Budget 2013 disappoints IT honchos

by Team CXOtoday    Feb 28, 2013

Budget 2013Clearly, it was a lacklustre Union Budget 2013, that was presented today by Union Finance Minister, P. Chidambaram. There was little to write home about for the Information Technology industry, which saw hardly any mention in the Minister’s speech earlier today.

The only saving grace perhaps is for the semiconductor industry, which was given a 0 per cent customs duty. The downside is the 10 per cent surcharge for organisations with Rs 10 crore or more turnover. This will not go down well with many of the large and medium enterprises.

With tongue-in-cheek, Chidambaram also mentions Azim Premji in his speech saying, “Premji, India’s Warren Buffet, believes in higher taxes for the rich to feed the poor,” before announcing increasing the tax on the rich. This will really hurt many C-level executives who will have to shell out more from their pockets.

We will still remain laggards in IT equipment manufacturing
It has always been pointed that India’s IT equipment manufacturing capability constantly fails to catch-up with its software and services capabilities. And it seems this year’s budget wouldn’t make any dramatic difference in this trend as Anwar Chirpurwala, Executive Director of Manufacturers’ Association For Information Technology (MAIT) said, “The key positive aspect is that the Government aims to strengthen the ESDM industry as it plans to provide appropriate incentives for semiconductors industry with zero customs duty on plants and machineries. While the budget provides an allowance of 15 per cent for investments in addition to depreciation to an investment of Rs 100 crore or more – we feel that no one would import machinery unless it benefits the BOM (Bills of Material) costing. If there is no commercial sense in manufacturing then why would someone invest?”

Anwar further added, “It is disappointing in terms of IT manufacturing. On one hand, the government is talking about the National Manufacturing Policy with an objective of raising the share of manufacturing in GDP to 25 per cent within a decade, and creating 10 crore job opportunities and on the other hand it has failed to rectify the anomaly in the tax by not addressing the inverted duty structure. The prevalent rates of Countervailing Duty (CVD) and Special Additional Duty (SAD) for IT equipment result in an increase in the cost of a finished product that is manufactured in India.”

PVG Menon, President, India Electronics and Semiconductor Association (IESA) too expressed similar concerns as he said: “Higher excise duty on mobile phones above Rs 2000: This is a blow to domestic mobile handset makers, as excise duty on instruments priced above Rs 2,000 has been raised to 6 per cent from the earlier rate of 1 per cent.”

The software industry too wasn’t too pleased with this year’s budget. Jagdish Mahapatra, Managing Director, McAfee India & SAARC said, “From an IT standpoint, this is a marginally encouraging budget. We were hoping for the discontinuation of Minimum Alternate Tax (MAT) on SEZs and apportionment more grants to ensure secure data access, which hasn’t been considered. The other disappointing aspect is the surcharge for MNCs in India has increased from 2-5 per cent, if the taxable income exceeds Rs 10 crores.”

More disappointing reactions

“A Union Budget should be the country’s blueprint for increasing its competitiveness. In our country the Budget has unfortunately become a kind of Kirana store price revision exercise–this will cost more, that will cost less. The questions we should instead be asking on every Budget item instead is–in the long run will it make us more or less competitive as a country?” asked Vineet Nayar, Vice Chairman and Joint Managing Director of HCL Technologies Ltd

The silver lining
Though this budget did not bring much cheer to the IT manufacturing industry, it however, was a positive one for the MSME sector, as Partha Iyengar, Country Manager, Gartner Research, India, explained, “The big specific positives of the budget are that he (the Finance Minister) has focused both in terms of the letter and spirit of the Budget on the key planks of growth for India and health of every industry, including IT, which is Infrastructure, Education, Skills Development, and incentives for the growth of domestic manufacturing. Some of the other positive areas are support for entrepreneurship, the MSME sector, both in terms of financial and overall support.”

Some of the other positive reactions inspite of the disappointment:

“The FM’s intentions are very clear: to move India back to a higher growth plane. And given his lack of runway, he has taken lots of small measures which together could boost growth. From a technology perspective, allowing funding for technology incubators located within academic institutions to qualify as CSR expenditure as per new Companies Act will give a huge boost to entrepreneurs and start-ups and increase the engagement of the corporate sector and start-ups,” said N. Chandrasekaran, CEO & MD, TCS

“Even though, there is no clarity on the timeline for the implementation of reforms like DTC and GST, the statement that the Government is focusing on implementing those is comforting,” S. Gopalakrishnan, Executive Co-Chairman, Infosys.

Harsh Chitale, Whole Time Director, HCL Infosystems said, “There was not much spotlight on IT and technology as such but, it’s good to see the serious intent of the government to pass a GST law. Moreover, the government’s move to modernize and develop infrastructure will be much appreciated by the industry.”

Pradeep Nair, MD, India and SAARC Autodesk, said “What should please us in corporate India is the fact that the FM has laid a lot of importance on two specific areas which are imperative to boost growth- namely infrastructure development and Medium and Small enterprises. In particular, the move to extend MSME benefits for a period of three years post moving to a higher category is welcome.”

“While this year’s budget can be viewed by some as a moderate one, I believe it is a positive one, in view of the economic conditions. It focuses on enabling faster, sustainable and more inclusive growth as well introduced some key reforms for promoting overall economic development. Definitive measures around fiscal consolidation especially the announcement of the GST law and allocations towards CST compensation are very welcome,” says Anil Valluri – President, India & SAARC Operations, NetApp Marketing & Services.

Rajat Jain, MD, Xerox said, “I would like to call out two definitive measures as positive signals that will have rapid impact.” He pointed at the announcement of a GST law that will be drafted by the State Finance Ministers & the GST Council and allocation of a sum of Rs 9,000 cr towards the first installment of the balance of CST compensation for States is a welcome step towards much awaited fiscal consolidation.”

Suresh C Senapaty - Executive Director & Chief Finance Officer, Wipro, said: “The budget delivers on the promise of fiscal prudence, continues to drive progress on reforms and chalks out initiatives like investment allowance to ensure growth is not ignored. Reforms have progressed in the areas of Direct Tax Code, GST, financial markets regulatory authority for Road sector and Tax Administration Reform Commission to bring about a tax regime, which will be more proactive in closure of issues rather than litigious. It addresses sustainability initiatives through investments in renewable energy, waste to energy projects in PPP model and has incentives for wind energy projects. The budget has proposed steps towards inclusive growth with measures around financial inclusion, investments in education and welfare of women and children. Overall, the budget is balanced and realistic.”