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BW Businessworld

Increase In Excise Duty Is Not Welcome

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Mohit Anand, MD, Belkin India Sub-continent

The announcement of intent on implementation of GST is a matter of great hope for the IT industry since it will bring down overall cost of goods and services in the country, what is now needed is translation of this intent into actual implementation by August 2012 as envisaged by the Finance Minister. Also, the fact that efforts are being made towards the implementation of FDI have instilled great hope and anticipation in the industry. The issue of FDI in multi brand retail should be resolved and implemented with top most priority as this would be a boon for consumers and industry alike. The 2 per cent increase in excise duty is not a very welcoming news as this would have a direct impact on increasing prices and would hurt already weak consumer sentiment .However, I am hopeful that the positive sentiment injected by this year's union budget will create an environment of economic progress.

Alok Bharadwaj, Senior Vice President, Canon India

India has built a robust IT & ITeS sector, which has added enormous value to economic growth in last decade. The future lies in how India builds IT consumption & production for India by India. This means robust domestic IT industry. The IT industry has been advocating several changes in policies to boost IT adoption. Financial year of 2011-12 has been a disaster for Indian IT hardware industry. After major natural disasters that disrupted supply chains & Rupee devaluation that impacted bottom lines of all IT hardware companies in India, industry had a dismal flat growth. The IT industry is intertwined with the GDP Growth and a big enabler. Besides the societal benefits of increased penetration of ICT, e- Governance is the best way to reach out to masses. Hence, rapid adoption of IT in all Govt. schemes is must. Financing support to students and making PC/Laptops eligible for priority loans etc. are the steps that can enhance penetration and we expected some announcements there. As Domestic manufacturing for electronic and IT hardware is now a ‘national agenda', the industry had requested for corrections in duty structure and announcement of strong measures to attract FDI in this sector. We expected abolition of Special Additional Duty (SAD) for components & parts which would make manufacturing competitive to the imports of finished goods. Also to encouraged manufacturing in ICT sector, MAT should have been abolished or subsidized for this industry, for certain period to help manufacturing achieve global scale. Unfortunately we missed the buss here.

After the triple whammy of last financial year for IT domestic demand due to Thailand floods, Rupee devaluation and lower IT investments causing a flat growth for Rs 70,000 Cr Indian IT Hardware industry, we expected a budget that adds some fuel to our fire. Electronic and IT hardware manufacturing is another focus area being watched by the world as companies are looking at China, Indonesia, Thailand and Bangladesh. Although it was a subdued expectation after the visible domestic politics dynamics, yet we expected some reforms and simplification to get this going. Especially the excise duty hike might result in an inflationary situation. The announcements during this budget fall short and yet another year lost in making India take the industrialization 6 lane-highway route.

Lavanya Rastogi, President, Global Operations OSSCube Solutions

On a scale of 10, the Union Budget is a dreary 6!

In one word, I would describe the budget as Unimaginative! : No Stimulus - No reform - No Course Correction

At its simplest Budget 2012 seems to be mainly a patchwork of policy tweaks -and vanilla prescriptions for various sectors of the economy. It fails to deliver any clear signal to India Inc about the Government's commitment to reform and growth.

It does seem to be peppered with promises of FDI reform but no concrete timeline on offer makes it less believable in the current political climate with allies already indulging in the theater of the absurd with Rail budget.

The IT industry for Third year in a row seems to have been overlooked with much expected adjustments to SEZ regime and support for SME's failing to make it the roster once again.  Support for UID is the sole good news on the domestic IT.

Aam Admi does walk away with a few goodies like Tax break etc but will need to be a beneficiary of the social safety net - to really feel being taken care of by the FM

S. Sridharan, Managing Director, TAKE Solutions

The finance minister has indicated higher growth for 2012-13 and forecasted reduction in inflation. The positives are promise of maintaining fiscal balance and increase in investments in infrastructure, which could spur growth. The FM has also brought back the focus on reforms, which would have a positive impact on the investor sentiment. Specific to IT industry the budget seems to have some negative impact in the form of increase in service tax from 10 per cent to 12 per cent.

The IT industry demand for removal of MAT on SEZ, removal of dual levies on software, simplifying transfer pricing and clarification on withholding tax on software downloads does not seem to have been addressed. While the 1000 crore investment into skill development is towards adding better talent pool to the IT Industry. Over it's all a pragmatic budget.

Mahavir Chand, Managing Director, GoDB Tech

A status quo budget. Use of Mobile technology to manage fertiliser movement and subsidy is a novel step and will act as catalyst for other M-governance projects. Service tax base widened  and little relief for common man.

Ganesh Natarajan, President & CEO, Zensar Technologies

Nothing much in the budget for IT and not enough focus on incentives for skill building or Tier 3 cities :The announced advance pricing agreement may help transfer pricing decisions and the USD 1 bn vc fund focused on msme is good for entrepreneurship.

Dinesh Jain, Country Manager, Teradata India

Overall it is a mixed, non-controversial  budget with no bold decisions that can lead to overall business growth including the  domestic IT sector. There is no policy movement to increase FDI in Multi-brand retail or insurance sectors that need large foreign investments. Increase in service tax is a dampener for the services sector, including IT. The positive aspect of budget is the increased government spending in technology that would drive overall domestic IT spend.

R. Chandrasekaran, Group Chief Executive, Technology & Operations, Cognizant

The IT services industry that was looking forward to stability, consistency and simplicity in policymaking was served a mixed bag.  For the industry, which has been looking for greater clarity in transfer pricing, the move by the Finance Minister to implement the Advance Pricing Agreement is a serious recognition of the importance of cross-border trade in a globalized economy and would usher in greater tax certainty for foreign investors in the coming years. This, along with the phased move towards the Direct Taxes Code, is a welcome development and a move towards stability in tax structure. However, the ‘retrospective amendments' made are poised to introduce significant uncertainty and increase the cost of doing business in India.
P. Venkatesh, Director & Co-founder, Maveric Systems

SEZ: Large as well as medium IT enterprises have invested in infrastructure in an SEZ believing that the government would be consistent in their fiscal policies. The critical reasons why it is not possible to exit these spaces in a short span are:

  • Investments in interiors, piping for air-conditioning and power and furnishing are not removable; therefore, would need to eb repeated while moving out;

  • Most leases specify a minimum or lock-in period that varies between 3 and 5 years; exit within those period involve penalty; and

  • Accreditations under ISO 9000 or 27000 ; as well as connectivity permissions from clients are location specific; it is hard to secure for a new place and may warrant anywhere between 6 months and a year to secure them if a change is needed.

Suggestion: The concession required is to remove the applicability of MAT for such entities.
Budget: Not Addressed

2.  Assistance in funding
IT is a significant contributor to our exports accounting for more than a quarter. The merchandise exporting units qualify for concessional finance for pre and post shipment credit when compared to the normal commercial lending. Also, most of the small and medium IT enterprises do not have much to offer as collateral.

Suggestion: Some of the latest entrants require working funds from banks for undertaking their operations. The benefits of concessional interest and lower collateral to their financing should be extended to IT units as well. Also, term lending on relaxed collateral terms need to be extended for their capital requirement.Budget: 72. The Small and Medium Enterprises (SMEs) are the building blocks of our economy. They rely primarily on loans from banks and informal sources to raise capital. To enable these enterprises greater access to finance, two SME exchanges have been launched in Mumbai recently.

3. Assistance during the difficult time
There is a lot of uncertainty during the financial crises in the Euro zone. This is accentuated by low or negative growth in most markets. Most of the high growth economies have some barriers to trade and therefore are not accessible at all or at elast for small and medium enterprises. The IT industry is moving in to a low growth phase, perhaps for the first time, in its life cycle in India. : It therefore requires the all the support in order to enable it to come through this phase in good shape.

Suggestion: The chief steps or initiatives that would help are:

  •  IT product development should be given special concessions under tax; a rebate at 150% of the expenditure, both capital and revenue, should be extended;

  • The rate of depreciation for computer equipment and software should be 60% of their cost;

  • Benefits of Sec 72A of the income tax relating to carry forward and set off of business loss in the case of amalgamation or merger should be extended to IT as well;

  • There is going to severe currency exchange rate fluctuation in the next few years. In order to help the SME in the IT industry, a fixed exchange support mechanism for dealings in key currencies should be extended; and

  • In order to encourage IT product development and the consequent intellectual property rights (IPR) creation, Employee stock option scheme (ESOP) of such companies should be exempt from tax.

Budget : 146. To promote investment in research and development, it is proposed to extend the weighted deduction of 200 per cent for R&D expenditure in an in-house facility beyond March 31, 2012 for a further period of five years.

4. Share in the growing domestic
IT  marketIT is and has been an export led segment. Only in the last three years, the domestic IT spend is reaching a scale warranting the service providers to focus on this segment. This prejudices the small and medium enterprises who have been focusing on the domestic market for a long time.

Suggestion: A large part of the expenditure is being met by government and their owned enterprises. They should earmark, say, 15-20% of their spend to come from Small and Medium enterprises (SME) who should be provided a 15% price advantage. This is no different from what is prevalent for sourcing goods.

Budget: 73. With the objective of promoting market access of Micro and Small Enterprises, Government has approved a policy which requires Ministries and CPSEs to make a minimum of 20 per cent of their annual purchases from MSEs. Of this, 4 per cent will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.

5. Corrective measures
There is a confusion regarding packaged software- whether it is a good or a service. The surcharge and education cess were introduced as interim measure.Suggestion: It would be better to clarify whether packaged software is a good or service. The imposts for interim measure need to be removed.

Budget: Not addressed