Indian budget gets thumbs down from infotech industry

17th March 2012
Indian budget gets thumbs down from infotech industry

March 16 2012: Disappointment is writ large across the Indian IT and telecom sector – as it tries to size up the national budget presented on March 16: With almost none of the items on its wish list figuring in the Finance Minister’s speech, key industry voices scraped desperately, looking for a silver lining in the small print – and could find little, except the promise of big public spending on projects like a nationwide fertilzer data base and the Aadhar universal ID initiative. 
Even this was taken with a hefty pinch of salt, since other arms of the same government have been busy for weeks now, cutting Aadhar’s legs, so to speak. Good cop, bad cop, anyone?
This Government has by now become adept at giving with one hand ( to orchestrated applause in parliament) and taking away with the other: Mobile phone parts for indigenous manufacture will be exempt from many levies – but every one knows even the most basic smart phone ( which is what every Indian is promised to empower himself or herself) is still mostly imported. And even the entry level feature phones albeit marginally cheaper will cost more to own and operate thanks to an across the board increase in service tax to 12 %.
We append quotes from IT industry leaders and industry bodies ( in no particular order) and as we get our hands on the ‘fine print’ we will come back with any blinding flashes of wisdom we get.

NASSCOM: Budget 2012 is disappointing on various counts – there is no focus on putting the economy on a high growth trajectory; fiscal deficit reduction is through higher taxation, rather than expenditure management; there is no roadmap on implementation of DTC and GST; and also issues of tax simplification, litigation have not been addressed. The continuing uncertain business environment will be negative for investment and hence for growth as well. Equally important, given the current account deficit, there is need to provide a strategic thrust on high value exports; this aspect has been totally ignored.
While the focus on infrastructure through various schemes is positive, the increase in indirect taxes both service tax and excise is a setback.
For the USD 100 billion IT-BPO Sector, budget expectations largely focused on a simplified, consistent and credible policy environment that is implemented in letter and spirit. However, the fine print, some of which is still to be analyzed, has many provisions which appear retrograde, increasing discretionary powers and interpretation issues.

Manufacturers’ Association for Information Technology: Union Budget 2012-13 has enhanced focus on skills for national and industry development.
The industry body expressed satisfaction as it is a good move to enhance the enrolment of aadhar cards by another Rs 400 million as it will lead to financial inclusion through schemes like MNREGA, old age and other pensions and scholarships. Together with the planned fibre optic connectivity of gram panchayats, this will lead to more usage of consumer premise equipment’s and other handhelds. It is a welcome move to use technology to cut down leakages in disbursements of subsidies in the form of mobile-based Fertiliser Management System whereby the subsidy is transferred to the retailer and finally to the farmer. This will lead to increased buying power of the rural areas. We welcome the excise duty reduction to 6% for LED lamps and fully exemption of SAD. Full exemption from basic customs duty and additional duty of customs to parts, components and sub-parts for manufacture of memory cards for mobile phones, and full exemption of basic customs duty on LCD and LED TV panels.

PVG Menon, President, India Semiconductor Association: ISA broadly welcomes the budget with it’s thrust on accelerating overall GDP growth from 6.9% to 7.6%. We welcome the thrust given to areas like infrastructure development, skill development, encouragement of R&D, and the focus on helping SME’s. However, we view with concern the increase in Service Tax and increase in excise duty on certain items which are traditional consumers of the electronics and components industry in India. We would have liked to see some initiatives being announced for the promotion of the domestic Electronics Design and Manufacturing (ESDM) industry, which has a potential to grow to $400 Bn by year 2020.

PraveenBhadada, Director, Market Expansion, Zinnov Consulting: It is surprising to see that there is no direct focus being given to the IT industry in the budget this year. World over, this decade is defined as a decade of information technology driven inclusive growth and the lack of focus on IT in the budget would not do any good to the already deteriorating image of India as an investment destination. Having said this, there are lot of indirect opportunities that will arise as the government lay specific focus on areas such as skill development, micro finance banks, national land bank, custom duty relaxation on mobile phone parts, etc. Companies who can focus on these priority segments from an IT stand point are poised to benefit from the large scale that India offers. Telecom, manufacturing and infrastructure are the key verticals to focus on. Flexibility on VC investments, opening up of Aadhar platform etc.would also provide ample opportunities to tech focused start ups.

Hemant Joshi, Partner, Deloitte Haskin & Sells: The biggest disappointment is that telecom sector has not been granted an INFRASTRUCTURE STATUS especially when it is a great enabler in increasing GDP growth rate. Accordingly concession/focus given to power, port etc. sectors have not been given to the telecom sector.
Positives for Telecom Sector: The Budget has introduced a viability gap funding for telecom towers. This may help in increasing telecom density in rural areas. The previously launched USO fund scheme was helping the telecom development in rural sector. However with this budgetary allocation, growth of towers in rural areas is likely to accelerate and improve rural connectivity. Mobile phone parts have been exempted from custom duty which is likely to decrease the prices of handsets manufactured in India.

N. Chandrasekaran, CEO & MD, Tata Consultancy Services: Given the economic and political circumstances, the FM has presented a pragmatic budget with doses of good intentions for long-term growth but lacked short term punch to get growth going. For the IT industry, the request to exempt SEZ income from MAT has not been granted and this is disappointing. The focus on R&D is good as the weighted deduction of 200% for R&D expenditure in an in-house facility has been extended beyond March 31, 2012 for a further period of five years.

V Balakrishnan, Chief Financial Officer, Infosys: Looking at the current global uncertain economic environment, the budget looks like a very pragmatic and realistic one. The approach to the budget is very clear – focus on more inclusive growth, invest more in infrastructure, create mechanism to give financial support to some of the ailing sectors of the economy, expand the tax base, bring efficiency in subsidy spending and focus on transparency by taking some steps to arrest the black money. Overall, no big bang reforms or changes but maintaining the status quo, provides some hope to sail through the difficult year.
The focus on infrastructure, health and education is a step in the right direction. The move towards increasing the tax base for service tax and increasing the service tax and Excise duty is understandable looking at the need to increase the tax revenues for the Government. It is; however, disappointing to see that no clear timelines had been specified on implementing some of the big ticket reforms like GST, DTC and FDI on Multi-brand retail. It clearly shows that political consensus is lacking on these big ticket reforms.

Rajesh Janey, President, EMC India & SAARC: The increased outlays on education with an emphasis of skilling the youth are necessary steps to leverage the demographic divided in the future and tap emerging opportunities in the areas of Information Technology such as cloud computing and Big Data. The decision to increase investment in Aadhar and leverage technology more in larger service delivery initiatives will also provide impetus to the domestic IT sector. Additionally, 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.

Suresh Rao, Group CFO, Mindteck: The budget has focused on resource mobilization through indirect taxes. My initial thought, at this point is that it could lead to inflationary pressures in the economy and work against growth in the manufacturing sector. Besides, the will to take hard policy decisions was missing and this may hurt business confidence just when it is needed the most."

Rajdeep Endow, Managing Director, Sapient India: On the whole it has been a very average budget. There was an opportunity to make some clear moves to move the needle on growth and investment. Instead, we have been given a safe budget. The increase in excise duty and service tax will hurt growth and will likely cause inflationary pressures. For the IT industry, I expected to see MAT exemption to SEZ units, which did not happen. On the positive side, I welcome the increased investment in education, health care and housing.

Guruswamy Ganesh, VP and Country Manager, Freescale Semiconductor India: The Budget focus has been on promising growth and the Budget has provisioned for actual delivery. FM has been reasonable in setting a growth target of 7.6% for the next financial year with the Fiscal deficit estimation at 5.1% is well within probable range...The hike in Service tax rate from 10% to 12 % will surely add an additional burden on the Service Industry as a whole. Introduction of negative service tax list and restriction of exemption to limited sectors will lead to widen service tax net and have a huge impact on the Industry.

Naresh Wadhwa, President & Country Manager, Cisco India and SAARC: The government’s focus this year on enabling “faster, sustainable and more inclusive growth, ”through the twelfth five year plan is welcome. Scaling up of the Aadhar project as well as enabling it to support PDS will greatly benefit the common man. Leveraging technology to transfer subsidies directly to beneficiaries is definitely a positive step.
The budget lays considerable focus on infrastructure and rural development. The increased infrastructure spending and the plan to set up ultra small branches under the ‘Swabhiman’ campaign is encouraging.

Minakshi Batra, Director India, IDA Ireland: India’s economic growth was marred last year with slower recovery due to deceleration inindustrial growth as well as external factors like euro debt crisis and politicalturmoil in Middle East. Against this context, the Union Budget presented by the Finance Minister today was realistic in nature aimed towards bringing the increasing fiscal deficit under control, ensure fiscal discipline and boosting the government's revenues.

Ashutosh Prabhudesai, Controller & Director Finance, FUJITSU CONSULTING INDIA: The Finance Minister has demonstrated the “in-principle” acceptance for moving towards Unified GST by standardizing the tax Rates across the spectrum of Services. The rationalization of tax slabs for non corporate income taxes is also a step towards the implementation of Direct Taxes Code. However the excise duty increases and Service tax rate increase would mean higher costs for the Industry. The pill could have been sweetened by a reduction in corporate tax rates which did not happen

Sanjay Deshmukh, Area Vice President – India Subcontinent, Citrix Systems India :As a foreign corporation with an Indian subsidiary, the government’s plan to introduce tax reforms for the enactment of Direct Tax CodeBill is encouraging for us. The move to set up the GST network as a National Information Utility and operationalize it by August 2012 is also favourable for the industry. The budget has also recognised the role of technology in creating a citizen centric governance framework, reflected in the subsidy provided for Aadhaar tablet enabled payments for various government schemes in at least 50districts within next 6 months. This is particularly of interest to us as we at Citrix are helping customers to enable on-demand access to desktops, applications and data on tablets in their workplace which results in increased productivity.
That said, there have been no mentions of clearing the ambiguity around treating software as goods (subject to VAT) or as service (and subject to service tax). We were also hopeful of revisions around the Minimum Alternate Tax (MAT) on SEZ as last year it saw the investments in SEZs going down. Amendments towards this end would have helped the industry create a conducive environment to attract both local as well as foreign investments into the country.

V R Ferose, Managing Director, SAP Labs India: Although it was a STATUS QUO budget aimed at fiscal consolidation, there were quite a few bright spots for the industry. The Finance Minister re-emphasized the need for GST (Goods and Service Tax) to replace the existing Indirect Tax framework. This would have a far reaching impact on the industry as a whole and hence should be implemented on a fast track mode. It is also good to know that GSTN would be made operational by August 2012. Explicit fund allocation to UID-AADHAAR project is another positive indication and would have far reaching benefits to the social mass of India. The Budget has also brought in certain changes to existing Excise and Service Tax structure. The introduction of New Tax slabs at Direct tax framework lays a foundation for early enablement of DTC (Direct Tax Code) in India

Anil Valluri, President – NetApp India Marketing & Services: While the fact that Corporate tax not being tinkered with is probably the only source of joy for private industry in general, the Finance Minister has been consistent with his social inclusion agenda with the rise in allocations for several key schemes including rural sanitation, water and education. Skill development is the other area where that has seen some focus with a commendable credit guarantee scheme rolling out in addition to enhanced allocation for the National Skill Development Council. This will solve a lot of problems being faced by industry in general and the IT industry specifically. The move towards improving governance with a new bill addressing procurement concerns in the government is a good sign. I do believe increased technology investments in government systems will be an imperative in this area. The burden on the average tax payer however is set to go up with this budget, with concerns around price rise aggravate coupled with proposed increase in excise duty and service tax with no significant tax exemptions announced. Overall a conservative and cautious budget focusing on fiscal consolidation.

Rameshkumar V, Chief Financial Officer Global,CSS Corp: This budget sought to lay the foundation for the twelfth five year plan. This year there has been a fair balance on the moving variables front. While there have been significant initiatives taken for infrastructure and agriculture, there could have been more relief on the Income Tax & Service tax to balance the budget plan. There is a marginal increase in NHRM provision for healthcare which is a pre requisite in a county like ours and the focus on education is commendable. In terms of subsidies (fuel and basic amenities), it is being played to the gallery. Though there is a thrust on infrastructure, agriculture, education and healthcare, there is less cheer to the IT industry and to the common man. We are hoping that this budget lays a foundation for the nation to become the India we envision in 2020.

Dippak Khurana, CEO & Co-Founder, Although the budget doesn’t majorly focus on telecom and allied industries, there are a few provisions which are very crucial from a populist perspective: The exemption of duty on mobile phone parts is surely an ecosystem enabler as it will lower the market prices of phones which are being assembled in India. This will help us achieve not only last mile connectivity but will fuel growth of ancillary sectors such as mobile content development, mobile banking, mobile advertising etc.
Over all, the government realises the role that mobile devices have to play in enhancing and streamlining IT oriented citizen centric governance framework. This is reflected by two provisions in the government 1)creation of a mobile-based fertilizer management system that will provide end to-end information on movement of fertilisers and subsidies. 2) roll out Aadhaar tablet enabled payments for various government schemes in at least 50districts within next 6 months.
However, the increase in the service tax from 10% to 12% will adversely affect the masses as mobile phone bills will become higher. Barring this negative point, the rest of the provisions in the budget are encouraging for the sector per se.