Budget 2013-14: A mixed bag for IT SMEs and startups

by Sohini Bagchi    Mar 04, 2013

Budget 201314

Even though many of the large and medium enterprises in IT hailed the Union Budget 2013-14 as a lackluster one with little or no incentives, the smaller IT players largely believe that the budget was a hopeful one of course with some amount of disappointment. The biggest applaud already came from NASSCOM, the apex body of software and service companies in India when it termed the Budget as ‘responsible and reasonable’ going by the constraints facing the Indian economy as well as the turbulent state of the global economy.

The Budget focused on growth sectors such as IT, education, skills development as well as domestic manufacturing, according to Partha Iyengar, Country Manager for Research at Gartner India. He believes that the smaller players in the IT/ITES sectors would be largely benefited as the Budget clarified the taxation rules announced in 2010 regarding development centers and safe harbor rules for transfer pricing.

The current Budget declares that the rules will be based on the report of the Rangachary Committee that was constituted last year to simplify tax rules for the IT sector which in turn can attract more business. The Budget also proposed measures to boost the entrepreneurial ecosystem in India, which is indeed a boon for technology startups and SMEs. First of all, it has declared investments in technology incubators to be set up in academic institutions through CSR initiatives, which is expected to foster innovation in IT. And secondly, the recommendations on structuring Angel investing through SEBI can also be as an encouraging move attracting greater investments in this sector.

Bikram Dasgupta, Founder and Executive Chairman of Globsyn Group, a Kolkata-based mid-sized educational and technology institute believes that the focus on incorporating education into CSR is indeed encouraging and it is good to see a focus on education this year - a sector that is currently relying a lot on digitization and emerging technologies to foster innovation. “it’s now time to look at the implementation,” he says.

Sunil Pillai, Co-Founder and Managing Director, iValue InfoSolutions, a Bangalore based firm in the digital asset protection and management space also agrees that overall it is a prudent budget keeping in mind CAD challenges and growth as far as design and manufacturing is concerned. “The zero custom duty on plant and machinery to boost semi conductor industry will help promote design and manufacturing,” he states.

“The new allocation for skill development should create more jobs and productivity in several sectors across the country, including education, manufacturing insurance and media and industrial sectors that are dotted with small and mid-sized players,” says Kamal Karanth, Managing Director, Kelly Services India. Even several investment starved sectors will be benefited this year, he believes.

However some of the smaller players also have their share of disappointment. “The budget has done nothing to address the issue of declining FDI. Over the past 5 years, some of the other BRIC countries such as Turkey and Indonesia have emerged as competitive destinations,” says Abhey Yograj, CEO & Chairman, Tecnova, a Gurgaon based consultancy firm. He believes that the government should have taken progressive measures to attract FDI for domestic IT manufacturing.

Experts believe that India’s attractiveness is not governed by the growth of GDP alone, at least for the investors who do not consider GDP as the critical factor. “We have to move up the transparency index and ease-off the business index in which India occupies a dismal position. In fact, we are amongst the bottom 25 per cent. The security of our regulations and tax laws are driving investors away and the Budget should have addressed this concern,” says Yograj.

Besides, there is no specific thrust on boosting high value exports. There is also a lack of clarity on a timeline for introduction of the Goods and Service Tax and the Direct Tax Code service tax as well as no mention on retrospective levies. In fact, there is no path-breaking measure to push the economic growth of the country and to take it out of its present stagnating trend, points out Govind Rammurthy, MD & CEO eScan.

So, even though small and mid-sized organizations consider Budget 2013 as a practical one in the backdrop of a grim macro-economic scenario and a difficult fiscal situation, we can say that a lot more tangible steps should have been taken to boost the smaller players in the IT sector. As Rammurthy calls it “yet another missed opportunity to kick-start the Indian economy back on growth track.”