Union Budget 2010 - Reactions from the IT Industry
IT News Online Staff
2010-02-26
Manoj Chugh, President, India and SAARC, EMC Corp.:
"We are pleased at the earnest effort to introduce GST from April 2011. The continued focus on deployment of Information Technology for mission mode projects like commercial taxes augur well. Increased budget for the UID and the formation of the technical advisory group under the able leadership of Nandan Nilekani is laudable. We are also happy to see significant enhancement in funding for education and rural and urban infrastructure, which will drive demand for Information Technology."
Surjeet Singh, Chief Financial Officer, Patni:
"Increase in MAT from 15% to 18% on book profits would result in higher outgo of cash in the short term and would affect Indian corporates adversely. However, this impact has been cushioned to a large extent by lowering of corporate surcharge from 10.0% to 7.5%. We welcome a higher percentage of weighted deduction on in-house R&D, which has been increased to 200% from 150% as it will incentivize IT companies' innovation focus. We appreciate the setting up of 'Technology Advisory Group for Unique Projects' along with substantial outlay for UID project. This group will help in accelerated execution of large strategic Government IT projects thereby benefiting IT companies. Budget also proposes to ease the process of refund of service tax credit for exporters of services which will hopefully streamline the current cumbersome process. Tax reduction on account of changed tax slabs for individuals will also benefit the industry indirectly.
However, the Budget has not addressed the IT Industry's demand for extension of Tax holiday under STPI scheme as per Section 10 (A) of Income Tax Act, which is a significant negative for the Industry."
W. S. Mukund, MD, Acer India:
"It's been a fairly balanced, yet progressive Budget. Focus on Education, Health and Infrastructure, with enhanced allocations, do pave the way for building a vibrant and competitive India.
For the PC industry there are some positives in terms of scope for adoption of IT in initiatives such as the Financial Inclusion Fund project to extend Banking to more habitats and scaling up of the Smart card projects in Health Insurance. That a Tech Advisory Group is being set up under the leadership of Nandan Nilekeni is another pointer to rapid adoption of IT projects in the areas of Taxation, Pension, Treasury, Infrastructure and GST.
For the PC industry, which had shown a de-growth in the year 2009-10, the rollback of Excise/CVD to 10% is a big dampener.
Also some of the inconsistencies, that have been highlighted for redressal the last many months, such as MRP based abatement, phased reduction of CST to 1% (made all the more acute due to GST being postponed to the next fiscal) as also lack of any bold policy initiatives to make Broadband more pervasive and affordable, continue to persist."
Partha Iyengar, Head of Research, Gartner India:
"Overall, this is a fairly positive and balanced budget from a broader Indian economy perspective as well as from the narrower IT industry focus. There is also a more balanced emphasis on 'Bharat' as opposed to 'India', which is a good move, since 'inclusive growth' is needed to reduce the gap in the digital or urban VS rural divide. There were no specific 'big bang' measures specifically from an IT perspective, but that is also not a bad thing, since, as I'd indicated in my pre-budget comments, the industry is beyond needing specific sops for it to remain competitive and continue its growth story.
The bigger need for IT in India is in some of the broader macro areas that also impact the overall competitiveness of India in the global scheme of things. And this is likely to be the trend going forward, that there will not be a 'separate list' of things that the IT industry needs to continue to be successful. What is required for India and what is good for overall economic growth of India will be what is required for the IT industry. Budget watchers should now stop looking for specific 'sops' for the industry and focus more on the macro issues affecting the entire economy, as an indicator of the positive or negative impact on the IT industry.
In that context, from an IT industry perspective, my summary reaction and 'scorecard' is as follows:
Major positives:
- Increase in infrastructure outlays
- Allocation of 1900 crores for UID Project
- Setting up an IT Innovation cell under the leadership of Nandan Nilekani
- FDI process streamlined
- Incentives for personal funds being allocated towards infrastructure support vehicles
- Allocation of funds and target to reduce legal backlog from 15 years to 3 years
- Increase in R&D credits should provide a boost to innovative activities
Average/Minor Positives:
- Minor (compared to the need!) increase in education outlay
- Exemption of additional duty on mobile accessories manufacture in India to boost local manufacturing
Major negatives:
- No big bang allocation / steps taken to fundamentally revamp the primary and secondary education process in India"
Ashok Chandak, Senior director, global sales and marketing, NXP Semiconductors:
"The current budget is a well balanced budget and the Finance Minister has clearly been focused on the banking industry, rural and agricultural sectors as well as infrastructure, along with giving a boost to investors and entrepreneurs. With regards to the semiconductor industry, it is a welcome step with a focus on financial inclusion, solar semiconductors, Research and Development and further enabling the use of smart cards and identification technologies at various levels.
The allocation of Rs. 1,900 crore to the UIDAI for 2010-2011 would provide an effective platform for inclusive growth and enable the participation of the rural population integrating them with various social welfare schemes and development. The assignment of Rs. 100 crore each for the Financial Inclusion (FIF) and the Financial Inclusion Technology Fund and fillip to Business Correspondent concept will further enable to provide banking and insurance services to the bottom of the pyramid backed by a technology platform. All these initiatives could enable the use of smart cards and identification technologies like Near Field Communication to realize their true potential, as in the case of the earlier financial inclusion projects by various banks and during the pilot phases of the Multipurpose National Identification projects supported by NXP.
The impetus provided for renewable energy with waivers on excise duty for solar panels and photovoltaic products, LED lights and exemptions on electric cars, eco-friendly vehicles to will enable the Indian solar semiconductor industry, energy efficient devices and promote the local ecosystem to develop products for the domestic market. Furthermore, to promote the entrepreneurial spirit, research and development, which the semiconductor industry thrives on, the move to enhance weighted deductions on in-house R&D and partnerships will encourage semiconductor companies to collaborate with universities and boost the local talent pool."
Ananda Mukerji, MD&CEO, Firstsource Solutions Ltd.:
"It's a balanced and overall positive budget. Given fiscal constraints, the continued investment in infrastructure, education and health is a good sign. However, 14% to16% growth in investment in historically hugely underinvested areas like primary education and healthcare is not going to be enough for sustained development in the long run and it would have been good to see bolder steps in this area. Commitment to a clear target of fiscal reduction and a roadmap of getting there is a laudable effort. While the fine print will have to be examined the Government's stated intention to ease the refund of service tax credits to BPO units is also good to hear.
A clear disappointment is the lack of extension of STPI benefits given the huge role mid-sized IT and BPO companies play in employment generation in the country. This clearly has the risk of reducing India's attraction as a global outsourcing destination. Another retrograde step is increase in MAT. Though for Firstsource specifically this has very little cashflow impact since part of our revenues in any case attract deduction at source."
Vikas Khanvelkar, M.D , DesignTech Systems Ltd.:
"The Budget has nothing new for the IT Industry. 2% increase in excise duty on all the products will not have a very significant adverse impact on the demand and hence the production. Rise in petrol and diesel prices will increase the inflation which is already very high.
Substantial increase in the budget allocations for "Infrastructure and Energy" segments is a really good move which will create positive impact on the GDP and Economy in the long run by addressing long pending pain areas of the industry.
GST has been postponed to 1st April 2011 as anticipated. Industry will have to keep dealing with multiple level taxation structure for one more year."
Alok Misra, Group CFO, WNS Global Services:
"The budget has been a mixed bag. It has been positive about spending on education, especially primary education. The honorable finance minister has also increased the expenditure on infrastructure - roads and power - which is extremely important. Increase of the income tax exemption limits for individual is a welcome move. However, the budget has been silent on extension of tax exemptions under STPI. This was one of the biggest expectations of the BPO industry from the budget and that has not been met. The increase in Minimum Alternate Tax (MAT) and levying service tax on renting has been disappointing as it will impact cash flows for IT-BPO companies."
Ramesh A. Vaswani, Exec Vice Chairman, Intex Technologies India Ltd.:
"The FM has done a commendable job of partially withdrawing the stimulus by balancing this with various schemes which should accelerate GDP growth. The focus on the rural economy with substantial & higher allocations will more than make up for the slack in demand, if any, due to the marginal increase in the excise duty rate.
This budget will lead to an increase in the feel good factor which is believed to play an important role in increasing the demand of consumer products. It is very heartening to note that the cost of mobile phones will come down and will further boost demand and encourage local manufacturing.
I am disappointed, however, by the lack of adequate attention to promote the local manufacturing of IT hardware and to increase domestic consumption of PC.I feel that the economy now requires for inclusive growth not only inputs in agriculture and rural infrastructure but also in IT literacy and IT infrastructure.
India has been talked of as a knowledge economy. And a knowledge commission was also set up to chalk out various initiatives. The small increase of weighted average expenditure deduction on in-house R&D from 1.5% to 2 % only encourages ongoing R&D activities. The FM could have thought of additional incentives to lure large foreign corporations and research institutions to set up their facilities in India."
Dewang Neralla, Director, atom:
"This budget has taken a balanced view on social sector spending such as NREGA as well as financial inclusion, which should further provide impetus to the initiatives already undertaken for financial inclusion. Specific focus on insurance and other services, which are anyway being carried out, through the business correspondent are welcome."
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