PREVIOUS ISSUES

 Special Focus

 Average Budget

Six industry veterans present their analyses of the Union Budget 2010

Naresh Wadhwa President, Cisco India and SAARC

“I expected the government to extend the STPI scheme till 2015”

The government initiative to leverage technology as a tool for accountability and better governance is a step in the right direction. Funds allocation for e-governance schemes like the Unique Identity Number and the formation of a Centralized Processing Centre in Bengaluru to process electronically filed tax returns will enable effective delivery of public services through public-private partnerships.
The increased budgetary provision for the scheme ‘Mission in Education through ICT’ will help take the benefits of IT to the grassroots in a critical sector like education.
The abolishment of the Fringe Benefit Tax (FBT) will reduce the administrative overheads and travel-related costs for companies.
Extension of the Software Technology Parks of India (STPI) scheme by a year is a welcome step. However, considering the tough economic climate I expected an extension till 2015. Overall, the impetus given to inclusive development by way of infrastructure, rural and education development is encouraging.
At the same time the budget has not done justice to large scale reforms that were expected by the industry. The increasing fiscal deficit is clearly a concern. It appears that the FM’s thrust is on achieving 9 percent GDP growth, which he believes will eventually help increase tax collections and thus help bridge the fiscal deficit.

KR Naik Chairman, Smartlink Networks Systems

“The FM has taken no concrete steps to hasten the economic recovery”

Though the Union Budget 2010 addresses many socio-economic concerns, and has a lot for rural India, it does not have any significant measures to provide boost to the overall economy.
While the budget outlay for rural schemes is a good step, we all know that only a small portion of the planned outlay for such schemes, actually reaches the intended recipient.
The recessionary trends are still very much prevalent, and disappointingly the FM has taken no concrete steps to hasten the economic recovery. For instance, the investment in infrastructure seems too modest compared to what is required.
My biggest grouse is and has been the complete indifference shown to the IT hardware manufacturing sector. IT hardware industry has never been supported. While many large EMS companies want to set up their presence in India, their plans have been hindered by the lack of a comprehensive policy.
In the earlier days, a majority of IT hardware jobs in India were related to assembling of products in order to get tax benefits. But today even that advantage doesn’t exist, as there is a marginal difference in duties on component kits and finished products.
Local IT manufacturers don’t want sops, but the least it expects from the government is to remove regulatory and taxation hurdles which will provide them a level-playing field to compete with the manufacturers in China.
Removal of the FBT is a good move but it still continues to be levied on ESOP. This to my mind impedes the entrepreneurial culture in organizations, as ESOPs give employees an opportunity to become part owners of the companies they work for.
Overall, I would say the FM could have done much more and has missed an opportunity.

TG Ramesh Director, Precision Infomatics

“Removal of FBT will create higher tax liabilities for employees”

While the FM Pranab Mukherjee has got the vision right of reviving the economy and putting it on the path to 9 percent GDP growth, I am not sure if he will able to execute the vision as the Budget makes no reference to how the government proposes to raise capital for the various well-intended rural schemes.
With a strong mandate, everyone expected this government to come out with key policy framework for PSU divestment and disinvestment, raise in FDI limit for BFSI sector and increase in FII limit for key sectors. 
While the abolition of FBT has been welcomed by most, I don’t see it having any significant tax savings for companies. To my mind the removal of FBT will create higher tax liabilities for employees as the tax arbitrage available with FBT will no longer be available and the perquisites forming part of their salaries would be liable for tax and this will reduce their net take-home.
This would necessitate companies to rework the compensation of employees to ensure that their net take-home is maintained.
What is most disappointing is that the FM has done nothing to address the ambiguity of double taxation (VAT and service tax) that exists on packaged software. Another area of concern is the proposed amendment in computing MAT, where provisions for diminution in asset value needs to be factored. This would increase the tax liability and potentially lead to a higher tax cash outflow.
Overall the budget is good on intent but doesn’t talk much about execution.

Sushil Sancheti VP, Finance, Neoteric Informatique

“High fiscal deficit will force government to borrow more thus pushing up interest rates”

The positives of this Budget are the continuation of the incentives offered in the earlier stimulus packages which included excise and service tax reductions and removal of surcharge on personal Income tax which will lead to increase in disposable income of consumers.
However, I would have liked the FM to increase the tax exemption limit by Rs 50,000 to Rs 2 lakh rather than the mere Rs 10,000 enhancement announced.
The extension of the STPI scheme will ensure that IT & ITES sector which is the largest IT spender will continue to generate demand. Increase in the allocation for the rural employment guarantee scheme will help fuel demand in upcountry locations.
It was also good to see the FM lay out a clear roadmap for the introduction of GST from April 2010.

In case of MAT, additional 5 percent outgo on tax front will erode the surplus cash flow available with corporate falling under MAT. 
While the FM’s focus on boosting GDP growth at the cost of increased fiscal deficit is the need of the hour, the lack of clarity on how this deficit will be bridged is a cause of concern. With the fiscal deficit pegged at 6.8 percent, the government will have to borrow large amounts of money and this will push up the interest rates and inflation.
A decision on FDI in certain sectors would have brought more investments in India and this would have fueled overall demand for IT products, however the FM didn’t oblige.
Overall the budget has retained the benefits given in the earlier stimulus packages but is non-committal on prudent policy reforms related to FDI, fuel price decontrol, etc.

Suresh Pansari MD, Rashi Peripherals

“IT Exemption limit of Rs 2 lakh would have put more money in consumers’ hands”
Given the circumstances, it’s a good budget. I think the focus on growth despite an increase in the fiscal deficit is a good strategy by the FM.
Increase in spending on infrastructure will help in creation of demand. Also the government’s decision to continue with the stimulus measures, taken in November and January, by way of excise and customer duty reduction on IT products is a welcome move. Also the reduction of import duties on LCD panels will in some way help IT demand.
However there were expectations of increase in exemption limit for personal Income tax to Rs 2 lakh which didn’t happen. If it had happened, it would have put more money in the hands of the consumer which would have aided demand.
While removal of surcharge on income tax is a positive move, the government should have also removed education cess.
In essence the budget doesn’t have anything specific that can have a direct positive or negative impact on the IT industry. So in that sense it maintains a status quo.

R Manikandan Business Group Marketing Head, Business solutions, LG India

“The IT industry needs a stable environment to prosper and the budget does provide that”

The IT industry in India has been showing positive growth in the recent years. Every IT player was eagerly awaiting the budget announcement, and had expectations from it.
I expected a favorable duty regime with incentives for component manufacturers. Reduction of CST on IT products was anticipated. Furthermore, decrease in CVD on IT peripherals would have brought cheer to all of us. But disappointingly none of these has been addressed. My biggest concern about this budget is the fiscal deficit of 6.8 percent. 
Abolition of FBT and extension of the STPI scheme are positive steps. Other positive measures include removal of excise duty on packaged software, refund of service tax on overseas services and abolition of surcharge on Income tax. These measures will help catalyze demand.
The IT industry needs a stable environment to prosper and for me the Budget will ensure that the IT industry moves at the same pace as in the recent years.