For the IT sector, tax cuts are mostly cosmetic

February 25, '09: BANGALORE: Anand Parthasarathy comments on what the latest fiscal stimulus package means for the IT industry

Tuesday's announcement by the Indian government of the economic stimulus package ( instalment #3) has turned out to be a damp squib as far as the IT sector is concerned. The 2 percent reduction of the 10% excise duty slab will benefit PC peripherals like printers and optical drives -- but is too small to make much of an impact on the market penetration. The excise on PCs and notebooks is still pegged at 8 percent ( since December, when government reversed a bizarre hike to 12 percent) and it is also no-change on the software side -- taxed at 4 % after years of the zero tax regime initiated with the pious intention of increasing computer literacy.

In fact, such cosmetic tinkering plays little part in helping millions of lay Indians buy that first PC or Internet device: If they become more affordable every year, customers have to thank galloping technology and aggressive marketing by IT majors rather than any proactive government measures. This is the time of the year when the hardware sector looks to offload a lot of its inventory -- but if they were waiting to see what help government would give them as sweeteners for the customer, they need wait no longer: The only way cash strapped lay buyers and the small biz players are going to be able to buy PC related hardware this fiscal year, is if they are offered really good deals. So get cracking on your schemes, guys!

The reduction on service tax from 2 to 10 percent for a slew of services will see mobile and fixed telephone bills go down slightly for all subscribers and will reduce the bill for many of the services that the IT sector depends on.

But those looking for bold or innovative ideas to combat the recession will be disappointed; we can barely muster the effort to say two cheers, let alone three for the acting finance minister's latest announcement.