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There Are Big Expectations From Each Segment Of The Society

The upcoming budget for the year 2017-18 will be a unique one for multiple reasons and there is big expectation from every segment of the society. One of the noticeable aspect of this budget will be that it will have the railway budget merged with the general union budget

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The upcoming budget for the year 2017-18 will be a unique one for multiple reasons and there is big expectation from every segment of the society. One of the noticeable aspect of this budget will be that it will have the railway budget merged with the general union budget.

On Demonetisation:
Also, this budget becomes even more important as the nation is going through a big initiative of demonetization which has impacts in various size and forms. In a country like India, where 86% of the transactions happens in cash, this is a bold step by the government to push the economy to a digital highway. The demonetization will have positive impacts in long term and will definitely improve the transparency and efficiency in the system. Coming budget is expected to strengthen the demonetization initiative by easing the liquidity in the system and stimulating the demand.

On Digital Infrastructure:
To promote a cashless economy, government, banks, financial institutions, payment intermediaries and companies will have to work together. All will need to make sure that the transformation of the Indian citizen from cash based economy to a cashless economy happens in a convenient and safe way.

There is a need of robust infrastructure creation to enable a smooth digital economy. India today has more than 700 million debit cards in usage. While we have 5.8 crore SMEs and micro SMEs, the debit card is accepted only in 14.4 lakh locations. Infrastructure building is something which needs time and government encouragement. The upcoming union budget should announce a more easier framework and guidelines to own the card payment machines or the POS terminals by the SMEs.

Right now many intermediaries and financial institutions levy transaction charges, like at petrol pumps. Such charges have to be removed to make sure people are not penalized for using digital mode of transactions. The union budget should announce relief on such transaction charges and should a step forward and incentivize the usage of digital payments through discounts and tax waivers.

On Cyber Security:
Another big challenge to cashless economy would be the cyber security. With the sudden flood of digital wallets and payment companies, there is an increased threat of funds and data stealing. In past, many reputed banks across the globe have lost hundreds of crores due to cyber hacking despite having infrastructure in place. I see two important actionable items to meet this challenge.

" One is having a strong cyber security framework to avoid any cyber theft
" And the second is educating the citizens about best practices for safe digital transactions.

It is of extreme importance that government sets up a strong policy framework on cyber security for cashless transaction and encourage the development of supporting infrastructure around it.

On IT Industry:
For the IT industry, the demonetization had no impact as most of the business was traditionally being run cashless. However the IT and engineering industry of India has been going through different challenges and would be looking forward to the upcoming budget to get some relief and support from the government.

First and foremost is the GST, which has been a major talking point and a bone of contention between central and state government. This week the center and state government have been able to come to a consensus of rolling out the GST from 1 July 2017. This common agreement on the implementation date definitely gives the industry much needed clarity and some additional time for preparation of this huge reform.

Another issue that has been in discussion with government for a long time is the incentivizing of R&D. While India has been able to incentivize the manufacturing related R&D in India as being innovation, this has not been done in the IT sector so far. To make sure India transforms into a digital economy and embraces innovation, it is important that the government announces the R&D incentives for the IT & Engineering Industry as well during this budget. This has been already done in many countries like UK & Ireland.

There have been concerns around the unusually high safe harbor margins (ranging between 20 per cent - 30 per cent) and this has to be revised to a lower rate which is more realistic based on the APA (Advance Pricing Agreement) data. Safe Harbor margins are high in transfer pricing and have not been adopted by the IT companies from India.

The software product development industry has been largely dominated by SMEs which has been suffering with the 10 per cent TDS levied on all software transactions, which has cascading effect. The upcoming budget should address this issue to make sure government provides the required boost to the software product SMEs.

On Start-ups:
Start-ups in this country are here to stay. India has paved its way to secure 3rd position in the world in terms of number of start-ups, where we currently have 4200 start-ups and this number is expected to grow by 10-12 per cent to over 4750 by the end of this year. By 2020, it is anticipated that India will have more than 10,000 start-ups and it will be creating employment for over 200,000 professionals. To make sure that we support this budding industry, government needs to take concrete steps during this budget. There have been concerns from Indian investor community investing into start-ups. The long-term capital gains from sale of unlisted shares in the hands of non-residents attracts a tax of 10 per cent whereas it attracts a tax of 20 per cent in the hands of residents. This leads to domestic investors being less competitive. This has to be addressed by the budget and also as per the Start-up India action plan we suggest MAT exemption for Startups.

Also we have seen that with the multiple rounds of fund raise during the start-up lifecycle, often the promoters' shareholding gets diluted during the later rounds of fund raise. Once the promoter comes below 51 per cent shareholding, he loses the facility to carry forward losses when they become profitable. Therefore, they lose an opportunity to plough back profits. To make sure that promoters are still motivated to grow the company, we need to bring changes to this rule during the upcoming budget.

Overall, industry and individuals have high expectations from this Union Budget and we hope to see some good initiatives that will give an additional boost to the economy and eco-system.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

BVR Mohan Reddy

The author is Founder & Executive Chairman, Cyient and Former Chairman, NASSCOM

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