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Union Budget 2011: Reactions from the IT Industry
IT News Online Staff
2011-02-28
Kamlesh Bhatia, Research Director at Gartner:
The budget of 2011 is largely aimed at continuing the growth momentum seen in 2010. The emphasis has largely been on bridging the digital divide through use of IT and technology. This will translate into boost for domestic IT consumption. The plan to build the National Knowledge Network to connect 1500 institutions of higher learning and research through optical fiber backbone by March 2012 is a step in the right direction. Countries like Singapore have benefitted immensely from similar initiatives.
The increased allocation through the Bharat Nirman program to provide rural broadband connectivity to all 2,50,000 panchayats in the country in three years should bode well for more inclusive and sustained growth. Also stress on reforming education, healthcare and general administration are healthy indicators of future growth.
Naresh Wadhwa, President and Country Manager, Cisco, India and SAARC:
The budget this year provides a number of measures to promote inclusive growth, which in my opinion is crucial to sustain India’s development ambitions. The emphasis on rural development, both through banking and telephony initiatives, is very welcome.
I’m particularly thrilled about the allocation announced for rural telephony as this will surely give a fillip to boosting connectivity for villages.
The budget also has a number of initiatives to take banking to the masses. Among them, the move to set up banks in villages of more than 2000 people, the bill to allow RBI to grant more banking licenses and additional support to NABARD are particularly noteworthy.
On the downside, we would have liked to see infrastructure status being given to rural healthcare initiatives as well, as they play a key role in promoting inclusive growth.
On the overall industry front, there are a few initiatives such as treaties to avoid double taxation and reduction in corporate surcharge which will help in promoting growth.
Manoj Chugh, President, India and SAARC, EMC Corp.
The Union Budget 2011-12 recognizes the role IT plays in the overall economic development and service delivery. Initiatives such as rural broadband connectivity, IT infrastructure backbone for GST, proposed norms for entry of new banks in the private sector and the mandate for public sector banks to cover rural villages, national knowledge network connectivity of research institutions, building e-courts, implementation of technology advisory group, recommendations and focus on green among others will boost overall expenditure on IT in the country.
Additionally, increased outlays on education with an emphasis of skilling the youth; overall social development and improving India’s competitiveness in the areas of manufacturing, research and innovation augurs well for the overall inclusive growth of the economy.
Minakshi Batra, India Director, IDA Ireland:
The Union Budget presented by the Finance Minister today leads the thrust on broadening the tax base, introducing counter inflation strategies and ensuring fiscal discipline. The economy has shown a lot of resilience with the GDP estimated to have grown at 8.6% in 2010-2011.
High growth sectors such as infrastructure, agriculture have been given special focus in the budget. The rise in credit flow for farmers and removal of distribution bottlenecks will catalyze the growth in food and agricultural sector. The Finance Minister has also accounted for an excise duty exemption for suppliers producing capital goods for mega power projects; providing the much desired boost to critical infrastructure projects. In terms of Information Technology, the industry wish list of STPI extension has not been addressed in the budget. But we expect the proposed DTC to become the stabilizing agent for the industry, once it is enforced in 2012.
In terms of tax reforms, the budget also specifies concrete and actionable steps towards the enforcement of GST, which will augur well for the industry as a whole by bringing about uniformity in taxation. Institutionalizing the Financial Sector Legislative Reforms Commission to revamp laws, rules and regulations will provide better clarity and streamline the financial services sector. We do not anticipate for the 0.5% rise in MAT to have a significant impact on India Inc.
The closure of Tax Information Exchange Agreements and Double taxation avoidance agreements are strong indicators of the emphasis that the government is laying on combating money laundering issues. Over all, the Union Budget for 2010-2011 is quite a balanced one and is a step in the right direction.
Vilas Kanyal, Head - Asia Pacific, Mastek Ltd.:
We welcome the announcement by Hon. Finance Minister for Good and Services Tax (GST) roll-out from April 1, 2012. The Technical Advisory Group (TAG) constituted after last year’s budget had proposed a GST Network (GSTN) for managing IT systems including the common GST portal. The existing tax administration systems of the central and state departments will be integrated with this portal thereby providing a seamless system interaction for the users and stakeholders.
The common infrastructure and service platform will unify the revenue consolidation process of the government departments at both state and central levels. As mentioned by the Hon. Minister several states have already been working to establish the key business processes and render e-services to the citizens.
Mastek is honored to partner with and provide the tax administration solution for the Sales Tax department and Central Tax Department (CTD) of Maharashtra and Orissa respectively for over seven years. Recently, CTD, Orissa has launched e-services solution, designed, developed and implemented by Mastek, which includes e-registration, e-filing of returns and e-forms, making it very convenient for the traders and merchants to interact and file returns online with the department. Mastek has been an early provider of the Tax Administration solution in India and leveraging this experience and expertise we have already developed a framework and solution for the same. We look forward to working with the tax departments across states to enable the transition from VAT to GST regime.
Hanuman Tripathi, Group Managing Director, Infrasoft Technologies Ltd.:
General Comments: Mild change in personal tax slabs, which will cause Rs. 2000/- saving annually for a person seems irrelevant. Raising tax exemption to Rs. 5 lakhs for citizens above 80 years does not provide any logical reasoning or benefit. Taxing already bloated airfares is not logical as air travel costs in India in comparison to average income are already very high.
IT industry related: No extension on STPI benefits is very demoralizing. SEZ units being levied with MAT 18.5% now is, going back on the commitment of keeping SEZ units tax free for some more years to come. The assumption being made that MAT will be refunded as a set-off against full tax paid at a later date implies that the government expects IT exports to be taxed at full rate in future. For the domestic IT industry the indicators are very positive with some clear picture likely to emerge on IT budgets and planning that e-governance projects will have.
The FM has said that 5 large projects of the government namely Unique Identification Authority of India (UIDAI), Tax Information Network (TIN), National Pension Scheme (NPS) Goods & Services Tax (GST) and National Treasury Management Agency (NTMA) will be put under an IT enablement process besides there are many other initiatives announced for creating a National Knowledge Network, Providing bandwidths to Gram Panchayats, etc.
Ganesh Guruswamy, Vice President and Country Manager, Freescale Semiconductor India:
The Union Budget 2011 is encouraging. The formation of National Innovation Council and State Innovation Councils to prepare a roadmap for innovations in India is a welcome move. The expected government funding through these councils will provide an impetus to Research and Development in the semiconductor industry.
The Finance Minister also announced the impending launch of National Mission for hybrid and electric vehicles in collaboration with all stakeholders which will create long term benefits for the semiconductor industry.
The basic customs duty on solar lanterns has been reduced from 10% to 5% and that for products used in the manufacture of solar modules/cells is completely removed. This is an important move by the Government of India in laying the foundation of a green initiative through solar which will again provide the much needed fillip to the semiconductor industry.
The tax reform in the budget will bring the next wave of growth for India and will help the economy grow and prosper.
Manufacturers’ Association for Information Technology (MAIT):
MAIT welcomed the thrust given in the Union Budget towards sustaining the national economic growth with a target of 9%-9.25%+ and making it inclusive.
The industry body expressed satisfaction for the thrust given to infrastructure development, upliftment of the rural economy and significant outlay for promotion of the social sector, especially education, healthcare & employment generation.
Ashwini K. Aggarwal, Executive Director, MAIT, said, "The Honorable Union Finance Minister has presented an inclusive budget for the aam aadmi - and simple corrections for building the industrial impetus for the nation. By defining a clear roadmap for the DTC and GST, the FM has set the stage for delivering a power fiscal ecosystem where the cascaded taxes are progressively ended, business is made simple for business and the industry is made competitive!
It is heartening that the Hon. Finance Minister has recognized the strong potential of IT to reboot key national projects. The UIDAI implementation; National Knowledge Network and projects like Central Electronic Registry will improve the system efficiency as well as boost demand for IT in the country. Broadband connectivity to 2.5 lakh panchayats in 3 years will have a major e-inclusion impact on the rural India.
The increase of Minimum Alternate tax (18.5% from 18%) and the reduction of the surcharge for domestic companies(5% from 7.5%) are a typical FM trick - give with one hand and take with another - no surprise there and that is the best thing about the budget - no major surprise."
Some of the other noteworthy outcomes of the Union Budget 2011-12 are:
- No change in peak customs duty rate
- Cut in import duties of raw material and full exemption from SAD for mobile phones to boost cellphone industry
- Central excise duty rate unchanged at 10%
- Rate of service tax continues at 10%
- Clarification on the IT Software for non-rsp’able software imports
- New scheme to be introduced for refund of service tax on lines of drawback of duties.
- Concessional import duty structure of 5% CVD and nil SAD on prescribed parts for manufacture of DVD-writers, combo drives and CD drives subject to actual user option will drive the manufacturing options, but
- An INCREASE in excise duty to 5% for microprocessors, DVD-writers, CD-writers, Floppy Disk Drives, Flash drives will increase the PC rates for the consumer. MORE IMPORTANT, this will actually make manufacturing more expensive than imports killing the domestic industry!
"On the flip side - it is extremely disappointing that the bulk of the electronics manufacturing sector will continue to see an exposure to SAD - a controversial 4% duty that promotes imports at the cost of manufacture. By missing on a long-standing demand of the industry - another year is lost for a breakthrough in India manufacturing," said Aggarwal.
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