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 Budget 2010 Hits & Misses

While the IT industry has welcomed the budget as fairly balanced and progressive from an overall economic perspective, they rue the fact that the Finance Minister hasn’t done enough for the IT industry 

 By CRN Network

Andrew Horne Managing Director, Xerox India

“The common man will benefit from the increased slab of income tax as this would boost his income”
This year's budget is aimed in the positive direction. The impressive growth of the manufacturing sector in the Q3 FY2009-10 has reinforced that the economy is reviving; but we need to move ahead with caution.
With the continued support from government on stimulating the economic recovery, the industry will be able to strengthen itself further.
The Technology Advisory Group for Unique Projects (TAGUP) is a commendable initiative by the government and a step closer towards e-governance.
In addition, simplification of the FDI policy will surely help improve the overall investment environment.
The common man will benefit from the increased slab of income tax and this would be a great way to boost the average mid-level income group. The great emphasis on the agriculture sector as well as increased allocation under National Rural Employment Guarantee Scheme (NREGS) will help the common man in a large way.
However, while the budget speaks about the high food inflation, the common man may still be clueless on the soaring prices of food. This has to be addressed immediately.
Overall, it is a good budget that has looked into all the aspects of the economy. India Inc is surely looking forward to the continuation of the stimulus package, but the increase in countervailing duty (CVD) is disappointing as it adds to price pressures.

Naresh Wadhwa President and Country Manager, Cisco India and Saarc

“There is a need for resource allocation for extensive broadband roll out and undertaking e-governance projects”  
The budget for 2010-11 is significantly focused on inclusive growth and development, and this is likely to resonate well with most sections of society. The increased emphasis on infrastructure development, both urban and rural, as well as social welfare is commendable.
Setting up of the National Clean Energy Fund to encourage research and technology projects in the clean energy space, and the increased outlay for renewable energy are good first steps towards exploring solutions to reduce our dependence on fossil fuels.
The tax reforms on in-house R&D expenses, and also on contributions made towards scientific research to associations, colleges, universities and other institutions is a leg-up for research and development.
The Unique Identification Authority of India (UIDAI) has taken a lead among national e-governance initiatives, and the setting up of a TAGUP under this umbrella indicates the government's commitment to IT projects.
Nevertheless, there is a need to allocate resources for extensive broadband roll out and to undertake e-governance projects for citizen services (public utilities).
The lack of extension of tax benefits for Software Technology Parks of India (STPI) units and increase in minimum alternate tax (MAT), though nominal, is somewhat of a disappointment, and likely to impact the small and medium companies the most. However, the importance given to SEZs will help drive employment and exports in the country.
While the reduction in the personal Income Tax will influence consumption patterns and indirectly benefit the economy, corporate tax reforms are yet to get their due.

S Rajendran Chief Marketing Officer, Acer India

“The budget complicates the Excise on MRP issue as all imported products now require MRP stickers at the time of import”
The Budget 2010-11 is fairly balanced and progressive. Focus on core sectors like education, health and infrastructure, with enhanced fund allocations is expected to pave the way for building a vibrant and competitive India.
There are some positives for the PC industry as well. The Financial Inclusion Fund extending banking to rural areas, and the scaling up of the smart card project for health insurance will surely give a fillip to IT investments.
The move to set up a TAGUP under the leadership of Nandan Nilekani, Chairman, Unique Identification Authority of India (UIDAI), for rapid adoption of IT in the area of taxation, pension, treasury, and infrastructure is indicative of the government’s serious resolve to promote e-governance.
However, what’s disappointing is the CVD roll back to 10 percent for the PC industry. The industry has been through a very difficult phase, and has in fact seen a negative growth in FY2009-10. By this virtue, I feel the 8 percent rate should have continued for an additional year.
It is a bit of an anomaly that despite showing positive growth, the mobile handset manufacturing has been given an extension of this tax benefit till 2011.
It is also disappointing to see that the government has failed to address the issues of Excise on MRP, and the abatement ratio applicable on IT products. Instead, the budget further complicates the issue with the new proposal that states all imported products now require MRP stickers at the time of import. This is not pragmatic at all as many products, imported form our factories, take 30-45 days to reach India. During this period there could be severe Forex fluctuations, and IT products, due to their high obsolescence rate, would see price cuts.
Many states are moving from the uniform 4 percent VAT on IT products to higher slabs of 5 to 5.5 percent. We are trying to address this issue through Manufacturers' Association for Information Technology (MAIT). However, we are hoping that the FM takes measures to address this matter with the state governments.
We also expected the budget to announce some bold policy initiatives to make broadband more pervasive and affordable, as it would have greatly helped boost PC demand.

Vinnie Mehta Executive Director, MAIT

“Retaining 4 percent SAD on input products like processors, HDDs, DVD drives doesn’t augur well for PC manufacturing”  
Overall, we are happy with the budget presented by the Finance Minister (FM), Pranab Mukherjee. The declared policy objective to revert to a high GDP growth of 9 percent, and making economic development more inclusive and robust is noteworthy.
It is heartening to see that the FM has recognized the potential of the electronics industry and its role in energy generation. In this regard, the announcement of customs duty concession of 5 percent on machinery and equipments for setting up photovoltaic manufacturing and solar power units is welcomed.
The other notable proposal is the extension of weighted deduction on expenditure on in-house R&D from 150 to 200 percent. This will increase the country’s potential as an R&D destination.
The exemption of basic custom duty, CVD and special additional duty (SAD) on batteries and hands-free headphones for mobile phones will enable backward integration of mobile manufacturing.
Additionally, the exemption of SAD on pre-packaged goods for retail is a welcome step as the SAD rebates were often unpaid. But, at the same time, retaining 4 percent SAD on input products like microprocessors, HDD, DVD drives doesn’t augur well for hardware manufacturing in the country and should have been removed.

Suresh Pansari Managing Director, Rashi Peripherals

“Customs is finding it difficult to classify flash memory, as it is used in multiple devices that fall under different tax slabs”
The Budget 2010-11 holds no surprises, but the FM’s statement about setting high GDP growth target is welcomed.
The increase in CVD by 2 percent is likely to increase the rates of almost all imported products like laptops, PCs and motherboards. But it is unlikely that the increase will have any major impact on the demand.
The removal of SAD on retail products is a welcome move as the process of claiming SAD rebates on these products has been complicated. However, we are yet to see different ports implement the rules and clarifications have been sought.
The increased slab on personal Income Tax will benefit common man and would give a boost to his disposable income, which will in turn fuel demand.
The only major ambiguity is with regards to flash memory. The customs officials are finding it difficult to classify this product, since flash memory is used in multiple devices that fall under different tax slabs.
For example, if used inside a PC or a laptop, flash memory attracts no duties. But when sold as USB drives (external storage) it attracts 4 percent SAD. Memory cards used inside a camera or mobile phone attract CVD as both are categorized as consumer accessories. The customs officials are still unclear about the interpretation and this will continue until an official notification is issued.
The issue of Excise on MRP and the abatement ratio on IT products is likely to become more complex in the coming days with amendments to the existing rule in the pipeline.