely going to affect the SME companies and in that process also reduce the innovation and growth from this sector.
The increase in MAT is another less desired aspect. But as the STPI is not likely to be extended, this may not be of as much impact as one may expect. Both the MAT and not extending the STPI scheme reduces the expansion potential of the SME players in the IT space, which may reduce some of the growth potential. Very inopportune time for this to happen. Another year's leeway (for both increase in MAT and terminating STPI) would have helped.
Otherwise, from an inward looking view, the budget seems very balanced. Lot of strong stability inducing factors like the reduced deficit and the clear plans for further reducing the deficit in coming years, the nominal increase in excise duty on fuel thus partly offsetting subsidy effect, and increasing the tax slabs helps offset effects of recession by putting more money in consumers hands and in that process also helps address effects of inflation on lower income groups, and also the social welfare measures introduced for the unorganized sectors are all very welcome.
Increased spend on IT in e-Governance is a welcome move. Already the domestic IT consumption is significant and is providing opportunities for the IT players, both in services as well as in products/technology. This increase in allocation will add fillip to this and in some way probably help offset the effects from not extending the export incentives.
On the social front, apart from the social welfare schemes for unorganized sector, the increase in spending on Primary Education, the incentives to promote clean energy and the very well timed initiatives to shore up the agricultural sector will serve very well in long term sustainability of our economy."
Debasis Chatterji, CEO, Netxcell Ltd.
"Overall this is a growth oriented budget. This budget has come as a delight to the common man and will ensure more money in the hands of common man to spend and save due to the tax reforms. Government is trying to reduce fiscal deficit and has set a very optimistic roadmap for this. Though indirect taxes have gone up, but markets are reacting positively to Union Budget 2010. The budget also has identified the potential of the telecom sector and has brought good news for the sector by making mobile phones cheaper which will further boost this already growing sector. Also the telecom sector will garner Rs. 36,000 crores by the auction of 3G in the fiscal year 2010-11, which will certainly help the government to reduce the fiscal deficit.
After a very balanced budget, now the key thing is to see how to sustain a GDP growth rate of 7.2% under high inflationary pressure."
Amar Babu, MD, Lenovo India:
"The Government's Union Budget 2010 underscores the focus on development, especially on infrastructure, rural development, urbanization and social welfare, aiding India's development and further stimulating the vital industrial sectors. The attention on e-Governance with the UID project and the Technology Advisory Group indicates the Government's continued move to leverage Information Technology in critical projects. It is also setting an example by generating thrust in the renewable energy sector.
Spends allocation in the SME sector is welcomed, as that will allow for the sector to invest in IT for productivity and competency. Assigning GST will help clarify pricing norms and duty structures across the board. The budget concentrates on the sustained growth and momentum in the industry, and is welcomed."
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