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BW Businessworld

Putting Tech At The Core

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The thrust of last year’s interim Budget, presented by the Narendra Modi-led government, had been an ideological shift from populism and it veered towards an economy focused on growth. The expectations of the industry, from Finance Minister Arun Jaitley and the Budget in 2015 was to continue the positive sentiments in the economy. To that extent, the finance minister has done a great job in presenting a well-thought-out and balanced budget in the context of the challenges that the country is facing.

The focus on inclusive growth by strengthening infrastructure, policy reforms and skill-based job creation must be commended. There was one aspect that brought a smile to the IT sector and that was the fact for each of the government’s major initiatives, the underlining enabler is going to be technology and this means that there is a huge opportunity for the domestic IT industry to grow. The government is serious about leveraging technology to improve efficiency and increase transparency. The Budget and the policies announced will only strengthen the presence of technology; say for example, the "cashless" economy for subsidy transfer.

It was also interesting how the finance minister singled out the IT industry as one of the significant contributors to the Indian economy. Our industry does $100 billion of business and generates employment for 40 lakh people. It is in these technology driven areas that the government sees an opportunity to turn youth from job seekers to job creators. And the initiative of self employment and talent utilisation (Setu), a techno-financial incubation and facilitation programme for supporting startups, is a progressive step to encourage entrepreneurs. This is a positive move for the industry as entrepreneurs will boost innovation and bring new ideas. They will foster experiments with cutting edge technology, which aligns with the Make in India campaign of the government.

The second positive was the emphasis on leveraging technology for change initiatives — be it improvement of public distribution system or enabling the ease of doing business; technology remained the mainstay. The government’s focus on technology was evident when the finance minister announced an electronic platform for micro, small and medium enterprises called the Trade Receivables Discounting System (TReDS) through which they would be able to receive payments quickly. The finance minister also launched an e-portal that integrates 14 statutory permissions at one source. This is a welcome initiative that is not only aimed towards ease of doing business, but it will certainly attract foreign investors to set up businesses in India. The financial inclusion programme Jan Dhan Yojna has resulted in implementation of the JAM Trinity (Jan Dhan, Aadhar and Mobile), which aims to reduce subsidy leakage by leveraging Aadhar cards and mobiles. Here, the recipient gets the subsidy directly to his bank account and eliminates the involvement of middlemen. In my opinion, the overall focus on creating better technology infrastructure will automatically result in creation of avenues to deliver public services in a far efficient manner to citizens.

The third positive from the Budget was the direction that the government is taking in terms of corporate tax and General Anti Avoidance Rule (GAAR). The Corporate tax in India is as high at 30 per cent and we also have to pay additional educational cess and surcharge, which increases the effective tax rate to 33.99 per cent. The government intends to reduce corporate tax to 25 per cent, in a phased manner over the next four years, and also rationalise it by removing various exemptions that are provided to companies. I think, this will be beneficial for companies and will affect only few companies that used to monetise the exemption benefits through the lacunae in the system. Through this approach, the government will not lose out on tax collection.

The postponement of GAAR was a big positive and will definitely result in higher foreign investments. There was a lot of ambiguity around GAAR due to which foreign investors were apprehensive about to coming to India. The government has also clarified that it will be applicable to investments made after GAAR comes into effect. This has cleared a big uncertainty for investors as investments made by them today will not be taxed retrospectively when GAAR comes into effect.

Another important thing that I see in the Budget is the government’s priority for infrastructure and skill development. Two-thirds of India’s population is under 35 years of age and to ensure that the youth get proper jobs an initiative has been proposed that will invest in skill development. This will create an employable workforce not just for the IT industry, but across all the industries.

Everything in the Budget was not perfect, and it does not address all issues. We as companies build business plans to set up in special economic zones (SEZs) so as to take benefits of exemptions and tax incentives. Whereas the previous government, due to lack of resources, had raised the rates of the Minimum Alternative Tax (MAT), which totally negated the benefits of tax incentives and exemptions. The industry has been demanding that the government reduce or remove MAT for SEZs, since the economy is back on track and also because inflation is under control. But even in this Budget no action has been taken in this regard.

Overall, the Budget is pragmatic and growth-oriented, and is a good statement of intent of the government with a strong focus on infrastructure and technology. This also opens up opportunities for the IT industry to make government initiatives successful with innovative solutions. I am hoping that the government will execute these IT projects with a single-minded focus on driving the economy towards double-digit growth. 

The author is Managing Director & CEO, Mindtree

(This story was published in BW | Businessworld Issue Dated 23-03-2015)